California EDD Blamed Fed Program for Fraud – New Numbers Show That is Impossible

New federal Department of Labor figures regarding the massive looting of the nation’s unemployment insurance systems during the pandemic show that California’s improper payment figure has climbed again and is now estimated to be nearly $40 billion.

Labor Department Inspector General Larry Turner testified in front of Congress Wednesday that an estimated 21.5% of the $888 billion paid out in unemployment benefits across the country were improper.  That means $191 billion dollars were lost to fraud and other more typical bureaucratic incompetencies.

What that means for California is that nearly $40 billion – or about $1,000 per state resident – was lost in the wind.

The state Employment Development Department was contacted multiple times to elicit comment.  As has been typical in the past, the EDD did not avail themselves of the opportunity. 

In the past, the EDD has claimed that “95%” of the fraud losses were directly related to the federal PUA (pandemic unemployment assistance) program. The new figures show that could not possibly be true.

PUA – which offered assistance to those who would not normally qualify for benefits like independent contractors, freelancers, etc. –  was only one of the federal unemployment programs created at the start of the pandemic and accounted for about 15% of the overall national (state and federal) payment total of $888 billion. Regular state funds, the FPUC (the $600 then $300 weekly supplement that was available for about a year during the pandemic,) and other programs made up the rest.

Turner added the fraud estimate percentage for the PUA itself – unlike all of the other programs – has not yet been determined though he expects it to be higher than the 21.5 % averaged by all other payment types.

The PUA program has been considered the easiest target for fraudsters as some states, like California, required virtually no identity conformation to qualify for the benefits, hence claims made in Sen. Dianne Feinstein’s name sailed through the system (as did claims made by thousands of prisoners, out-of-state residents, and foreign nationals.)

Eventually the EDD did bring in an outside identity verification firm – ID.me – which reportedly did staunch the fraud flow, though EDD also caused legitimate claimants to have their benefits halted for up to two months in the process.

The EDD still claims only $20 billion total was lost, of which 95% was PUA related.  However, California’s share of PUA spending is most likely to be in the $25 billion range (akin to the national 15% percent of the total state spending) meaning that 76% of all PUA expenditures would have had to be fraudulent and/or improper.

And if the national estimate of 21.5% is correct (it may be slightly lower at 20%, though as the PUA percentage has yet to be determined it may be higher) the EDD lost between $37 and $40 billion.  If the EDD’s 95% claim is to be believed, that would mean that the PUA program would have had to somehow manage to lose about $36 billion of the estimated $25 billion it spent  – a mathematical impossibility.

As noted above, attempts to have the EDD clarify the figures – and to explain the impossible estimate they have been touting for more than a year –  were met with silence.

It should also be noted the EDD has ludicrously claimed that their non-PUA fraud rate actually went down during the pandemic

The new figures also show that, while having only 12% percent of the nation’s residents, California accounted for about 21% of all unemployment expenditures during the pandemic and about 22% of the fraud and other improper payments made nationwide.

This raises the specter of international gangs specifically targeting the state because they quickly became aware of how lax the system was, a system the EDD took more than seven months to put in even the most basic safeguards. Identity experts have said previously that the EDD, even with its antiquated tech systems, could have added a “bolt on” security program for a few million dollars in about a week’s time very early in the pandemic.

Exactly how much California received – and lost – as part of the PUA system should become clearer when the Department of Labor completes its PUA audit in the coming months.

At the end of January, new EDD chief Nancy Farias – formerly a labor union “government relations” human – told the Sacramento Bee that she blamed the problem on the Trump administration for neglecting “state efforts to combat domestic and foreign criminals collecting billions of dollars fraudulently from overwhelmed unemployment systems.”

Exactly how the Trump administration could have been at fault remains unclear – for example, when the EDD finally added some security “friction” to the system, Trump was still president and his administration clearly did not stop them from hiring ID.me and, therefore, undoubtedly would not have stopped them from doing so earlier on in the pandemic.

It should also be noted the Trump administration provided the EDD with an additional $788 million just to cover the department’s additional administrative costs caused by the pandemic.  With a typical annual administration/operations budget estimated to be in the one billion dollar range, that amounts to an annual budget bump of about 40% during the pandemic.

A Department of Labor spokeswoman said they will be spending about $1.6 billion around the nation in the coming months in an attempt to modernize and secure unemployment benefit systems.

Oh, and as of midnight, February 9, the EDD owes the feds $18,507,914,539.74 in principal and  $107,155,511.76 in interest, money that will be paid back by increasing the unemployment insurance taxes state businesses pay.

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