Acting Labor Secretary Julie Su Facing Heat For Pandemic Fraud

A judge cannot declare herself not guilty of a crime.

A priest cannot absolve himself of a sin.

But it appears quite possible that Julie Su can politically cleanse herself of the blame for the state of California losing up to $55 billion to fraudsters during the pandemic response by letting it be “waived.”

Tuesday, Acting Secretary of Labor Julie Su – formerly California Labor Secretary in charge of, among other things, the job-killing AB 5 and the disastrous performance of the state’s unemployment agency, the EDD, during the pandemic – testified before Congress that a rule she put in place in December would not allow states like California to “write off” money lost to fraud.

In other words, the significant majority of that $55 billion off the books debt to the feds the state currently carries could not be simply wished away – and onto every American taxpayer.

Su stressed that fraudulent payments cannot be “waived.”

But that may not exactly be the case – at all – as the language in the new rule is, um, slippery.

“The fraud raid in California happened “under your watch,” Rep. Michelle Steel (R-CA) told Su.  “If you are forgiving fraudulent payments, that is not acceptable.”

Steel then implied that she did actually trust Su’s claim that fraud losses cannot be waived, citing Su’s promise to not have California’s anti-freelancer AB-5 bill be adopted by the federal government only to implement, in March, a new regulation nearly doing that exact thing.   

At the heart of the EDD fraud waiver issue:  

In December, Su’s labor department issued a rule regarding something called “finality.”  In a very rough nutshell,  the feds are letting states follow their own regulations regarding when to declare a claim over and done with. Once an account claim is final – i.e., there is nothing left to do with it – if it owes money it owes it directly to the feds.

In other words, even though the money was handed out by the EDD, the EDD is not necessarily on the hook for the debt – that’s becomes the responsibility of the fraudulent claimant.

In February, the EDD asked – again in a nutshell – for permission to declare at the very least most of the $55 billion done and gone.  In theory, the EDD is meant to continue to hunt for fraudsters even on closed claims – the agency claims it has clawed back about $6 billion in fraudulent payments so far – though the issue of urgency, or lack thereof, will most likely come into play.

It is this issue of who gets to decide what is “finality” that has Steel and Sens. Bill Cassidy (R-LA) and Makie Crapo (R-IN) very worried that Su is making her own $55 billion mistake go away while doing a serious favor for potential Democratic presidential candidates like, oh, I don’t know, Gavin Newsom.

While in charge of the EDD, Su was informed very early on in the pandemic that the unemployment department was being looted by fraudsters but did nothing to stop it until months later.  Su has consistently blamed the feds for the problem, but while the money was may have been federal it still flowed through the EDD and the EDD did not have any security measures in place – remember death row inmates getting unemployment benefits? Or how about hundreds of debit cards pre-loaded with upwards of $12,000 being mailed to the same address, or even overseas?

Even a rudimentary system that could be “bolted on” to the EDD’s antiquated tech would have saved tens of billions of dollars, industry experts have said.  In fact, these same industry experts reached out to Su early in the pandemic to tell her what was happening and she did nothing for months.

Su’s December “guidance” technically – and we all know how much bureaucrats love “technically” – allows states (all states, Su noted, while ignoring the fact that at least 30% of the national fraud occurred in California) “to apply their own finality laws to determine which lost funds they are required to pay back with nothing specifically prohibiting states from waiving funds lost to fraud” states a letter to Su from Cassidy and Crapo.

Su’s “guidance therefore appears to allow California to shift the consequences of a still unknown amount of federal funds that was lost under your leadership as (California labor secretary) to the American taxpayer” wrote Cassidy and Crapo.

To that end, Cassidy and Carpo have demanded that, by May 22, Su’s department answer the following:  

1. California’s 2022 Annual Comprehensive Financial Report notes “EDD is waiting on final federal approval of EDD’s request as indicated in the February 2024 letter before the event [applying finality laws to CARES Act claims] can be recognized in financial statements as a forgiveness of debt.”^[10] 

1. 1. What is the current status of DOL’s review of California’s request to apply finality laws to outstanding liabilities incurred to the federal government? 

1. 2. What steps is the DOL taking to ensure that California’s application of finality law is not being applied to suspected or confirmed benefit claims involving fraud, misrepresentation, or willful nondisclosure? 

2. Detail all actions of which DOL is aware that California’s EDD has taken to recover all fraudulently paid UI funds provided by the federal government through the CARES Act.  

1. 1. Does DOL believe such steps constitute all reasonably necessary actions to recover those funds?  

2. 2. If not, what additional steps does DOL believe EDD must undertake to recover the lost funds?  

3. Describe all retroactive actions DOL required the State of California to implement pursuant to DOL’s authority under the CARES Act.  

1. 1. Prior to issuing Unemployment Insurance Program Letter No. 05-24, did the State of California successfully implement all such retroactive requirements?  

3. 2. If not, which requirements did the State of California fail to implement?   

4. Describe any (1) modernization and (2) anti-fraud efforts or recommendations DOL has advised the State of California to implement using funds from the American Rescue Plan Act of 2021. 

1. 1. Prior to issuing Unemployment Insurance Program Letter No. 05-24, did the State of California successfully implement all such modernization efforts?  

4. 2. If not, which efforts did the State of California fail to implement?   

5. Since 2020, how much funding did the State of California receive from the DOL to recover UI fraud under the American Rescue Plan Act and the CARES Act?  

6. Have you discussed the funds lost to UI fraud administered by EDD with any California state government officials since becoming Deputy Secretary of Labor on July 13, 2021?  

1. 1. If so, please detail with whom you discussed UI fraud losses, when you had that discussion(s), and a general summary of what was discussed.  

6. 2. Provide all written correspondence or evidence of any scheduled conversations regarding funds lost to UI fraud in California since 2020.  

7. Please provide all correspondence between the DOL and California state government officials regarding Unemployment Insurance Program Letter No. 05-24. 

Neither the EDD nor Su’s Department of Labor responded to a request for comment.

Here’s Julie Su’s conversation with Michelle Steel: