A congressional commission is investigating massive unemployment fraud in California
California’s unemployment system, plagued by multibillion-dollar fraud schemes using COVID-related benefits, is being investigated by the Republican-led Oversight and Accountability Committee.
The committee plans its own the first hearing of the new Congress on Wednesday about the federal unemployment program and unemployment systems in California, New York and Pennsylvania. Federal law enforcement officials and observers are scheduled to testify.
After that, the committee expects many more such hearings. Examining COVID-related spending is a top priority for Speaker James Comer, R-Ky.
“Democrats in the administration and in Congress have spent too much time pushing money out and too little time doing meaningful oversight of how that money is spent,” Comer said.
Comer requested a series of documents and reports about the unemployment assistance program from the California Department of Employment Development, which runs the state system. The Californians will not appear on Wednesday.
In recent years, the EDD has strengthened its fraud detection program. As of November, the EDD reported 1,713 fraud investigations over the past three years. There have been 296 convictions and more than $1.1 billion in forfeitures or recoveries as fraud investigations into the pandemic continue.
Job losses are rising
California, like many other states, found itself overwhelmed in 2020 when the pandemic caused the state’s unemployment rate to rise to historic levels.
With unemployment rising across the country, Washington created a pandemic unemployment assistance program that provided benefits to people who traditionally did not qualify, such as independent contractors.
The EDD was inundated with requests for benefits and quickly sent out payments.
The program has been plagued by massive fraud, much of which appears to have been engineered by inmates and organized crime interests. The federal program lacked the traditional guarantees of regular state unemployment insurance programs.
California officials have estimated that at least $20 billion has been improperly paid out, the vast majority of it through new federal programs, and have complained that recovering most of it will be difficult.
Newsom to blame?
Comer makes it clear that he believes California’s predicament cannot be blamed solely on the policies and practices of the federal government.
“Governor (Gavin) Newsom and agency officials have tried to deflect attention by accusing the federal government of expanding unemployment benefits during the pandemic and relaxing the rule of law,” Comer said in letter on three pages To Nancy Farias, director of the state Department of Employment Development, which administers the California unemployment program.
Among the items it seeks are information on efforts to prevent payment of fraudulent claims, reimbursement of improperly paid claims, and determination of the total number of erroneously paid claims.
Comer cited a January 2021 report by then-state auditor Elaine Howle that found “the federal government warned the state at least three times in the early months of the pandemic to strengthen fraud protections.”
This was reported by Pchala at a time when Howle discovered that more than 1,700 claims were coming from a single address.
People across California have been finding that they have been receiving mailings with unknown names from the EDD since the summer of 2020. The audit said that as recently as December 2020, the agency “allowed claimants to continue to collect payments using suspicious addresses because it did not place payment blocks on their claims.”
Comer also quoted Julie Suh, then the state’s secretary of labor, who said in January 2021 on the EDD conference call“There’s no sugarcoating the reality, California didn’t have enough security measures in place to prevent this level of fraud.”
Suh is now the US Deputy Secretary of Labor.
Who committed the fraud?
The Newsom administration appointed McGregor Scott, a former U.S. attorney for the Eastern District of California, as special counsel to coordinate efforts to catch and prosecute those involved in the schemes. At the time, he listed five types of fraud:
▪ Transnational organized crime. Scott called it “perhaps the most significant,” fueled by the dark web, he said, with Social Security numbers available for purchase.
▪ Domestic organized crime. He suggested that “traditional street gangs have realized this and are getting paid, or have received money, and are using it to further their nefarious enterprises.”
▪ Fraudsters. These are people who spend their lives trying to figure out ways to steal from the government and various insurance programs.
▪ Imprisoned population. In one case, the U.S. Attorney’s Office described the case of women incarcerated at the Central California Women’s Detention Center in Chowchilla.
They said the inmate sent her own identifying information to several other inmates to file unemployment insurance claims in their names. The claims said the inmates were working in various self-employed jobs, which turned out to be false, as they were in prison and therefore not eligible for benefits.
Although federal programs to combat the pandemic have ended, the EDD has taken several steps to strengthen common fraud detection methods.
It launched ID.me, an identity verification system, and is estimated to have prevented more than $125 billion in fraud attempts. The EDD said its special counsel worked with ID.me to “refer fraud cases to law enforcement.”
The agency also said it is working with vendors and data processors to “identify potentially fraudulent claims using the latest data analytics and refer these cases to law enforcement for further investigation.
And it works with Thomson Reuters to cross-check unemployment claims against law enforcement databases.