200811_wub_nor_stopfraud-img

Seattle Fire Department’s Senior Personnel Specialist Dori Towler spotted fraudulent claims filed using the identities of Fire Department employees.

Revelations last week that this spring’s $576 million unemployment fraud, the largest in state history, started much earlier than previously acknowledged have spurred a storm of new questions over the handling of the crime.

Data released Aug. 3 by the state Employment Security Department shows that criminals were filing fake claims in the first week of March. That’s more than two months before ESD publicly disclosed the fraud and temporarily froze benefit payments, in mid-May, by which time a staggering 56% of the weekly claims ESD was paying were from criminals, many of them reportedly overseas.

But even before Monday’s disclosures, some state lawmakers and others were questioning whether ESD had inadvertently abetted the scam by lowering fraud detection protocols to speed up legitimate claims by hundreds of thousands of Washingtonians left jobless by the pandemic.

Sen. Ann Rivers, R-La Center, told The Seattle Times that early in the pandemic, “a deliberate call was made to turn off the internal fraud detection” controls at ESD. Rivers said the decision, which she learned about from an ESD staffer, followed considerable internal debate over the fraud risks inherent in that change.

Sen. Reuven Carlyle, D-Seattle, who chairs the state technology committee, said he hasn’t seen hard evidence of specific changes to ESD systems. But conversations with the agency have left him with the “impression” that “there were some policy choices and some decisions that were … very important to that kind of balance between accessibility of the public and vulnerability to fraud.”

ESD Commissioner Suzi LeVine flatly rejects suggestions that the agency changed its fraud detection systems. Instead, she maintains that fraudsters, who also hit other states, succeeded largely by hiding beneath the “tsunami” of legitimate claims that overwhelmed ESD and other unemployment agencies. For example, Maryland recently reported foiling a scam involving $501 million in fake claims.

“I know a lot of people are going to try to Monday morning quarterback it,” LeVine said during a July 31 interview. “The minute that we knew of the magnitude of this, we took swift and decisive action.”

The state Auditor’s Office expects to complete five planned investigations into both the crime and the agency’s struggle to process legitimate claims, but not until next spring.

In the meantime, however, ongoing disclosures and criticism have already complicated ESD’s narrative about how the fraud unfolded and whether it might have been stopped earlier.

The perfect storm

Since disclosing the fraud, ESD officials have hewed to the same basic theory of why Washington was hit so hard by criminals, including, reportedly, a Nigerian-based fraud ring dubbed “Scattered Canary.”

Washington was among the first states to begin paying out expanded benefits enacted by Congress during the pandemic, including a $600 weekly payment.

By late March, a Washingtonian — or someone impersonating one — could apply for as much as $1,390 a week in combined state and federal benefits.

And thanks to emergency federal guidance aimed at speeding relief to workers, Washington joined many states in eliminating the usual “waiting” week when claims would have been verified before being paid, typically by notifying employers.

But a critical factor, ESD officials have said, was the sophistication of the attack, which included using Social Security numbers and personal information obtained from earlier data breaches to make fraudulent claims virtually indistinguishable from legitimate ones.

That was especially true early in the pandemic, when criminals were testing ESD’s system with just a few claims — approximately 100, based on ESD data.

“Slip through the cracks”

But ESD’s narrative provokes questions. Although ESD officials have said they became aware of the fraud shortly before April 21, when they alerted federal investigators, outsiders had already seen earlier warnings.

The Seattle Fire Department, for example, got notification of the first of 145 claims filed in the names of staff who were still employed — including Fire Chief Harold Scoggins — on April 6.

Suspecting fraud, Dori Towler, the department’s senior personnel specialist, contacted law enforcement and on April 29 alerted ESD.

That same day, Towler received an email response from the head of ESD’s fraud unit that seemed like an “under-reaction,” according to Helen Fitzpatrick, executive director of administration for the Fire Department, who shared the email with The Seattle Times.

“Thank you for bringing these cases to our attention,” said Patricia Trevino, director of ESD’s Office of Special Investigations, in the April 29 email. “We are running reports and cross matches to look for fraudulent claims.

“However, some do slip through the cracks.”

In fact, by the last week of April, ESD was averaging around 2,000 fraudulent claims a day, based on ESD’s weekly data.

In theory, ESD had systems that might have helped plug some of those cracks.