N.J. unemployment insurance fund lost $25M in fraudulent claims in last 2 years

State faces rise in bogus claims as jobless fund has a $1.8B deficit

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Clik here to view.Jennifer Brown/The Star-LedgerJob seekers crammed the floor of Brower Commons during the job fair on the campus of Rutgers in New Brunswick, in this January file photo.

TRENTON — Fraudulent claims drained $25 million from the New Jersey unemployment-insurance program system each of the last two years and are on pace to cost even more this year, according to state records obtained by The Star-Ledger.

The number of bogus claims — more than 7,300 last year — reflects the desperation of cash-strapped workers as they struggle through the recession, authorities said. Many of the fraudulent claims came from workers who had been laid off but continued to collect benefits after finding new employment, labor officials said.

Fraudulent claims have robbed $97 million from the fund since the start of 2006, according to data obtained through an Open Public Records Act request. About one-third of that money will never be recovered, officials said.

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"Most people we talk to say, ‘Yeah, I know I wasn’t entitled to those benefits, but I really needed the money,’ " said Deputy Attorney General Scott Patterson, who oversees the prosecution of labor-fraud cases.

The number of fraudulent claims rose 40 percent from 2006 through 2008, then dipped slightly last year, according to Department of Labor and Workforce Development statistics. Even so, the amount paid out remained slightly higher than $25 million. For the first quarter of 2010, the payouts came to $7.25 million.

The high incidence of fraud comes as New Jersey — like many other states — struggles to plug a shortfall in its jobless fund. Last week, with the fund facing a $1.8 billion deficit, the Legislature established a task force to study the fund’s insolvency, and tightened benefit restrictions for workers who are fired for misconduct.

Labor Department officials defended their handling of unemployment benefits, noting that fraud tends to rise as unemployment swells. Through vigilant cross-checking of records while $3.5 billion in jobless benefits was being doled out last year, money paid on fraudulent claims came to less than 1 percent, they said.

"I don’t believe they’re increasing out of proportion," said Ron Marino, the department’s assistant commissioner.

The department said it depends largely on tipsters and quarterly cross-checking of records to uncover fraud. The most common scenarios involve laid-off workers who either fail to report new employment or take side jobs without reporting wages, Marino said. A large number of cases also stem from disabled workers who file for unemployment when they are eligible only for disability benefits.

Because investigating and prosecuting suspects can be difficult, about one-third of the money is never recovered, Marino said. But in most instances, officials are able to recoup the losses with a simple letter to the claimant requesting repayment. If the claimant is unable to pay, the department has the authority to withhold wages, income tax credits or assets from property sales, he said.

THEFT BY DECEPTION

If all else fails, the department can refer a case to the Attorney General’s Office for prosecution. The process can take years, however, and the agency only recently closed several cases that occurred before the recession.

In April, a 53-year-old employed woman from Burlington County was sentenced to five years of probation for collecting more than $25,000 in benefits between 2003 and 2005. She was ordered to repay the amount, plus penalties.

In May, a 41-year-old Gloucester County man was given five years of probation for collecting more than $35,000 in benefits between 2002 and 2006, even though he was employed during that period, according to the indictment. He also was ordered to pay back more than $42,000, including fines.

"They’re charged in nearly every case that’s referred to us," said Patterson, the deputy attorney general who oversees prosecution of the cases. "Eventually we hope everyone gets caught, but we know they don’t."

Patterson would not comment on pending cases but said that on average, the agency handles between 50 and 70 employment fraud-related indictments a year. Charges usually include third-degree theft by deception and fourth-degree falsification to authorities.

Lawyers who specialize in defending fraud cases say often a client saw no other choice but to bilk the system. Jef Henninger, an attorney in Tinton Falls, said he has been swamped lately with inquiries from claimants who said they knew they were doing something wrong but had justified their actions as victimless crimes.

"It’s one of those things where they hope they don’t get caught," he said. "All they know is today they’re feeding their family."

Also among those who are investigated are first-time filers who were honestly confused by a system they never had to use, Henninger said. Often they have a hard time getting through to the department for answers on how to fill out the online form, or do get through and are misinformed by call center agents on how to fill out their claims, he said.

The Labor Department said the fraud figures do not include honest mistakes and that it has nearly doubled its call center work force to 220 full- and part-timers since the start of the recession to help handle the flood of claims.