Local News

Fraud concerns officials as N.C. unemployment rises

Posted December 29, 2008 4:19 p.m. EST
Updated December 30, 2008 5:24 a.m. EST

— North Carolina's unemployment rate recently hit a 25-year high at 7.9 percent, and as jobless claims go up, state officials become more concerned about an increase in unemployment fraud.

Out of nearly 300,000 people who received unemployment benefits last year, the state Employment Security Commission identified 4,000 cases of fraud, ESC Deputy Chairman David Clegg said. On average, the state recovers $6 million a year from improperly paid benefits.

"Fraud is always a concern to us because it cheats the system," Clegg said.

Some people make honest mistakes, he said, but others try to hide the fact that they're working and collecting unemployment benefits. They usually get caught when employers report worker earnings.

"Those cases are outrageous, and these are the cases we will actively prosecute," he said.

Still, he said, it's uncommon for unemployment fraud cases to go to court. Most are resolved in out-of-court settlements.

Those who collect unemployment benefits are required to actively search for work. Because 85 percent of claims are handled online or by phone, the ESC relies on the honor system that people really try to look for jobs.

"We get lots of tips," Clegg said.

While those filing claims usually account for the most cases of fraud, the biggest cases usually come from employers.

"Reasonably large employers will spin off limited liability corporations from their base of operation and move employees into these sham partnerships in an attempt to get a lower tax rate," Clegg said.

In recent years, the ESC uncovered more than $50 million in employer tax fraud.

Verne Northern, who is looking for work, said she and other unemployed people are hurt the most by fraud in the system.

"They're making it hard for everybody else," Northern said.