Fraudulent payments by California could exceed $20 billion. New security measures to prevent fraud cause delays in payments that triggered a new hullabaloo.
By Wolf Richter for WOLF STREET.
The unemployment crisis in California continues to be huge. The state is still down 1.4 million “payroll jobs,” not including work for gig workers, from December 2019. The amount the state has paid in unemployment benefits is also huge: $114 billion between March 2020 and January 16, 2021. The state processed 19.5 million claims during that time, compared to 3.8 million claims in all of 2010, the unemployment peak of the Great Recession.
To top it off, a new federal unemployment program for gig workers was thrown into the chaos with little guidance and no preparation and no instant way of verifying even the identity of the claimants – and fraud was also huge, and getting huger with each report.
Of California’s “confirmed fraudulent payments,” 95% were associated with the federal PUA (Pandemic Unemployment Assistance) program that covers gig workers. As in other states, this program has been “hit hard by fraud from international and national crime syndicates,” the Employment Development Department (EDD) reported in its latest unemployment-benefit fraud update.
California, being the first to implement the PUA program, and being the biggest state, with a population of nearly 40 million, got hit the hardest by PUA fraud.
In its new report, the EDD confirmed that 9.7% of all payments it made during that time – so roughly $11 billion – were to “fraudulent claims.”
In addition, another 17% of all claims – so roughly $19 billion – were made to “potentially fraudulent claims.” These payments are now “under investigation,” and according to officials, a large number of them will likely be confirmed as fraudulent.
Just ballparking here: the pile of fraudulent payments made by California alone could exceed $20 billion after it’s all said and done.
By comparison, in 2019, before the arrival of the PUA program, about 6% of all payments under the regular state unemployment insurance claims were made to fraudulent claims.
But the EDD was able to stop up to $60 billion in payments to fraudulent claims via its existing methods and its new methods implemented after the “two-week reset period” in September, when the EDD halted processing new claims to implement new security protections. As part of the measures, it hired ID.me to verify claimants’ identity, which no one had verified before.
Unemployment fraud is “a national problem”: Across the US, 35% of all unemployment applications are fraudulent, most of them under the PUA program, according to ID.me, cited by the EDD. Now, 21 states have implemented or are implementing ID.me to prevent fraudulent PUA claims. Currently across the states that 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 income or employment verification up front and allowed claimants to back-date their claim to February,” the EDD said.
“There is no sugarcoating the reality,” said state Labor Secretary Julie Su during a press conference on Monday. “California has not had sufficient security measures in place to prevent this level of fraud, and criminals took advantage of the situation.”
“And we now know that as millions of Californians applied for help, international and national criminal rings were at work behind the scenes working relentlessly to steal unemployment benefits using sophisticated methods of identity theft,” she said.
The result of these security measures is a backlog of claims that were suspended and still need to be verified before they’re being paid – 1.2 million claims as of last week are suspended, down from 1.6 million in December. As old claims are resolved, either by being deemed fraudulent and not getting paid, or deemed OK and getting paid, new claims to be resolved are added to the pile.
This delay in paying claims due to the verification procedures now in place to prevent unemployment fraud has raised another hullabaloo that has ascended to the Legislature, after the hullabaloo raised about the ballooning fraudulent payments in prior months, that included mind-boggling stories of prisoners, some on death row, receiving unemployment payments under the PUA program with organized help on the outside.
Corporate cost cutters salivate over working from anywhere. Oh my, the free gourmet cafeteria is gone. Companies already said they’d cut salaries if folks move to cheaper locations. Read… Citing Permanent Shift to Work from Home, Dropbox Cuts 11% of its Workforce
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.