Fraudulent unemployment claims increase as Arizona Department of Economic Security claims no data breach

Fraudulent unemployment claims have been on the rise in Arizona, and East Valley small-business owners said they have experienced it firsthand. (Courtesy Adobe Stock)
Fraudulent unemployment claims have been on the rise in Arizona, and East Valley small-business owners said they have experienced it firsthand. (Courtesy Adobe Stock)

Fraudulent unemployment claims have been on the rise in Arizona, and East Valley small-business owners said they have experienced it firsthand. (Courtesy Adobe Stock)

On Jan. 17, the Arizona Department of Economic Security reported 17,993 unemployment insurance initial claims—or first-time claims—the next week, the state reported 48,361 initial claims. Two weeks later, the state reported 79,598 initial claims as businesses and employees across the Valley began to report unemployment fraud.

Businesses and employees in the East Valley were experiencing the same problem—employers had received correspondence from the DES that their employees—and in some cases, people that had never worked for the company—had filed for unemployment insurance. In the case of the Chandler Chamber of Commerce, President and CEO Terri Kimble said she not only got notice for her employees but for two other people who had never been employed with the chamber.

"I think what we are finding it's more widespread," Kimble said. "I am hoping the action that DES is taking is able to control it in the future. I encourage people to have a credit monitoring component if they received a claim against them—especially since Social Security numbers are out there on these claims. As an employer, I encourage them to make sure they are responding quickly to the claim and saying that are fraud. I know we have had just over 50 businesses that have experienced false claims."

As a result of the increased fraudulent activity, DES Deputy Press Secretary Brett Bezio said the department has taken steps to reduce the number of future fraudulent claims but said Arizona is not alone in seeing an increased number of claims.

“States across the nation have seen a significant surge in unemployment benefit fraud, largely in association with identity theft,” Bezio said in an email. “Although there has not been a breach of information stored by DES, criminals are using phishing scams, previous corporate data breaches and other tactics to collect information from individuals across the country and file for Unemployment Insurance (UI) and Pandemic Unemployment Assistance (PUA) benefits in their name.”


Bezio said fraud detection measures and identity verification through a system known as ID.me have helped the DES to combat fraud.

“This work has both reduced the number of fraudulent claims received and allowed us to identify individuals with unique circumstances that need an eligibility disposition on their claim,” Bezio said. “The Department remains vigilant in combating fraud within our UI systems, as fraud continues to be a nationwide concern. Individuals committing UI fraud are evolving and becoming more sophisticated. We will continue to identify suspicious activity among claims while working diligently to ensure eligible claimants continue to receive critical assistance.”

Unemployment benefit fraud affects local businesses, employees

Kimble said the paperwork she received from the DES contained the Social Security numbers of her employees and of the people who did not work for the Chandler Chamber of Commerce, raising concern about the nature of the fraudulent activity and its impact to employers and employees alike.

Bezio said due to federal requirements, there are certain forms that must contain Social Security number “for proper identification of claimants and timely processing of benefits.”

“With the implementation of identity verification within the regular UI system on February 7, fraudulent filings are now being prevented, therefore the number of notices going out to employers will significantly decrease soon,” Bezio said. “Employers have the option to sign up for electronic communications through the State Information Data Exchange System (SIDES), to streamline communications with DES and reduce the mail they receive. We apologize for the disruption to the business community and appreciate their assistance in identifying fraudulent claims.”

Kyle Timmons, franchise owner of Office Evolution Phoenix in Ahwatukee, said he was a victim of a fraudulent claim the first week of February.

“A claim was filed in my name with the Chandler Chamber of Commerce, and I’ve never worked for the chamber,” Timmons said. “I got the call from Terri Kimble, and I was truly puzzled, then I started hearing from several others who have experienced the same thing. I was surprised, of course; I had never been an employee there.”

Timmons said he did all the things recommended by the DES and his payroll provider—not knowing why his information got out there.

“It certainly got my attention; I spent a good part of a day or two filling out different things with different organizations doing everything we could to mitigate any further attempts at identity theft,” Timmons said.

In his time spent trying to cover all his bases, Timmons said he never discovered where there may have been a breach of his information.

“I found nothing,” Timmons said. “I checked all the credit reports, checked with the feds, talked with payroll—no one fessed up to data breaches. As far as we know, we still don’t know the source and didn’t have any other to-date attempted fraud.”

Timmons said the issue seems rampant in the Valley.

“To know not just one person that this has happened to, but multiple people, that’s indicative that there’s a big issue somewhere,” Timmons said. “All of us would like to know what happened so that we can take the appropriate steps. As far as I know no one has gotten any money out of this, but they have certainly tried.”

Despite a significant increase in the amount of initial claims, the DES reported a smaller increase in the amount of benefits paid, according to data from the DES. As of Feb. 6, $134.68 million was paid in unemployment benefits compared to $106.97 million in unemployment claims paid out Jan. 9.

Liz O'Neall, a managing partner at AZ Property Inspections Inc., said she, too, was a victim of unemployment fraud.

Like Timmons, she said she went through the proper channels to identify the source of the breach of her information and found nothing. Unlike Timmons, she had received the claim as the owner of the business only to find that, according to the DES, she was the claimant of unemployment benefits.

“Days later, I got two more letters in the mail for people who still work for us saying that they applied for unemployment benefits April 4, 2020,” O'Neall said. “I have a feeling more letters are coming. We don’t know why it happened; I don’t know where the breach was. It’s interesting that its happened to several people I know.”

O'Neall said she has gone through the proper channels with the DES but has yet to hear of any resolution.

Bezio at the DES said in the event of a fraudulent claim, employers and employees are advised to fill out the form accordingly and check the box for “My records show that the claimant never worked for this firm,” sign the notice on the bottom of the back page and return the form to the DES.

“Fraud detection measures and identity verification through ID.me have helped to combat fraud,” Bezio said. “This work has both reduced the number of fraudulent claims received and allowed us to identify individuals with unique circumstances that need an eligibility disposition on their claim.”

Christie Ellis was also a victim of a fraudulent claim. She—as a business owner—was sent a claim in her maiden name. She said she followed the process set forth by the DES and did not experience any hiccups in reporting the fraudulent activity. But, like the others, she is unclear where the breach of her information came from.

"It's strange that it's happening to so many small businesses and small business owners," Ellis said. "It's like we were targeted in some way."

Next steps

Bezio recommends victims of unemployment fraud go through the proper DES channels to report the fraud and find a resolution.

“Additionally, employers should report the suspected fraud using the fraud reporting tool: https://fraudreferralexternal.azdes.gov/,” Bezio said in an email. “We are taking action to minimize ongoing fraud, and we appreciate employers’ continued vigilance as well as their prompt attention to the notices they receive, which helps to eliminate UI fraud.”

The Arizona Department of Revenue also released guidance to those who find themselves in this position as tax season looms.

“The Arizona Department of Revenue advises taxpayers who receive a Form 1099-G from the Arizona Department of Economic Security (DES) for unemployment benefits they did not receive to contact the Arizona Department of Economic Security for a corrected form,” a statement issued Feb. 17 said. “Form 1099-G for Arizona Unemployment Insurance (UI) or Pandemic Unemployment Assistance (PUA) benefits are sent to the taxpayer and the Internal Revenue Service (IRS) as the compensation is taxable income. Since the amount is reported on the federal income tax return, which is the starting point for Arizona income taxes, taxpayers also report the amount on the state individual income tax return.”

The department reinforced “there has not been a breach of information stored by DES.”

Taxpayers who receive an incorrect Form 1099-G for UI or PUA benefits should contact the DES to request a revised Form 1099-G showing they did not receive these benefits. According to the department of revenue, the DES will send a corrected 1099-G to the IRS and the taxpayer to adjust the unemployment compensation income.

“A corrected Form 1099-G showing zero unemployment benefits in cases of identity theft will help taxpayers avoid receiving an unexpected tax bill,” read the statement. “The IRS advises that taxpayers who cannot obtain a timely, corrected form should still file an accurate tax return, reporting only the income they received.”

For more information, visit https://des.az.gov/how-do-i/report-suspected-fraud.


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