EDD Switches Over To Money Network For Benefit Payments Following $32 Billion in Fraud

Department switches bank networks following $32 billion in fraudulent unemployment claims during pandemic

The Employment Development Department officially switched over from Bank of America to Money Network for unemployment, disability, and Paid Family Leave debit card payments, following years of issues with BofA issued cards.

According to the EDD, old Bank of America EDD Debit Cards will continue to work for now. However April 15, 2024 will be the last day that claimants will be able to use the old cards.  Customers will need to transfer any remaining balance on their debit cards to a different account or request a check for the funds from BofA by that date.

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“With Money Network, customers get the benefits of embedded microchips and state-of-the-art encryption for making contactless payments when using that card,” said EDD Deputy Director Loree Levy in an announcement on Friday.

The switchover from BofA has been in the process for years, dating back to the COVID-19 pandemic. During the COVID-19 pandemic, the EDD was slammed with a record number of requests for unemployment following the shutdown of many businesses in March 2020. The EDD approved so many requests, even lifting their own anti-fraud measures. In January 2021, California Labor and Workforce Development Agency Secretary Julie Su said that the number of fraudulent claims was at S11.4 billion. By the time anti-fraud measures were firmly in place and that all claims could be thoroughly checked, the amount had climbed to $32 billion.

Investigations into the fraud were launched, with Governor Gavin Newsom launching his own investigation. There, they found that the high number of BofA cards issued did not have fraud prevention chips in them, allowing for so many fraudsters to receive them during the pandemic. Task forces soon recommended not only cards with fraud prevention chips, but also cards with tap to pay technology and the option for direct deposits to help combat fraud.

Bank of America, while also struggling to combat the fraud, said that “The vast majority of unemployment fraud is committed by those filing false applications. When fraudulent transactions occur on benefit cards, we review those claims and restore money to legitimate recipients.”

Bank of America – Money Network switchover

Despite this, Bank of America quickly decided to get out of providing unemployment benefits, because of their part in the $32 billion in fraud and giving out outdated cards with no fraud prevention chips. Needing a new partner for benefit payments, the EDD turned to Money Network. The company, which proved itself by sending the Middle Class Tax Refund out in late 2022, won the bid, with the transition between BofA and Money Network starting last year.

This led to the debit card changeover officially happening on Friday. In addition to the provider switchover, the EDD added that a direct deposit option will be implemented later this year, with the EDD to pay Money Network around $32.3 million over the next five years to cover the costs of direct deposit transactions alone. This is all part of the EDDNext program, which while making claims processing easier and faster, will also drastically increase protection against fraud.

Click here to read the full article in the California Globe

What went wrong at EDD? An investigation of its managerial meltdown

In theory, we humans practice politics as a pathway to governance – providing an array of laws, regulations and services to protect and otherwise enhance the lives of the governed.

In practice, politics often – too often – become all-consuming exercises that bear only the faintest relationship to governance. Case in point: the U.S. Congress.

An aspect of that disconnect is the eagerness of those in office to build their images by constantly offering up proposals for new laws, services and programs while ignoring whether earlier laws, services and programs that officialdom birthed are performing as promised.

Often they are not, but even when informed about the shortcomings of design and/or implementation, officials tend to minimize or brush aside the criticism, fearing that acknowledgement would be a sign of weakness. Management and oversight just don’t have the political sex appeal of some shiny new notion that promises boundless benefits.

Examples of the syndrome abound, particularly in a state as large and diverse as California.

The state’s bullet train project is certainly one. Billions of dollars have been consumed and various structures have been built but the project has become a zombie, something that’s neither alive nor dead.

Oroville Dam is another. It was poorly designed and shoddily constructed in the 1960s and those who managed it knew of its deficiencies, particularly spillways that couldn’t handle Feather River flows from extraordinary storms.

But the interest groups that provided financial support for the dam in return for water were evidently not willing to spend the money necessary to make it safe.

Officialdom didn’t make it a priority, even when safety issues were raised in 2005 during the dam’s relicensing. In 2017, it came extremely close to a collapse that could have killed thousands of people.

There are many others but the poster child for governmental dysfunction has to be the Employment Development Department, which imploded during the COVID-19 pandemic as millions of Californians lost their jobs and needed unemployment insurance benefits.

EDD managed to simultaneously deny countless unemployed workers of the life-sustaining benefits to which they were entitled and parcel out countless billions of dollars in benefits to clever fraudsters.

A preview of EDD’s dysfunctional tendencies was felt during the Great Recession a decade earlier and the state’s watchdogs, the state auditor’s office and the Legislature’s budget analyst, issued timely warnings of potential disaster. But three governors and hundreds of legislators couldn’t be bothered to fix them and the result was cruel chaos.

In the aftermath of the near-catastrophe at the Oroville Dam, an exhaustive and damning analysis of what went wrong was commissioned. EDD deserves similar scrutiny.

After a year of painstaking research and interviews, CalMatters investigative reporter Lauren Hepler has written a four-part series that delves into what happened and why. She also catalogs the pain that EDD’s managerial collapse imposed on people who needed unemployment insurance benefits when the state shut down their jobs.

Click here to read the full article in CalMatters

Does the EDD Owe the Feds Another $18 Billion Dollars?

Seems That Way…

Buried in a state Controller’s Office financial report, there is a rather odd entry:  a $17.9 billion dollar “current liability” owed to “other governments.”

The Controller’s Office said the $17.9 billion line item refers to “amounts due to the Federal Government, primarily associated with federal grant expenditures for which the State was not able to verify eligibility of claimants under federal program guidelines.”

This does not refer to the $18.5 billion dollars the Employment Development Department owes the federal government for its fraud-filled disastrous pandemic unemployment benefit system response.

It’s in addition to that figure, meaning the total unemployment-related federal debt could be more than $36 billion dollars.

While neither the Controller’s Office nor the EDD would explicitly confirm it, the debt is almost certainly related to the state not being able to prove that that $17.9 billion dollars was sent to actual eligible unemployment claimants.

The language used by the Controller specifically parallels federal unemployment benefit program reporting guidelines.

Whether or not that is part of the $32-to-$40-billion-dollar overall fraud loss the EDD was fleeced for during the pandemic is not clear.

Either way, again – the unemployment-related debt to the feds appears to actually be more than $36 billion dollars (it is theoretically possible the debt is related to another program but that doesn’t remove the debt itself.)

It is unknown if that debt can be added to the existing unemployment trust fund debt or has to be treated – and paid back – separately. If it can be lumped together, that could extend out the surcharge every business is already paying per employee. The rate increases each year – this year it’s $21 and it will increase by $21 per year (plus additional increases starting in a few years) until it hits $420 per year per employee, which the surcharge is already expected to do. Originally, the EDD had estimated it would take only seven years to pay the debt; if the other debt is added it could be more than 25.

The “trust fund” part of the debt is growing because the EDD cannot cover its day-to-day bills now and is borrowing another $18 million a day, or $214 a second, or $25 bucks literally in the blink of an eye.  Whether or not the “eligibility” debt is growing is unknown.

The EDD did not respond to multiple requests for comment/explanation; the Controller’s Office did provide requested information but did not directly comment further.

Indirectly, though, the Controller’s Office – like the Legislative Analyst’s Office and the State Auditor blasted the EDD’s gross incompetence.  In the report  – the Annual Comprehensive Financial Report for fiscal year ending June, 2021 (the latest available) – the office stated it was unable to perform a proper audit of the EDD because it has “inadequate internal control over its financial reporting for unemployment benefits.”

Click here to read the full article in the California Globe

California State Auditor Rates Unemployment Agency ‘High Risk’

Awful EDD added to watch list

The California State Auditor’s Office has slapped the omni-shambles Employment Development Department, California’s unemployment agency with a “high risk” rating, meaning that the “likelihood of waste, fraud, abuse, or mismanagement or the likelihood of impaired economy, efficiency, or effectiveness causing harm is so great that this likelihood constitutes a substantial risk of detriment to the State.”

And the sun sets in the west.

While the high risk could not possibly come as a shock to anyone who lives, well, anywhere, the Auditor’s report does peel back some of the layers to show the egregious level of incompetence at the EDD.

This is not the first time the Auditor has lambasted the EDD; in early 2021 the office issued a scathing report regarding fraud, security, and terrible client service.

This report, however, goes further.

The report states: “EDD is a high-risk agency because of its mismanagement of the UI program. Specifically, EDD is unable to reliably estimate improper payments under the UI program, thus adversely affecting the State’s financial statements as well as impairing efforts to independently evaluate the efficacy of EDD’s own fraud prevention activities.”

In other words, it can even figure out how much money it lost to pandemic unemployment benefit fraud.  The current estimate is about $40 billion dollars.

“EDD cannot effectively measure its progress at addressing potentially fraudulent payments because it is unable to accurately determine how many improper payments it has made,” the report states.

This is a problems for law enforcement as well, as not even knowing how many improper payments were made puts rather a crimp in the ability to try to find that money and get it back.

The report notes the EDD did not “block addresses used to file unusually high numbers of claims,” hence dozens if not hundreds of pre-loaded chipless debit cards containing up to about $13,000 each being sent to the same address.

An independent “federal program compliance” report issued in April noted the agency is poorly run that it issued an “adverse opinion” on the EDD’s following of federal guidelines and standards.  Adverse opinions in such governmental audits are very rare and means the EDD is out of compliance with federal requirements.

This from an agency that owes the very same federal government more than $18.4 billion dollars, in large part because it had to borrow from the feds to cover the pandemic fraud losses.  The EDD has continued borrowing – to the tune of about $18 million a day – from the feds to pay benefits to those currently unemployed.  It is not clear how the “adverse opinion” and/or the “high risk” designation could impact that situation.

What the audit did note is that the condition of the EDD could impact the state’s credit rating.  Currently, the state’s Standard and Poor’s rating is AA-, better than only 4 other states.

The audit also noted the agency has one of the highest claim appeal reversal rates in the nation, meaning it is not terribly good at figuring out if a person deserves benefits in the first place.

This audit comes just a couple of months after the state Legislative Analyst’s Office declared the EDD to be “structurally insolvent” and that the surcharge imposed in every California business to repay the feds will last for more than a dozen years – at least – and could total upwards of $1,500 per employee in the state.

In its formal response to the Auditor, the EDD tried to defend itself by spewing the same nonsense they tried to pedal to Congress earlier this year: every unemployment agency in the nation had a pandemic problem, we have new systems in place today, and most of the fraud came specifically from the federal “PUA” pandemic program (the Agency did not reply to a request for further comment.)

The first statement is true, though no other state failed as badly as California; the second statement is meaningless because the EDD didn’t have the systems in place when it needed them – and had known for months it needed them; and the third defense in simply a mathematically impossible lie.

The EDD even had the temerity to push back on the Auditor’s assertion that the agency’s client service is appalling and degrading – which it is.

The Agency countered the auditor by saying that “We agree customer satisfaction with the Unemployment Insurance claim process fell during the pandemic, however, we disagree it remains low.”

To prove it is no longer “low,” the agency said that “Sixty-Nine percent of customers surveyed in 2022 were completely or mostly satisfied with the application process, up from 67 percent in 2021.”

Seriously – here’s the link to the Auditor’s report.

Click here to read the full article in the California Globe

BREAKING:  California EDD ‘Structurally Insolvent’

‘The latest EDD catastrophe will force ‘the business community to pay for the incompetence of the government’

The Unemployment Insurance (UI) trust fund the California Employment Development Department uses to pay benefits is now “structurally insolvent” a new Legislative Analyst’s Office report states.

The report – a reaction to the “May Fund Forecast” released by the EDD last week  states quite bluntly that the “temporary” – now about 15 years and not the six or seven years the EDD originally projected – federal surcharge will be used to cover on-going bills before actually paying the $18 billion-dollar federal debt the agency incurred due to gross incompetence during the pandemic.

That additional tax works out to be about $1,500 per California employee over the next 15 years (it starts at $21 per employee and rises until it hits $420 per year until the debt is paid.)

The state is using that money now to pay benefits (which are guaranteed by the feds so no matter what financial shape the EDD is claimants will still get paid.)

But the report notes that even without the pandemic debt, the state would still have to borrow money over the next few years, an utterly novel situation in a putatively “good” economy (though the pandemic debt is the cause of the insolvency and the size of the tax hike.)  

The structural insolvency will last for at least two to five years.

“Historically, benefit payments have only exceeded contributions during major economic downturns – most recently, during the pandemic and Great Recession,” the report states.  “For the first time, the fund is expected to be out of balance during a period of job growth.”

While the EDD expects to take in about the same amount of regular UI tax money in the next couple of years – $5.3 billion per – it will spend about $2.6 billion more than that, driving the current $18 billion (including interest, which will for some time add an extra $300 million a year or so to the debt) to $20.6 billion dollars.

Neither the EDD nor the Governor’s Office replied to request for comment.  As per Globe practice, those questions are at the bottom of this article.

Besides clearly showing the utter mismanagement of the agency over the past umpteen years (Sacramento insiders call the EDD “the place where state careers go to die”), the latest crushing blow could finally prompt reform of the agency. That reform, however, could cause even more issues as it could lead to additional UI taxes in one form or the other.

Currently, the state has one of the highest unemployment tax rates in the country, but, oddly, the lowest “taxable wage ceiling” rate possible. Taxes are paid on only the first $7,000 of income per employee, meaning the part-time intern costs the same to insure as the CEO even though the amount in benefits they would receive if laid off are wildly different.  The state has not changed this base rate in about 50 years, while wages and, therefore, the benefits offered have risen dramatically since.

Additionally, the rates employers pay vary depending upon whether or not they have had significant layoffs and other similar issues that strain the unemployment system in the past; “stable” employers can expect to pay only about one-third the rate of “problematic” ones, but the debt obligation to the feds is essentially paid equally by everyone.

Changing that system – especially the wage ceiling – has been a topic of discussion for some time as most other states do have higher wage ceilings but lower actual per-employee tax rates (not necessarily actual taxes, but tax rates.)  

“As noted by LAO, California’s UI financing scheme needs to be reformed,” said Audrey Guo, Assistant Professor of Economics at Santa Clara University.  “Even if the current debt were repaid from the federal relief funds, solvency problems will continue to crop up in future recessions, unless actual UI tax increases are implemented which policymakers have been hesitant to do because it’s seen as a tax increase on employers.”

Guo and others who have backed such reform have in the past usually called it “revenue neutral,” i.e. the total EDD haul stays the same – low wage taxes go down and higher wage jobs are taxed more to cover the cost of the higher concomitant benefits.

Given the political make-up of state government at this time, the chances of any such change actually being revenue neutral is, not to put to fine a point on it, both physically and literally impossible in this particular political space-time dimension.

Rob Moutrie, a policy expert with the California Chamber of Commerce, said his group is “disappointed to see that California businesses will be paying an extra tax for even longer than expected.”

Moutrie did note that the UI fund “was never intended to be used by the state as a society-wide social safety net” and that, unlike California, other states realized that unique situation and made sure to pay any pandemic debt they incurred down immediately.

The state is now one of two (and the Virgin Islands) that has any remaining debt, accounting for 73 percent of that debt nationwide (New York is the rest.)

California lost about $40 billion to unemployment fraud during the pandemic, the vast majority of which could have been prevented early on with a $5 to 10 million expense to institute some kind – any kind, as the state literally had none – of fraud prevention identity security system.  Instead, then-labor department chief Julie Su – who was aware of the problem – waited months to install such a system.

What – if any reform – will occur is unknown, but whatever it is may not be happening soon.  Gavin Newsom is kinda sorta maybe-ish running for president – well, more positioning himself to be tapped as the savior when the Democrats finally admit that Biden is mentally incapable of continuing for health reasons and Vice President Harris is, just, well, mentally incapable in general.

Being seen to raise taxes right now could harm Newsom with a national audience (won’t matter except to the people who actually pay taxes in California and politically that’s not a big enough number.)  Having the EDD raise its disfigured head in any way over the next 18 months is something Newsom is looking to avoid, so it can be expected that any major change will (maybe?) take place after the 2024 election.

“It’s possible that legislators view the federal surcharge as a way to avoid action and keep kicking the can down the road,” Guo said.  “At this point reform (i.e. mandates) at the federal level may actually be the most effective way of shoring up the state’s UI program.”

Tom Manzo, founder of the California Business and Industrial Alliance, said the latest EDD catastrophe will force “the business community to pay for the incompetence of the government, as it has done again and again and again.”

He also believes any stab at reform will wait until after Newsom has left office.

One way or the other.

Click here to read the full article in California Globe

Julie Su Has to Wait Until After Senate Recess

Many point to not only her EDD disaster but the state’s myriad other problems and clear

The tortured path of Julie Su’s journey to be Joe Biden’s Secretary of Labor is riven with potholes, politics, and the PRO Act.

In the past week, Su was praised by some for helping broker a tentative end to the west coast port slowdown.  On the downside, the independent truckers set their phasers on blast – again – and 33 senators asked Biden to withdraw her nomination.

And now, she’ll have to wait until after the Senate recess ending July 7 to even have a chance to schedule a nomination confirmation vote by the full Senate.

As to the port deal, not just Biden praised Su for doing whatever it is she did to bring the two sides together. LA Port Executive Director Gene Seroka lauded Su’s performance, saying she “delivered” and deserves a quick vote to confirm her.  Of course, he said pretty much the same thing about a month ago, so exactly how much that matters is questionable.

And longtime ally and California Federation of Labor leader Lorena Gonzalez chimed in about the port deal, adding that “(H)er decades of work in the Golden State are beyond comparison.”

Gonzalez may actually be correct in her assessment (for once) as Su’s stewardship of the Employment Development Department during the pandemic was truly “beyond comparison” since no one had lost $40 billion in taxpayer money to fraud before.

Su and Gonzalez go way back, as Gonzalez was the author (before she moved from the legislature to her current union chief gig) of AB 5, the notorious anti-freelance bill Su zealously enforced.

In a recent Congressional hearing, Su said she merely enforced the law a few minutes before she admitted she actually helped write it.

One of the real fears of the businesses that have come together to fight Su is that she will push AB-5-type regulations through bureaucratic means on a federal level, even if the PRO Act itself never actually passed by Congress.

Currently, Su’s fate lay in the hands – most likely – of five senators: Democrats Manchin of West Virginia, Tester of Montana, and Kelly of Arizona, Independent Sinema, also of Arizona, and Republican Murkowski of Alaska.  The remaining Republicans are steadfastly opposed while the other Democrats are behind Su, though maybe with not quite the fervor the Republican opposition.

If Su loses two of those four senators, she will not get the job.

Manchin is most likely to vote no, for both political and policy reasons.  In fact, he and other senators (from both parties) demanded Su fix problems with an overseas worker visa program known as H2-B.  Earlier in her confirmation process, Su faced another worker visa scandal when one of her own employees referred to a different worker program the “equivalent to the purchase of humans.”  

In other words, irking one of the people who can keep you from getting a job may not be a good idea.

Tester and Sinema are most likely far more worried about the politics of the nomination as both are facing are tough re-elections fights in states that may not be terribly Su-supportive; while Arizona may be a bit “purple” of late, Montana is no other shade than red.

Murkowski is murkier. She has not voted for Su in the past (recent committee vote, 2021’s full Senate vote to confirm her as deputy labor secretary, her current actual job) but she is widely known around DC for being relatively amenable to a bit of wheeling and dealing with Biden and the Democrats to secure stuff – anything, really – for her home state of Alaska.

In the past 20 or so years, Alaska has received far more per-capita in federal “earmarks” and other specifically dedicated federal project funding than any other state.  Murkowski is following in the footsteps of her father, Sen. Frank Murkowski, who appointed her to his senate seat when he became governor in 2002, who was also (along with pretty much every other Alaska pol in DC) for “bringing home the bacon.”

That history could play a role in Murkowski’s ultimate decision.

Su has also faced other recent allegations that have played a part in stalling the nomination process, failing to properly curtail migrant childhood labor.

Finally, a consistent theme of Su’s opposition has been about her home state of California, with many pointing to not only the EDD disaster but the state’s myriad other problems and clear precipitous decline of late.  

Click here to read the full article in the California Globe

Failing Up: Biden to Nominate Julie Su as Next US Labor Secretary

President Joe Biden is nominating Julie Su, the current deputy and former California official, as his next labor secretary, replacing the departing incumbent, former Boston Mayor Marty Walsh.

Su, a civil rights attorney and former head of California’s labor department, was central to negotiations between labor and freight rail companies late last year, working to avert an economically debilitating strike. She also has worked to broaden employee training programs and crack down on wage theft. If confirmed by the Senate, Su would also be the first Asian American in the Biden administration to serve in the Cabinet at the secretary level.

Biden, in a statement on Tuesday, called her a “champion for workers.”

“Julie is a tested and experienced leader, who will continue to build a stronger, more resilient, and more inclusive economy that provides Americans a fair return for their work and an equal chance to get ahead,” he said. “She helped avert a national rail shutdown, improved access to good jobs free from discrimination through my Good Jobs Initiative, and is ensuring that the jobs we create in critical sectors like semiconductor manufacturing, broadband and healthcare are good-paying, stable and accessible jobs for all.”

Su was considered to lead the department when Biden won the White House but instead became the department’s deputy. Walsh announced his intention to leave the administration earlier this month to lead the National Hockey League Players’ Association. Su will serve as the acting secretary until the Senate acts on her nomination.

Biden had been under pressure from the Congressional Asian Pacific American Caucus and other Asian American and Pacific Islander advocates to select Su to head the department. This administration was the first in more than two decades to not have a Cabinet secretary of AAPI descent, despite its regular declarations that it was the most diverse in history. Vice President Kamala Harris and U.S. Trade Representative Katherine Tai are of AAPI descent but don’t lead a Cabinet department.

Su, if confirmed, would also expand the majority of women serving in the president’s Cabinet. She was confirmed by the Senate to her current role in 2021 by a 50–47 vote.

Su’s nomination drew swift support from Democrats on Capitol Hill, with Senate Majority Leader Chuck Schumer saying she would be “phenomenal” in the job.

“The president couldn’t have picked a better nominee,” he told reporters. “I’m really excited about her, and we’re going to move to consider her nomination very, very quickly.”

Sen. Bernie Sanders, I-Vt., who will preside over Su’s confirmation hearing as chair of the Senate health, education, labor and pensions committee, praised the selection. Sanders had urged consideration of Sara Nelson, the president of the flight attendants union, but made clear Su had his strong support.

“I’m confident Julie Su will be an excellent Secretary of Labor,” he tweeted. “I look forward to working with her to protect workers’ rights and build the trade union movement in this country.”

But Louisiana Sen. Bill Cassidy, the top Republican on the Senate health, education and labor committee who opposed Su when she was selected for deputy secretary, called her work overseeing the department “troubling” and “anti-worker.”

The committee should “have a full and thorough hearing process,” Cassidy said.

Rep. Judy Chu, D-Calif., who chairs the Congressional Asian Pacific American Caucus, said she was “overjoyed” by the selection, thanking Biden in a tweet for “nominating your first AAPI Cabinet Secretary!”

“It certainly is better late than never,” Chu said in a brief interview, citing CAPAC support for Su two years ago for the top Labor post and praising Su’s credentials as a leader and enforcer of labor laws including minimum wage and occupational safety standards. She said GOP criticism about Su had been fully vetted two years ago and that the coming confirmation process will show their charges “have no basis.”

Chu noted that Biden had said he would name a Cabinet that looked like America, and “he fulfilled that promise.”

Su’s nomination also comes at a key moment for labor unions, which have been facing a decline in membership for decades. Unions gained some momentum as workers at major employers such as Amazon and Starbucks pushed to unionize. But Biden — an avowed pro-union president — had to work with Congress to impose a contract on rail workers last year to avoid a possible strike.

Click here to read the full article in AP News

California EDD Blamed Fed Program for Fraud – New Numbers Show That is Impossible

Nearly $40 Billion Was Lost by the EDD

New federal Department of Labor figures regarding the massive looting of the nation’s unemployment insurance systems during the pandemic show that California’s improper payment figure has climbed again and is now estimated to be nearly $40 billion.

Labor Department Inspector General Larry Turner testified in front of Congress Wednesday that an estimated 21.5% of the $888 billion paid out in unemployment benefits across the country were improper.  That means $191 billion dollars were lost to fraud and other more typical bureaucratic incompetencies.

What that means for California is that nearly $40 billion – or about $1,000 per state resident – was lost in the wind.

The state Employment Development Department was contacted multiple times to elicit comment.  As has been typical in the past, the EDD did not avail themselves of the opportunity. 

In the past, the EDD has claimed that “95%” of the fraud losses were directly related to the federal PUA (pandemic unemployment assistance) program. The new figures show that could not possibly be true.

PUA – which offered assistance to those who would not normally qualify for benefits like independent contractors, freelancers, etc. –  was only one of the federal unemployment programs created at the start of the pandemic and accounted for about 15% of the overall national (state and federal) payment total of $888 billion. Regular state funds, the FPUC (the $600 then $300 weekly supplement that was available for about a year during the pandemic,) and other programs made up the rest.

Turner added the fraud estimate percentage for the PUA itself – unlike all of the other programs – has not yet been determined though he expects it to be higher than the 21.5 % averaged by all other payment types.

The PUA program has been considered the easiest target for fraudsters as some states, like California, required virtually no identity conformation to qualify for the benefits, hence claims made in Sen. Dianne Feinstein’s name sailed through the system (as did claims made by thousands of prisoners, out-of-state residents, and foreign nationals.)

Eventually the EDD did bring in an outside identity verification firm – ID.me – which reportedly did staunch the fraud flow, though also causing legitimate claimants to have their benefits halted for up to two months.

The EDD still claims only $20 billion total was lost, of which 95% was PUA related.  However, California’s share of PUA spending is most likely to be in the $25 billion range (akin to the national 15% percent of the total state spending) meaning that 76% of all PUA expenditures would have had to be fraudulent and/or improper.

And if the national estimate of 21.5% is correct (it may be slightly lower at 20%, though as the PUA percentage has yet to be determined it may be higher) the EDD lost between $37 and $40 billion.  If the EDD’s 95% claim is to be believed, that would mean that the PUA program would have had to somehow manage to lose about $36 billion of the estimated $25 billion it spent  – a mathematical impossibility.

As noted above, attempts to have the EDD clarify the figures – and to explain the impossible estimate they have been touting for more than a year –  were met with silence.

It should also be noted the EDD has ludicrously claimed that their non-PUA fraud rate actually went down during the pandemic

The new figures also show that, while having only 12% percent of the nation’s residents, California accounted for about 21% of all unemployment expenditures during the pandemic and about 22% of the fraud and other improper payments made nationwide.

This raises the specter of international gangs specifically targeting the state because they quickly became aware of how lax the system was, a system the EDD took more than seven months to put in even the most basic safeguards. Identity experts have said previously that the EDD, even with its antiquated tech systems, could have added a “bolt on” security program for a few million dollars in about a week’s time very early in the pandemic.

Exactly how much California received – and lost – as part of the PUA system should become clearer when the Department of Labor completes its PUA audit in the coming months.

At the end of January, new EDD chief Nancy Farias – formerly a labor union “government relations” human – told the Sacramento Bee that she blamed the problem on the Trump administration for neglecting “state efforts to combat domestic and foreign criminals collecting billions of dollars fraudulently from overwhelmed unemployment systems.”

Exactly how the Trump administration could have been at fault remains unclear – for example, when the EDD finally added some security “friction” to the system, Trump was still president and his administration clearly did not stop them from hiring ID.me and, therefore, undoubtedly would not have stopped them from doing so earlier on in the pandemic.

It should also be noted the Trump administration provided the EDD with an additional $788 million just to cover the department’s additional administrative costs caused by the pandemic.  With a typical annual administration/operations budget estimated to be in the one billion dollar range, that amounts to an annual budget bump of about 40% during the pandemic.

Click here to read the full article in the California Globe

GLOBE EXCLUSIVE – EDD Has Paid Billions to Feds in Interest Alone

In the past 10 years the state has managed to not borrow to cover unemployment claims only twice

Since 1990, California’s unemployment agency – the EDD – has paid the feds $1,793,665,930 in interest alone to help keep its doors open and claimants paid.

That approximately $1.8 billion dollar figure does not include what the state currently owes in interest – another $48.8 million for this year so far as the agency has begun borrowing again, as the Globe reported here – nor is that figure adjusted for inflation to reflect value in current dollars.  

The inflation-adjusted number is significantly larger, approaching an estimated $3 billion.  

Not only does the loss of this literally wasted money contribute to the inability of the state unemployment trust fund to build a solid footing and has made reform of the agency more difficult, but it has also had to be paid for by state employers and workers, driving up business costs and being a general drag on the state’s economy. 

In the past 10 years – well before the pandemic – the state has managed to not borrow to cover unemployment claims only twice – in 2019 and 2020.  In that same time period, the EDD has paid $1.2 billion in interest, about $817 million from 2013 to 2018 and another $330 million this year.

Just since 2007, the state has borrowed $100 billion and since 2013 up to and including this year the EDD has paid about $1.2 billion in interest (the other $600 million interest paid occurred on borrowing between 1990 and 2007.)

It should be noted that much of the specifically-pandemic-related billions lent to the EDD were loaned interest free (as they were to every state.)

On top of this, the state – as of midnight Thursday night –  now owes another  $18,223,379,798.78 in principal and another $48,846,063.38 (as noted above) in interest.

EDD’s debt-reliant funding is somewhat analogous to a person who has a credit card, runs it up to the, say, $5,000 limit, pays the minimum due, say $200, and then the next day spends $200 using the same card. Or it’s like borrowing $100 from a loan shark on the condition of paying $125 back next week but only paying the $25 “vig” week in and week out in order to keep the use of your knees (luckily for all involved, it is doubtful that the Social Security Administration – which administers the loan program – would send its goons to the EDD’s Sacramento offices to “collect.”) 

It should be noted that the feds do not refuse to lend the money and tend to consider state (borrower)-initiated payment plans in order to make sure unemployment benefits claimants actually get the money they are entitled to. In other words, no matter the debt the money will flow through the EDD to the laid-off worker, as it does today.

It is true that the EDD has managed to occasionally pay the principal down to zero, but that state of being “off the schnide” is far from the typical condition of the financial affairs of the agency.

Like all states, California is allowed to borrow from a program called Title XII, a part of the Social Security system set up decades ago to “backstop” unemployment agencies experiencing what are supposed to be temporary difficulties. For example, a textile-heavy state that sees its mill jobs disappear and shipped overseas can access the funds to meet the concomitant spike in demand for benefits.

Unlike many other states, California must pay interest. Notably, which states pay interest varies from year to year, though California has not managed to qualify for interest-free money since 1990. The number of states that do qualify is usually between 20 and 28, or about half on the money it borrows, at a rate that has ranged over the years from about 1.7% to 2.5%.

The amount paid in interest – interest that brings no other gain along with it, like a mortgage leads to homeownership – could have funded a number of Governor Newsom’s pet green projects. For example, at $100 million a year (averaged and adjusted for inflation), the interest paid could have switched the funding of the state’s “methane satellites” program from just a one-off expense of $100 million this year to a dedicated annually funded project – not that that would be a good idea and, yes, methane satellites are exactly what they sound like – the state budgeted $100 million to help launch satellites dedicated to detecting methane emissions – basically, cows with the vapors; for more on this see here.

The state has one of the highest unemployment tax rates in the country, but, problematically, the lowest “base” rate possible.  Taxes are paid on only the first $7,000 of income per employee, meaning the part-time intern costs the same to insure as the CEO even though the amount in benefits they would receive if laid off are wildly different.  The state has not changed this base rate in about 50 years, while the benefits offered have risen dramatically since.

Additionally, the rates employers pay vary depending upon whether or not they have had significant layoffs and other similar issues that strain the unemployment system; “stable” employers can expect to pay only about one-third the rate of “problematic” ones, but the interest obligation to the feds is essentially paid equally by everyone.

“I think what policymakers may not realize is that the (interest) from Title XII loans also increases taxes on employers,” said Audrey Guo, Assistant Professor of Economics at Santa Clara University. “And these surcharges are less equitable because they penalize all California employers, even those that may not have previously laid off employees.”

Rationalizing the current tax and base rate numbers, said Guo, could “increase the tax cost for employers at the minimum and maximum, but other employers would actually experience tax rate decreases.”

As to why this problem has continued for more than 30 years, it is not clear, though it is possible that EDD employees know they can’t get fired for incompetence nor be rewarded for innovating changes.

“I’m not sure why California has lagged behind other states,” said Andrew Johnston, assistant professor of economics at UC-Merced.  “But California’s largesse in some areas has meant that it doesn’t do basic service on the core of its social safety net, including its dilapidated education system and its bankrupt unemployment insurance program,” 

Click here to read the full article in the California Globe

EDD Debit Card Program Rife with Fraud, Reports of Unemployed Californians Not Getting Their Money

With rent due, Daryl Stanczack was counting on money from unemployment, but on November 1, he found he was overdrawn.

“You expect to get it,” said the Long Beach resident. “You expect to have it there.” 

He says he soon learned someone had duplicated his Employment Development Department (EDD) debit card and stole his benefits payment. But what surprised him even more was Bank of America’s response. 

The bank is responsible for issuing and administering the cards for the state of California.

“I got to the bank and they’re, ‘Yeah, this happens all the time,’” he said. “I’m like, ‘Wow, if this happens all the time they should change it, make it better.’”

He’s far from alone. In fact, a FOX 11 investigation found the EDD debit card program is rife with scammers, complaints and problems. 

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This past July, the federal Consumer Financial Protection Bureau (CFPB) fined Bank of America $225 million over the bank’s botched disbursement of unemployment benefits in multiple states during the height of the pandemic. 

But our investigation has found innocent people are still being left in the lurch. Enter the search terms “BofA” and “EDD” in the CFPB website and you’ll see more than 3 million complaints from about a dozen states.

In recent weeks, beneficiaries have complained that their funds have been frozen for a year or that they had thousands transferred out of their account. Bank of America says it froze accounts due to widespread fraud, but in a letter to California lawmakers, the finance giant admitted at one point as many as 488,000 accounts in California were frozen. 

Among them were legitimate beneficiaries who tell FOX 11 they were left without their money at a time when businesses were shuttered and they needed their money the most.

In a statement to FOX11 Bank of America said, “As California’s unemployment program faced tens of billions of dollars in fraud, Bank of America’s goal always was to ensure legitimate recipients could access their benefits. Bank of America partnered with the state to identify and fight fraud throughout the pandemic, identifying hundreds of thousands of suspicious cards and assisting the state in protecting billions of dollars.”

“We need more clarity about what banks can and cannot do in terms of freezing your money if there’s a problem,” says Lauren Saunders, the associate director of the National Consumer Law Center in Washington, D.C. 

The advocacy group takes on big banks as part of its mission to protect consumers. She says the state should have given beneficiaries should have a choice on how they get their payments.

The state of California rolled out the program back in 2010, partnering with Bank of America. The EDD argued many beneficiaries didn’t have bank accounts and so the EDD debit card was better than sending checks. 

Bank of America would issue the cards at no cost to the state and in exchange, California would get a share of the profits. Most of the fees come from merchants, who pay up anytime a customer uses the card, but Bank of America would also collect interest on the funds in people’s accounts. 

We wanted to know how much the agreement has brought in for the state. The EDD’s own documents show that it has collected almost $200 million from the agreement. The amounts were modest in the first year, bringing in hundreds of thousands of dollars a month. But then, during the pandemic, those numbers jumped to six million in just one month.  In fact, 2020 was a profitable year for the state, raking in $47 million from the cards.

“Is the fact that the state is making money off it impacting their choices?” Saunders asks. “We don’t know.”

No one from the EDD agreed to go on camera, and when we asked for specifics on how the profit share is calculated, the EDD press office said they needed to check with their attorneys, then didn’t get back to us. 

“We definitely should know how much the consumer is paying in fees.” Saunders said. “We should know
if there is a way of reducing those fees.”

We don’t know how much came from consumer fees, but last year Bank of America told California lawmakers that it had brought in $687 million, but had spent $927 million. The Bank added it had lost $240 million between January of 2011 and the same month in 2021 in part due to criminals and fraud.

The bank now wants out of the EDD card business, but California said, “no.” The state exercised an option in the contract to keep the program going.

As for Stanczack, he got his money refunded, but wishes he’d been given a choice on how to get his money. He now has a new card and just interviewed for a job in his field of commercial plumbing, which he hopes will mean he won’t have to worry about EDD scammers stealing his money again.

Click here to read the full article at FoxNewsLA