California Globe has been reporting for months on the horrific fraud in California’s unemployment agency, the Orwellian-named “Employment Development Department.”
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.
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.
Overseeing the EDD is California Labor and Workforce Development Agency Secretary Julie Su, who confirmed Monday 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.
The State Auditor just completed an audit of the EDD. 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.”
The Auditor says the EDD has been aware of internal problems for more than 10 years, while failing to prepare for inevitable economic downturns in the state, throughout the Gov. Jerry Brown administration and now into Gov. Gavin Newsom’s. “EDD had no comprehensive plan for how it would respond if California experienced a recession and UI claims increased correspondingly,” the audit reported.
Secretary Su said another $20 billion may have also been stolen by identity thieves and foreign criminals, possibly making as much as 27% of all EDD unemployment benefits being sent to fraudsters last year, the Globe reported.
The current confirmed number, $11.4 billion, or around 10% of all unemployment funds given out, dwarfs the previous released amount, which was at $2 billion in early January. While there were some concerns that it could go as high as $8 billion, no estimate had even come close to $11.4 billion until Su’s announcement Monday.
“There is no sugarcoating the reality,” Secretary Su said. “California did not have sufficient security measures in place to prevent this level of fraud, and criminals took advantage of the situation.”
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.
Assemblyman Jim Patterson (R-Fresno) held a Zoom press conference Tuesday to discuss the EDD audit.
“It was the pandemic that blew up the EDD,” Patterson said. He explained that because the EDD knew of these internal issues for more than a decade, they also knew they could not withstand an inevitable economic downturn or recession.
The audit found that the EDD call center is essentially worthless, Patterson said. “They weren’t even answering their calls,” he explained, saying EDD employees were not equipped to handle the calls, so they just didn’t answer the phones at the call center.
But what led to the $31 billion in fraudulent claims was when Secretary Julie Su made the decision to suspend most EDD eligibility requirements, according to the audit. It was only federal oversight which caught this and notified the EDD that they could not suspend eligibility requirements.
The Audit found:
“In March 2020, the secretary of the Labor and Workforce Development Agency (agency secretary) directed EDD to pay claimants UI benefits before determining whether they met key program eligibility requirements, and EDD expanded this directive to include most program eligibility determinations. In April 2020, the agency secretary further directed EDD to temporarily stop collecting the certifications claimants must regularly submit that assert they remain eligible for benefits.”
Consequently, the fraudulent payments that have been paid are gone. It will be legitimate claimants who will be contacted by the EDD to repay overpayments because of the suspension of eligibility requirements. “They will be held to a higher standard and forced to repay,” Patterson said.
“The real come-away for me was the eligibility suspensions, and now those legitimate claimants will be part of a claw-back when they can least afford it,” Patterson added.
“EDD suspended the work necessary to make most eligibility determinations in order to better manage its workload,” the audit reported, ostensibly to make claims processing go more quickly.
Assemblyman Patterson has long advocated for private sector involvement from Silicon Valley experts, whether it is within the EDD or the DMV and their long histories of gross IT mismanagement and failures.
“The way you get out of the catastrophe is to not make the same mistakes and not appoint the same people,” Patterson said. He said the state needs to “ask qualified people from the private sector to get this thing fixed.”
Most notably, Assemblyman Patterson said the EDD is an executive branch agency, with oversight done by the Governor.
The Globe contacted the Governor’s Press Office and asked, “With the latest scathing State Audit of the EDD, what can and will the Gov. Newsom administration do about this? The EDD is an executive branch agency, with oversight done by the Governor.” We heard back from the governor’s press office representative quickly, who said she was including the EDD in the email for their response on behalf of the Newsom administration.
The Globe received this response from the EDD:
“As mentioned in the audit response letter from Director Rita Saenz (attached), EDD appreciates the auditor’s review and acknowledgement of the immensity of the challenges EDD has faced in this COVID-19 pandemic. We recognize the work that lies ahead and are committed to implementing all of the auditor’s recommendations.
The EDD did not have the current UI Online system in the last recession 10 years ago. We’re very grateful that it was implemented since then which has allowed us to automatically process a large majority of the avalanche of claims that came at California and every other state at the onset of the COVID-19 pandemic. This way EDD was able process more claims in the first 8 weeks of the pandemic than we did in the entire worst year of the recession in 2010. (4.1 million claims processed in first 8 weeks of pandemic versus 3.8 million claims in all of 2010.)
In the midst of the Great Recession and scarce State funds, the EDD was only authorized to replace the Continued Claims functionality, roughly 25% of Unemployment Insurance (UI) program functionality. But EDD looks forward to tackling the rest of the system needs in a holistic way with the support of the administration and our IT partners.”