Cheating on rise for jobless pay

Kirsten Valle

Apr. 19, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- As unemployment rises, state investigators say there's a sharp increase in the number of people cheating the system for unemployment benefits.

There were 5,044 fraudulent overpayments worth more than $13.3million last year, up 13percent from the year before and 24percent from 2004, state data show. The state recovered only about half of the money last year.

Over the past five years, the state estimates it has paid nearly $52.7million in fraudulent benefit payments and recovered $26.5 million.

And as the number of people receiving benefit payments has more then doubled in the past few years to more than 230,000, the number of fraud investigators has stayed steady. The N.C. Employment Security Commission has 22 fraud investigators across the state, the same number as five years ago, state officials said.

The fraud schemes could cost even more tax dollars than what's reported because of the shortage of investigators. Even top-notch technology can't catch every offender.

The most common way people scam the system is to continue filing for unemployment benefits even after landing a job. When caught, they often claim they fell behind on bills or worried their new jobs wouldn't last.

"It is very easy for someone who is perhaps desperate -- and dishonest," said Marvin Francis, an ESC fraud investigator based in Charlotte. "I can sympathize. Who, these days, has six months' savings in the bank? I don't. But it's a society of laws. We can't just do whatever we think is right."

Because people can file unemployment claims by telephone and online, instead of in person, it is easier to continue receiving improper benefits. Unemployed workers can also now receive benefits up to 79 weeks, because of new extensions, resulting in larger overpayments.

The impact: millions of dollars in overpayments that could ultimately drain the state's benefits fund and lead to higher payroll taxes for local businesses.

Some who cheat the system do so by filing for benefits -- saying they were laid off -- after being fired for cause, which would disqualify them. Others collect unemployment benefits while earning unreported cash. Some create fraudulent identities to reap the insurance money. But the most common method by far involves people who lose their jobs, find another one and continue filing for benefits.

The statewide unemployment rate continues to rise, hitting 10.8 percent in March, the highest in more than two decades. In South Carolina, the unemployment rate reached 11.4 percent, tying the highest rate, set in 1983.

"It's been a very challenging job since Day 1," said Francis, an investigator since 2003. "There's never any down time."

Nationally, the rate of benefits overpaid due to fraud climbed to 2.8 percent last year from 1.9 percent in 2001, according to the U.S. Department of Labor.

In South Carolina, fraud cases have gone up significantly as unemployment insurance claims have climbed, said Allen Larson, deputy executive director for unemployment insurance at the S.C. Employment Security Commission.

S.C. officials hope to add more fraud investigators and plan to introduce legislation soon that would allow state officials to collect federal tax refunds of offenders who fail to pay their balances, Larson said.

N.C. offenders rarely go to jail, because state officials prefer to work out repayment plans rather than prosecute. The state's top employment official says the agency doesn't want to "increase the stress" of those struggling to find work and pay bills.

Just a small percentage of fraud cases reach N.C. courts, too. The ESC prosecuted 404 cases last year, or 8 percent of the cases. That's down from 1,302, or 32 percent of fraud cases, in 2004.

The ESC prosecutes only if attempts to work out a repayment plan are unsuccessful. Despite fewer prosecutions last year, the agency recovered about 51 percent of fraudulent overpayments, up from 50 percent the year before and 39 percent in 2004.

"We are a public service and a human service organization," ESC Chairman Moses Carey Jr. said. "The people who come to us are under a lot of stress, and we don't want to increase the stress. We try to work with people. We try to get them to the point where they can repay the money. Hitting them over the head usually doesn't get positive results."

He said a new computer system just installed will help investigators work quicker to locate people with new jobs still getting benefits. Carey hopes to also add workers to the fraud investigation unit.

"Fraud is always a concern," he said. "We have a staff of people working on it, and we're doing a diligent job."

In a rare case of prosecution in Charlotte, a 44-year-old woman landed a manufacturing job in April 2007 and continued to file for unemployment benefits until August of that year, racking up $7,312 in overpayments, ESC investigators told a judge in Mecklenburg District Court.

The woman's attorney said her client's husband was unemployed and the couple had a hard time coming up with money to pay back the balance. The woman told the judge she could afford $200 a month. She received a 30-day suspended sentence and 48 months of unsupervised probation, and was ordered to make the $200-a-month payment.

Such stories are common in Charlotte, said Francis, one of two local fraud investigators.

His workload has climbed "tremendously" over the past year, he said. When Francis started with the ESC's benefit payment control unit, a co-worker told him it would be impressive if he scheduled four to six conferences a week.

Last week, Francis had 20 -- filled with desperate stories of single mothers struggling to pay for school, hospital patients burdened with costly medications, men who got jobs but kept filing because they were sure the positions wouldn't last. He said he attempts to give people a chance to tell their story and, if possible, work out a repayment agreement.

The average overpayment is about $2,500, though Francis has seen recent cases of $10,000 or more. Potential overpayments usually take several months to more than a year to catch, he said.

Francis acknowledges that some cases fall through the cracks, too, particularly when workers take a job with unreported wages -- income that wouldn't show up in the computer system.

ESC's shift to a more customer-friendly agency -- where people can file for benefits online or over the phone rather than coming into the office every week -- has made it seem easier to commit fraud because there's less accountability behind the safety of a computer screen, Francis said.

"That just opens the door to dishonest activity," he said.

Having a few more fraud investigators in Charlotte would likely ease the workload and help detect fraud more quickly, Francis said.

Since 2005, state agencies have been using a national directory of new hires to track down workers, even in other states, who file for benefits after taking a new job. The ESC also uses quarterly data from employers to check for overlap between wages earned and unemployment benefits collected.

The agency hopes the consequences of fraud -- being disqualified for a year from receiving benefits, having to surrender future benefits and state tax returns to cover unpaid balances and even jail time -- will act as a deterrent, too.

But some argue that agencies aren't doing enough.

In a report issued last month, the U.S. labor department's inspector general said the Employment and Training Administration, which oversees states' implementation of the unemployment insurance program, had not exercised sufficient oversight.

The federal agency lacked the policies and procedures to perform timely and proper on-site reviews, the report found.

Last fiscal year, state agencies doled out about $1.9 billion in unemployment insurance overpayments, the report said. The agencies only identified $1 billion of the fraudulent payments -- more than $800 million was not detected, audits of sample claims found.

Sen. David Hoyle, D-Gaston, chairman of the Senate Finance Committee, said legislators and state officials need to take a closer look at unemployment insurance fraud and determine whether there are enough investigators and enough measures in place to fight it.

"I don't know how much enforcement there is," he said. "It's something that certainly needs attention."

Fraud further depletes the state's already low unemployment insurance fund,with officials borrowing money from the federal government recently. Officials need to be serious about punishing those who commit it, Hoyle said.

"They're breaking the law," he said. "It's not just defrauding the government, it's defrauding citizens" who need the money.

Kirsten Valle: 704-358-5248

Newstex ID: KRTB-0038-34243609