Unemployment questions remain for employers, Kansans as legislators tackle problem

Andrew Bahl
Topeka Capital-Journal
Denise Berkley, bookkeeper at the Lawrence Public Library, shows the stack of papers she has kept from fraudulent unemployment claims. Over half of the employees at the library have had bogus claims filed in their name, she said.

In theory, Denise Berkley is supposed to just work part time.

A bookkeeper at the Lawrence Public Library, Berkley's winter months are usually spent getting things in order ahead of tax day in April, which approaches all too rapidly.

But in recent months, Berkley has spent over 100 hours dealing with fraudulent unemployment claims, which have affected roughly half of the library's 80 employees — including Berkley herself. One of the workers has had three separate fraudulent claims filed in their name over the last three months.

"It was just like, 'Oh my God, I just don't have time to deal with this,' " she said.

Fraudulent claims have swamped the state's unemployment system, the latest struggle for the Kansas Department of Labor. Scores of Kansans have had bogus filings made in their name — including Gov. Laura Kelly.

Now a new round of alarm has been raised as tax forms, known as 1099-Gs, have been mailed to scores of confused or anxious Kansans who are worried that they will have to pay taxes on unemployment benefits they never received.

Legislators are moving forward on a sweeping piece of legislation to increase their oversight of the matter, protect business owners from having to pay out their share of any fraudulent claims and get the ball rolling on a long-awaited modernization of the state's unemployment systems.

But the bill won't help erase all the concerns of citizens like Berkley who are now caught in a quagmire they didn't expect.

There are concerns about the downstream effects this will have on state finances, as well as the employers whose payments underwrite the unemployment insurance program.

KDOL hasn't confirmed how much has been paid out in fraudulent claims and says outside estimates are likely to be inaccurate. But there are fears that the bogus payouts could run into the hundreds of millions of dollars.

"It is voodoo accounting of some sorts," said Rep. Sean Tarwater, R-Stilwell. "It doesn't add up and it never has. They simply can't explain it right now."

Tax forms prompt anxiety among Kansas residents, businesses

KDOL is hoping that tweaks to its benefit application system will cut down on fraud, with a revamped login process rolled out last week after the state took the unprecedented step of taking the unemployment system offline for several days.

The agency has said that over 1 million fraudulent login attempts were thwarted in the week since the new, more secure application went up. The hope is that will free up resources to help residents who are unable to get their legitimate benefits.

Denise Berkley, bookkeeper at the Lawrence Public Library, runs through the process on the Kansas Department of Labor website where she reports fraudulent unemployment claims.

But the new system is little consolation to those who have already been caught up in the fraudulent benefits riptide.

Berkley said it has been difficult getting through to flag the fraudulent tax forms that many of the library's employees have received. While KDOL has set aside a separate phone line for issues with 1099-Gs, most who have attempted calling have reported little luck in getting through to address their issue.

It was frustrating, Berkley said, that employers were the ones who had to spend time chasing KDOL over the tax forms, noting that workers have to fill out a form online and that it is unclear to them what, if any action, KDOL will take to address the matter. 

"Why can't they fix the 1099 on their end?" she said. "They know, I told them these are fraud. So they should be able to go back in and fix it from their side."

Gerald Grasso, a spokesperson for KDOL, acknowledged that "volume is large at this time across all of phone lines" but said steps were being taken to expand the number of individuals dedicated to responding to tax form concerns.

"It is a bit of a call center perfect storm," he said.

The agency is beginning to send corrected tax forms to those who were affected, either by 1099s linked to fraudulent claims or those where the amount of benefits received is incorrect. Residents who get the tax forms on fraudulent benefits won't need to pay taxes on them.

"We're anticipating sending a large batch of those next week," said Peter Brady, a deputy secretary at KDOL.

But legislators say they are frustrated that it took months for the agency to take the drastic step of shutting down the system to beef up fraud prevention.

"We don't know how it lasted this long," said Rep. Kristey Williams, R-Augusta.

Most other states have also been beset by fraud, most notably California, which has paid out an estimated $11 billion in bogus claims and blamed the U.S. Department of Labor for not adequately preparing states for what was to come.

Brett Flaschbarth, acting secretary of labor, didn't criticize how the Trump administration handled the matter but said more support from Washington would be a major boost.

"There needs to be more support on the front end to give states the necessary tools to prevent fraud," he said, adding that any federal money for fraud-busting efforts would "pay for themselves."

Wide agreement that unemployment overhaul is necessary

It comes as legislators embark on the herculean task of sorting out a way forward on the issue.

A sweeping bill currently being considered in the House Commerce Committee would establish a panel of lawmakers, business groups and agency staff to chart a plan forward for modernizing the state's unemployment backend.

The current system is several decades old, despite periodic efforts from previous governors, both Democratic and Republican, to kickstart modernization efforts.

There is near-universal agreement that a sweeping overhaul is needed to improve security and smooth out payments to claimants but many want oversight to ensure the final product is amenable to everyone and that tweaks can be made going forward as best practices change.

"We can't modernize it, stop and never do anything with it again," said Eric Stafford, a lobbyist for the Kansas Chamber.

Most pressing for employers, however, are changes to how employers and other entities, such as school districts and nonprofits, pay into the state's unemployment trust fund, which bankrolls benefits paid to out-of-work residents.

The rate changes depending on how much money is in the trust fund, as well as a business's payroll and how many of its employees have filed for unemployment. Businesses that were hit up for fraudulent claims could see higher rates, especially as the trust starts to dwindle.

For their part, KDOL officials say they support many elements of the legislation, although the agency is officially neutral on any action. Brady said the intent was to "make those employers whole and start to rebuild that trust with the employer community."

The Kansas Department of Labor website has a specific webpage for those who were victims of identity theft.

Kansas business groups warn of dire consequences without action

It is expected that a rash of fraudulent payouts will run down the trust fund at a faster-than-expected rate. Grasso said the fund's balance was at roughly $250 million in late January and maintained that it could last through the summer.

But Tarwater said outside estimates were less rosy, saying the state is likely to "crash and burn sometime in March."

While the state can lean on a zero-interest loan from the federal government, the money will need to be paid back, and that could fall to the businesses themselves.

The goal of the bill is to equalize how much employers of different sizes are asked to pay. The worry is some businesses will see wild fluctuations in their payments, while others would see a more modest change.

But the concern is that there will be an across-the-board increase in tax payments to the trust fund, a concern for the bottom line of employers throughout the state.

Some entities say they could see rate increases in the coming years of upwards of 1,000% if action isn't taken. Business groups argue that this would be compounded by the economic damage of the pandemic, pushing more businesses out of operation.

"It is a boring matter ... It is something we don't talk about a lot, it is mundane, and small business owners probably don't share it with you at a cocktail party or a Super Bowl party," said Dan Murray, state director for the National Federation of Independent Businesses. "But it hits their wallet and it impacts their ability to stay open."

In Lawrence, the public library rarely has former employees file for unemployment, meaning that it doesn't have to pay much, if anything, to chip into the trust fund.

But Berkley said that "even one claim" could change that, dramatically increasing how much the library would be assessed.

While many were seizing on the immediate fraud concerns, she said she was most concerned about the long-lasting impact to organizations like hers, as well as the state budget, which could last for some time.

"I want everyone to know this is millions and millions of dollars of taxpayer-funded money that has been negligently spent," she said.