With the Commonwealth in the midst of a major Department of Unemployment Assistance modernization process, it’s a good time for municipalities to assess their practices related to fraud protection and take steps to mitigate risks.
The first phase of the state’s Employment Modernization Transformation has been live since September 2023, while the second phase is expected to roll out in January 2025.
Phase 1 focused on updating systems related to wage reporting and payroll functions, and Phase 2 will update the more complex processes for claims and appeals.
“The pandemic led to a huge uptick in the number of unemployment claims filed around the country and showed that every state’s system was outdated, overwhelmed and in need of modernization,” said Paul Scott, vice president at the Unemployment Tax Management Corporation, which provides unemployment services to many MIIA members and other Massachusetts employers.
Scott added that all states have either modernized their systems or are in the process of doing so.
Fraud spike expected
Municipalities are advised to prepare for system changes that will come with the Employment Modernization Transformation and be on heightened alert for fraudulent activity.
“Unfortunately, whenever states implement a new system, criminal organizations are aware and frequently try to attack it,” Scott said.
When Connecticut’s new system went live in 2022, for example, about 80% of claims filed within the first several months were fraudulent, Scott said.
Municipalities are generally targeted disproportionately for fraudulent claims, Scott noted, because of the prevalence of long-term, high wage-earning employees such as police officers, firefighters, and teachers. Massachusetts pays the highest weekly benefit rate ($1,033), making employers around the Commonwealth more vulnerable to fraudulent claims.
During the most recent tax season, municipalities also saw an influx of fraudulent claims where employees received U.S. Internal Revenue Service notifications that their refunds were being withheld because of unpaid unemployment taxes (although they had not filed unemployment themselves).
What municipalities can do
Scott said municipalities should be extra vigilant for fraud and liabilities, particularly because one unemployment claim can cost an employer nearly $31,000.
Additionally, municipalities can prepare for the modernization process by making sure they are registered in the new system and have established online access. They can also get familiar with the program and explore ways to streamline processes where possible.
As a priority, municipal employers should have a solid documentation process in place to avoid liability for ineligible claims. This process should always include securing a letter of resignation that clearly cites the reason why the departing employee is leaving.
Municipalities can also make sure they are leveraging the Commonwealth’s “reasonable assurance” provision, which deems school department employees ineligible for benefits if provided with reasonable assurance of returning the following school year.
Additionally, municipalities can apply for certain staff positions — such as lifeguard, recreation program worker, and athletic coach — to be classified as “seasonal” through the state’s seasonal certification program thereby making them exempt from unemployment benefits.
Municipal leaders should also know how the appeals process works, as well as how to watch out for charging errors.
The appeals process consists of three levels, starting with determination by a local office adjudicator, progressing to a hearing before a Review Examiner, with testimony and evidence taken, and then to final review of testimony and exhibits by the Board of Review. Scott said employers should participate in all three levels of the appeals process and send first-hand witnesses to hearings.
Employers should closely review all monthly statements to catch common charging errors such as fraudulent amounts (in excess of those allowed by statute), extended benefits, and overpayments related to part-time employees who have lost employment elsewhere.
Municipalities may want to access third-party resources to help navigate the complexities of the system. As part of its Unemployment Services Program, MIIA offers risk mitigation training, claims auditing and management, and all related processing. MIIA partners with UTMC to provide participants with claims management services, and with First Nonprofit Companies to provide human-resources-related unemployment services and operations support.
For more information on unemployment fraud, as well as free webinars on reasonable assurance and seasonal certification programs, visit MIIA’s Unemployment Services Program page.
