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February 6, 2003



From:          Byron Zuidema    Herman Wallace

                   Byron Zuidema                Herman Wallace
                   Regional Administrator     Associate Regional Administrator

SUBJECT: Fraud Schemes - Identity Theft

1. Purpose. To alert the State Workforce Agencies (SWAs) about the proliferation of fraud schemes used to obtain UI benefits through identity theft.

2. References. None.

3. Links. This Letter is in the website Library at: http:/

4. Background. In the past decade, most State Workforce Agencies have implemented remote claims taking systems using the telephone and the internet.  These systems have allowed SWAs to introduce efficiencies and enhance customer service.  Through competitive grants, the Department of Labor (DOL) has supported States’ efforts to implement these remote systems. 

In recent years, criminal activity known as “identity theft” has been detected in many aspects of financial services such as credit card accounts.  This activity has now expanded into the UI program.  A number of multi-claimant fraud schemes involving identity theft have been detected, and the DOL’s Office of Inspector General (OIG) is currently investigating and prosecuting persons participating in these schemes.

SWAs already use a number of methods to prevent and detect fraud, including verification of claimants’ identification.  Enhancements of these methods are ongoing.  However, effective prevention and detection of large scale identity theft in the UI program is a new challenge requiring a reassessment of existing internal controls and sharing information on how to prevent such schemes.        

5. Description of Schemes.  Recent OIG investigations concentrated in the San Francisco Region have included schemes with the following characteristics:

a.  Stolen Payroll Records.  Recent organized schemes involved stolen payroll records, generally from large payroll-servicing companies.  Imposters used these payroll records to file numerous UI claims through remote methods in several States.  In one scenario, imposters provided fictitious “last employer” names and/or addresses, ensuring that the employer’s notice-of-claim filing was mailed to an address where the imposters themselves received the mail.  This action circumvented a safeguard in preventing fraud as the employer’s initial notice-of-claim, when sent to the correct address, serves as an internal control.  The fictitious addresses consisted of post office boxes set up in multiple locations to receive these employer notices.    

In another scenario, imposters employed a hit-and-run claims filing approach that enabled them to collect benefits for a limited number of weeks on a large number of claims.  In these cases, the correct last employer was used; however, payments were issued on these claims before the employer responded and fraud was detected.  The imposters had a significant number of employee payroll records for use in remote filing of large numbers of claims under many different States’ laws.  In both scenarios, post office boxes were set up in multiple locations to receive the UI benefit checks. 

b.  City and County Workers.  Another investigation uncovered a scheme involving individuals who filed for UI benefits using the stolen identities of employees of the City and County of Los Angeles, California.  Although the employer’s notice-of-claims were sent to a correct address, the government agencies generally did not respond in a timely manner, or in some cases never responded.  Timely employer responses could have kept the number of weeks overpaid for each such fraudulent claim to a minimum, but in the absence of any response, many claims were overpaid the maximum benefit amount.  It appears payroll records may have been obtained in the same manner as in the schemes described above.

c.  Agricultural Workers.  Identity theft and fraudulent claims involving agricultural workers are especially difficult to detect and deter.  Agricultural workers are generally engaged in seasonal employment and migrate to different locations to work.  These workers are in constant flux from one farm labor contractor to another, making it difficult for a base period employer to recognize a fraudulent claim when a benefit charge notification is received.  Thus, an imposter may be able to collect benefits for many weeks, sometimes exhausting the claim.  Through organized schemes, individuals have gained access to payroll lists for these workers and filed large volumes of claims. 

6. OIG’s Role in UI Fraud Investigations.  In 1985, the Employment and Training Administration entered into a Memorandum of Understanding (MOU) with the OIG specifying the circumstances under which SWAs were to refer UI fraud cases to the OIG for investigation.  The role of the OIG was updated in Unemployment Insurance Program Letter (UIPL) No. 21-90 based on an opinion of the U.S. Department of Justice.  The MOU remains in effect and requires SWAs to refer cases to the OIG that involve Federal funds, SWA employee fraud, Federal benefit programs, and extended benefit programs wholly or partially funded by the Federal government.  States should also refer cases involving multi-state fraud, multi-claimant fraud, and fictitious employer schemes.  The OIG has expressed strong interest in such cases and has reiterated a willingness to actively assist SWAs with investigations.  Additionally, the OIG may be available to provide technical assistance and advice to SWAs to investigate other types of fraud.

7. Prevention and Detection.  Prevention and detection of fraud involving identity theft may require creating new internal controls or modifying existing controls.  Some steps to be considered for prevention and detection follow.

     a.  Improvement of Identity Verification.  SWAs have implemented various methods and procedures to verify the identity of an individual filing a claim from a remote location.  For example, some SWAs require that callers provide information already in the UI record system such as employer information and/or work history.  Other SWAs have obtained nontraditional data specifically for verification purposes, e.g., driver’s license numbers from State Departments of Motor Vehicles that are checked against the information provided by the claimant.

Another effective procedure is the reciprocal exchange of data with the Social Security Administration (SSA), whereby SWAs can determine the validity of social security numbers presented by the claimant and crosscheck the name and date-of-birth of the claimant with the information provided in the SSA response.  A process of real-time data exchange with the SSA is currently being piloted in two SWAs.  (See UIPL 29-02)  Other SWAs have implemented exchanges with the SSA through batch processes.

Recognizing that payroll records were available to carry out the schemes mentioned above, SWAs should consider other types of questions that may be asked of claimants to adequately verify a caller’s identification.

     b.  Internal/External Data Crossmatches.  Although SWAs currently perform many types of crossmatches to detect fraud, they should consider developing innovative crossmatches and profiling techniques that could be effective in targeting fraud involving identity theft.  UI records, including both the worker’s benefit history data and employer information can be assessed for use in internal crossmatches.  For example, currently many SWAs actively monitor and flag multiple payments sent to a single post office box.  Multiple payments of claims against the same base period employer that are sent to post office boxes may also be a useful match.  

     c.  Information Sharing.  Sharing of information concerning fraud schemes and methods for prevention and detection is critical to maintain program integrity.  A national UI integrity conference, scheduled for April 15-16, 2003, in Norfolk, Virginia will focus on issues of identity theft as well as other types of fraud.  A discussion of the challenges in balancing customer service and program integrity is planned.  State and Federal staff, including OIG staff, involved with benefit payment control and internal security, will share information on how to reduce overpayments and prevent and detect fraud.  Additionally, States should educate employers concerning these schemes, the role that payroll records play in them, and the importance of responding as soon as possible to the initial notice-of-claim and other requests for information.            

8. Action. State Workforce Administrators are requested to:

     a.  Evaluate controls currently in place for the prevention and detection of fraud schemes, especially those involving identity theft, and, if necessary, implement improved procedures to control such schemes; and

     b.  Refer appropriate fraud cases to the OIG and take advantage of the assistance offered by the OIG.

     c.  Send staff to the UI integrity conference that will be held April 15-16, 2003.

     d.  Provide information in this Letter to appropriate staff, including call center managers and staff involved with designing and implementing telephone and/or internet systems.

     e.  Educate employers about these schemes.

9. Contacts. Questions from States serviced by the Chicago Regional Office should be directed to John Montague on 312.596.5444. Questions from States serviced by the Kansas City Regional Office should be directed to Mary Ann Johnson on 816.502.9020. Questions or comments about the format of this letter may be directed to Tom Coyne on 816.502.9014.

10. Expiration Date. June 30, 2003

11. Attachments. None

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