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April 30, 2012

State attacks unemployment claims fraud

By Greg Bordonaro

The State of Connecticut is declaring war on unemployment benefit cheaters.

For years, Connecticut’s business community has asked the state to crackdown on overpayments of unemployment insurance benefits, especially as employers are being hit with higher taxes to help fund the increased demand for benefits in recent years.

Faced with an onslaught of unemployment insurance claims since the start of the Great Recession — processing as many as 180,000 requests a month — fraud and mistakes have been on the rise in Connecticut.

Over the last three years, for example, the state overpaid $168 million in unemployment insurance benefits, according to federal estimates.

But now, state Department of Labor officials say they are significantly ramping up efforts to recoup funds given to individuals who intentionally cheated the system or accidentally violated eligibility rules.

Glenn Marshall, the commissioner of the state Department of Labor, said the multifaceted approach includes beefing up staffing in the fraud and recovery unit, adopting and enforcing stricter penalties as well as leveraging legal recourses through the Chief State’s Attorney’s office and Treasury Department, and establishing a new surveillance program that tracks down fraudsters.

“When you have experienced the significant uptick in unemployment insurance claims that we have had in recent years there is going to be more fraud and overpayments,” said Marshall, who has been commissioner for just over a year. “But we are getting better and more automated to make sure there is less abuse to the system.”

In 2011, Marshall said the state doled out about $2.3 billion in unemployment benefits. They also detected nearly 20,000 fraud cases valued at about $17.8 million. That was up from the 18,252 fraud cases detected in 2010.

He said overpayments can happen for a myriad of reasons. In some cases, there are unintentional mistakes made by individuals who no longer qualify for benefits. In other cases, there is outright fraud, mainly people who try to continue to collect unemployment benefits despite having a job.

In some of the most egregious instances, Marshall said, individuals have bilked the system for hundreds of thousands of dollars.

Last year, for example, an 87-year-old former Connecticut resident and his daughter pleaded guilty to defrauding the state out of more than $300,000 in unemployment benefits over a 14-year period.

From 1995 to 2009, Monroe Ralph Hymans and Julie Hymans bilked the state Department of Labor by telling them they were repeatedly employed and laid off by a fake business they created called Monroe Management. Such cases are rare, Marshall said, and most overpayments occur on a much smaller scale. Still, any fraud needs to be rooted out, he said. To get funds back, the state can garnish an individual’s wages, Marshall said, but the state first must determine who has defrauded the system.

That’s where the state’s new and expanded crackdown efforts kick in.

Part of the problem, Marshall said, is that the agency’s staffing is down 35 to 40 percent, so they are being asked to do more with less. The cutbacks and early retirements — both largely a result of the state’s budget woes in recent years — couldn’t come at a worse time, because the labor department’s workload increases during economic downturns.

The fraud unit in charge of recovering overpayments shrunk to as few as 11 people, but the agency reallocated resources and increased that department’s staffing to 28 employees in January to step up integrity efforts, Marshall said.

The department is also participating in a new Treasury Offset Program with the Internal Revenue Service, which is allowing the state to withhold federal tax refunds from individuals who received improper jobless benefits.

That program, which has been in effect for nearly a month, has already recouped $277,000, and the goal is to get $500,000 by the end of this year. By 2013, the state projects it will be able to gain back $4 million in overpayments through the program.

Marshall said the labor department is also automating more of its systems to make it easier to recoup lost funds. That includes the adoption of detection software that scans unemployment records for odd or unusual patterns, and an e-filing system that allows the state to garnish wages electronically. Since May 2011, the e-filing system has recovered nearly $1.3 million, Marshall said, which is a 93 percent increase over the former manual process.

There is also a new dedicated fraud unit within the Chief State’s Attorney’s Office that will pursue criminal prosecutions in fraud cases. Stricter penalties are also being enforced.

One of the most interesting new crackdown efforts, however, is a surveillance program. The state hired a vendor last June to investigate and track down individuals who are thought to be defrauding the system. The strategy is similar to what insurance companies use to track down people they believe are making false workers compensation claims. The effort has been able to recoup $688,000 over the last 10 months.

Kia Murrell, a lobbyist for the Connecticut Business & Industry Association, said employers have taken a keen interest in unemployment insurance overpayments because they are the ones that foot the bill.

Murrell said she is pleased with the efforts, but there is still a ways to go. “Whenever fraud runs rampant it costs everyone money,” she said.

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