Fraudulent payments by California could exceed $ 20 billion. New security measures to prevent fraud cause delays in payments that have generated a new uproar.
By Wolf Richter for WOLF STREET.
California’s unemployment crisis remains enormous. The state is still down 1.4 million “payroll jobs”, not including work for gig workers, as of December 2019. The amount the state paid in unemployment insurance is also huge: $ 114 billion between March 2020 and January 16, 2021. The state processed 19.5 million complaints during that time, compared with 3.8 million complaints throughout 2010, the peak of unemployment in the Greater Recession.
To top it off, a new federal unemployment program for concert workers was launched into chaos with little guidance and no preparation and no instant way to verify even the identity of the claimants – and the fraud was also huge, and it was getting bigger by the day. report.
Of California’s “confirmed fraudulent payments”, 95% were associated with the federal PUA (Pandemic Unemployment Assistance) program, which covers workers in the sector. As in other states, this program has been “hard hit by fraud from international and national crime syndicates,” reported the Department of Employment Development (EDD) in its latest unemployment insurance fraud update.
California, being the first to implement the PUA program, and being the largest state, with a population of nearly 40 million, was hardest hit by PUA fraud.
In its new report, EDD confirmed that 9.7% of all payments made during that period – about $ 11 billion – went to “fraudulent claims”.
In addition, another 17% of all claims – about $ 19 billion – were made for “potentially fraudulent claims”. These payments are now “under investigation” and, according to the authorities, a large number of them are likely to be confirmed as fraudulent.
Just a stadium here: the pile of fraudulent payments made by California alone can exceed $ 20 billion after all is said and done.
By comparison, in 2019, before the arrival of the PUA program, about 6% of all payments under the state’s regular unemployment insurance were made for fraudulent claims.
But EDD was able to stop up to $ 60 billion in payments for fraudulent claims through its existing methods and its new methods implemented after the “two-week reset period” in September, when EDD stopped processing new claims to implement new security protections. As part of the measures, it hired ID.me to verify the identity of the claimants, which nobody had verified before.
Unemployment fraud is “a national problem”: in the United States, 35% of all unemployment claims are fraudulent, most of them under the PUA program, according to ID.me, cited by EDD. Now, 21 states have implemented or are implementing ID.me to prevent fraudulent PUA claims. Currently, in all states that have implemented ID.me, the system is blocking $ 1 billion in fraudulent claims per week, according to ID.me.
“The PUA program was particularly susceptible to fraud according to the U.S. Department of Labor, as it did not require verification of income or employment in advance and allowed claimants to retroact their claims until February,” said the EDD.
“There is no way to soften the reality,” said State Secretary of Labor, Julie Su, during a press conference on Monday. “California does not have sufficient security measures in place to prevent this level of fraud, and criminals have taken advantage of the situation.”
“And now we know that as millions of Californians asked for help, international and national criminal groups were working behind the scenes, working tirelessly to steal unemployment insurance using sophisticated methods of identity theft,” she said.
The result of these security measures is an accumulation of claims that have been suspended and still need to be verified before being paid – 1.2 million claims were suspended last week, up from 1.6 million in December. As old claims are resolved, whether they are considered fraudulent and not paid, or considered OK and paid, new claims to be resolved are added to the stack.
This delay in the payment of severance pay due to the verification procedures now in place to prevent unemployment fraud generated another uproar that reached the Legislature, after the uproar over the increasing fraudulent payments in previous months, which included mind-blowing stories of prisoners, some in the death row, receiving unemployment insurance under the PUA program with organized help from outside.
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