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NH recoups $1.2m paid to unemployment frauds

New Hampshire Union Leader

March 02. 2013 11:04PM

In a revived push to recover money owed to the state, New Hampshire has recouped $1.2 million in fraudulent unemployment benefit payouts this year under a federal program in which income tax refunds are garnished.

The state Unemployment Compensation Trust Fund is now owed a cumulative $11.1 million in fraudulent claims going back many years, according to Division of Employment Security Counsel Rich Lavers.

Lavers and DES General Counsel Maria Dalterio hope the state can recover much of that money in the months ahead. Anything recovered strengthens the fund and over time could reduce the taxes employers have to pay.

New Hampshire became the 19th state to qualify for the Treasury Department program in October. There are now 28 states in the program.

The state Legislature last year passed two bills aimed at unemployment fraud. HB 1579, which took effect in August, allows the DES to garnish wages, while HB 1366 tightened the reporting requirements for beneficiaries. They now have to document their search for employment each week, must be healthy and available for work, and must be willing to accept temporary work.

In 2012, the job of collecting money owed on fraudulent claims was transferred from the Benefit Payment Control unit at the DES to the Legal Department, which now consists of attorney Lavers and four paralegals. "The goal was to enhance our capacity to collect," said Dalterio. "The department decided to put more resources into this area a little more than a year ago, partly because the amounts, from 2008 to 2012, grew substantially."

Under the national program, garnishments are made by federal authorities, and the money is then sent to the state.

A tsunami of claims

According to the DES, fraudulent overpayments result when a person filing for unemployment benefits fails to disclose work and earnings in order to maintain eligibility or increase the amount of weekly benefits. The department then investigates reports of such incidents, gives the claimant the opportunity to explain his or her situation and issues its determination.

The Great Recession generated what Dalterio called a "tsunami of unemployment claims." At its peak, during the week of March 6, 2010, the department was processing 36,953 claims for unemployment insurance, she said, while claims for the week ending Feb. 23 totaled 13,352. The period of high claims taxed the department's ability to pursue fraud, but that is changing, and for good reason. There's a lot of money on the table.

The state had 542 fraud determinations in 2008, worth $748,000. In 2012, it was pursuing 782 fraud cases worth more than $2.6 million, according to information provided by the DES because of a right-to-know request from the New Hampshire Union Leader.

In 2008, the typical case referred for criminal prosecution was in the $2,000 to $3,000 range. "We had a rule of thumb that it had to be at least $1,000 to turn over to the county attorney," said Dalterio said. "Now we have much larger figures."

All but one of the 12 cases referred for prosecution in 2012 were five-figure fraud allegations, ranging up to $34,021. The maximum unemployment benefit in New Hampshire is $427 a week, plus a federal supplement of $25 a week for those who qualify. At $452 a week, someone would have to collect for 75 weeks to reach $34,000. How is that possible when the state only allows workers to collect for 26 weeks? Federal extensions enabled workers who had exhausted their state eligibility to pick up an additional 26 weeks.

"Because of the federal emergency compensation benefits, people might not even go out of the system, whereas before you'd have to be out for at least six months before you could apply for a new benefit year. The federal benefits at one point more than covered the gap," said Dalterio.

Some wait out the six months and apply again, and then there are the repeat offenders. "There are some people who have committed fraud more than once," she said. "They serve out their time when they are disqualified, and several years later they apply again and commit fraud again."

One case

Peggy Phillips could soon be a spokesman for the DES, warning of the dangers of fraudulent unemployment claims. It's not a position she applied for. It's part of a sentence handed down in January by Judge Peter H. Bornstein in Coos Country Superior Court, where Phillips pleaded guilty to misdemeanor fraud after a grand jury indicted the 56-year-old Berlin woman on charges of receiving nearly $20,000 in unemployment benefits to which she was not entitled.

In addition to a suspended sentence of one year in jail and two years' probation, Phillips agreed to pay $15,893 in restitution and a 17 percent administrative fee and to appear in a "deterrent video" produced by the DES office sometime after May, according to sentencing documents obtained from the court.

"We show it to people who are applying for benefits," said Dalterio. "We have a benefits rights session, where people get all the information they need about unemployment compensation - what to do and what not to do. And one of the things not to do is commit fraud."

That warning has been ignored at record levels in the past four years, as the Great Recession significantly increased the number of people receiving benefits and one extension after another increased the length of time they could qualify. In 2008 - the last full year before the recession began - 17 cases worth $52,641 were turned over to county attorneys for prosecution. For comparison, 12 cases worth $237,048 were turned over last year.

Prosecution numbers

Criminal prosecution, however, has not proved to be a very effective way of recouping the money. Other than Phillips' conviction, the state has recovered just a little more than $20,000 from cases referred to county attorneys in 2012, mostly from out-of-court settlements.

The DES does not reveal identities or circumstances surrounding fraud cases unless they lead to an indictment and potential prosecution, at which point they become public.

Individuals found guilty of fraudulently collecting unemployment checks now face a 20 percent penalty, on top of repayment.

All of the money recovered, no matter where it comes from, goes into the state's Unemployment Compensation Trust Fund, which now stands at $168 million. The health of that fund is of no small concern to the state's employers, who have faced a growing liability for its bottom line in recent years. Because of the surge in claims, the taxable wage base was increased from the first $8,000 in weekly wages in 2008, to $14,000 by 2012.

At one point during the recession, the fund dipped below $150 million, triggering a mandatory 0.5 percent surcharge on the unemployment tax employers pay. That charge was removed last year. A discretionary 0.5 percent surcharge is still in place, Dalterio said, but that is likely to be removed by DES Commissioner George Copadis at some point this year.

Copadis took advantage of Friday's announcement of $1.2 million in garnished tax returns to stress the division's heightened focus on enforcement.

"This is great news for the Unemployment Compensation Trust Fund; great news for New Hampshire employers whose taxes support the unemployment compensation system; and great news for those honest, hard-working individuals unemployed through no fault of their own who rely on benefits being available," he said. "This should serve as an example and deterrent to those considering unemployment fraud. You will get caught, and we will recover the fraudulent payments together with interest and penalties, thus making it a very costly decision."

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