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

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