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Victims of unemployment fraud in Pa. are blindsided by tax documents

Thousands of apparent victims of Pandemic Unemployment Assistance fraud have received unexpected tax documents reporting income to the IRS they never took.

Victims of unemployment fraud in Pa. are blindsided by tax documents

Rebecca Moss of Spotlight PA

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HARRISBURG — When two checks for nearly $10,000 arrived at her home last summer from the Pennsylvania Department of Labor and Industry, Annette Ravinsky didn’t cash them. Ravinsky, now 61, hadn’t worked since the 1980s and was well aware she neither qualified, nor had applied, for state unemployment benefits.

She called the department to report the fraud, asked a legal aid attorney what to do, then returned the checks to the state. Someone at the agency signed a receipt confirming the state received the checks in the mail, and she assumed the issue was resolved.

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But Ravinsky — one of at least 50,000 people who have reported unemployment fraud to the agency since the pandemic began — wasn’t told that the state would still report the checks as income to the IRS. Now, she’s uncertain how to file her taxes and fearful of being audited.

“I am very, very, very angry right now because I did not ask for any of this,” she said. “The state had a responsibility to verify. Now, I am left holding the bag.”

When the first wave of the coronavirus pandemic abruptly shut down businesses last year, it kneecapped the economy, forcing thousands of people into unemployment in an effort to curb the spread of disease and death.

To help self-employed people and others left out of traditional unemployment programs, lawmakers in Washington created Pandemic Unemployment Assistance — providing hundreds of dollars a week in desperately needed income.

But from the beginning, the program has been hard hit by fraudsters who took advantage of the chaos, and relaxed rules, including the ability, initially, for claimants to self-certify their eligibility without supporting documents, as well as the state’s late launch of an identification program.

More than 300 fraud complaints regarding Pandemic Unemployment Assistance have also been reported to the Pennsylvania Office of Attorney General, which has made 29 arrests associated with six fraud rings as of February.

Now, thousands of apparent victims of that fraud, like Ravinsky, are scared and confused after receiving unexpected tax documents.

That’s not where the troubles end. An unknown number of people who did apply for the program found themselves unable to access thousands of dollars in benefits that they are now being taxed for.

“It is sort of like the cherry on top of the whole [Pandemic Unemployment Assistance] crisis,” said Sharon Dietrich, an attorney with Community Legal Services in Philadelphia, whose office is also inundated with people grappling with unemployment compensation problems and fraud. “You don’t get money plus you get screwed with the IRS.”

Nancy Sweetland played the organ at Bethesda Evangelical Lutheran Church until the pandemic shuttered services last March. In April, the 82-year-old filed for pandemic unemployment assistance and Sweetland received her first two checks.

But when the state transitioned to issuing debit cards through U.S. Bank, hers never worked. She tried transferring money from other accounts and making small withdrawals and was denied, same as when she used it at a grocery store.

Over the next several months, Sweetland called Labor and Industry and the bank, sometimes waking up at 3 a.m. to try to get on a call line that wasn’t busy. She left messages for her state representative, and never heard back.

When her tax forms arrived, it showed the state had paid Sweetland $18,000, as $15,000 remained frozen on her account.

“Any email address that I ran across I sent [an email] to and I never got a response,” she said. “I am just kind of at my wits’ end.”

Millions of people are navigating a system that has functioned poorly for months with clogged phone lines, unanswered emails, and inaccurate information. Nearly a year into the pandemic, the Department of Labor and Industry is still too inundated by claims to properly help –– or even track –– the full extent of problems and has declined to provide the exact number of identity theft victims.

Sandy Kolenda outside her home in Munhall. She’s among thousands of victims of identify fraud through Pennsylvania’s unemployment system who was surprised with a tax bill for payments she did not receive. Nate Smallwood / Tribune-Review

When Sandy Kolenda’s tax documents arrived at her home in Pittsburgh, the state reported paying her $11,790 more than she got, showing she made nearly $20,000 in income.

Kolenda asked the department about the discrepancy last month and was told the system showed she was sent two checks worth that amount last July.

“So you did receive them, not sure if you have them and just never cashed them,” Susan Mease, an audit investigation supervisor for the state, told Kolenda via email. Kolenda told Spotlight PA she never saw the money and doesn’t believe she should have to pay taxes on it.

“I was crying. What do you do?” Kolenda said of her reaction to the tax document. “I am one person up against the Department of Labor and Industry. It is incredibly frustrating and scary.”

Ravinsky’s son also received a tax document for an overpayment he had returned.

“It’s just one big nightmare,” she added.

‘People are hurting’ as budget talks begin

House lawmakers will hold a budget hearing for the Department of Labor and Industry on Tuesday, but acting Secretary Jennifer Berrier told Spotlight PA unemployment compensation won’t be a main subject of discussion.

Since the unemployment system is almost entirely federally funded, the state is focusing on other labor issues, she said.

While unemployment benefits are paid for by a state tax on businesses and employees, the actual administration of the program is funded through a federal unemployment insurance tax, which is then distributed to states based on an equation of perceived need.

But because the wage base businesses are taxed on has not risen since the early 1980s, while the tax rate has decreased, there are inadequate resources for Congress to dole out to states, said Christopher O’Leary, a senior economist with the W.E. Upjohn Institute for Employment Research.

That means it’s up to states to put up money to maintain the unemployment system, and how much they designate shows “whether they regard this as an important program,” O’Leary said.

Rep. Matthew Bradford (D., Montgomery), Democratic chair of the House Appropriations Committee, told Spotlight PA that Tuesday’s budget hearing is an opportunity for the agency to be held accountable for the issues that have occured over the last year and to ask for help.

It has been several years since the state took a deep look at the unemployment compensation system, Bradford said. State intervention, in some form, “is a necessity.”

“Whatever we need to do to make sure these backlogs are cleared,” Bradford said. “People are hurting, this has gone on for too long.”

In Gov. Tom Wolf’s proposed budget for the fiscal year that begins in July, the Department of Labor and Industry would receive just under a 1% bump of state money from the general fund — the pot of non-earmarked dollars lawmakers decide how to spend annually.

“I don’t really think the governor’s budget addresses the issues that are going on in the unemployment compensation department,” said Rep. Barbara Gleim (R., Cumberland). “It just doesn’t.”

Gleim introduced a bill that would trigger an automatic response by the governor to hire or bring in additional staff from other agencies when future emergencies arise involving unemployment in the state, from pandemics to floods, but said the gaps in leadership and miscommunication highlighted over the last year require a larger system overhaul.

“Something needs to change,” she said. “Something needs to be fixed.”

But this is a conversation that started well before the pandemic, which just exacerbated the department’s long-standing issues. Experts have warned that, without federal reform or state intervention, Pennsylvania’s unemployment compensation would not be able to adequately function.

In 2017, lawmakers agreed to set aside $115.2 million in a special Service and Infrastructure Improvement Fund to improve claims processing and update technology over four years. The decision followed a political skirmish months earlier that caused the fund — originally created in 2013 — to lapse and forced the shutdown of several unemployment compensation centers and significant layoffs. The fund expires this year.

Berrier told the House Labor & Industry Committee on Feb. 25 that this fund allowed the agency to ramp up staffing at the beginning of the pandemic when federal funding was slow to arrive.

“There is no greater compelling case for additional state funding support than the last year,” she wrote.

Despite this, Berrier maintains the federal government has given the agency everything it needs to run, prior to and during the pandemic, and that money from Washington should be exhausted first.

“There are a lot of what-ifs because this is a federal program,” Berrier said, but “the state budget isn’t the mechanism that we need.”

‘Terrible advice’

By mid-January, Labor and Industry had a backlog of more than 207,000 cases pending decisions for state and federal compensation but only several hundred staff equipped to review the claims. Over the last year, more than 30% of eligible claims waited more than two weeks to receive a first payment, compared to 12% the previous year, the governor’s budget documents show.

Late last month, Berrier testified that unemployment staffing remains short of what is needed. The agency ramped up from 775 unemployment staff last March to just over 1,000 full-time staff today and 600 borrowed from other agencies, with additional hires planned. But roughly 50% of new hires quit, she said. The majority of claims also require a “seasoned” staff person, with more than eight years of experience. The agency only has 500 full-time, qualified people, she said, but it needed between 2,000 and 2,800 of them to handle the load of cases that flooded the agency at different points in the pandemic last year, according to an outside assessment.

There are 15 labor staffers assigned to fraud cases, the state said.

“11 months now.. Nothing is working. Have jumped through every hoop on my husbands claim…we’ve tried and done anything,” one woman wrote in a Facebook group of more than 10,000 people, saying only recently was she notified her husband might be eligible under a different program. “I could SCREAM!! I can’t take this crap anymore. Is that what they want for you to just give up??”

In a House Labor & Industry Committee hearing to discuss potential unemployment compensation legislation, Rep. Gerald Mullery (D., Luzerne) echoed a similar sentiment, saying many constituents feel that “the rules of our [unemployment compensation] law and the barriers so significant that it must have been intentional.”

Lyndsay Kensinger, a spokesperson for the governor’s office, said retaining and training unemployment staff is the biggest need.

“Pennsylvania’s unemployment rate has been trending downward,” she said. “With the vaccine rollout expanding, we must also focus on removing barriers that keep people on unemployment so the state can build a path to get them back on the job that will exist after the global pandemic ends.”

But advocates who interact daily with unemployed workers said the anecdotal numbers of people suffering is staggering and the endless problems in accessing benefits has not been accurately acknowledged or quantified by the state.

Barney Oursler, director of the Mon Valley Unemployed Committee in Pittsburgh, said the department won’t say how many claims have been interrupted or how many people have still not been paid because of lapses in federal programs or changing unemployment related to shutdowns and reopenings.

“Those are the things that give us a dizzying sense that they [Labor and Industry] don’t even know how bad it is,” Oursler said.

“Unless you admit you have a problem that is hurting hundreds of thousands of Pennsylvanians 11 months into this pandemic, you are not going to fix it,” he said. Wolf “needs to declare it is a big enough problem that he is going to mobilize.”

In the meantime, the state has advised people with inaccurate tax forms to simply ignore them when filing their taxes and has promised to eventually send corrected forms. Deitrich and others said this leaves many Pennsylvania’s even more vulnerable, as they could be audited.

“It’s not like the problem is just going to go away,” Dietrich said. “It’s terrible advice.”

‘My son is not alone’

Ravinsky’s son David is 29, and because he is on the autism spectrum, he struggles with complex paperwork, she said. When he was laid off from a job doing janitorial work, she helped him file for benefits. Then his company provided an additional paycheck to help workers get through the pandemic, and it resulted in an overpayment. Ravinsky was advised to return the money directly and bank records show the state deposited the $1,500 overpayment check a month later.

When David’s tax forms arrived, the additional $1,500 had not been deducted from what the state told the IRS it had paid David.

The department told Spotlight PA that 62,411 people were non-fraudulently overpaid in 2020. Attorneys and advocates said their clients have received conflicting information on how to repay the state. The department told some, like David, to return large lump sums, while it withheld percentages of future benefits in other cases. Others have had benefits cut off entirely.

Deitrich said she has been fighting the state to follow its own law, which only entitles it to reclaim a third of future payments from a claimant, not require money to be repaid outright or halt benefits entirely. Some of her clients have had benefits deducted 50% or stopped entirely.

She said this is in part because overpayment is communicated through untrained workers and because of a glitch in the computer system that models repayments on other state’s laws.

Ravinsky has spent hours on the phone trying to resolve the problem and get accurate tax documents.

“I am low-income, I am disabled, and I have to handle all this mess, in addition to trying to help my son with this,” said Ravinsky. “I did exactly what I was supposed to do to the letter and I still got screwed anyway.”

She imagined how the state could have prevented this: It could have checked her employment history and her identity months ago when she notified the department of the problem. If it had, the agency would have noticed she didn’t qualify or apply for benefits. And the state should have tracked the repayment both she and her son made, she said.

“The only thing that makes me feel better is knowing other people are going through this,” she said. “That we are not alone and my son is not alone.”

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