Kansas to Shut Down Unemployment System to Deal with Fraud

TOPEKA, Kan. (AP) -- Thousands of fraudulent unemployment claims are prompting Kansas to shut down its processing system this weekend, meaning some jobless workers will have payments delayed as the state installs new anti-fraud protections, Gov. Laura Kelly announced Wednesday.

Kelly acknowledged that fraudulent claims may have helped fuel a recent surge of filings for benefits, agreeing with Republican legislators.

The Democratic governor's announcement came shortly after GOP lawmakers said they will push to protect employers from being forced to cover the cost of fraudulent claims in ex-employees' names. They said the state Department of Labor doesn't have a handle on the problem and that they've not gotten enough data or answers.

Kelly said the unemployment system will go down at 2 p.m. Saturday and go back up at 7 a.m. Tuesday. She said the state won't pay benefits during that period but will work to catch up on claims when the system is back up.

“The fix really is going to be an enhanced verification process,” Kelly told reporters during a Statehouse news conference.

Kelly said state officials believe Kansas is seeing a wave of fraudulent claims because it asks for limited information to verify a person's identity: "name, rank and serial number — Social Security number, in this case."

“We'll make sure that everybody who is filing for claims or has filed for claims is putting in additional verification stuff,” Kelly said. "You know, how they ask you for the middle name of your grandfather or what was your first car.”

State Rep. Sean Tarwater, a Kansas City-area Republican who leads the House Commerce Committee, said the shutdown for anti-fraud fixes is welcome, but it should have happened months ago. He said U.S. government officials were warning about the potential for fraud nearly a year ago.

Tarwater and other Republicans in the GOP-controlled Legislature have been critical of Kelly and the Department of Labor over multiple issues at the agency, including its handling of fraudulent claims and problems in getting regular and extra unemployment benefits to workers who lost their jobs because of the COVID-19 pandemic.

“We need to fix this Labor Department," said Senate Commerce Committee Chair Rob Olson, another Kansas City-area Republican. "It's the most critical thing in this state right now.”

Republicans worry that a flood of fraudulent claims is keeping the state from processing legitimate ones quickly enough.

But they said Wednesday that they're also worried that employers will get stuck with the cost. Businesses pay a tax after-the-fact to replenish the state fund that provides benefits, and nonprofit groups, school districts, universities and other public employers reimburse the state quarterly for half of the costs of benefits associated with their former workers. The federal government picks up the other half.

Republican lawmakers said school districts already are starting to receive big quarterly bills. Businesses get a statement about claims paid for their ex-workers in November, followed by a notice of their coming taxes in December.

“We see a storm brewing,” said House Speaker Ron Ryckman Jr., also a Kansas City-area Republican.

Kansas saw a surge in initial unemployment claims in late March and April 2020, after the pandemic arrived in the state and Kelly began issuing orders to contain it, including a statewide-stay-at-home order. But claims dropped after that before they started increasing again in late November.

The U.S. Department of Labor reported that for the week ending Jan. 16, Kansas received about 63,500 initial claims for unemployment benefits, the third highest number of any state, behind California and Illinois and ahead of more populous states, including Florida, New York and Texas.

GOP lawmakers said the numbers are a signal that Kansas is potentially seeing thousands more fraudulent claims a week than the roughly 2,300 a day that the state Department of Labor says it is stopping.

And Kelly told reporters: “They may absolutely be right.”

A House budget committee agreed Wednesday to sponsor a bill proposed by Tarwater to have the state reimburse employers if they get stuck covering the cost of fraudulent claims. But he acknowledged the state's tab could be several hundred million dollars if it doesn't stop fraudulent claims quickly enough.

“Now we need to figure out what the damage that was done,” he said. “I don't think we will for quite some time until we get an audit, a good audit.”