Tanzina Vega: I'm Tanzina Vega. Welcome back to The Takeaway.

Jackie Martin: I'd say it was around January I received my first letter from the New York State Department of Labor notifying me that I was eligible to receive pandemic unemployment assistance. I thought it was strange because I didn't apply for unemployment insurance because I still have a job.

Tanzina: That's Jackie Martin, our line producer here at The Takeaway. She's been working for the show since before the pandemic began. When she got her first letter about her unemployment benefits, she just brushed it off. Then more letters kept coming in and that's when she got suspicious.

Jackie: I called my accountant and she was like, "Let me look around. Let me nose around." She found an article from a peer in Westchester with the DA warning Westchester residents of unemployment fraud.

Tanzina: That's right. Jackie was receiving those letters because someone was attempting to apply for unemployment benefits using her identity. Jackie's not alone. Since the pandemic began, there've been more than 425,000 fraudulent unemployment benefit claims in New York State alone. Greg Iacurci is a personal finance reporter at CNBC and he's here to help us understand the scope of the problem. Greg, welcome to The Takeaway.

Greg Iacurci: Hi, thank you for having me.

Tanzina: Greg, the scope of the problem, nationwide-- 425,000 cases in New York State alone at least, I think I should say, incidences of fraud. What are we-- If that's happening in New York, what's the rest of the country look like?

Greg: That's right. Experts I've spoken to said that the unemployment fraud that's going on nationwide is unlike anything that the system has seen before. The system was created almost a century ago back in the 1930s. Experts say that it likely affects at least a million people nationwide. That's probably a conservative estimate. The Labor Department's inspector general estimates that at least $63 billion will be lost to improper payments through the unemployment system, most of that due to fraud.

Tanzina: Let's talk a little bit about how this is happening because we know that unemployment requests have increased. Lots more people have been out of work since the pandemic began. Is what we're seeing a result of that or is it a result of some flaw in the system? What's opening the door to this level of fraud right now?

Greg: It's a couple of different things that are contributing to the problem. On the one hand, you have this flood of unemployed people coming into the system, that is a masking agent if you will. 19 million people are still collecting unemployment benefits of some kind. In the early days of the pandemic, like 6 million people rushed to claim benefits into consecutive weeks. Prior to that, the prior record was less than 700,000 in any given week. The scale of the problem is pretty massive. States have fairly antiquated systems, not all of them but a lot of them don't have very modernized systems which experts say makes it hard to be nimble in these sorts of situations. Perhaps the bigger problem if you will is back in March 2020, in the early days of the pandemic, the CARES act established a program called pandemic unemployment assistance. That was for self-employed people, gig workers, freelancers, other types of workers who generally are not eligible to collect state unemployment insurance. There was some fairly lax requirements. You could self attest, for example, that you were eligible for benefits. That was done in the name of getting benefits out to people quickly, but it also opened the door to fraud.

Tanzina: We just heard from our line producer who said she found out because she started getting these weird letters in the mail and she said, "I'd never applied for that," but how do most people find out that they've been a victim of fraud? Or do most people not find out that they've been a victim of fraud?

Greg: Unfortunately, they may not find out. Most people are finding out during tax season because they're receiving 1099-G tax forms in the mail or electronically. Those are basically tax forms that tell you how much unemployment income you received over the course of 2020. People are getting these tax forms and are saying, "I didn't get unemployment benefits in 2020." Someone collected those benefits in your name most likely.

Tanzina: Tax season is upon us. Sound like it's going to be pretty messy. Does this hurt people who are legitimately seeking unemployment assistance?

Greg: Yes, it could. Unless the individual gets it rectified with the state labor agency, it may be difficult for them to collect unemployment benefits if they need them in the future because you can only collect, as an unemployed person, there's a finite amount of benefits that you can collect in any given year. If you don't report it to the labor agency then that could become a bit of a problem, if you lose your job.

Tanzina: You mean if somebody has collected them in your name and you actually didn't know that and then you need the unemployment, you could get denied.

Greg: Yes, or eligible for fewer benefits than you would have otherwise been. It means someone has stolen your personal data. There's the chance they could open up lines of credit in your name, for example. There are lots of reasons to be wary about the situation.

Tanzina: Greg, let's take a listen to what happened to Jackie because after you are a victim of identity theft, it is difficult. Let's take a listen to how she had to deal with that.

Jackie: I had to go to the state police, make a report. I had to go to the Department of Labor and report the fraud. I had to go to all three credit bureaus and report it with them, let them know that my social's out there. There's a whole host of other things I have to do.

Tanzina: Greg, for people who are victims here, what do they need to do? Is what Jackie described pretty typical?

Greg: Unfortunately, yes, it is a bit of a process to get this all rectified, but it is important, as we discussed earlier, to do so for one, otherwise you may owe tax on your benefits that you didn't get or you might not be able to get them in the future. Also, someone has your personal information out there. The first step is to report the fraud to the State Labor Agency that issued the fraudulent benefits. For people who received 1099-G tax forms, it would be the labor agency that issued that tax form to you. You could find the respective contact information for the state bureaus at dol.gov/fraud. There's a directory there for all those state labor agencies. The state is going to have to issue a corrected 1099-G to you just so the IRS has updated information and make sure that you won't owe tax on benefits you didn't receive. Then people need to check their credit reports like with Jackie. You have to go to the major credit bureaus Experian, TransUnion, Equifax, and think about putting some sort of a freeze on your credit or placing your credit fraud alert on your file, just so you know if someone tries to open up lines of credit in your name. You have to report unemployment identity theft to the US Department of Justices National Center for Disaster Fraud. By the way, all of these recommendations are coming straight from the Labor Department.

Tanzina: Greg, just one last question before we let you go here. Unemployment benefits have also been politicized. Do you suspect that these instances of fraud will further that?

Greg: It's a good question. There were steps taken by Congress to clamp down on fraud in the unemployment system in December when the $900 billion COVID relief package was passed that contained some measures to reduce the amounts that could potentially be stolen through fraudulent means through the pandemic unemployment assistance program we spoke about earlier. Also, put some documentation requirements in place for self-employed people to be able to prove they are who they say are and that they lost employment income. It seems like that was a fairly bipartisan achievement in that bill. I don't think either party wants to see money being stolen out of the unemployment system, especially when tens of billions of dollars of extra money is being funneled to unemployed workers during the pandemic.

Tanzina: Greg Iacurci is a personal finance reporter at CNBC. Greg, thanks so much for being with us.

Greg: Thank you.

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