NJ targeting unemployment insurance fraud; the check may not be in the mail

When the Bergen County couple filing for unemployment certified they were "able and looking for work," they did so the same way thousands of others do from home every week — by logging into the state Department of Labor website.

The online world, however, is not quite as anonymous as many believe. Every computer carries a unique electronic address so it can be found on the internet, and what alerted state investigators to this particular claim was the location of the network being used. It was not in New Jersey. It was registered to Royal Caribbean Cruises in Miami, and no one was under any illusion that the couple was looking for work at sea.

Unemployment fraud is a multimillion-dollar business in New Jersey, say officials, with 1,600 to 2,000 attempts to bilk the system each week — from the couple on vacation certifying they were able to work while cruising to the Bahamas, to hackers from all over the world trying to game the system, to people still trying to collect unemployment benefits even after finding new jobs.

"No one likes to be ripped off, but the volume of money we put out is staggering," said Harold Wirths, the commissioner of the Department of Labor and Workforce Development.

New Jersey’s Unemployment Trust Fund went broke in 2009, not only under the strain of the severe recession that led to high unemployment levels, but from years of fraud that went on through decades of neglect. Wirths said the fund is now solvent again, due in part to anti-fraud measures being put into play that he said have saved the state $448.7 million the past three years.

"We’re fighting fraud on every front," the commissioner said.

It is a national issue, according to Douglas Holmes, president of UWC Strategic Services, a Washington, D.C., group that represents businesses on unemployment issues. He suggested that 2 to 3 percent of all unemployment claims across the country might be fraudulent.

"It’s easier now to commit fraud than 10 to 20 years ago because it’s so fast," Holmes said. "So much is on the internet that you don’t have to go anywhere to file for unemployment, as long as you have a Social Security number. The money goes right into your bank account."

A private piggy bank

Here in New Jersey, a spate of recent criminal cases brought by state and federal prosecutors suggest the labor department’s unemployment insurance program served as a private piggy bank for years, paying out millions when nobody was watching:

• This month, five former prison inmates were charged by the state Attorney General’s Office with stealing $100,000 in unemployment benefits obtained while they were behind bars.

• In a wide-ranging scheme that turned unemployment fraud into a family business, 31 people — led by a Newark couple and their children — were charged with defrauding the state of more than $2 million by filing unemployment claims in the names of relatives, friends and victims of identity theft. Two of those charged, Janice Allen, 58, and her daughter, Janice Dilligard, 37, were sentenced in February to 15 years in prison. Others are awaiting trial.

• In November, Livingston accountant Todd Halpern, 49, pleaded guilty to filing $700,000 in false unemployment claims in the names of clients and others, which prosecutors said helped pay for season tickets to New York Giants games, purchases of gold and silver jewelry, and expensive wheels, including a Cadillac Escalade, a Lexus GX-470 and a classic 1957 Chevy Bel Air. He is expected to be sentenced in August.

• Ryan Bird, 36, of Clementon is awaiting sentencing after pleading guilty in federal court last June not only to scamming time-share owners out of $200,000 in bogus fees they thought would get them out of their contracts, but also to collecting $18,104 in unemployment benefits he received by claiming he was out of work.

State getting serious

Defense attorney Jef Henninger of Tinton Falls, who specializes in fraud cases, said it is clear the state is taking unemployment cheats more seriously.

"A lot of people know it’s wrong, but they don’t think it’s a crime. They think it’s a civil issue and they can pay the money back," he said. "That’s like saying I’m going to steal a car and if I caught, I’m going to give it back. Well, things don’t work that way."

It was the Janice Allen case that led labor department officials to take a second look at their fraud detection systems and realize the foxes were not only in the henhouse, but getting well fed. According to the Attorney General’s Office, the unemployment benefits paid to Allen and her family predominantly went through debit card companies associated with MetaBank, an online bank that first noticed unusual activity with the cards and went to the state with its concerns.

"That was the best thing that could have happened," said Ronald Marino, assistant commissioner of income security at the labor department. "It was their software that uncovered it."

He said they soon realized if a bank’s programming could uncover suspicious activity, so could the state.

"From that point on, we started zeroing in on it," Marino said.

In New Jersey, claimants seeking benefits must check in weekly with the labor department, certifying they are able and willing to work. But with the benefits system largely automated and computerized, no one is grilling the applicants.

Following the bank’s lead of looking for unusual transactions, the state began examining ways to electronically query its list of unemployment claimants to look for things that did not match — including "identity proofing" applicants by matching answers to background questions with public records, checking for those who had returned to work, and ultimately looking at where the claims were originating.

The state first started cross-checking unemployment claims against the National Directory of New Hires, a national database of wage and employment information culled from employer W4 new hire reports and other information, to see if those who had returned to work were still getting checks after they returned to work. From April 2011 through April 2014, the program found 272,479 "hits" indicating filed claims from those who were no longer out of work. It saved the state $323.7 million.

"Everyone wants a few more weeks," Marino said. "It’s the biggest hit to the system."

After an audit by the Office of the State Comptroller last year found $10.6 million in unemployment insurance checks had gone out to more than 7,600 inmates, who are ineligible for unemployment — including one who received $39,631 while jailed for more than a year on a drug-related offense — the state also began checking unemployment claims against databases of those incarcerated in county jails. Five former inmates, along with the wives of three of them, were charged this month with fraud, and at least 50 other names have been referred to the Attorney General’s Office.

International fraud

Pinpointing where claims originate, meanwhile, has cut off thousands of additional ineligible unemployment certifications from as far away as Kazakhstan.

Every computer hooked up to the internet carries a unique numerical code, called an Internet Protocol, or IP address. It not only tells computers how to find other computers, it also provides a physical location. But by looking at the IP address of any unemployment claim, investigators can generally figure out where the claim was made, and flag it for further inquiry.

Using a software program that looks for out-of-state IP addresses, labor department officials said they stopped 12,705 unemployment claims for $65.3 million in benefits since May of 2012. Among those cut off was an Atlantic City casino worker who had lost her job, but had been certifying her ability to work, the records showed, from Belarus.

They also began tracking what they thought was an organized crime group or hackers looking for an entry into the system. The hits were clearly automated, coming from different foreign countries every 2 hours and 2 minutes, and went on for days, from the United Kingdom, Hong Kong, Germany, Netherlands and Israel.

"We picked it up as soon as it went online," said Charles Walkowiak, a former FBI agent brought in to head the labor department’s anti-fraud unit.

And a few weeks later, the system brought their attention to the couple on the cruise ship.

Marino won’t identify them because they have not been criminally charged, but said their certification came from an IP address for a network operated by Royal Caribbean Cruises in Miami, when they claimed to be looking for work in New Jersey.

The cruise line, which did not respond to requests for comment, has internet access on its ships.

Marino said as they looked deeper into the case, they found the same couple had filed unemployment claims four months earlier on a different cruise in the Mediterranean, and for weeks were filing from an IP address in Petah Tikva in Israel. But a six-month log of the IP addresses detailing the weekly certification claims showed most came out of a computer presumed to be in their home in New Milford, in Bergen County.

The department has obtained a judgment against the couple to reclaim more than $70,000 in benefits paid to them between March and August of 2012.

Officials say they are under no illusion that they have locked the backdoor. Those stopped from certifying outside the United States can call friends in New Jersey, and have them file for them. Computer hackers can mask IP addresses. And identity theft remains a pervasive problem.

The systems are also not perfect. The department has admitted mistakes in the past, cutting off benefits to some who committed no wrongdoing.

Still, Marino said the automated checks work in sync, backstopping each other, and sniffing out suspicious unemployment claims like multiple tripwires.

"If it doesn’t hit one, it hits another," he said.