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Financial adviser Allan Roth received several letters from the Colorado Department of Labor and Employment in mid-January stating that two people claiming to be former employees of his business, Wealth Logic, had filed for unemployment insurance.

Roth did not know either of the claimants and had never employed them. 

“When this started, I’m like, ‘Wow, this will be easy to correct,’” he said. “Boy, was I wrong.”

Roth spent upwards of 40 hours over the next couple of months sending emails and faxes and making phone calls in attempts to get the claims approvals reversed.

“I just followed the directions in the letters, calling the 800 number or the 303 number, and couldn’t get through to anybody,” Roth said. “I’d be on hold for a long time, and then the call would get dropped.”

After many unsuccessful attempts to contact the department by phone, “I was finally able to get a fax through,” he said. “Then I got letters saying that because I didn’t dispute it, it’s been approved.”

Roth tried to file an appeal but wasn’t able to make direct contact about that either.

Finally, he reached out to a CDLE employee who had audited his company three years ago. The auditor put him in touch with a supervisor, who referred him to the department’s online form for reporting fraudulent claims.

Ultimately, one of the claims was put on hold and the second one was denied. But Roth was concerned that some unemployment benefits were paid on the fraudulent claims and that there might be lingering effects, including an increase in his unemployment insurance premiums.

And he was upset that the procedures he was told to follow in the letters he received never resulted in acknowledgment or action on the part of the department.

“They are facilitating this fraud and sending out information to businesses that they know is incorrect, that they know is going to lead to a dead end,” Roth said. “They’re damaging Colorado businesses that are put at a disadvantage trying to follow the instructions in the letters.”

Adding insult to injury, he subsequently learned that his own name and Social Security number were used to file another unemployment insurance claim.

“The funny thing is, if I or my wife filed for unemployment, we wouldn’t be able to collect, because we’re the business owners,” he said. All in all, “it’s been just an absolute nightmare.”

SYSTEM UPDATES

“We understand how unsettling this experience can be,” said Jessica Smith, press secretary at CDLE’s Division of Unemployment Insurance. “We take any fraud seriously and work daily with law enforcement and other agencies to investigate and prosecute this behavior.”

Smith said employers were getting routed to the department’s regular customer service line.

“We are in the process of updating the recorded welcome message on that line to direct employers to call 800-480-8299, our dedicated support line for employers,” she said.

The best way to report suspected fraud is to use the online forms for employers and individuals who think they have been targeted. 

“Employers do not need to call us to report the fraud,” Smith said.

Once a fraud claim is reported, the department places a hold on the claim, stopping benefits from going out. 

After reporting the fraud, individuals and employers can ignore any future correspondence regarding fraudulent claims. Because of the volume of fraud, the department isn’t always able to stop additional letters from being sent.

“We are actively trying to cease any automated correspondence that goes out once a claim has been flagged for fraud,” Smith said.

After submitting a fraud report, individuals and employers may not receive a follow-up call from CDLE.

“While the current volume of fraud reports prevents us from following up individually on every report, our fraud investigators are taking immediate steps to close each fraudulent claim,” Smith said.

“We are also working on delivering a formal letter that fraud victims can save for their records and share with creditors should they need it. We will be sending those to both individuals and employers who have reported fraud to us.”

When an unemployment claim is filed, Smith said, an employer will later receive an “Effect on Your Unemployment Insurance Account” notice that describes how the employer’s premiums may change for subsequent quarters. 

“However, when a claim has been confirmed fraud, it will not impact an employer’s premium rate,” she said. “The employer may still receive this notice, but if they have already reported the claim as fraudulent, they can ignore it.”

Once a claim has been closed for fraudulent activity, the employer’s account is re-credited for any benefits that were paid. Smith suggested that employers review their quarterly statement of charges received to determine whether their account has been charged for the payment of any benefits on a claim filed through identity theft during the previous quarter.

Employer premium rates are calculated based on several factors, including the reserve ratio of the Unemployment Insurance Trust Fund. 

“All employers will see an increase in rates due to the reserve ratio in the trust fund,” Smith said. “Employers who had charges accrue against their accounts would also have their experience rate impacted, which also goes into the calculation for employer premiums.”

A STORM OF CLAIMS

The Colorado Department of Labor and Employment has been inundated with unemployment insurance claims, especially since June 2020, after the CARES Act provided additional benefits for people affected by the COVID-19 pandemic.

According to the department, more than 1.1 million claims have been flagged for possible fraud since the beginning of 2020. A Jan. 6 quarterly report to the Office of the Inspector General stated that the department had paid $6.56 million in fraudulent claims but had prevented more than $91 million in losses.

“Just about everyone you talk to knows someone, personally and professionally, that has dealt with this one way or another,” said Adah Rodriguez, vice president of development and operations at the Better Business Bureau of Southern Colorado.

“We are seeing a lot of businesses receiving the letters indicating that a person has filed for unemployment and the person has never worked there,” she said. “We ourselves have received them as a business.”

The BBB also is hearing many reports of fraudulent claims being filed in the names of employees who do work at a business.

“That catches it pretty quickly before any money is given to the individual filing, but it’s still a lot of work for businesses and employees,” Rodriguez said.

She encourages people to report scams through the BBB’s scam tracker in addition to filing reports with the Department of Labor and Employment and other agencies.

CDLE has had to balance the huge, sudden increases in claims against the desire to get unemployment benefits flowing to legitimate claimants as soon as possible, Smith said.

But its internal systems have been overburdened, plagued with glitches, and in some cases, difficulties that originated outside the department.

“The original version of PUA [Pandemic Unemployment Assistance, which provided benefits for independent contractors and gig workers] never had any kind of requirement to provide proof of your actual self-employment,” said Phil Spesshardt, director of the Division of Unemployment Insurance.

To determine weekly benefit amounts, applicants were required to submit tax documentation, “but in that prior version of the Pandemic Unemployment Assistance Act, an individual who did not submit that documentation would still receive unemployment benefits through the program, but it would be reduced to the minimum weekly benefit amounts. For Colorado, that was $223,” he said.

That created opportunities for individuals to receive the minimum payment without ever providing the paperwork.

The huge volume of unemployment claims that were filed after the pandemic struck in March 2020 wreaked financial havoc in CDLE. According to the 2020 Statewide Financial Audit released March 16, State Auditor Dianne Ray found many issues with the state Unemployment Insurance Fund that caused her to issue a disclaimer of opinion.

According to a summary of the audit report, a disclaimer of opinion is issued when the auditor “is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.”

The problems included CDLE’s inability to substantiate the estimated amount of receivables and payables within the fund as of June 30, 2020, because many claims for benefits had not been adjudicated, and inadequate internal controls over financial reporting, including late entries, errors and omissions.

STOPPING FRAUD

When the federal extended benefits program was passed by Congress in March 2020, “we were in the process of modernizing our unemployment insurance benefits system,” said Cher Haavind, CDLE’s deputy executive director and chief communications officer.

One of the improvements was the addition of fraud indicators that trigger flags on questionable claims.

“We’re now up to over 50 fraud indicators,” Haavind said. 

“In July, when we started applying these fraud indicators to PUA claims, we saw a dramatic increase in holds to these claims that were meeting one or more fraud indicators.”

Sometimes the holds get placed on legitimate claims, Spesshardt said, and CDLE is still working with its IT vendor to adjust the criteria to catch fraud while letting legitimate claims go through.

As the expiration of the CARES Act drew near in December, there was an uptick in the kinds of claims Roth experienced within the state’s legacy unemployment insurance system, Spesshardt said. 

“That created roughly a 30,000 backlog for staff that would need to go in and manually try to stop those claims,” he said. “Ultimately, that led to the decision to make sure we went live with our whole new platform on Jan. 10.”

CDLE was able to put stops on the claims, but the tradeoff was that the system did not stop generating the subsequent paperwork.

An executive order from Gov. Jared Polis, which has been renewed several times, “allowed us to provide payments to individuals upfront while still processing claims,” Spesshardt said. 

When employers and individuals immediately report fraud through the online forms that are a part of the system, he said, “we can upload it through the system and stop that claim tomorrow and prevent it from paying out the unemployment insurance benefits.”

The new system, MyUI+, provides new functionality for claimants, including

access on mobile devices. 

The state also has instituted ID.me, a verification system that helps assure claimants are who they say they are before they are able to unlock their MyUI+ accounts. Beginning this month, all claimants who have not verified their identity through ID.me will be required to do so in order to continue receiving benefits.

According to CDLE’s website, the self-guided ID.me process takes about 15 minutes. If the process isn’t successful, however, claimants must verify their identity on a live video call with an ID.me representative.

“Unfortunately, wait times for these video calls are currently high,” the website states.

According to Smith, the department has taken additional action to prevent fraud and improve accountability, including:

• Contracting with Deloitte to manage fraud analytics;

• Tripling the size of its criminal investigation team;

• Contracting with an external vendor for additional investigators; and

• Partnering with the Colorado attorney general to launch the Colorado Unemployment Fraud Task Force and to hold fraudsters accountable.