Unemployment Insurance Fraud : A Rare News

The recovery in the economy is expected to be K-shaped for the successive quarters of 2021. The answer to the question Which sectors are likely to win or lose from the pandemic? is not hidden anymore. It has been widely seen that sectors like big tech, commonly known as four horsemen (Google, Apple, Facebook, Amazon), e-commerce, streaming services have expanded through digitalisation whereas the sectors which were dependent on corporate business need to think over their income models. These include hospitality and airlines where a bigger part of revenue is generated through business travels, something the pandemic has successfully disrupted. 

An obvious consequence of economic downfall is unemployment. The concept of Marginal Revenue Product (MRP) is sufficient to explain layoffs across the different firms. MRP is obtained by multiplying the marginal output by marginal revenue. If MRP is found to be less than the current wage rate then the firm needs to lay off the workers. Similarly, when the whole sector of business loses enough money to make them unable to pay their employees, they let them go or ask some of them for voluntary unpaid leave of absence (aka VULA) for the companies to sustain the changing market conditions. 

(Source: CMIE India Unemployment Rate)

The graph makes it clear that unemployment increased substantially during the initial phase of the pandemic, i.e. from the announcement of lockdown in March to the first unlock in June. The unemployment figures from the next months following the unlock matched the previous estimates proving the pandemic to be a disaster. Moving forward we will find out the government’s response and the challenges faced by them.

The Provider versus the Fraudster:

The governments of different countries have come up with different policy measures which compensate unemployed individuals with some benefits (commonly referred to as dole in the US) and those with reduced work hours (something observed in European nations). 

In India, unemployed citizens under the ages of 30 (men) and 35 (women) are entitled to these benefits only if their family income is less than two lakh INR. The UK government offered grants to employers to enable them to pay workers 80% of their wages through the Coronavirus Job Retention Scheme. The US government provided a $2trillion stimulus package. The responses of different governments to the unemployment caused by the pandemic can be found here.

Unemployment Insurance fraud or UI fraud simply refers to the collection of benefits by those individuals who could do that by presenting false or inaccurate information. These often include reporting improper employment details to the government, claims made on behalf of others and sometimes in the name of fictitious people and this is what identity thefts are all about.  

So once the government has set up the system, the next challenge is to register the individuals because if they fail to do so the wrongdoers will have the opportunity and the government account would report wasteful expenditures. India’s April-November fiscal deficit tops 135% of the full-year target and it  widens after millions are lost due to fraud and other expenditures on the deployment of right technology for the prevention of fraud and theft. The report Unemployment Claims Fraud Exploits Weak Spots in the System from NYT estimates the government expenditure to combat the fraud to be $100 million in the US.

Technology against Fraud

When the operations get tech support, fraudsters develop some of their own too. This came into focus only during the huge increase in the unemployment numbers given by OECD in the Short-Term Labour Market Statistics : Monthly Unemployment Rates and also observed from the India Unemployment Rate provided by CMIE. 

The report Unemployment Fraud from SAS concisely describes the challenges, faced by the authorities while issuing benefits for the unemployed and the methods employed to tackle them. The problems are common ones, as they are often experienced by developing economies during implementation of different government programs, like identity theft, inadequate tools or the predominant use of manual effort. It requires technology, especially cloud based solutions, as adding restrictions to the process might impact the speed of the program and harm the legitimate claims. SAS, as reported, helps to identify the identity thefts by using multiple attributes of the applicant and for extraordinary situations like the COVID-19 Pandemic, analytics make use of the business licensing, tax records and various other datasets.

The detection of fictitious businesses has been a continued struggle for the government officials ever since the popular scam of 1992 and this explains the true nature of evolution of tech.

SAS delivers the initial results within 3 weeks of receiving the data (across different geographic features) and these are maintained in the cloud with options of Microsoft Azure and Amazon Web Services (AWS). This facilitates the retrieval by the officials responsible through the cloud, without needing to switch from one system to another.

“uDetect” is another tool offered by Deloitte to Uncover Unemployment Insurance Fraud. US Department of Labour Studies shows that with proper processing placed in the system they would have saved $2.2 billion that was disbursed to those who did not qualify for the benefits.

“uDetect” ensures that it can help state UI agencies to reduce frauds, segment applicants to correctly identify qualified individuals and provide benefits accurately.

Ashwath Pranjal

SY B.Sc Economics

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