Unemployment Benefits Fraud and Consequences

Unemployment fraud is a serious crime. States routinely pursue reports and indications of UI fraud vigorously and prosecute offenders to the fullest extent of the law.

Unemployment fraud penalties and consequences can be severe and have long-lasting effects on workers’ lives. In some cases, being convicted of fraud can negatively impact workers’ ability to find new employment and receive state and federal assistance. It may even cost workers their right to vote.

Unemployment insurance fraud comes in many forms. It may be intentional or unintentional, and may be committed by workers or employers. It can be detected by state authorities dedicated to identifying and preventing such crimes, or may be reported by anyone who has information that fraud may be occurring. To encourage the public to assist with the unemployment investigation process, states typically allow informants to remain anonymous. Recipients who believe they have accidentally committed fraud are strongly encouraged to contact UI authorities themselves.

Forms of Worker Unemployment Fraud

Employers and workers can commit unemployment insurance fraud in many ways. Fraud occurs any time that workers willfully submit false or inaccurate information when applying for benefits. Knowingly accepting benefits based upon erroneous information or for which one is not eligible or is also fraud. Examples of unemployment fraud by workers include, but are not limited to:

• Identity theft.
• Continuing to file for and receive benefits after returning to work or accepting temporary work.
• Misreporting or failing to report earned income to the UI office.
• Misreporting or failing to report hours worked to the UI office.
• Falsifying or withholding information when opening or certifying UI claims. (e.g. income figures, reasons for separation from former employment).
• Failing to report absences from scheduled shifts or refused opportunities to work additional hours.
• Failing to report a relevant change in status, such as an injury, which prevents one from working, enrollment in higher education or retirement.
• Refusing or failing to look for work in accordance with UI program requirements.
• Sharing one’s UI with another person so that he or she can fraudulently obtain benefits.

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In every state, it is the responsibility of employers and workers to ensure that they avoid unemployment insurance fraud by providing UI authorities with true and accurate information at every step of the process.

Forms of Employer Unemployment Fraud

Employers can also commit unemployment fraud. Employer fraud most commonly takes the form of efforts to avoid paying out UI fees and taxes. Employers may also attempt to prevent qualifying workers from filing for or receiving unemployment benefits. Businesses commit unemployment insurance fraud any time they:

• Misclassify workers as ineligible for benefits when their positions or contracts in fact qualify them for UI.
• Falsify or inaccurately report employees’ wages and earnings.
• Submit untrue or incorrect information as part of a UI claim process.
• Fail to report legally required information.
• Fail to pay, in part or in full, UI taxes owed.
• Refuse to cooperate with routine inspections or the unemployment investigation process.

Consequences of Unemployment Fraud

All states treat unemployment fraud as a crime and actively take steps to prevent, identify and prosecute it. The consequences workers and employers face when they are found guilty of fraud vary and may be influenced by the duration and severity of the situation. Standard unemployment fraud penalties and consequences include:

• All parties found guilty of UI fraud are required to repay the full amount of unearned benefits they received.
• Fees and fines. For a first offence, UI authorities may impose fines of up to one third of the total amount of unearned benefits on top of the base amount workers are required to repay. Repeat offenders may be required to repay up to twice the full amount of benefits received. Interest and additional fees, some up to $10,000, may also be assessed.
• Forfeiture of assets. Workers who fail to cooperate with the UI repayment process or fail to make their assigned payments may have their assets seized by UI authorities in order to pay their debt. This may include state tax returns, lottery winnings, wages, bank accounts or, in extreme circumstances, wages or bank accounts belonging to workers’ spouses.
• Disqualification for assistance and benefits. Workers who commit fraud will be disqualified from receiving UI benefits for a set period of time, usually not less than one year. They may become ineligible for other forms of governmental assistance, as well.
• Criminal prosecution. Unemployment fraud is prosecuted in criminal court. Workers may therefore be subject to legal costs and other expenses associated with that process.
• Jail or prison sentences. UI fraud convictions can result in workers being sentenced to up to 15 years in prison and/or extended probation terms.
• Loss of privileges or rights. UI fraud may be litigated as a felony and, in many states, felons lose legal rights and privileges, such as the right to vote.
• Difficulty obtaining future employment. In many industries, felony convictions must be reported during the job application process and can disqualify workers from employment.

The Unemployment Investigation Process

Most states maintain dedicated divisions assigned to identify and prosecute unemployment insurance fraud. The unemployment investigation process typically begins when:

• A worker notifies UI authorities that he or she may have accidentally submitted erroneous information on a claim.
• An informant, anonymous or otherwise, notifies the UI that a claimant is misrepresenting information on their claims.
• A claimant or other employee accuses an employer of fraudulent behavior.
• The UI’s internal systems flag a potential problem with a claim.
• The assigned division’s routine monitoring and auditing activities find evidence of fraud.

A common example of electronic systems flagging a potential unemployment fraud might be when an employer reports to the state that it has hired a new employee but during the same week, that worker files for unemployment. Similar information might be uncovered during a UI fraud division’s audit of a randomly selected claim. Alternatively, UI authorities might uncover attempted fraud while verifying the employment records and cause of separation information submitted by a new claimant.

Workers and employers being investigated by unemployment authorities should make every effort to comply with requests for information or assistance. Failure to do so may lead to disqualifications from benefits and other penalties.

Reporting Unemployment Insurance Fraud

Americans can help prevent UI fraud by reporting individuals and businesses they have reason to believe may be acting illegally. Most states accept tips and reports of fraudulent activity online, by mail or by phone. Individuals seeking to report possible unemployment insurance fraud can call their states’ free hotlines, email the contact address on their websites, or print, complete and mail in a hard copy report.

Informants do not need to have proof that fraud is happening. They only need to report why they have reason to believe that it may be and sufficient identifying information, such as the claimants’ names, in order for the UI office to begin investigating.

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