Gary Seabolt receives unemployment claim notices almost every day for Pikes Peak Construction for people who have never worked for the company, listing some fairly unlikely jobs, such as ship’s engineer.
The tiny Colorado Springs company has just five employees and has never laid off any of them, yet the flood of notices has forced Seabolt to spend untold hours notifying the Colorado Department of Labor and Employment that the claims are fraudulent. He now regularly sends the department a lengthy list of the notices and other paperwork, which fill up a file folder that is several inches thick and growing.
“It started almost as soon as the (presidential) election was over. We had never had an unemployment claim before the pandemic and got two or three early on, but now they arrive every day,” said Seabolt, who is general manager of Pikes Peak Construction. “Not only are these notices for people we have never employed, they are for positions we don’t have or need such as technical director, mechanical engineer and dry cleaning worker, and many are addressed to the former owner who died more than 30 years ago.”
Seabolt is far from alone. Many employers in Colorado Springs and across the state have received a deluge of fraudulent claims that stem from stolen identities linked to data breaches dating back several years. The department has received more fraudulent claims — 1.2 million — than legitimate claims since the COVID-19 pandemic triggered a statewide stay-at-home order in March 2020 and subsequent restrictions on businesses that resulted in record-setting job losses.
The state labor department Friday boosted its estimate of losses from $6.5 million to $19.4 million, much of it resulting from completing investigations of suspicious claims received last year. Cher Haavind, the department’s deputy director, said losses “absolutely will go up” since criminals filing fraudulent claims are constantly adapting to roadblocks the department has put in place to curb fraud. The agency estimated on Friday it has prevented paying out $436.2 million on 42,976 claims it has determined to be fraudulent through investigations.
“We have to be more sophisticated than the criminals. That may catch some legitimate claims, especially as criminals continue to become more sophisticated in applying for benefits,” Haavind said. “We have a team of 50 to 75 people who are involved in looking into fraudulent claims — that includes 10 people in the investigations unit, which is being expanded by 37 through a vendor, but also those in several other parts of the department that spend part of their time on these claims.”
Jessica Hudgins Smith, a state labor department spokeswoman, said criminals are flooding small businesses (like Pikes Peak Construction) with high volumes of fraudulent claims hoping that those businesses give up and stop reporting fraud because they lack enough staff and other resources to devote to the problem. But that doesn’t mean large businesses are immune from fraudulent filings.
“I started out calling them and got nowhere, since no one was answering the phone. Then I started filing out the (department’s fraud report) form, but that takes about five minutes for each report. Now I just email them a list of the notices we get,” Seabolt said. “I have probably wasted an entire week in the past few months on this, and no one is paying me back for all that time. I should be billing the state $80 an hour for my time.”
Phil Long Dealerships has been hit hard, receiving more than 100 notices on employees who are still working for the chain of 15 vehicle dealerships in Colorado and New Mexico, said Dave Campbell, vice president of human resources and risk management. That doesn’t count another 10 to 15 claims from former employees who left the Colorado Springs-based company to take other jobs but were never unemployed.
“We’ve gotten one for me, my wife and Jay Cimino,” the longtime Phil Long Dealerships CEO, who along with Campbell and his wife, are still very much employed. “We really saw it ramp up in September and October and then it quieted down for a few months. Now it is as bad as it ever was. We are getting several (fraudulent claims) a week. We spend a lot of time tracking down and sending emails to employees on how to respond” when they receive a notice of a claim using their name.
Campbell estimates the volume of claims has forced him and two other employees he supervises to spend about four hours a week since the beginning of the pandemic dealing with fraudulent unemployment claims. That includes training sessions for employees and managers on how to respond to a fraudulent claim and answering panicked phone calls from employees after they receive a notice. The company provides free identity theft coverage for all of its employees.
“For me, there was an initial moment of shock, then you begin wondering what else of yours is vulnerable to this. Did they get into my credit cards or bank accounts?” Campbell said. “We’ve all heard the reports on the news about this, but it isn’t real until it happens to you. I even had that feeling. It makes you wonder whether the companies that have been breached (by hackers) had actually even stopped the breach.”
Both of Colorado’s major hospital systems have been hit hard.
UCHealth estimates it has received notices of fraudulent claims listing about 10% of its 24,460 employees at 13 Front Range hospitals, three affiliated hospitals in Nebraska and Wyoming, and many physician practices, rehabilitation clinics and other operations. No local numbers are available; the hospital provider employs more than 5,600 in the Colorado Springs area at four hospitals and other facilities.
Centura Health said in a statement it has experienced a “steep rise” in unemployment claims in the first three months of the year, with 56% determined to be fraudulent . That represents nearly 10% of the company’s 21,000 employees at its 17 hospitals and 14 affiliated hospitals, as well as physician practices, urgent care and other clinics and health care facilities.
The department has put nearly 60 roadblocks into its online unemployment benefits system since the pandemic began to prevent fraudulent payments and recently began requiring that everyone filing a claim or requesting unemployment insurance benefit payments to verify their identity through a system called ID.me that is used by more than 20 other states. The identity verification system has reduced the percentage of claims that are suspicious from about 90% to 25-30%.
“We have seen an uptick in suspicious activity. Fraudsters continue to be resilient and persistent,” Phil Spresshardt, director of the department’s unemployment insurance program, said during a recent webinar for employers. “These fraudsters are part of large criminal organizations who have acquired stolen identities on the dark web and are looking to collect some quick money before they are shut down.”
The department’s security roadblocks have stopped $37 billion in suspicious payments since the pandemic began. Financial institutions have seized and returned $21 million to the agency in payments on suspicious claims that were flagged due to the size of the claim and other issues, Spresshardt said. Before the pandemic, the department received fewer than 100 fraudulent unemployment claims a year.
While the ID.me system has slowed the flood of fraudulent claims, complaints that the system doesn’t work properly, resulting in termination of benefit payments, have multiplied. Claimants who can’t get through the online verification process, which requires use of a smartphone or similar device, must instead complete the process through a video chat, but wait times for that service have been five hours or more.
Curtis Smale, a Colorado Springs man who lost his job with Connect for Colorado, the state’s health insurance marketplace, in January, has spent more than two weeks trying to complete the ID.me verification process. He has tried to complete the process unsuccessfully three times and also has made numerous phone calls and sent many emails. Since he failed to complete the ID.me process, the department has cut off his benefits and he said he will soon run out of food and money.
“They are trying to prevent fraud, but hurting a lot of people in the process who really need the help,” Smale said. “They said this process should take 15 minutes. I have spent more than 12 hours on this over the past 16 days. I have called every number and emailed everyone I can and even sent a certified letter though the mail. This is a massive failure.”
The state labor department estimates 15% of those who attempt the ID.me system don’t successfully complete the verification, but the agency hasn’t said how many people that percentage represents. The most common reasons the verification cannot be completed are a blurry or poorly lit photo of the claimant or expired identification documents, the department said Friday. Unemployment claimants who don’t have a mobile phone with a camera to complete the ID.me process can call the department’s call center at 303-536-5615.
The Better Business Bureau has received more than 200 complaints in the past year about ID.me, including several that the company fails to respond to emails and calls seeking help. The company said in a statement to CBS4 in Denver that its systems have been taxed by Colorado, California, Florida and Nevada requiring all claimants — totaling millions of people — to immediately verify their identities and that it is hiring hundreds of additional employees.
Spresshardt said the labor department has told ID.me that the agency “isn’t happy” with its customer service and other issues, but added that “neither are they.” He said the issues have been triggered by a massive volume of unemployment benefits claimants in several states being required to use the system all at the same time, but he expects the ID.me system to stabilize “over time” as the company adds employees.
The department asks victims of fraudulent claims, both employers and employees, to promptly file an online fraud report with the agency, enabling it to immediately halt any payments on the claim. Spresshardt said such reports are critical to preventing fraud since about 10% of all fraudulent claims get past the department’s fraud holds.
Those filing fraudulent claims are counting on employers and individuals not reporting fraud after they receive a claim notice or unemployment benefits debit card. If the state doesn’t receive a fraud report, those filing fraudulent claims can redirect benefit payments to a new location or payment method. That can have serious consequences for businesses in the form of higher unemployment insurance premiums and for individuals eventually owing state and federal taxes on benefits they never received.
The department announced this month that it would send letters in a few weeks to individuals and employers who have been hit by fraudulent claims. The letters will give victims a document they can use with creditors, credit reporting agencies and banks, among others. Officials recommend individuals who have been victims of unemployment fraud to report it to all three credit bureaus, including freezing their credit, and file an identity theft report with the Federal Trade Commission.
“This type of fraud will never go away — that genie is never going back in the bottle. These fraud groups and crime rings are very resilient and persistent, so every time we put in a new fraud hold, they try to find a way around it,” Spresshardt said. “They might stop filing claims for a week or two after a new fraud hold, but they come back later and test the system to see if they are successful” in filing a fraudulent claim.
The U.S. Department of Labor has awarded two grants totaling nearly $4.9 million to the state labor agency to beef up its team investigating unemployment insurance fraud. The federal labor department has awarded nearly $150 million to states nationwide to combat the wave of fraud, which has hit nearly every state and resulted in more than $63 billion in fraudulent or erroneous payments, the Associated Press reported in March.
The initial wave of fraudulent claims targeted the Pandemic Unemployment Assistance program, created by coronavirus relief legislation enacted last year to pay benefits to self-employed persons and contract workers. The program was vulnerable to the claims because there was no employer to verify whether the claim was legitimate. When the PUA program temporarily expired in December, fraudsters shifted their focus to the traditional unemployment program for payroll workers.
Colorado Springs business owner Trevor Dierdorff, who owns Ament, a company that provides information technology services to small and mid-sized businesses, said he and his wife, Tarah Dierdorff, both received unemployment claim notices even though both are still working. His notice was for work he did for a Texas pizza restaurant he had never heard of and Tarah Dierdorff received an unemployment benefits debit card that listed her maiden name.
“It was a real hassle. We even received two (unemployment benefit) debit cards for people we didn’t know. Fortunately, we have a locking mailbox, so whoever filed the claim couldn’t steal the card out of our mailbox,” Trevor Dierdorff said. “I am concerned that taxpayers are ultimately footing the bill for all of this.”
Fraudulent claims have become such an issue that some states, including Kansas and Kentucky, shut down their unemployment filing systems temporarily to install fixes. Colorado Attorney General Phil Weiser called the extent of the fraudulent claim scam “staggering,” noting that people from every part of the state and from virtually every occupation “are at risk” of becoming victims.
Federal prosecutors are just starting to file charges in cases of unemployment fraud, including indictments against 23 defendants in Rhode Island and several others in Virginia. One defendant in the Rhode Island case allegedly filed more than 5,000 fraudulent claims in 37 states totaling $25 million. (A news release from prosecutors doesn’t indicate whether any of the claims were filed in Colorado.) Colorado officials hope the new unemployment fraud task force will have its first cases in a few months.
The author of this story is a victim of unemployment insurance fraud due to identity theft.