AUGUSTA, Maine — Maine would have even tougher penalties and sanctions for unemployment fraud under a proposal by the Department of Labor. Opponents questioned the need for the legislation given the fraud rate in Maine is less than one percent of all unemployment claims.

“With the increased claim volumes and durations, we’re also seeing an increase in overpayments and unfortunately, unemployment fraud,” said Laura Boyette, Director of the Bureau of Unemployment at the Department of Labor. “This has triggered a renewed focus on program integrity to reduce overpayments, both fraud and nonfraud.”

The actual fraud rate in Maine is very low. Boyette, in October, disputed federal numbers critical of the state and said that from July 2010 to June 2011 fraud was found to have been committed by 773 individuals out of the tens of thousands of Mainers getting benefits during that period.

Fraud is only one component of the larger error rate number that includes both overpayments and underpayments to recipients. During that period there were $5,186,120 in errors and $1,333,511 in fraud.

“I acknowledge that we do not have a high rate of fraud,” she told lawmakers during a hearing of the Labor, Commerce, Research and Economic Development Committee on Friday. “But if anyone is in a situation where they might consider it, we want to have a clear statute that deters them from it.”

Boyette said the bigger problem for the state are in errors made both in overpayments and underpayments. She said with the many changes made by Congress there has been confusion among recipients and staff.

Currently fraud is prosecuted under the theft by deception statute and that would be replaced by a new crime of unemployment fraud. Penalties would range from less than a year in jail to up to 10 years in prison if the fraud is in excess of $10,000.

Several members of the committee questioned whether a new law is needed when fraud already carries jail time as well as restitution and there are so few cases. But the business community was out in force to support the proposal.

“It will help us move from being number five in the nation for [least] unemployment fraud to number four or number three or number two,” said James Cote, President of the Associated Builders and Contractors of Maine. “And it will increase the integrity of this program.”

Peter Gore, Vice President of the Maine State Chamber of Commerce said his organization believes reducing fraud and errors is important to employers, because they pay the entire cost of the system through a tax on employers.

“In 2010 Maine employers experienced a 68 percent increase in unemployment insurance taxes that amounted to $54 million dollars,” he said. “In 2011 we experienced another 10 percent increase and that amounted to another $15 million.”

Gore said the increasing cost of the system to employers has raised a lot of concerns. He said they want to make sure there are as few errors and as little fraud as possible in the system. He said the sections of the measure would help do that.

Tim Walton, Director of External Affairs and Public Policy at Cianbro, told lawmakers that provisions of the bill would help those out of work find a job by enhancing opportunities to improve their skills.

“By penalizing those who are committing fraud makes the system less expensive to the employer community while still providing benefits to those who truly cannot find employment,” he said.

But a range of groups and individuals testified in opposition. Alysia Melnick of the American Civil Liberties Union of Maine said tougher penalties simply are not needed.

“Maine has sufficient laws on the books to deal with individuals who commit unemployment fraud,” she said. “We have heard nothing to convince us that stiff, enhanced criminal penalties for unemployment fraud are needed or would reduce what is already a very low rate of systemic abuse.”

The Maine Center for Economic Policy told the panel benefits should be enhanced to help the state recover from the recession.

“LD 1725 would make it harder for unemployed workers to find a job,” he said.

The hearing went into the evening and the bill will be considered by the committee in work session next month.