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Employment Security Department: Frequently asked questions - August 30, 2012

Unemployment insurance: fighting fraud

Q.

What kind of fraudulent practices are committed against the unemployment-insurance system?

A.

Both claimants and employers can commit fraud against the unemployment system. The most common types of claimant fraud include failing to look for work, not reporting income and continuing to collect benefits after returning to work.

Until 2006, Employment Security was doing a decent job of identifying and prosecuting fraud by claimants, but had few resources to go after fraud by employers. For example, while the department collected more than $40 million in benefit overpayments in 2005, it was able to recapture only about $1 million in unpaid taxes.

Thanks to additional funding by the state Legislature beginning in July 2006, the department not only increased its efforts to prevent claimant fraud, but also created a program to target employer fraud. The primary focus is on employers that do not register or pay taxes and businesses that take part in schemes to get lower tax rates than they should.


Q.

Is Employment Security able to quantify the amount of fraud by unemployed workers?

A.

In 2011, our Office of Special Investigations identified nearly 9,000 people who collected more than $21.5 million in unemployment benefits through fraud - about 54 percent more than in 2010. 


Q.

Is Employment Security able to quantify the amount of fraud by employers?

A.

Employment Security has also joined with other state agencies to fight fraud in the 'underground economy' (i.e., unregistered businesses). In 2011, underground-econony audits found more than 13,000 misclassified employees.  Also, out of $2.8 million in unpaid taxes found in all Employment Security audits, $1.6 million was the result of our underground-economy audits.

In 2010, Employment Security discovered 15,527 misclassified employees and more than $2.9 million in unpaid taxes.


Q.

How does Employment Security detect tax or benefit fraud?

A.

The department uses a variety of techniques to uncover fraud, including cross-matching records with the Social Security Administration, the state and federal lists of new hires and the state Department of Labor & Industries. The department also investigates tips from the public.  On the ESD.WA.GOV homepage, there is an option to "Report Fraud," which leads to a page with contact phone numbers to report suspected fraud and an electric form to fill out for suspected benefits or tax fraud.


Q.

What are the penalties for unemployment-tax or benefit fraud?

A.

Penalties for tax fraud ~ Employers caught trying to manipulate their tax rates must pay the taxes they owe, late-payment penalties and interest. They also may be assessed: 

 
  • Up to 10 times the difference between the amount of taxes they should have paid and the amount they did pay.
  • A delinquent-tax rate of 1 to 2 percentage points added to their earned tax rate, and must pay auditing costs adn related collections fees.
 
  • A fine of $250 or 200 percent of the quarterly tax for each offense, whichever is greater.
  • A charge of up to two times the taxes due or $1,000 of each quarter of unpaid taxes, whichever is greater. 
 
Recommending schemes that help employers evade their taxes also is against the law. Offenders face a penalty of up to $5,000 per incident, plus audit costs and collection fees.

Effective January 1, 2011, the Employment Security Department may penalize an unregisterd employer who fails to provide records $250 or 200 pthe greater of up to two times the taxes due for $1,000 for each quarter of unpaid taxes.

Penalties for benefits fraud ~ For a first occurrence of fraud, an individual is disqualified for the fraudulently claimed benefits and is disqualified for an additional 26 weeks of benefits.

For a second occurrence of fraud, an individual is disqualified for the fraudulently claimed benefits and for an additional 52 weeks. The individual also must pay a penalty of 25 percent of the amount of benefits overpaid.

For a third occurrence of fraud (and any thereafter), an individual is disqualified for the fraudulently claimed benefits and for an additional 104 weeks. The individual also must pay a penalty equal to 50 percent of the amount of benefits overpaid. 


Q.

How are honest errors handled?

A.

Honest errors are not treated as fraud, but unemployment claimants still may have to pay back the money they received. For example, if a claimant is working part-time and reports net wages instead of gross wages, his or her unemployment check will be bigger than it should be. He or she will have to repay the money that was issued in error.

However, if an employer misreports wages for a quarter and a claimant is issued higher benefits than she or he really deserves, the claimant will not have to pay back the money because it was not her or his error. Under a state law adopted in 2007, benefits paid as a result of an employer's error are charged to the employer's unemployment-insurance account.



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