Lawmakers Take California’s Unemployment Agency to Task at Oversight Hearing

Lawmakers grilled California’s Employment Development Department following two withering audits revealing mismanagement and poor planning.

The California Employment Development Department. (Courthouse News photo / Nick Cahill)

SACRAMENTO, Calif. (CN) — A spectacular failure at the basics — paying legitimate claims for unemployment benefits while weeding out fraud — has left California legislators skeptical that the Employment Development Department will be able to handle larger headaches facing Californians as tax season looms.

“I have received countless calls from constituents who are scared to death because their unemployment was taken by somebody else and that they are going to receive a 1099-G,” Assemblymember Jim Patterson, R-Fresno, told top EDD officials Wednesday.  

“You’re gonna be flooded with Californians who are going to be seeing what their taxes are gonna to look like. And yet they either didn’t file or had their unemployment taken by fraudsters.”

He said he has a lengthy, growing list of constituents who have already tried calling a phone number the department set up to resolve concerns about tax liabilities, but they cannot get through.  

Patterson’s criticism represented just a fraction of the concerns raised by lawmakers at a marathon oversight hearing on the embattled bureaucracy’s mishandling of pandemic-related unemployment claims. At least four legislators talked about constituents who were reduced to living in their cars while waiting for their benefits to be paid.

Two recent audits of the agency revealed a stark and embarrassing level of mismanagement that left the agency unprepared for a widespread swindling of the system by foreign crime rings. 

One of the reports said the agency decided to loosen identity verification requirements at the beginning of the pandemic to get claims paid faster, a misstep that resulted in scammers getting at least $10.4 billion before the department noticed and started clamping down.

It also highlighted $810 million in fraudulent payments to prison inmates nationwide, a situation created by the agency’s failure to cross-match unemployment claims with information from state and local correctional facilities. 

Jim Wood, D-Santa Rosa, pointed out the cruel irony faced by one constituent, a single mother who was denied benefits because the department falsely labeled her as incarcerated.  

“She’s not in jail, she’s never been in jail, she’s never had anything more than a speeding ticket. What is she supposed to do?” he said. “We were really good at getting money to people who were incarcerated, and here we have someone being told she’s incarcerated and has to wait for months.”

Meanwhile, the agency still has a persistent backlog of unpaid, legitimate claims, and long wait times at its broken call center. If callers can even get through to a real person, they’re often told their problem cannot be resolved by the department employee who picked up.

The audit also raised another problem created by all the fraud — identity theft victims being on the hook for repaying benefits claimed by imposters or may be asked to pay taxes on benefits they never received.

“How are you planning to unwind the problem that you created by taking down the guardrails and by providing tens of thousands of pieces of mail going out across California — with names and addresses and social security numbers in them?” Patterson demanded. 

The agency said it has created a tax information webpage to help those who were sent erroneous 1099-G forms, but that failed to satisfy Patterson, who said he didn’t believe the information was presented clearly enough.

EDD chief operations officer Carol Williams said the IRS has directed the department to ignore erroneously-issued 1099-G’s. 

“Your state agency will catch up and give you the corrected 1099 that will zero out those receipts,” she said.

“How do you intend to catch up? People are going to be real scared about not reporting 1099s,” Patterson said.

Williams said the EDD has set up an online portal where victims can give the department information that will allow them to differentiate themselves from fraudsters. Williams said that with upwards of 7 million 1099s already sent, the portal has been very busy. 

“It’s tax season, but I can tell you we’ve done our best to withhold sending 1099s where we have clear indications of fraud. It’s not perfect. Folks are still receiving them that did not file for benefits, potentially, and we have to work with them one on one to clear them of that reporting,” Williams said.

Patterson seemed unappeased by this answer. “I have reservations about the claim that you can do all of these things when you don’t have the capacity for the fundamental things that you’re doing,” he said.

Rita Saenz, who took over as director of the EDD after Sharon Hillard retired Jan. 1, said the audits were sobering, but the problems are “fixable.”

“There needs to be a drive for modernization,” she said. “One of the things that surprised me when I came into the department was the amount of work that requires manual interaction. I’m not going to speculate on why things did or didn’t get done in the EDD over the past 10 years because I wasn’t there. But I intend to get it fixed.”

State Auditor Elaine Howle agreed that the agency had become set in its ways. 

“I’ve been an auditor for a long time. There are a lot of agencies that are just entrenched in their traditional processes,” she said. 

Just hiring the identity verification company ID.me was a huge step, Howle said, and it has helped. Company CEO Blake Hall said that it has stopped $60 billion in new fraudulent payments, and Williams said that with ID.me working on fraud prevention, EDD staff can get back to “doing the hard, manual work.” 

“One of the biggest efficiencies EDD has realized was ID.me. The more automation we can bring in, it frees up staff to deal directly with claimants on the most difficult calls,” Williams said.

Howle’s office gave the department a host of recommendations that include hiring more staff and providing better, faster training for new hires. They also suggested giving claimants access to information online so they don’t have to wait on hold for hours. 

Howle noted that her team had reviewed the agency back in 2011 and found many of the same flaws still persist 10 years later. While the EDD was receptive to its recommendations back then, it basically stopped implementing them as soon as attention drifted elsewhere.

“They started to listen to the last audit in 2011, but then backed off,” she said.

While the EDD was blindsided by the pandemic, Howle said it should have had a plan in place as it’s common knowledge that recessions are cyclical.

“We deal with recessions every 5-6 years. You need to plan for these situations and EDD was not ready for that,” she said.

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