Fake companies, fake workers: State battling new type of unemployment fraud
Posted February 2, 2015 5:30 p.m. EST
Updated February 3, 2015 9:37 a.m. EST
Raleigh, N.C. — 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.