Employment Development Department: Fraud and Scams in State Audit

Last Fall the California Legislature demanded an emergency audit of the CA Employment Development Department after receiving reports of widespread fraud, thousands (perhaps hundreds of thousands) of constituent calls going unanswered, and significant delays in receiving benefits. The audit was released on January 28, 2021 and Joint Audit Committee of the CA Legislature held a hearing last week to review finding from the audit.

Findings from the CA Auditor’s report included, among other issues, that despite repeated warning the EDD did not take action to bolster its fraud detection efforts until months after the pandemic began. In addition, by not strengthening fraud protections, in the midst of a massive surge in claims, the EDD actually weakened efforts by reducing and all but eliminating critical safeguards (such as identify verification) which resulted in over $10 BILLION in fraudulent claims.

Complicating matters further, the CARES Act extended pandemic unemployment assistance (PUA) to certain individuals who were not eligible for regular unemployment benefits, such as individuals who had been selfemployed and therefore would not have a thirdparty employer to report their wages or validate unemployment. The CARES Act added $600 per week to the amount of benefits claimants could otherwise receive under state law between March and July 2020 and it required states to backdate PUA claims to the first week in which claimants became eligible for benefits (some as early as February 2020). These factors further contributed to the heightened risk of fraud, since impostors had opportunities to earn more benefits without providing verifiable information about their work histories.Another finding included the fact that the EDD does not have a dedicated unit to mitigate the risk of fraud, manage fraud prevention efforts, reliably track suspicious activity, or reliable evaluation of fraud detection tool.

Countless unemployment insurance scams have been reported and among them are individual calling people claiming they are from a state agency and need to verify their identity for various benefits and then asking the individual to pay a small filing fee to start (or restart) benefits. Recognizing that it is very easy to become a victim of fraud there are some specific things to watch for that could indicate potential fraud:

• If you receive a notification that you have failed the security verification for your unemployment application;

• If you receive a letter from your state saying you have received a determination regarding unemployment insurance, and you did not apply for unemployment benefits;

• If you receive a letter from the state notifying you that you are potentially eligible for Pandemic Unemployment Assistance (PUA), but you have not applied for unemployment; or,

• If you have given your personal information to a person who is cold-calling you on the telephone, at your door, or on social media claiming they will file unemployment benefits on your behalf for a fee.

The EDD is undergoing massive reform to address issues identified in the report. The new director of the department – Rita Saenz – has committed to working with the legislature to implement changes in legislation and regulation to combat fraud and help those who have been victims of identity theft related to unemployment insurance claims. If you suspect you or someone you know has been a victim of identity theft for the purpose of obtaining unemployment benefits you can submit a fraud report to the EDD on-line at https://edd.ca.gov/about_edd/fraud.htm

The State Auditor’s report can be found here: https://www.auditor.ca.gov/reports/2020-628.2/summary.htm


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