The notice for the unemployment claim arrived in December at American Furniture Warehouse headquarters with Jackie Brookshire’s name on it.
“I basically run American Furniture so it’s kind of ironic that my HR director came in and said, ‘You have filed for unemployment,’ ” Brookshire said.
At Answers for Senior Care, letters arrived for seven people who had reported they had been laid off from the consulting firm. Phil Hotaling and his wife, Lilly, are the owners — and only two employees,
“It seems to be pretty sophisticated,” Hotaling said. “I don’t know who any of those names are. They may exist. I don’t know if they’re fake names or anything.”
In early December, Rich Kondo received a debit card connected to an unemployment claim for his mother, Hiroko. She’s 94 and long retired from United Airlines.
“I was thinking mom would be the least vulnerable because she been retired for almost 30 years,” Kondo said.
The ramifications run deep for an unemployment insurance system left vulnerable to fraud that already has cost Colorado at least $10 million in lost funds.
The Colorado Department of Labor and Employment has reported to the U.S. Inspector General’s Office that at least that amount has been stolen through fraud since mid-March. The state labor department estimates that fraud prevention measures have stopped an estimated $7 billion from going to scammers, assuming each claim shut down would have paid out the maximum benefit allowed. So far, those fraudsters have dodged prosecution in Colorado.
The fraud claims are so rampant that the labor department can’t accurately report how many people in the state are actually unemployed and filing for benefits. It’s gotten to the point where labor department officials are considering discontinuing reporting new claims data each week because initial numbers are too unreliable.
“At this point, it’s just really difficult to parse out those fraudulent claims,” state labor economist Ryan Gedney said on Friday.
Along with stolen public money, thousands of people are rushing to notify banks and credit agencies to avoid financial damage. Businesses, who pay premiums into the unemployment system, are worried that false claims made in their names will increase costs and are scrambling to correct the record.
Meanwhile, the Colorado labor department has launched a new unemployment system with multiple triggers to catch fraudulent claims before the money flies out the door. The system incorporates methods put in placeto catch fraud in the highly vulnerable federal Pandemic Unemployment Assistance program launched last spring. But those fraud traps created a new problem: They ensnared people with legitimate claims, causing them to go without money while trying to untangle themselves from a complex bureaucracy where the wait times for assistance can extend for more than a month.
Since the new system went online Jan. 10, the department has flagged 140,000 state unemployment claims as potential fraud. Just 1,200 people have called the department to challenge the hold, Cher Haavind, the labor department’s deputy executive director, said. Multiple people told The Denver Post they have not been able to get through on the call center lines so it’s hard to tell how many of those holds are actual fraud cases. But based on other states’ experiences and an extreme spike in Colorado unemployment claims in late December, labor department officials believe almost all of those remaining holds are fraud, Haavind said.
The innocent people caught up in fraud investigations are those suffering the most, said Michele Evermore, a senior policy analyst at the National Employment Law Project, a worker advocacy organization.
“The bigger story is the innocent victims,” Evermore said. “They’re people who are out of work and their claims are getting flagged and they’re not getting money because of a crime syndicate.”
Haavind and other labor department officials on Friday said they are starting to clear the integrity holds for Colorado workers by launching a new identification verification program called ID.me. Last week, 500 claimants who were challenging their holds were invited to participate in a pilot program, Colorado labor secretary Joe Barela said. This week, another 2,000 people will receive emailed instructions on how to use ID.me to clear holds.
Ultimately, everyone in Colorado who files an unemployment claim will be required to use the program before receiving a payment, he said.
“We will be expanding next week to get through as many integrity holds as possible,” he said.
Experts say the bulk of fraud is coming from international crime rings, who know how to steal people’s names and social security numbers or buy them on the dark web. The scam artists are skilled at answering the online forms to earn approval for payment. And then they are fast enough to divert the money to bank accounts before anyone realizes the claim isn’t real.
But unemployment offices around the country are so overwhelmed at a time when the pandemic had driven tens of millions of people to file for support they are vulnerable to anyone willing to fill out a fake claim.
Jason Zirkle, training director for the Association of Certified Fraud Examiners, pointed to the recent revelation that thousands of inmates in the California correctional facilities, including death row inmates, defrauded that’s state’s unemployment system last year. The Los Angeles Times reported in December that at least $400 million was paid out to fraudulent claims filled out in prisoners’ names.
“With so much money going around right now and the overwhelming of the state agencies, I think a lot of people who are turning to that because there is just so much of it,” Zirkle said of unemployment fraud. “I just don’t think any state in the county was prepared for 10% of the country filing for unemployment in the span of a couple months.”
In some cases, fraudsters have unemployment benefit cards mailed to vacant homes and businesses and then pick them up from those mailboxes to spend like cash, experts said. In other cases, they are just hoping no one pays attention to what’s in the mail while the money is extracted from unemployment department accounts electronically. One Denver-area homeowner has reported receiving 21 benefits cards from U.S. Bank, all under different names, in a span of about six months.
“This ring keeps evolving and attacking other states,” Evermore said. “I liken it to a velociraptor. Once you patch a piece of the fence it attacks another piece of the fence.”
When enrolling in Colorado’s unemployment system workers are emailed a debit card from U.S. Bank. They can opt to have the money transferred to a bank account but the card is still mailed.
So, many people don’t realize fraud has been committed in their names until the debit card lands in their mailbox. And if a fraudster collects a debit card from a vacant mailbox or the card is disposed of before the claim is shut down, the fraud victim may not realize money was claimed in his name until he receives an IRS tax document.
Jeff Jasper is among the Coloradans who only learned about a phony unemployment claim after receiving a 1099 tax form from the Colorado Department of Labor. Jasper, a certified public accountant who lives in Westminster, got one earlier this month showing $649 in untaxed unemployment income. He immediately called the department to request a corrected 1099 because he had never filed for or received an unemployment payment. When he got through, a customer service agent told him the labor department couldn’t do that but did attach a fraud complaint to the inactive unemployment claim opened in his name.
Jasper has since filed a police report, contacted the IRS and followed other recommended steps including putting fraud alerts on his credit reports. Now he is waiting, hoping the issue will be resolved before he needs to request an extension for filing his 2020 taxes.
“I have never encountered or received an incorrect 1099 from a government entity. Generally, you get a wrong 1099 from a business, you contact the business and it’s a done deal. No one wants to run afoul of the Internal Revenue Service,” Jasper said. “I think it’s completely unsatisfactory. Yes, I realize they have a problem. That doesn’t absolve them for being able to correct other problems.”
Barela on Friday said the labor department hopes to send corrected 1099 to fraud victims in early February, asking for patience while the cases are sorted out.
At the family home in Northglenn, Rich Kondo is just happy that he figured out what the strange debit card that came in the mail was, took prompt action to shut down the account and followed other steps to secure his mother’s finances as best he could after her information had been compromised. Hiroko Kondo has dementia and her son manages her money.
Rich Kondo, 54, poses for a portrait at his home in Northglenn on Friday, Jan. 22, 2021.
“Certainly, I think the recommendation is if you are looking after an aging loved one –an aunt, uncle, parent, grandparent– take the responsibility to check their mail and if you see something like that, don’t discount it,” he said. “And the same goes for taking your own personal responsibility.”
At American Furniture Warehouse, Brookshire said she reported the claim placed in her name as fraud to the labor department, to U.S. Bank and to credit reporting agencies. But she’s continued to receive paperwork about the claim, including a recent Notice of Decision, informing Brookshire that her claim had been approved.
“The thing that surprised me was after we notified the state that it was fraud we kept getting the cards,” Brookshire said. “And then we got this notice and that really sent me over the edge. The problem is not hearing anything and then to continue to get paperwork about your claim, that’s the horrifying thing.”
Brookshire said her human resources department has caught numerous false claims filed in their employees’ names. Those, too, have been reported as fraud and the company is offering a free credit protection benefit to its workers.
In March and April when many businesses were closed by Gov. Jared Polis, American Furniture Warehouse furloughed hundreds of employees. That means its unemployment premiums likely will rise, and Brookshire doesn’t want a pile of false claims to send rates even higher. She has a team of people working to resolve the issue. They also use a website to double check claims against people who’ve left the company. She worries about smaller companies that don’t have the staff to devote to the problem like she does.
“I’m sure there’s tons of little employers out there that got stuck with claims, and they don’t even know,” she said.
Hotaling at Answers to Senior Care would fall into that category. Their company, which helps families navigate elder care, has received notices of claim for seven nonexistent employees. Each letter offers a name and social security number and says that person has notified the state that they were laid off from the firm. The letters tell him to respond within 20 days, and each claim generates two letters that require a response.
Hotaling said he spends hours each week dealing with the false claims, including sometimes waiting on hold for 30 minutes or longer to talk to someone at the labor department.
“It’s time consuming making copies, filling out forms, signing things, mailing things back to the state,” he said. “It’s more paperwork and I bet this is getting buried somewhere. It feels like you’re going down a black hole with no escape.”
Westminster-based StaffScapes provides third-party payroll, benefits and human resources services to more than 100 small and midsized companies in Colorado. Since the pandemic began, the company has had to dedicate one full-time staffer to addressing unemployment claims on behalf of clients, founder and president Jim Thibodeau said. Usually handling 20 to 30 unemployment claims a year, StaffScapes has processed more than 530 notices of claim on behalf of its clients since March. At least 34 of them have been fraudulent.
“Fraud is very frustrating for all of our clients that are having to deal with this,” Thibodeau said, noting that it can sometimes take weeks or even months to get a callback from the labor department to address bad claims. “By that time, if it’s fraud and you don’t get it stopped, maybe the employer has paid out $10,000 to $14,000 in fraudulent unemployment.”
That can impact companies’ bottom lines by driving up their unemployment insurance premiums, even if the labor department ultimately does correct a company’s record. Unemployment insurance rates already have risen for 2021, although Thibodeau expects them to go back down once the labor department catches up on fraud and filing work.
Catching and prosecuting scammers is difficult.
The Colorado Attorney General’s Office prosecutes unemployment scammers when they are caught. But bringing charges against offenders during the pandemic has proven to be a tall task, without a single public action being brought against a scammer during the pandemic, according to state officials. With that in mind, Attorney General Phil Weiser said his staff is focused on education and prevention, maintaining the Stopfraudcolorado.gov website as a means to provide people with information and resources to protect themselves.
“It is a big problem,” Weiser said of unemployment fraud. “If you put this in a broader context, scammers are going to look for any way they can take advantage of the system and prey on people. Please be vigilant. Be careful. Any robocall, any phone call, any emails you get could be a scammer. Don’t just move ahead to share personal information if you’re not sure exactly who you’re sharing it with.”
Local law enforcement agencies don’t even try to catch perpetrators, leaving the job to federal and state authorities. In September, the U.S. Department of Justice launched a National Unemployment Fraud Task Force to combat the problem.
“First of all, the number of reports we were getting were astronomical,” Ginger Delgado, a spokeswoman for the Arapahoe County Sheriff’s Office, said. The sheriff’s department takes the reports but closes the cases as soon as they are filed, she said, also noting that she, too, had been the victim of a fraudulent claim.
At the labor department, the criminal investigations unit has doubled since the pandemic began. Those agents’ priority is closing fraud cases, Haavind said. They are working with the FBI, Secret Service and Colorado Bureau of Investigation and other states’ labor departments, she said.
In the past, state labor departments focused on individuals trying to scam the system, Evermore said. But those instances are rare because unemployment insurance doesn’t pay enough money to risk a felony charge, she said. In Colorado, the maximum weekly benefit is $618.
“What’s really ironic is for the past 10 years states have been jacking systems up to prevent any overpayments,” she said. “In all the time the states have been adding these fraud flags, the number of erroneous denials has doubled.”
Rebecca Sicilia is one of those waiting for money because of an erroneous fraud hold.
Sicilia lost her job as an agent at a call center in late October and drew regular unemployment through December. When the state labor department launched its new online claims system, though, Sicilia found her account locked because of an “integrity hold,” which is the state’s language for fraud investigation. And she also received notice that she owes the labor department $3,297, which is the amount paid after she was laid off.
“I said, ‘I’m not a fraudster but I’m being investigated for fraud!’ ” Sicilia said.
Between Jan. 11-17, Sicilia, 72, made 33 phone calls to various labor department hotlines but was unable to unlock her account. She’s been told it will take 10 weeks. She says the problem started with the new unemployment claims system, which was launched on Jan. 10. Somehow, erroneous information about her employment history autofilled her information in the system to make it appear she was working when she last filed for benefits.
“There was no way to appeal it online because I was … locked out,” she said. “You just gotta wait.”
Sicilia’s biggest fear is losing the home in Loveland that she’s owned for 23 years. Other than the mortgage payment, her expenses are low since she’s mostly staying home because of the pandemic.
“My family is sending money. That’s how I’m getting by,” she said. “But I can’t have them sending money forever.”
The fraud epidemic is a headache for banks, too, said Jenifer Waller, president of the Colorado Bankers Association.
Banks already have sophisticated fraud detection systems in place but they keep needing to upgrade their defense to combat unemployment fraud. On top of fighting the fraud, banks are reporting an increase in customer service calls from worried account holders. It all just requires a lot of resources to handle, she said.
“The people committing the fraud are using all sorts of systems to do it,” Waller said. “In some cases, the banks certainly lose money on it.”
Like a lot of people interviewed for this story, Waller was a fraud victim, receiving a debit card at home and opening the letter to the bankers association notifying the organization that she had filed for unemployment.
Correcting the record took the better half of a work day.
“I was shocked at how much time it took me to go through all the steps to get it corrected and I knew where to go for everything, ” Waller said. “I was thinking of how hard this would be if you didn’t already know where to go.”
If you are a victim of unemployment fraud
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