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Fake companies, fake workers: State battling new type of unemployment fraud

Posted February 2, 2015
Updated February 3, 2015

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— More than a quarter million people in North Carolina are unemployed, and many turn to the state to help them get through until another job comes along. But not everyone who files a claim has good intentions.

The state Division of Employment Security says it is battling a new type of unemployment fraud, one that involves fake businesses, fake workers and false claims of unemployment.

During its latest investigation, which spanned 18 months, the division identified 105 fake employers statewide and 672 fake unemployment claims filed by people who allegedly worked for the bogus companies. The state stopped $5.2 million in payments.

“We’ve set up these filters so that we can catch these people on the front end instead of paying it out and chasing it down,” said Dale Folwell, assistant secretary of the Division of Employment Security. “We owe it to those employers who are doing it the right way to be the fiduciaries and the stewards of not only their money but also the process.”

The state red-flagged a company, BH Hauling, that tried to register using the address of a vacant lot on Poole Road in Raleigh. The state flagged another company on West Morgan Street in Raleigh that was supposed to be Hall Trucking Service. In reality, it’s a shelter for troubled youth. In that case, the state was able to stop the fraud before it happened, but that’s not always the case.

One example is Optimum Touch Lawn Care Services in Charlotte. It registered with the state, got a state tax ID and used a popular business website to claim the company had 26 employees with an annual revenue of $910,000. Not long after registering with the state, Optimum reported "layoffs."

The unemployment claims came in, and the state paid out $194,000 in fraudulent unemployment claims. State unemployment leaders say the fake company's two owners filed the claims using their own names and stole the identities of others to cash in on the scheme. The owners, Letitia and Michael Johnson, pleaded guilty in federal court late last year.

“It’s not just enough to stop money from going out. Money that has gone out, we need to make sure those people are prosecuted to the fullest extent of the law,” Folwell said.

Folwell says anti-fraud efforts are part of the agency’s larger goal of eliminating debt. Before Gov. Pat McCrory took office, DES faced a $2.5 billion debt to the federal government. Lawmakers made the controversial move to reduce the amount and length of benefits. Since that time, the debt has dropped to about $400 million. Folwell says once the debt is paid off this summer, the rate businesses must pay will drop.

During the latest crackdown, the division realized it paid out $2.7 million in claims linked to fake businesses, money the state is now trying to get back.

That angers business owners like Margaret Haga, who runs H & H Shoe Repair & Pedorthic Facility in Cameron Village in Raleigh. For more than 30 years, Haga said, her business has paid unemployment insurance on behalf of her employees, not realizing fake businesses would try to steal from the system.

“It’s taxpayer money,” she said. “People who lose their jobs, it’s important that there’s something to give them a hand up … When I think about being a small business and paying into that and the money not going where it’s supposed to, it’s very, very disappointing.”

North Carolina has more than 200,000 employers who pay into the unemployment system. The fake business didn't pay a dime but found a weakness in the system to take taxpayer dollars. State leaders say, with new technology and tactics, the fake employer schemes are a thing of the past in North Carolina.

34 Comments

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  • flyfish42 Feb 3, 2015

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    That's really a foolish post now, isn't it? Unless, of course, you personally know some of the perps, since no names were given. In case you are unaware (and apparently you are), most people committing these sorts of crimes are not registered to vote at all, thus trying to tag them as one party or the other is irrelevant. And of those who are registered, my experience has shown that they are pretty evenly split. So there is nothing new to see here - just the same old broad-brushing.

  • veryfrustrated1 Feb 3, 2015

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    Sean, It says a lot about you when you question someone's veracity with no basis.

    The employee to whom I was referring was the receptionist. As all of the chairs were filled at the time, I was standing within 5 feet of the conversation leaning on my hand truck stacked with bankers boxes full of the information that I was required to bring to my audit. The receptionist was helping the young lady fill out a claim at a computer terminal for that purpose that was in the reception area.

  • Clif Bardwell Feb 3, 2015
    user avatar

    Huh!!! Fake companies and fake workers abusing the system. A system which is supposed to have checks and verifications to prevent this from happening.

    Yet y'all don't want any checks or verifications to prevent voter fraud?

  • dubious Feb 3, 2015

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    Really? It may surprise you to learn that corruption and criminality like this enrages Democrats and liberals. It casts a shadow on the good that these programs provide for the people who truly need them.

    This so-called scandal should come as no surprise. North Carolina is growing - quickly - and those who control the levers and purse strings are simply not making the necessary investments needed to insure that procedures, systems, and oversight keep up. I don't mean making more rules. I mean making sure those we have are working.

  • wageslave59 Feb 3, 2015

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    I find this hard to believe. Whenever we have had UE claims filed against our company the employee name indicated to us and the charges are made against our account. I'm not sure how they would pay out benefits without a specific employer account to charge it against. Unless as you say, ESC pays out benefits on "faith" and then verifies legitimacy later. If that is happening then the system is broken and they are just handing out money...

  • itsnotmeiswear Feb 3, 2015

    Wasn't it the NCDOR that sent well over a hundred separate refunds to one address in Charlotte last year? I think the total was something like 1.5 million dollars. How hard could that be to check with a simple computer audit program or process.

  • mayhem Feb 3, 2015

    Fake companies, fake workers, fake unemployment statistics.

  • dennis8 Feb 3, 2015

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    They are no more honest or dishonest than you.

  • Jim Hinnant Feb 3, 2015
    user avatar

    State employees operate the NC Unemployment Insurance Program - certainly none of them would be in cahoots with the "fake" employers, would they?

  • Alexia Proper Feb 3, 2015
    user avatar

    There's really no excuse to pay out claims to fake companies or fake employees. When a company registered with ESC, they know exactly how much you've paid in. If no payments are received over the past quarter, that should raise a red flag. I don't see why even one check was cut. They should have first investigated to find the fraud.

    But, I guess it sounds better when they can throw out that $100K+ number to make the liars look bad. To me, it makes the ESC look pretty incompetent.

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