Dave Trabert, the CEO of Kansas Policy Institute, was surprised to learn that he was a victim of unemployment fraud.  The Kansas Department of Labor was processing an unemployment claim for him even though he is employed and had not filed a claim. He learned of the fraudulent filing because he continues to work for KPI and received an Employer Notice from the state. (KPI owns the Sentinel.)

Trabert was one of two KPI employees listed on the notification. Over the past several months, Kansas officials have thwarted more than 55,000 fraudulent unemployment claims. That may, however, be the tip of the iceberg. There may be hundreds or even thousands more whose fraudulent unemployment claims slipped through the system. Unemployment fraud could lead to many Kansans receiving surprise tax bills next January for unemployment claims paid to fraudsters, and businesses may be forced to refill the unemployment trust fund through increased taxes.

“On the backend of this, I think it’s going to be a bigger mess than what we think we’re facing,” said Phil Hayes, Vice President of The Arnold Group, a human resources company in Wichita.

Kansas’s unemployment technology was strained even before COVID hit and Kansas Gov. Laura Kelly ordered businesses closed that she considered to be non-essential. Despite unemployment rates at near-record lows pre-COVID, the Kansas Department of Labor has utilized outdated technology for years.

“We have been operating with blindfolds and handcuffs for years,” Hayes said. “Our technology is outdated, inefficient, and extremely limiting.”

After COVID lockdowns, Congress rushed through the CARES Act, $2.2 trillion of COVID stimulus, on March 27. The federal spending included provisions to increase unemployment payouts by $600 per week. Hurried implementation coupled with aging technology made unemployment fraud lucrative and easy across the nation, and Kansas was no exception.

“Washington passed bills and the orders came through and every state department of labor had to act quickly,” Hayes said. “The money is there, and that’s what incentivizes bad players to go after it,” Hayes said.

The U.S. Department of Labor Inspector General last week said cybercriminals have stolen an estimated $8 billion in unemployment funds since the coronavirus hit. The IG predicted that the number could reach up to $26 billion.

“The Kelly administration should have used some of the hundreds of millions it received in CARES Act funding to replace the antiquated system,” Trabert said. “Now taxpayers will have to pay even more because of ongoing unemployment fraud.”

Several states are under siege. Georgia reported more than 130,000 false filings in July. Maryland officials said they uncovered 47,000 fraudulent claims that same month. Illinois reported 120,000 false claims in August. 

“My concern is that we don’t even know how big the true scope of this really is.  We don’t know what we don’t know. If any of those fraudulent dollars are in Kansas, those are dollars taken from the Kansas trust fund,” Hayes said.

Ryan Wright, interim Secretary of the Kansas Department of Labor, told the Topeka Capital-Journal last week that some of the erroneous claims were likely paid out, though he believes the department caught most of the false ones.

“I would be lying to you if I said some of these did not get through,” Wright said. “Of course, when you’re talking about these kinds of numbers, we know some of them have been paid out.”

The fraudulent claims had the victims’ correct social security numbers but KDOL Deputy Secretary Peter Brady told the Sentinel they “have no reason to believe” the system was compromised.  Anyone who believes they’ve been the victim of unemployment fraud should report it at ReportFraud.KS.Gov.

According to Phil Hayes, it’s difficult to put a number on the number of fraudulent claims. The Kansas Society for Human Resource Management (KS SHRM) surveyed its business members about their recent experience with unemployment claims. Of those surveyed, over 81% said they’d had fraudulent claims in the past few months related to identity theft.

“They have had fraud across the board. It’s not just little business or the big companies,” Hayes said. “It’s various industries and various sizes. Nonprofits. For-Profits. We may be approaching the top of the mountain, but we’re not on the other side yet.”

Meanwhile, people who need aid face incredible hurdles to reach the Kansas Department of Labor, make unemployment claims and receive benefits. By July, the Kansas Department of Labor was working through a backlog of 25,000 claims.

“The sad fact of all of this is that traditional claimants, they’re caught up in all of this,” Hayes said. “They’re not getting a lot of the funds they need. They’re the unfortunate victims on the front end.”

Hayes suspects trouble awaits on the backend as well. 

CARES legislation holds states harmless for the additional $600 per week in unemployment claims funding. An executive order by President Trump to add $300 per week to unemployment claims after CARES funding expired, is supposed to do the same. However, Hayes warns that the state’s unemployment trust fund will be depleted.  Hayes added, “tax increases are inevitable as he outlined in a  guest column for the WBJ recently regarding the looming steep UI tax increases.”

Kansas’s unemployment rate sat at 5.9% at the end of September. That’s down from 6.9% in August, but still nearly double the unemployment rate of September 2019, which was 3.1%. 

The actual employment rate might be artificially high right now because so many are sitting out of the job market. Those using unemployment benefits for COVID reasons are not required to look for work as part of Gov. Kelly’s ongoing executive emergency orders. 

Businesses are having trouble recruiting.

“Every time the Governor’s orders are extended, that piece carries forward,” Hayes said. His company provides staffing and executive recruiting services.

“I have work available for people, and a lot of my clients and colleagues are having trouble not just finding qualified candidates but finding applicants at all,” Hayes said.

Since June, the Governor’s committee on economic recovery — the Strengthening People and Revitalizing Kansas (SPARK) Taskforce — has been tracking job refusals. Hayes said he’s personally turned in an estimated 150 documented job refusals, with no response.

Hayes said once the workforce requirement is turned back on, there will be a bottleneck because there’s only a finite number of jobs available at any one time.

“The money will run out. It’s just not sustainable long term,” he said. “At some point, that day of reckoning is going to come.”

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