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12.21.2020 California dropped its guard before it was hit with $2 billion in unemployment fraud

Excerpted from the Los Angeles Times


As California grapples with staggering levels of unemployment benefit fraud — $2 billion or more by one estimate — lawmakers and security experts say the state let its guard down well before the COVID-19 pandemic began in March, failing to keep up with what other states have done to flag bogus claims.

Now, faced with what officials describe as the largest fraud scheme against taxpayers in state history, the state Employment Development Department is scrambling to fix past mistakes as prosecutors, government auditors and legislators say their early warnings about vulnerabilities in the unemployment benefit system went unheeded.

Many of the phony claims were preventable, they say, if California had taken precautions implemented in other states, including using sophisticated software to identify suspect applications, keeping Social Security numbers out of official mail and cross-checking benefit claims against personal data on state prison inmates. Cross-checking is routine in 35 other states.

Adding to the problems, there have been delays in trying to address long-standing issues at the agency that have undercut attempts to safeguard against fraud. State prison officials had maintained that they could not legally share prisoners’ Social Security information with the EDD, an assertion that was knocked down this month by a legal opinion from the state Department of Justice.

The controversy hindered the ability of investigators outside the prison system to discover rampant fraud, some officials said.

“Months of dithering have cost California taxpayers hundreds of millions of dollars,” said Assemblywoman Cottie Petrie-Norris (D-Laguna Beach), chairwoman of the Assembly Committee on Accountability and Administrative Review.

The bank, which has contracted with the state Employment Development Department to issue debit cards containing unemployment benefits, issued the warning in a letter to California legislators.