Unemployment fraud during COVID has cost California $11 billion
California has paid out a staggering $11 billion worth of fraudulent unemployment claims since the COVID-19 pandemic began last spring, California Labor Secretary Julie Su said Monday.
The fraudulent payments represent about 10% of all payments for pandemic era unemployment benefits, Su said. The percentage is likely to go higher. Another 17% of the dollars that have been paid out — more than $19 billion — are considered suspicious and “a large number of that could be confirmed fraud as well,” she said.
“There is no sugarcoating the reality,” Su told a news conference. “California did not have enough security measures in place.”
Most of the fraudulent claims have been made through the federally-funded Pandemic Unemployment Assistance program.
PUA was designed to provide unemployment benefits to people who do not qualify for traditional unemployment insurance, such as independent contractors and small business owners. Recipients can currently get up to $750 a week in benefits.
The state’s Employment Development Department and local prosecutors have been cracking down on fraud over the last few months. Su estimated those efforts have stopped about $60 billion in fraudulent claims — but have also contributed to the massive backlog that has delayed payments to hundreds of thousands of legitimate claimants.
She said the federal PUA program was designed to get benefits out the door quickly, and without the employment verification systems traditionally used by EDD.
Still, she said, “This does not excuse EDD” for not catching the criminal activity.
The state Office of Emergency Services, which is coordinating the response to the fraud, said it stopped payment on 1.4 million claims Dec. 26. Earlier, it had disqualified another 1.9 million claims.
The more than three million claims were flagged by a fraud-detection system operated by Thomson Reuters/Pondera, the state said.
According to prosecutors, dozens of prison inmates had been engaged in a scheme, mostly using contraband cell phones, to illegally acquire unemployment benefits for themselves and outside accomplices.
More than two dozen people have been charged so far, including two former EDD employees, in cases brought by federal prosecutors and officials in San Mateo County. The prison-based fraud is believed to total at least $2 billion.
Officials said billions of additional dollars have been siphoned off by organized cyber-crime rings operating out of Nigeria, Russia and elsewhere. “There’s a lot of sophisticated schemes out there,” Su said.
“Organized crime is approaching this like a business process,” said Blake Hall, chief executive of ID.me, a cybersecurity firm that’s been working for the state since October.
Hall said that because California is a big state, it’s easier to avoid detection. He added that practically every state has suffered pandemic fraud, and he said “California is to be commended” for taking strong action.
Compared to some states, “California will end up being relatively well off,” Hall said.
Su, who is reportedly about to be nominated as deputy U.S. Labor secretary by President Joe Biden, put much of the blame for the fraud problem on the Trump administration.
She said Trump’s Labor Department “did not provide adequate guidance or information to protect against fraudulent rings state by state.” The department did issue advisories for months warning about potential fraud.
Su said that what she called the department’s inaction “do not excuse EDD for being under-prepared.”
This story was originally published January 25, 2021 at 2:30 PM with the headline "Unemployment fraud during COVID has cost California $11 billion."
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