'A Significant Wave of Modernization' Coming to Unemployment Systems

istockphoto.com/ Yelena Rodriguez Mena

Connect with state & local government leaders
 

Connecting state and local government leaders

More than $87 billion in fraudulent unemployment claims were filed with states nationwide since the pandemic began, which is prompting states to overhaul their antiquated systems.

In February 2020, just weeks before the World Health Organization declared Covid-19 a pandemic, 3,000 Kansans filed unemployment claims. By the end of March, that number jumped to 66,000 and continued to skyrocket over the next year.

Approximately 56% of those claims were potentially fraudulent.

The state paid about 30% of the probable bogus claims—to the tune of $700 million—but caught onto the other 70% before the fraudsters collected any money, potentially saving up to $2 billion. And now, at the behest of the state legislature, the Kansas Department of Labor is overhauling the antiquated computer system that processes its unemployment insurance claims.

“I wouldn’t say it’s over,” Matt Etzel, a principal auditor with the Kansas Legislative Division of Post Audit, said of the increasing and increasingly sophisticated attempts to defraud federal and state governments through phony unemployment insurance claims.

Kansas isn’t the only state committed to modernizing the 1970s- and ’80s-era code that runs many UI networks, redoubling the use of data analytics to spot telltale patterns in fraudulent claims, and investing in artificial intelligence and other state-of-the-art technology that might outsmart—or at least outpace—those who would cheat the system.

State-by-state forensic work will uncover just how much money was lost to UI fraud during the worst of the pandemic, although a conservative estimate from the U.S. Department of Labor’s inspector general put it at $87 billion-plus nationwide by September 2021, when the federal government stopped adding $600 a week to UI checks.

Meanwhile, states with auditors and lawmakers who believe future disasters could invite a repeat of the record-setting fraud will invest millions of dollars in technology to prevent it, predicted Shaun Barry, director of fraud and security intelligence for government and health care for data analytics vendor SAS.

“Many of them use … four to five generations of technology removed from state-of-the-art today,” Barry said. “Those systems are fragile and brittle and so old that they don’t have the robust accounting controls that are available today. … States have known for many years that they have fragile [information technology] systems.”

Over the next five years, Barry said, state UI agencies will embark on “a significant wave of modernization in accounting systems. The pandemic has accelerated this modernization.”

It All Started With the Pandemic 

In Kansas and elsewhere, in fact, the pandemic got it started.

To determine how much UI fraud occurred during the 2020 and 2021 months at the heart of the pandemic, Kansas auditors dissected 1,000 claims—out of the million-plus it had processed—to detect patterns that could reveal fraud. What they found were multiple claimants using the same complex password; partially duplicated email addresses; and claims supposedly from state employees whose Social Security numbers did not match human resources records, among other red flags.

In the end, auditors identified 26 indicators of potential fraud, and then “trained” a neural network—a computer modeled after the human brain—to spot them.

“It got really good at replicating our ability,” said Etzel, who noted that the computer made the same decision as the auditors did at least 91% of the time.

Barry said state systems need to overhaul their outdated equipment with that kind of top-shelf technology to prevent future fraud from occurring during another crisis.

Even the work of organized criminal rings of fraudsters, he said, “can be addressed by modernized accounting systems.” He pointed to the success of commercial credit card companies that use artificial intelligence like machine learning, which involves automated systems like the one in Kansas that mimic the decision-making of the human brain, to flag suspicious claims.

As far back as 2013, a U.S. News & World Report survey identified 20 states that were at least dabbling in artificial intelligence to analyze UI claims.

Meanwhile, many states have ramped up their use of data analytics—collecting and analyzing large stores of data to identify suspicious patterns among UI claims. And some are cross-referencing their data with that of the federal government and nearby states to catch serial fraudsters who cross state lines, Barry said.

For example, California Gov. Gavin Newsom in October signed a law requiring the California prison system to share the names and Social Security numbers of inmates—who are not eligible for UI—with the Employment Development Department and ordered cross checking.

Six states—Georgia, Utah, New Jersey, Colorado and Ohio—have created an online data exchange system to share UI claim information. The Alabama Department of Labor, like several in other states, recently rolled out a dual-authentication system that helps to protect the identity of UI claimants.

Paradoxically, Oregon auditors credit the state’s ultra-low UI fraud with its outdated computer system.

“It doesn’t allow for online web claims like in California and Washington,” Ian Green, audit manager for the Secretary of State Audits Division. “It doesn’t immediately process stuff. It’s a lot more manual and cumbersome, so if you tried to defraud in Oregon, you hit roadblocks … in our old system. In California, you’d get a payment the next day.”

Green estimated the state lost “hundreds of thousands of dollars [to fraud during the pandemic] instead of in the hundreds of millions of dollars.”

The downside, he pointed out, is that legitimate claimants often wait weeks or even months to get their checks.

Green’s colleague, Senior Auditor Kathy Davis, called the reduced fraud “a silver lining to a really unfortunate situation.” 

Still, Oregon will update its systems by 2024, Green said.

Optimists Versus Pessimists

Barry predicted that some states will shy away from spending hundreds of thousands of dollars—or even millions—on cutting-edge computer systems.

“There are two competing narratives that are emerging on what the future holds for labor agencies,” he said. “One is an optimistic view and the other is pessimistic.”

The optimists, he said, will view pandemic-induced UI fraud as a one-time hit that will disappear if and when Covid-19 does. The pessimists, on the other hand, will expect a renewed surge of fraud with every future crisis.

“It looks like it will be 50-50 between optimists and pessimists,” he said. “But if there’s anything that state UI agencies agree with, it’s that their UI system is antiquated and needs to be upgraded. But do I replace it with what I had before, or do I replace it and enhance it with UI defenses?”

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.