US lost about $200 billion due to fraudulent unemployment claims during pandemic: expert

Hundreds of billions have been paid to people making fraudulent unemployment claims during the COVID-19 pandemic, according to the CEO of identity verification company ID.me.

Scammers have stolen identities, each could be worth about $20,000 in benefits, according to ID.me CEO Blake Hall. “If you're able to commit identity theft on one person, you can take $20,000 in federal funds. And if you do the math on that, 50,000 claims equals a billion [dollars].”

“Based on what we're seeing in the states where we're combating this, unemployment fraud really focused on the Pandemic Unemployment Assistance Program, designed to aid the sharing economy workers,” Hall told Yahoo Finance. “I think the national figure for fraud and loss is closer to $200 billion based on what we're seeing — almost half of the claims that have been paid out.”

ID.me verifies identities for the Social Security Administration, the Treasury Department, Veterans Affairs, and other agencies. It works with the entire West Coast to verify indentities in states’ unemployment administrations and is due to work with nine more.

When ID.me first started working with states, Hall thought the states’ systems were broken because the fraud rates were so high.

“We were seeing fraud rates that are over 10 times as high as what we see targeted on federal agencies across virtually every single threat vector that you could possibly have,” he said.

According to Hall, “traditional unemployment fraud is more about eligibility fraud.” And while regular unemployment agencies can “reconcile” claims about wages and lost employment with employers’ data, there is no such verification system in place for gig workers.

The most “common” form of identity theft is a scammer using personal data taken during data breaches, like that at Equifax. The scammer would then file a claim with the stolen identities.

Criminals also use social engineering, like posing as employees of government agencies or using information from social media to steal identities. Through partnerships with social media platforms like Facebook and Twitter and Instagram, Hall said ID.me is able to combat these attacks.

“A lot of these state workforce agencies didn't have basic fraud prevention tooling as they've distributed $500 billion in federal aid over the last 10 or 11 months and so criminals were able to very easily defraud these systems,” Hall said, adding that states were able to immediately prevent 20% of fraudulent claims using ID.me.

Tax time, will be a “moment of reckoning for a lot of these states,” Hall explained, as unemployment benefits will show up on tax returns.

“So as individuals start to get these forms from workforce agencies that let them know that their identity was used to file for unemployment, the extent of the problem will become clear,” he said.

Kristin Myers is a reporter and anchor for Yahoo Finance. Follow her on Twitter.