EDD Unemployment Fraud Leaving Californians Facing a Looming Tax Tsunami

In November, California Globe reported that District Attorneys from across California joined together for a press briefing hosted by Sacramento County DA Anne Marie Schubert and El Dorado County DA Vern Pierson, to expose the massive unemployment benefits fraud in jails and prisons in California. “This is perhaps the biggest fraud on taxpayers in California history,” DA Schubert said.

Despite 10 months of warnings from lawmakers, we now know that upwards of $31 billion dollars in unemployment claims has been sent to prison inmates in California’s county jails, and state and federal prisons, out of state, and even out of the country, while legitimate claimants have been stiffed for months, or received late payments.

As difficult as it is to believe, this is about to get worse, Senate Republicans warn:

This week, Californians will begin receiving 1099-G tax forms summarizing their taxable earnings from unemployment benefits. Not only will the tax bill come as a shock to recipients, there is a distinct possibility many victims of fraud will be left on the hook for taxes on money never received. The Employment Development Department (EDD) has struggled to do even the slightest thing right during the pandemic and to think this agency could straighten this out on its own prior to tax day is unfathomable.

The State Auditor just completed an audit of the EDD, as the Globe reported. They explain:

“The economic shutdowns in early 2020 led to historically high numbers of UI claims in a very short time (claim surge), and further shutdowns began in December 2020, raising the potential for additional spikes in unemployment. This audit reviewed EDD’s response to the claim surge, its handling of the resulting backlog of unpaid claims, and the assistance it has provided to individuals through its call center.”

Republicans sent a letter to Gov. Newsom reiterating the concerns of State Auditor Elaine Howle:

As we enter the tax filing season, many Californians will be surprised to learn that they have tax liabilities for UI benefits that were fraudulently claimed in their name. This is because 1099-G forms will soon be arriving in the mailboxes of taxpayers who were victims of identity fraud. Even more concerning is that there will be victims of identity fraud who will have no idea why they even received one of these forms until after they file taxes. This is because EDD is generally going to mail the 1099-G to the most recent addresses of record, which are the ones the bad actors used to obtain UI benefits.

The State Auditor shares our concern for the tax liabilities for victims of this identity theft and recommends that EDD should prepare to assist victims of identity theft to ensure that they receive prompt assistance and avoid tax liabilities for benefits they never received. Specifically, the auditor recommends that EDD must prepare to respond to victims of identity theft who receive incorrect tax forms, and should, by mid-February 2021, provide information on its website and set up a separate email box for such individuals to contact EDD and receive prompt resolution. We wholeheartedly agree with this recommendation, but remain skeptical about the agency’s ability to do it effectively, if at all. Our offices are currently hearing from the same amount of constituents as we did last spring, who are seeking help from EDD because of problems with identity verification, backlogged claims, and frozen accounts.

and;

As the chief executive of our state, we strongly encourage you to ensure that EDD abides by the recommendations stated above. Should they fail to do so, we request that you coordinate with the Internal Revenue Service to ensure that these taxpayers do not face increased federal liabilities or penalties.

In a formal letter in late November to Gov. Gavin Newsom, President pro Tempore of the Senate Sen. Toni Atkins, and Speaker of the Assembly Anthony Rendon, California State Auditor Elaine Howle sounded the alarm on EDD’s refusal to stop sending out full social security numbers through the mail, the Globe reported. “Although EDD made progress in removing SSNs from some of the forms we reviewed, it has not removed them from the three that it most frequently mails,” Howle said. “In March 2019, we recommended that EDD prioritize amending those three forms, which together accounted for nearly 10 million of the 13 million problematic mailings we identified.”

In July, Governor Gavin Newsom announced the formation of a “strike team” to solve numerous issues plaguing the Employment Development Department, including resolving the backlog of millions of unfulfilled unemployment claims, and fraudulent unemployment claims since the coronavirus pandemic lockdown was first ordered by Gov. Newsom in March.

It’s obvious that the “strike team” was a show strike team and a dismal failure.

EDD benefits have not been properly paid, and still are still not being paid properly to more than a million Californians who are out of work. While legitimate workers can’t get benefits, officials say the EDD has paid a quarter-million dollars in benefits to inmates running a scam inside a Bay Area jail.

Sacramento District Attorney Anne Marie Schubert said the Beverly Hills Police Department discovered 129 EDD debit cards totaling $1.5 million used to rent luxury cars, pay for luxury hotel rooms, guns and cash. In all, 87 people were arrested in Beverly Hills. But this is happening in all 58 counties.

The governor, his strike team and the EDD has had 10 months to act as though they cared about the governor-forced unemployed in California.

As the audit found:

Despite Multiple Warnings, EDD Did Not Prepare for an Economic Downturn

Key Points

• Before the claim surge, EDD did not adopt a comprehensive plan for how it would respond to economic downturns when its UI program is in higher demand. Having such a plan would have strengthened its poor response to the 2020 claim surge.
• EDD has for years been aware of many of the problems in its UI claims processing and customer assistance efforts that this report identifies. In fact, key problems related to its management of the UI program in 2020 were also present during the Great Recession of 2008 and 2009. Nonetheless, EDD did not take adequate steps to address these deficiencies.

The auditor recommended that the Legislature should require EDD to do the following:

• Report at least once every six months on its website the amount of benefit payments for which it has required repayment and the amount repaid.
• Develop a recession plan so that it is well prepared to provide services during economic downturns. The planning process should consider lessons learned from previous economic downturns, including the recent pandemic-related claim surge.

and

• To protect against fraudulent UI claims, the Legislature should amend state law to require EDD to regularly cross‑match its claims against data from state and local correctional facilities.
• To ensure that EDD effectively protects the integrity of the UI program, the Legislature should amend state law to require EDD to, by January 2022, and biannually thereafter, assess the effectiveness of its fraud prevention and detection tools, eliminate those that are not effective, and reduce duplication in its efforts.

Overseeing the EDD is California Labor and Workforce Development Agency Secretary Julie Su, who confirmed last week that, in 2020, fraudsters stole at least $11.4 billion in unemployment benefits from California, the Globe reported. And 800,000 unemployment claims were paid late, along with 12.7 million delayed eligibility determinations.

For her efforts, California Labor Secretary Julie Su is “failing up,” and is being considered for a prominent position in President Joe Biden’s administration as Deputy Secretary of Labor. California often promotes terrible state employees, up and out to other agencies. This “promotion” would take Su out of the state entirely.

In their letter to Gov. Newsom, the Senators cc:d the following:

• The Honorable Julie A. Su, Secretary, Labor and Workforce Development Agency
• The Honorable Rita L. Saenz, Director, Employment Development Department
• The Honorable María Elena Durazo, Chair, Senate Budget Subcommittee #5
• The Honorable Rudy Salas Jr., Chair, Joint Legislative Audit Committee
• Angie Wei, Legislative Affairs Secretary, Office of the Governor.

Remember these names.

Here is the Senators’ letter to Gov. Newsom: