Key findings in audit of California’s unemployment agency

SACRAMENTO, Calif. (AP) — An audit released Thursday found the California Employment Development Department has likely paid $10.4 billion in fraudulent benefits from March to December, a number that is likely to grow in the coming months.

California State Auditor Elaine Howle said the agency was slow to react to warnings of an increase in fraudulent claims, saying this inaction cost the state billions as criminals exposed weaknesses in the system.

The audit’s findings include:

SLOW TO ACT

The agency was flagging as many as 1,000 suspicious claims per day during the first four months of the pandemic. Yet it only had two people assigned to review these claims and stop the payments. The state finally automated this system in July. But by then, thousands of fraudulent claims had already been paid.

SUSPICIOUS ADDRESSES

One sign of fraud is multiple claims all coming from the same address. In one assessment, the Employment Development Department found 26,000 addresses were associated with more than 555,000 claims. But the agency did nothing to stop those payments. Auditors found one address in that list had 80 claims associated with it. Of those, 12 were still receiving benefits as of mid-December, totaling more than $300,000.

IDENTITY THEFT

When people find out someone has claimed unemployment benefits in their name, they contact the Employment Development Department to get it fixed. By September, the agency was getting more than 1,000 of these reports each day. But the department had just one person assigned to review them, and that position became vacant in July. From April through October, the agency responded to less than 2% of these reports.

FLAWED RESPONSE

The department asked Bank of America to freeze 344,000 debit cards in September on suspicion of fraud. But state officials “reacted poorly” when they realized some of the frozen accounts were legitimate. The agency was slow to provide information and told lawmakers Bank of America was the one that decided to freeze the accounts. The audit said it’s true Bank of America decided to freeze some accounts on its own, but said the department “played a significant role” in freezing the 344,000 accounts.

PAYMENTS TO INMATES

The audit found the state paid $810 million in benefits in the names of 45,000 prison inmates. That’s more than double the amount agency officials admitted to last year. The audit said the agency was not prepared to guard against this type of fraud because it did not have a system to cross-match claims with a list of prison inmates, as many other states do.

INEFFECTIVE FRAUD MANAGEMENT

State law requires the department to review its anti-fraud policies to make sure they are effective. The audit found the agency did this once in 2015, but hasn’t done it since then. The audit says the agency does not have one division responsible for stopping fraud. Instead, it shares that responsibility among many divisions and offices.

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