Fri, Jan 7, 2022 12:56 PM
By Scott McClallen | The Center Square, The Center Square
(The Center Square) – Michigan estimates losing $8.5 billion to unemployment fraud since the start of the COVID-19 pandemic, but the CEO of a fraud prevention company says that number is closer to $11 billion.
Haywood Talcove, the CEO of LexisNexis Risk Solutions' Government Group, which provides fraud prevention tools to 26 state unemployment programs and the 50 top US banks, told The Center Square in a Zoom interview that profiles on the encrypted messaging app Telegram are fraudulently selling Michigan unemployment benefits.
Talcove said such transnational profiles have scammed Michigan’s jobless agency out of billions of dollars in less than two years by battering aged systems with thousands of fraudulent claims, bogging down real ones.
In spring 2020, fraudsters and real claimants thrown out of work filed a peak of over 388,000 claims in one week – 77 times more than an average pre-pandemic week – overwhelming the system. The Unemployment Insurance Agency (UIA) approved a majority of the claims, including many of the fraudulent ones.
Criminals across four countries – China, Nigeria, Romania and Russia – used the same devices to constitute 85% of Michigan's federal unemployment fraud, Talcove said.
“They’re making it impossible for the hardworking people in these agencies to do their job,” Talcove said of criminals abusing the UIA’s current technology.
Talcove describes the hustle as “cyberfraud as a service” sold on Telegram – and once the money is transferred, it’s gone forever. Criminals prey on states with weak identity verification systems and are now targeting disability insurance programs and tax programs in California, Georgia, Michigan and New Jersey.
“We saw one device that was used in Michigan applied for 34,000 benefits, and received them,” Talcove said.
In "a millisecond," LexisNexis’ technology verifies identity by checking the device against a worldwide database of “bad computers” associated with fraud, uses email analytics to track previous use, creation date, the device’s longitude and latitude, and then tests the information submitted against public records to fight identity fraud.
Talcove said the tech can reduce a pool of hundreds of thousands of total claims to about 300 real-life people so it can quickly disburse benefits.
"You can't put a system in place that actually denies legitimate individuals or tortures them to get a benefit that they're entitled to," Talcove said.
The task force started by Attorney General Dana Nessel has charged more than 50 Michiganders with stealing millions in UI fraud and nine have pleaded guilty or been convicted, with 37 cases pending.
"It's extremely important that we continue to push back on bad actors who look to take advantage of a vital safety net resource for out-of-work Michiganders," Whitmer said in a statement.
A new Deloitte report found the UIA prevented nearly $43.7 billion in imposter fraud and between Oct. 3, 2020, and Sept. 30, 2021, cut paying out fraudulent cases to 0.57%, an "unprecedented" number for UI fraud, Talcove said. He noted that the UI federal improper payment rate jumped as high as 18.71% from July 2020 to June 2021, and the DOL estimated Michigan's improper payment UI rate from July 2017 through June 2020 was 35%.
The Deloitte report found that less than 3% of the total funds paid for fraud came from the state UI trust fund, with a majority of fraud from the federal UI fund.
"Our diligence in identifying fraudulent claims proves that we now have effective processes to identify criminals who steal benefits from unemployed workers and Michigan taxpayers," new UIA Director Julia Dale said in a statement. "We will use all the sophisticated tools available to us - and pursue new opportunities and partnerships - to continue aggressively fighting unemployment insurance fraud."
The order aims to stop fraud, use plain-language communicating with Michiganders, and collaborate with DOL and the National Association of State Workforce Agencies to track multi-state fraud schemes, as well as:
Use new software to identify questionable claims and detect in bulk fraudulent claimsIdentify foreign IP addresses, suspicious email domains, multi-state claims, and other tip-offs to fraudDaily reviews of all claims and establishing procedures to resolve victims of identity theft who need to file a new claimRetain experts to counter UI system criminal attacks, analyze fraud, and clear legitimate accountsPrioritize UI fraud case enforcement and track objectives and results
The UIA has paid over $39 billion in benefits to more than 3.3 million workers since March 15, 2020, with over 99% of eligible claimants receiving benefits.
The UIA could install the technology in four days and it would cost about $1.5 million annually for a service that is 99.59% effective, Talcove previously said.