Frustrated with unemployment fraud, Kansas legislators demand more security, oversight with labor department

Andrew Bahl
Topeka Capital-Journal
Frustration with the Kansas Department of Labor has reached a boiling point, in part due to a sharp rise in fraudulent claims, like these, in recent weeks. (September file photo/The Capital-Journal)

Frustration with the Kansas Department of Labor has reached a boiling point for lawmakers, as the agency is outlining the effects of new technology introduced earlier this week that they say will help shut down a rush of fraudulent unemployment claims.

The agency has been overwhelmed with a historic number of out-of-work Kansans since the COVID-19 pandemic began in March. The matter forced the resignation of the agency's secretary over the summer but complaints from frustrated claimants, unable to access their benefits or reach the agency, continue.

This has been compounded by a rash of fraudulent claims, which have been a constant since last year but appear to have escalated in recent weeks. Republican legislators believe this spike is driven by the state's lax security measures, which they argue makes the state more attractive to crooks.

Earlier in January, Kansas saw as many as 70,000 initial claims in one week, which was more than almost every other state in the country. New claims last week dipped to 25,489 the week of Jan. 23, the most recent week for which data is available. 

Now, legislators are preparing to take action.

"Either they are completely inept or they've been hiding something big and I think it is the latter," said Rep. Sean Tarwater, R-Stilwell, during a House Republican caucus meeting Wednesday morning.

New security features kick in

KDOL has been hopeful that new security features were implemented over the weekend will halt the bogus claims and free up significantly more energy to devote to helping legitimate claimants.

In order to beef up security, KDOL took the unprecedented step of shutting down the unemployment system for several days to implement an enhanced verification process. It was back up and running on Tuesday.

The agency said it stopped over 576,000 fraudulent login attempts in the last 24 hours — data that gives a glimpse into the scale of the fraud the state has been experiencing for weeks, if not months.

The actual number of fraudulent claims stopped is a different matter, though the department has previously said it stops thousands of bogus filings per day.

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Over 45,000 residents attempted to login into the more secure system, according to KDOL data, with about 27,000 of them able to register successfully. Other residents may not have completed the process and might finish at a later time, the agency said.

And some claimants either failed the identity check or encountered technical difficulties. Jerry Grasso, a spokesperson for KDOL, noted that "the assumption that issues are all on KDOL’s end is incorrect" and that agency representatives can walk residents through potential issues.

"We're going to get that ironed out and the system will be performing at a very high level," Brett Flaschbarth, acting secretary of KDOL, told legislators Wednesday.

Businesses, legislators worry about financial impact

Businesses say they remain frustrated with the volume of fraud.

Amber Neises, a representative for Airbus' operations in Wichita, said there were former employees who were unable to file for unemployment after being laid off because someone had previously filed a fraudulent claim in their name.

"I would like to relay the amount of confusion and stress that this adds to an already stressful work-life balance situation our employees are facing in their everyday life," Neises said.

Republicans have argued that fraudsters are targeting the state because of its lax security protocols, which in part stem from the department's aging infrastructure. While updates were made to the unemployment system in the early 2000s, KDOL has argued the core of the system is upwards of 40 years old.

Sen. Rob Olson, R-Olathe, pointed to $50 million in federal funds secured under the administration of Gov. Kathleen Sebelius at a time when the state's unemployment system was also under strain.

"The exact problem we have right now, with people not getting their benefits, we had back then too," he said in an interview, adding that the money did not move the needle on modernization.

The concern is the state will be on the hook for paying out the fraud from its dwindling unemployment trust fund.

Officials are confident the fund will remain solvent until the summer, at which point a no-interest loan from the federal government can be pursued if need be.

But employers ultimately pay into the fund via a tax and other groups, such as school districts, regularly reimburse the state for their share of any benefits, meaning legislators are concerned that any efforts to replenish the trust would burden those organizations.

KDOL has not publicly said how much fraud has gotten paid out, although Tarwater said an outside estimate pegged the number in the hundreds of millions of dollars. 

For Sunflower Support Company, a Topeka-based firm providing services for adults with intellectual disabilities, the bill for fraudulent benefits totals roughly 6% of their annual payroll, according to Holly Mace, the company's human resources director.

Modernization effort looms, though timeframe unclear

Members are preparing a comprehensive legislative response to increase oversight of the unemployment system, protect organizations hit by fraud from having to pay out any benefits for former employees and start what will likely be an expensive and prolonged modernization process.

Gov. Laura Kelly requested $37.5 million in funding to begin an overhaul of the backend systems in her budget request last month and more money will likely follow, though a timeframe for when the effort might start remains unclear. 

Ryan Wright, who was formerly acting KDOL secretary and now is a top advisor for the agency, said in January that a report outlining the steps needed to modernize the systems was "essentially done." The plan, he said, was to bid out the project in the spring.

But key lawmakers said this week that they had no idea of the plan's status and a new timeline provided Tuesday by a KDOL spokesperson said that the report would be delivered sometime this month or next, with the project set to begin in late 2021.

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Legislators say they are prepared to spend what it takes to get the system up to date.

"We will get whatever it takes to get it modernized," Olson said. "Everybody wanted to get this done. It is going to cost money — it is not going to be cheap."

For now, residents are balancing various strains of anxiety.

Some are worried about tax forms arriving in the mail from KDOL showing benefits payments they never got, with the agency urging residents to alert them online if they were sent the documents in error.

But the top concern for many is still their financial future if they are unable to get their benefits. Residents with legitimate claims say they are still having a hard time getting the benefits they are owed, with complaints that they remain unable to get through to talk to a customer service agent persisting. 

Flaschbarth re-iterated that the agency has beefed up staffing in the call center and said he expected they would slow down as the agency resumes paying out federal programs renewed under federal legislation in December.

But Tarwater said the sense of urgency remains extremely high for his constituents.

"We've got people losing their cars, we've got people that can't eat, haven't paid their rent since March," he said.