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Fraudsters scammed California out of $20 billion during height of pandemic

The figure from the embattled Employment Development Department is double previous estimates.

SACRAMENTO, Calif. (CN) — Organized crime rings and inmates snatched $20 billion intended for jobless Californians during the height of the pandemic, the state’s much-maligned Employment Development Department acknowledged Monday.  

The alarming admission came during an oversight session in which the department’s brass updated lawmakers on progress being made to fraudproof and revamp an agency that failed millions of Californians last year. The updated total of confirmed unemployment benefits issued to scammers nearly doubles the estimate given by the department this past January, thought it warned at the time the figure could be as high as $30 billion.   

“Of the $177 billion that was paid out, $20 billion is estimated to be fraudulent,” EDD Director Rita Saenz told lawmakers.

The swift takeover of California’s unemployment system last year roiled taxpayers and was a political nightmare for Governor Gavin Newsom and the state’s Democratic leaders. The embarrassing revelation that inmates on death row were able to apply for and receive benefits while hundreds of thousands of legitimate claims went unfilled spurred the overhaul of the department’s leadership and its outdated customer service systems.  

The fraud not only sparked criminal investigations but caught the attention of lawmakers who turned to the state’s venerable auditor for help.

State Auditor Elaine Howle found the department was ill-prepared for a major economic downturn and essentially ignored recommendations her office issued 10 years ago in wake of the Great Recession.  

“EDD’s performance was poor before the pandemic, it just got miserable,” Howle told a joint budget committee Monday.

Howle’s reports spurred a flood of reforms and the auditor joined Saenz to give lawmakers a progress report on the department’s ongoing changes.

The auditor, who is scheduled to retire this year after 21 years on the job, said the department has implemented around 60% of the recommendations issued in her January report. The department has begun clearing its deferred claims backlog, updated its website to be more transparent for the public and renovated its call center.

While Howle called the changes “notable progress,” she urged the committee to keep up with persistent oversight and make sure the department carries out the changes.

The committee’s chair state Sen. Wendy Carrillo lamented the slow pace of progress, noting the department is still struggling with a massive claims backlog despite an influx of recent budget funding to help boost staffing levels. The Los Angeles Democrat asked Howle how the state can “turn this Titanic around” and be sure the embattled department is spending the $276 million in new funding and making changes wisely.  

“What’s the use if the system is so slow that it can’t take into account a new workforce or the need of people requiring assistance from the EDD?” asked the former broadcast journalist.

Howle advised the Legislature to take an incremental approach when doling out funding for the department and reiterated lawmakers ultimately hold the “purse strings.”

“You’re not going to get money to do that until you accomplish this,” Howle said.

Saenz, who took over the EDD this past January in the aftermath of the fraud scandal, claimed the department has met every one of Howle’s deadlines and that a strong management team is now in place. She said a special fraud team is being assembled and so far, the department is assisting in over 700 criminal investigations statewide.  

While California’s unemployment failures grabbed national headlines, Saenz noted the state is one of many targeted by fraudsters.  

“2020 was an anomaly, a criminal assault on the unemployment insurance program across the country,” said Saenz. “We closed the door to that type of fraud.”

Monday’s hearing, which had been postponed multiple times over the last several months, comes as the state continues to struggle with high levels of unemployment.

California saw jobs added at a torrid pace of over 100,000 per month over most of the first three quarters of 2021, but in September employers added just 47,000. At 7.5%, California’s jobless rate is the highest in the country and last week new unemployment claims spiked to its highest total in six months.

Flanked by a visual aid, Assemblyman Tom Lackey said his office is still taking calls from constituents about people gaming the apparently new and improved unemployment system. The amount of unemployment benefits given to criminals is larger than the entire California State University system’s budget and enough to buy over 16,000 new homes at median value, said Lackey.

“I still remain seriously concerned about the fraud problem,” said Lackey, R-Palmdale. “It’s been so enormous already, but if we don’t address it in a more serious way it’s going to continue to be a big, big problem.”

Assemblywoman Cottie Petrie-Norris said the state must ensure the department can never again violate the public’s trust.

“Significant work does remain,” said Petrie-Norris, D-Irvine and committee co-chair. “We can’t sit up here in 2032 rehashing these same issues and conversations.”

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