California’s unemployment system, plagued by multibillion-dollar fraud schemes involving COVID-related benefits, is being investigated by the Republican-led House Oversight and Accountability Committee. The committee plans its first hearing Wednesday on the federal unemployment program and the unemployment systems in California, New York and Pennsylvania. Federal law enforcement and watchdog officials are scheduled to testify. The committee expects many more such hearings after that.
Examining COVID-related spending is a top priority for Chairman James Comer, R-Ky., who has requested a series of documents and communications about the jobless benefit program from California’s Employment Development Department (EDD), which manages the state system. No Californians are scheduled to appear Wednesday.
In recent years, EDD has strengthened its fraud detection program. As of November, EDD reported that 1,713 investigations into fraud have been opened in the last three years. To date, 296 convictions have been won and more than $1.1 billion seized or recovered as investigations into pandemic fraud continue.
California found itself overwhelmed in 2020 as the pandemic caused the state’s unemployment rate to spike to historic levels. With increased unemployment across the country, Washington created the Pandemic Unemployment Assistance program, which provided benefits to people not traditionally eligible, such as independent contractors. EDD was flooded with requests for benefits, and quickly sent out payments.
The program was beset by massive fraud, much of it apparently engineered by jail and prison inmates and organized-crime interests. The federal program lacked the traditional safeguards of the regular unemployment insurance programs in the states. California officials estimated at least $20 billion was improperly paid, the vast majority of it in the new federal programs, and lamented it would be difficult to get most of that back.
Comer is making it clear he believes California’s predicament cannot be blamed solely on federal government policies and practices.
“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 three-page letter to EDD Director Nancy Farias.
Among the items he’s seeking are information involving efforts to prevent payment of fraudulent claims, to recoup improperly paid claims and to identify the total number of wrongly paid claims. Comer cited a January 2021 report from then-State Auditor Elaine Howle, who found that “the federal government warned the state at least three times in the early months of the pandemic to beef up its fraud protections.”
The Sacramento Bee reported at the time that Howle had found that more than 1,700 claims were coming from a single address. People around California had been finding since the summer of 2020 that they were receiving mailings with unknown names from EDD. The audit said that as late as December 2020, the agency was “allowing claimants to continue to collect benefits using suspicious addresses because it did not establish payment blocks for their claims.”
Comer also quoted Julie Su, then the state’s labor secretary, who said in January 2021 on an EDD conference call, “There is no sugar coating the reality: California did not have sufficient security measures in place to prevent this level of fraud.” Su is now the U.S. deputy secretary of labor.
The Newsom administration named McGregor Scott, the 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, domestic organized crime, “grifters,” prison inmates and miscellaneous.
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