Since March 2020, the COVID-19 pandemic has caused jobless rates to soar in the United States causing millions of workers to file unemployment compensation claims On March 14, 2020, the U.S. Department of Labor reported 282,000 initial claims.  Within 5 months, on August 15, 2020, the Department reported 57.4 million initial claims.  This unprecedented number of claims, in turn, has led fraudsters to steal from the Unemployment Insurance (UI) program on a massive scale, the government has estimated $36 billion has been lost in the last 8 months. That number is expected to rise as congress just approved additional extensions to FPUC, PUA and PEUC.

Previous recession-triggering programs that extended UI payments beyond the base entitlement were basically the same from recession-to-recession and included Extended Benefits (EB) and various Federal extensions (FSB, EUC, etc).  Sometimes, unique programs were created by Congress, for example SUA in the 1970s, that brought millions of additional workers UI coverage, and TAC for the Great Recession, which added a Federal bonus payment to each week of UI.

Predictably, recessions have always stressed the ability of SWAs to handle an increased workload in the form of increased pressure on staff, who typically are required to work considerable overtime, often resulting in the inability to accurately determine eligibility.  But recessions have also increased stress on automated systems as new programs were implemented.  Some states prioritized disbursement of funds, resulting in significant overpayments.  Other states prioritized accurate payments, often resulting in significant delays.  This demand pressured states to develop more self-service functionality.  For initial claims, individual in-person interviews gave way to in-person group claims and to phone claims to call centers.  For continued claims, weekly in-person interviews gave way to bi-weekly in-person interviews, gave way to filing by mail and by IVR phone systems.

More recently, claims of all varieties have trended towards filing via the Internet.  The Great Recession (circa 2008) is a prime example where numerous Federal extensions were added, many requiring extensive modifications to existing systems.  In addition, that recession accelerated already-building pressures for states to modernize.

The recent pandemic has caused an increased claims load that stressed SWAs exponentially more than any previous recession – from approximately 280,000 to 6,000,000 claims per week – stretching even modernized systems to the max.  One Midwest governor, when pressed as to why his UI agency was having so many problems, told the press during a press conference “What would you expect – our system is 10 years old…”  A 10-year-old system is an infant in UI World; just imagine what states with 25- and 35-year-old systems encountered.

The Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES), a response by the U.S. government to the pandemic, added programs to enhance benefit payments.  Some programs were allowed to piggyback onto programs from prior recessions.  FPUC was similar to TAC.  PEUC was similar to past Federal extensions such as TEUC.  PUA was a whole new ballgame.

Under PUA, an ineligible UI claim was first required.  Many states rigged their existing DUA systems to accommodate PUA.  Other states built new subsystems from scratch.  Problems arose if PUA failed to communicate with the regular UI system.  As with past recessions, and even more so due to the huge numbers of claims being filed, there was an urgency to implement the new programs; as a result, verification of the filer’s identity was often compromised.  Systems were already increasingly vulnerable to penetration by fraudsters.  For example, Scattered Canary didn’t just pop up overnight – the pandemic just made their efforts much more lucrative.

Filing for PUA, without a requirement to file for UI first, often bypassed even the most basic of safeguards.  States were again faced with the dilemma of either paying claimants quickly, and often erroneously, or significantly delaying, or denying those payments to legitimate filers – except this time, the dollar amounts involved were staggering.  By some accounts, the unemployment rate was artificially increased by the number of fraudulent claims that were included in the count.

Once the Pandemic Recession hit, just what would states have done without the ability for customers to do their business via the Internet, especially the filing of initial and continued claims?  Not a pretty thought, since even with reliance on online applications, states have had significant problems meeting the needs of the unemployed.  There will be continued, increased pressure for states to modernize by implementing full-benefit systems.  Short of full systems, modernization of key pieces involving integrity such as (a) identity verification; (b) overpayment prevention, detection, and recovery; (c) claims-taking; (d) adjudication and appeals; (e) adding self-service features to existing; (f) claimant portals; and (g) employer portals.  There will also be pressure to increase support for full access via a multitude of devices including (a) standard PCs; (b) smart phones; (c) tablets; and (d) whatever else might come down the pike.

Both for existing and modernized systems, states will be pressured to conduct more intense verification of claimants’ identities.  Strategies include: (a) LexisNexis-esque questions; (b) placement at the start of the claim-filing workflow marks suspicious claims as early as possible; and (c) questions are asked with answers only known to the true owner of the identity.

If implemented, these strategies might dissuade fraudsters from filing a claim altogether because fraudsters who have purchased stolen identities on the dark web would not be expected to possess the requisite document, and fraudsters might thus give up filing the claim altogether.

On the other hand, tougher verification standards include downsides: (a) transactional expense incurred by SWA; (b) some degree of false positives; (c) legitimate claimants might be deterred from filing; and (d) ID Proofing – scanning of driver’s license/ID card bar codes.  In addition, changes may cause SWA to incur transactional expense and require filing of claims using devices with cameras, principally smart phones – because legitimate claim-filers might eschew the scanning in large numbers, and support for alternate verification methods could significantly tax SWA staff resource.  Moreover, unless done via the password-protected SWA portal, security-savvy claimants might be hesitant to send so much of their PII blithely into the ether.  Therefore, legitimate claimants might be deterred from filing.

NASWA’s IDH/IDV has advantages because the product allows comparison of claim attributes across multiple states and costs to SWAs are less than products with transactional costs.  But disadvantages include the product running in batch mode, not providing for immediate identification of potentially suspicious claims – thus, some payments may leak out the door prior to an investigation being initiated or  pattern analysis of claimant and claim attributes to identify suspicious claims (e.g. OPT’s FraudX).  However, IDH/IDV allows detection of new fraud patterns by comparing attributes across all recently submitted claims and builds out existing fraud patterns by comparing attributes of new claims vs. those of known schemes.  In short, the product provides a solid base from which to launch investigations and take legal actions.  If positioned at the start of the claim-filing workflow this would be the Holy Grail of ID Theft detection products because false positives and negatives are minimized.  However, if positioned as a back-end audit workflow, this would not provide for immediate identification of potentially suspicious claims.  Thus, some payments may go out the door prior to claim stoppage.

Both for existing and modernized systems, states will be pressured to ramp up their efforts to prevent, detect, and recover overpayments in order to meet Federal standards.  Strategies include prevention and detection via identity verification and recognition and resolution of eligibility issues.  To meet Federal standards regarding overpayments, states need to ensure that the initial and continued claims applications, particularly the internet versions (a) are meticulously worded to be understandable to claimants; (b) provide sufficient online help to claimants in need of assistance (mouse-overs are typically NOT enough); (c) recognize when issues arise that need further investigation and fact-finding; (d) branch to question trees with quantifiable answers (e.g. OPT’s Intelligent Fact Finding (IFF)); and (e) integrate with the benefit system’s adjudication module to quickly establish the issue for assignment and resolution.

Another strategy to recognize and resolve eligibility issues is to ensure that the benefit system has a robust adjudication module (e.g. OPT’s Resolve), which includes: (a) full-featured issue assignment and scheduling based on factors such as adjudicator skillsets and workload management; (b) integration with claimant and employer portals to maximize the flow of relevant information between the SWA and the parties to the issue, to maximize intake via self-service, and protect the rights of claimants and employers.  To aid with in resolving these eligibility issues, IFF trees are available for completion by (a) claimants; (b) employers; and (c) adjudicators.  In addition, the module is integrated with the benefit system to ensure prompt payments when benefits are allowed and payment stoppage when benefits are denied.

It is also recommended that the benefit system has a robust appeals module (e.g. OPT’s Resolve), which includes: (a) full-featured issue assignment and scheduling based on factors such as ALJ skillsets and workload management; (b) integration with claimant and employer portals to maximize the flow of relevant information between the SWA and the parties to the issue; maximize intake via self-service; and protect the rights of claimants and employers.  The benefits system should also be integrated with first-level adjudication to ensure seamless access of case files and other documents by appeals staff.  Also, the system should fully support the hearings workflow, including facilitation of hearings via phone or webinar and recording of hearings.  The appeals module should also be integrated with the benefit system to ensure prompt payments when benefits are allowed and payment stoppage when benefits are denied.

Furthermore, to identify and recover overpayments, the adjudication module should allow conducting crossmatches of claims vs. potential sources of ineligibility.  While SWAs have matched benefits vs. wage records for decades, OPT has significantly improved its efficacy.  OPT has also enabled SWAs to match benefits against many other data sources, such as (a) New Hire Directories, both National (NDNH) and State (SDNH); (b) Incarcerated populations; and (c) Deceased individuals.

OPT’s crossmatch applications are easily enhanced to include payments from any new benefit programs.  This has proven particularly critical during the pandemic recession, with its myriad new programs added to the UI mix.  Matches may be conducted using OPT’s Barts application or using its standalone crossmatch engines.  Features unique to OPT’s crossmatch tools include: (a) OPT’s proprietary FraudX™ algorithm, which employs advanced data analysis and machine learning to point investigators to the cases most likely to result in overpayments and/or fraud; and (b) OPT’s FastPath™ workflow, which creates recommended determinations based on quantifiable facts and presents these recommendations to staff for final approval.  Once issues are detected, adjudicators may work them using (a) Barts’ adjudication sub-module; (b) OPT’s Resolve application; and (c) the SWA’s legacy adjudication system.

To collect any payments, a critically important SWA responsibility, requires a billing system (e.g. OPT’s Recover) which integrates with the legacy or modernized system to be informed of any debt, using business rules to determine if the debt is collectible and set the minimum payment due for each billing cycle.  OPT’s Recover uses OPT’s FastPath™ workflow to (a) send bills to debtors on a regular basis; (b) escalate language ferocity if the debtor becomes delinquent; (c) refer cases to agents as necessary for increased collections efforts; and (d) refer cases to outside collections agencies as allowed by state law.

For example, OPT’s Recover captures funds for application against UI debt via integration with outside sources, for example, lottery winnings and Federal and State income tax refunds.  The system also intakes payments from debtors and integrates with the legacy system for application of the collected amount entry of payments via check or money order; self-service payment via credit card or ACH withdrawal; and automatic recurring payments.

A legal tracking system (e.g. OPT’s Enforce) is also crucial in overpayment recovery efforts.  This product integrates with the legacy system to be informed of any debt, using OPT’s proprietary FraudX algorithm to select cases eligible for legal actions: (a) liens; (b) garnishment; (c) civil actions; (d) criminal prosecution; and (e) other means per state law and policy.

Moreover, OPT’s Enforce uses OPT’s FastPath™ to significantly reduce the need for staff involvement.  The software automatically triggers the appropriate workflow (which can be different for each jurisdiction within a state).  It then automates the creation and distribution of all documents required for the legal action and prompts staff for action at those points in the workflow where human intervention is required.  Once the case is established, FastPath™ continues to generate needed documents and trigger workflow actions as required; integrates with the legacy system to add fees and/or court costs as imposed during the course of the legal action; monitors compliance with repayment requirements, triggering follow-up actions if the debtor is delinquent; and closes the case when all debt is cleared.

States have historically had in place mechanisms to temporarily increase staff size to handle increased claims loads.  SWA staffing has dwindled over the years so as to barely cover requirements, even in the best of times.  Customer needs during the Pandemic Recession caused this paradigm to break, as finding funding for and bringing new staff up to speed proved very difficult.  A possible work-around:  Outsourcing.  The pros of such an approach is a quicker ramping-up of staff.  Outsourcing companies are able to accommodate multiple states with the same staff.  When the load diminishes, staff can be more easily reduced.  The cons of outsourcing, however are access to claimant information by non-SWA staff must be strictly controlled and understanding UI law is often not straightforward, and dealing with nuanced differences in state law can be dizzying.

Although newly passed legislation promises to bring much needed relief to many in need, it does continue to present challenges to state workforce agencies both in quickly delivering these benefits and in parallel fighting the unprecedented amount of fraud. On Point is here to help you in that fight.  Contact us today.