Gov. Newsom Gets an Assist as CA Democrats Delay Hearing on $31 Billion in Unemployment Fraud

Perhaps one of the most important hearings of the year to investigate California’s Employment Development Department fraud of $31 billion during the COVID pandemic, was postponed by California’s legislative Democrats.

Democrats on the Joint Legislative Audit Committee already delayed the hearing scheduled for Tuesday, August 24 one week, and now have no new date set, despite Legislative Session concluding on September 10.

It appears they are trying to run out the clock.

“Clearly, the governor is trying to dodge the massive negative news coverage this important informational hearing would have generated ahead of the recall election,” said Sen. Jim Nielsen (R-Gerber).

“This is outrageous political gamesmanship,” Nielsen added.

Notably, the EDD is an executive branch agency, with oversight done by the Governor.

Here’s the timeline:

It was only in November 2020 that California State Auditor Elaine Howle warned legislative leaders that the Employment Development Department had sent at least 38 million pieces of mail containing claimants’ full Social Security numbers since the start of the COVID-19 pandemic, as the Globe reported.

Less than one week later, District Attorneys, and Federal Prosecutors, along with local, state and federal law enforcement announced rampant and large scale pandemic unemployment assistance fraud occurring in California’s communities, in the jails, and in state and federal prisons. It took the California District Attorney’s Statewide EDD Fraud Task Force to expose this in a letter to Gov. Gavin Newsom.

By early December, Bank of America, the bank selected by the EDD to be behind their unemployment benefit debit cards, announced that fraudulent cases could be as much as $2 billion.

Early January found more than 1.4 million unemployment claims in California were frozen since the New Year due to concerns over fraud.

A few weeks later, then-California Labor Secretary Julie Su announced upwards of $31 billion dollars in unemployment claims was 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 were stiffed for months, or received months-late payments.

For her efforts, California Labor Secretary Julie Su “failed up,” and was hired as Deputy Secretary of Labor in the Biden administration.

The Globe reported that the State Auditor conducted an audit in January, and issued a scorching report on the EDD’s monumentally catastrophic failure to respond to the surge in unemployment claims following Gov. Gavin Newsom’s statewide lockdown of businesses over the coronavirus. Because of her audit, we now know about the $31 billion dollars in unemployment claims sent to prison inmates, to persons out of state, and out of the country, while legitimate claimants have been stiffed for months, or received late payments.

Senate Republicans said Thursday the EDD has a timeline of failures that date as far back as 2013 and led to the disaster Californians witnessed in 2020. The Republicans believe the EDD’s failures speak for themselves and the governor’s mismanaged unemployment agency cannot continue to operate under status quo.

“Democrats refuse to discuss EDD because they know Newsom’s mismanagement is a textbook example of a government failure,” Senate Republican Leader Scott Wilk said Thursday. “Last year, it was tweet after tweet with frustration, but now it is delay, delay, delay. Meanwhile, Californians still desperately need help. This hearing was a crucial step in reforming an agency that needs to get its act together. I guess by avoiding this hearing, Democrats must be OK with this failed status quo.”

Sen. Jim Nielsen (R-Gerber) expressed his long time frustration with the indefinite postponement of a joint legislative hearing on the mismanagement of the Employment Development Department scheduled for Aug. 24. “There are hundreds of thousands of Californians struggling to put food on the table and keep a roof over their heads because of Governor Newsom’s gross mismanagement of the EDD.”

“Most of these folks lost their jobs because of the governor’s mandated shutdowns, and can’t get through to the EDD to get their unemployment benefits, but the EDD has paid out an estimated $31 billion in fraudulent claims,” Nielsen said.

Nielsen noted that as of July 31, there was a backlog of 216,000 claims that had not been approved within 21 days, the LA Times reported. “The week ending on that date saw the EDD receive 3.4 million calls — it was able to answer only 248,000 of them,” he said.

In July 2021 alone, Nielsen’s office reported they worked with 479 constituents in Senate District 4 who are having problems with EDD. For six months in a row, the office has had record-breaking numbers of EDD cases:

• Feb. – 274
• Mar. – 275
• April – 306
• May — 447
• June – 475
• July – 479

The State Auditor’s January report says EDD knew of its shortcomings, and that for the last 10 years the agency wasn’t ready for a recession or any kind of disaster, much less a statewide business lockdown.

The auditor made many recommendations including 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.

And now Democrats are delaying the oversight hearing. It’s August. The Auditor’s report was issued in January.

Earlier this year, Senate Republicans introduced legislation to #FixEDD, but they’ve all been stalled since July by the Senate Appropriations Committee where they await decisions:

• SB 39 (Grove) would require the EDD to cross check prison inmate records with unemployment claims to prevent benefits from going to prisoners. This bill was placed on the Suspense file.
• SB 58 (Wilk) would require the EDD to immediately end the practice of including full social security numbers on its most frequently mailed documents.  This bill was placed on the Suspense file.
• SB 232 (Nielsen) would implement the State Auditor’s full recommendations from the previous three audits of EDD.  This bill was placed on the Suspense file.