State Auditor Releases Scathing Report on California's Unemployment Chaos

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Posted: Jan 29, 2021 3:35 PM
State Auditor Releases Scathing Report on California's Unemployment Chaos

Source: AP Photo/Jeff Chiu

A new audit of the California department responsible for administering the state's unemployment benefits found that significant weaknesses led to billions of dollars in fraudulent payments and caused significant delays on payments to legitimate claims. Gov. Gavin Newsom has repeatedly forced much of the state to close down throughout the coronavirus pandemic. 

The Employment Development Department (EDD) administers California's unemployment insurance and federal funds allocated to the state in response to the COVID-19 pandemic. In her most recent audit, State Auditor Elaine Howell found "significant weaknesses" at the EDD led to billions of unemployment insurance (UI) dollars being paid to fraudulent claimants. 

"EDD did not take substantive action to bolster its fraud detection efforts for its UI program until months into the pandemic, resulting in payments of about $10.4 billion for claims that it has since determined may be fraudulent because it cannot verify the claimants’ identities," Howell wrote in a letter to lawmakers. 

According to the auditor, the "EDD waited about four months to automate a key anti-fraud measure, took incomplete action against claims filed from suspicious addresses, and removed a key safeguard against improper payments without fully understanding the significance of the safeguard."

Howell found a lack of preparedness at the EDD led to two colossal failures.

"In September 2020, because of fraud concerns, EDD directed Bank of America to freeze 344,000 debit cards (accounts) that it used to provide benefit payments to claimants," Howell reported. "However, EDD did not have a plan in place to ensure that it could unfreeze those accounts found to belong to legitimate claimants, and it has been slow to acknowledge its role in freezing these accounts."

The auditor also faults the EDD for failing to prevent an estimated $810 million in fraudulent claims filed under the identities of incarcerated individuals. 

"Because it had not developed the capacity to regularly match data from its claims system with data from state and local correctional facilities, EDD did not detect fraudulent claims until after it had paid them," wrote Howell. 

Howell found the EDD still lacks a system to assess its fraud prevention and detection tools, allowing for ineffective tools to remain in place and contributing to the widespread fraud and delays on legitimate claims. 

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The scathing report also faults the department for failing to plan for a recession, finding initial payments were delayed on a staggering 40 percent of unemployment claims. To make matters worse, the EDD responded to less than 1 percent of calls received during the start of the pandemic. 

In December 2020, EDD reported a backlog of about 685,700 unemployment claims. 

As California's problems continue to mount, so do signatures on the petition to recall Gov. Gavin Newsom. More than 1.2 million signatures have been collected in the effort to recall the governor. Some 1.5 million signatures are needed to trigger a special election. The effort has less than seven weeks to achieve its goal.  

More information about the recall effort can be found here