Employment Security Department: Frequently asked questions -- March 2009
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.
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 2008, Employment Security estimated that fraud accounted for about 21 percent (or $10.3 million) of all overpaid benefits.
Q. Is Employment Security able to quantify the amount of fraud by employers?
A.
No in-depth analysis has been conducted regarding employer fraud in Washington, but crackdowns by other agencies (e.g., departments of Labor & Industries and Revenue) have turned up millions in unpaid taxes. With new funding from the state Legislature, Employment Security launched its first anti-fraud program targeting employers in July 2006.
In the first three years since the program was launched in July 2006, Employment Security's Underground Economy Unit recovered nearly $3.6 million in unpaid taxes and about $1.2 million in interest and penalties.
In the first three years since the program was launched in July 2006, Employment Security's Underground Economy Unit recovered nearly $3.6 million in unpaid taxes and about $1.2 million in interest and penalties.
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 agency also investigates tips from the public.
Q. What are the penalties for unemployment-tax or benefit fraud?
A.
Employers caught trying to manipulate their tax rates must pay the taxes they owe plus 10 times the difference between the amount of taxes they should have paid and the amount they did pay. They are then assigned the highest possible tax rate plus 2 percent for at least three years, and must pay audit costs and any related collection fees.
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.
When people are caught collecting benefits they shouldn’t receive, they must pay back the money, will be denied benefits for 26 qualified weeks out of the next two years, and must pay a monetary fine.
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.
When people are caught collecting benefits they shouldn’t receive, they must pay back the money, will be denied benefits for 26 qualified weeks out of the next two years, and must pay a monetary fine.
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. The costs for the extra benefits will be "socialized," or spread across all employers.
In 2007, the state legislature adopted a new law allowing Employment Security to charge employers for excess unemployment benefits that are a result of their errors, rather than charging them to all employers.
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. The costs for the extra benefits will be "socialized," or spread across all employers.
In 2007, the state legislature adopted a new law allowing Employment Security to charge employers for excess unemployment benefits that are a result of their errors, rather than charging them to all employers.
