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EDD Chief Fires Back in House Hearing into Fraud

The Trump administration “neglected” California’s efforts to combat unemployment fraud, says the director of the California Employment Development Department.

Former President Donald Trump’s administration “neglected” state efforts to combat domestic and foreign criminals collecting billions of dollars fraudulently from overwhelmed unemployment systems, the director of the California Employment Development Department said Monday.

Nancy Farias swung back hard against allegations by Rep. James Comer, R-Ky., that California has done a poor job fighting unemployment fraud.

“We object to the chair’s mischaracterization of California’s response to the unemployment insurance fraud attacks and the chair’s failure to acknowledge the inadequate response by the Trump Administration,” Farias wrote in a four-page letter to Comer.

Comer is chairman of the House Oversight and Accountability Committee, which is investigating the California unemployment system. The committee plans a Wednesday hearing on California’s actions, as well as those of other states. Farias contended it was the Trump administration “which left neglected state UI (unemployment insurance) systems fighting domestic and international criminal enterprises effectively on their own.”

Their fight is shaping up as a highly partisan battle. Republicans took control of the House last month, and Comer has vowed to examine COVID-related spending.

“I believe with all my heart that we have a duty to have the backs of the American taxpayer. That is something that has been left out of the mix over the last several years in Congress,” he said Monday. It’s unclear who was most to blame for the initially slow response to the fraud and chaos that the system endured as the COVID-19 pandemic exploded in 2020.

The California state auditor was critical of some of the state’s response, and the independent federal Labor Department was critical of some of the federal response.

California, like other states, was suddenly deluged with unemployment claims as the economy went into freefall in the spring of 2020, when COVID-triggered restrictions virtually shut down public activity. Washington created the Pandemic Unemployment Assistance program to help. It provided weekly jobless benefits to people who traditionally could not qualify for unemployment insurance, such as self-employed workers. Unemployment agencies throughout the country made it a priority to get the benefits out quickly to those in need. But in doing so, they exposed their systems to massive fraud.

California officials have estimated about $20 billion was improperly paid, including some to prisoners, organized crime interests and others. The vast majority of that fraud activity occurred in the new federally funded Pandemic Unemployment Assistance (PUA) program, which lacked some of the basic safeguards that are built into the regular state unemployment insurance programs.

Regular unemployment insurance is a joint federal-state program. There are some federal regulations that govern the program and there are some state-specific ones as well. But with PUA, states were required to build and launch what the federal program called for, funded entirely by federal funds, not the employer contribution funds that pay for regular UI benefits. States administered the PUA program according to the requirements of the program set by the federal government.

Comer blasted state officials for the mess.

“Governor (Gavin) Newsom and agency officials tried to deflect by blaming the federal government for expanding unemployment benefits during the pandemic and loosening eligibility rules,” Comer said in a letter to Farias earlier in January. He added: “Despite the unexpected and unprecedented nature of the coronavirus pandemic, California’s problems cannot be blamed on COVID alone.”

He cited a January 2021 report from then-State Auditor Elaine Howle. She said “the federal government warned the state at least three times in the early months of the pandemic to beef up its fraud protections.”

Farias on Monday hit back at Comer.

“The Trump administration expressed no interest in establishing such coordinated national response when these programs were initiated in 2020, leaving states to fend for themselves against a clear pattern of sophisticated, international criminal syndicates at work,” she wrote. She cited an August 2020 report from the Labor Department’s Inspector General, a nonpartisan watchdog. The report showed that on May 26, about two months after PUA was created, the Inspector General warned about potential fraud. And that office suggested that “timely, additional guidance could assist states in better protecting funds against fraud, waste, and abuse. Further, ETA has directed states to leverage their existing program integrity systems to include (new) programs, but ETA can do more to ensure adequate program assessment.” ETA is the U.S. Labor Department’s Employment and Training Administration. On Aug. 31, that agency sent a 17-page memo addressing ways to combat fraud to the states.

But Farias told Comer that the federal agency did not act to develop any sort of coordinated national response to detect or prevent the fraud. And federal money to help fight fraud was not available until September 2020 — and, she said, California’s share was woefully inadequate.

Nevertheless, Farias said, California “responded aggressively to fraud attacks by implementing new fraud prevention and detection measures, which prevented over $125 billion in fraudulent payments.” As of November, EDD reported, 1,713 investigations into fraud had been opened in the past three years. There have been 296 convictions and more than $1.1 billion seized or recovered so far as investigations into pandemic fraud continue.

Farias, appointed to her current job last year by Newsom, praised the Biden administration, which took office in January 2021, for creating a Fraud Enforcement Task Force in the Justice Department to prosecute and recover stolen funds from domestic and international criminals involved in the fraud. Last year, the department named a chief prosecutor to lead a team to probe major fraud targets.

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