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California unemployment agency's inaction led to $10.4B for fraudulent claims, audit finds

The State Auditor says the true amount of fraudulent payments is likely far higher. The unemployment agency said the Trump administration didn't help enough.

SACRAMENTO, Calif. — California’s unemployment agency was warned early in the pandemic about an increase in fraudulent jobless claims yet waited four months before it made any substantive changes to its systems, according to a new audit released Thursday that blames Gov. Gavin Newsom’s administration for “significant missteps and inaction” that cost taxpayers at least $10.4 billion.

California State Auditor Elaine Howle said the amount of fraudulent payments is likely far higher. The agency itself this week said it's investigating another $20 billion in payments for possible fraud.

Still, officials at the Employment Development Department told investigators they believed its fraud tools “effectively identified and stopped potentially fraudulent claims.” But Howle found the state “paid almost as much to suspicious claims as it prevented.”

Newsom and agency officials have consistently blamed the fraud problems on a federal expansion of unemployment benefits whose broad eligibility requirements made it an easy target for fraud. New Employment Development Department director Rita Saenz repeated those claims in a letter responding to the audit, saying former President Donald Trump’s administration “provided insufficient support to states to address the aggressive attacks by domestic and international criminal syndicates.”

But Howle found the department delayed implementing critical safeguards for months while at the same time suspending some of the few tools it did have to detect and prevent fraud because top agency officials did not understand how they worked.

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“It is almost certain that because of its lax approach, EDD missed stopping payment on fraudulent claims during the pandemic,” Howle wrote, adding the agency “does not acknowledge earlier warnings about potential fraud and its own failure to respond quickly to those warnings.”

Republican Assemblyman Jim Patterson said the audit “rightfully demonstrated what a disaster EDD has been with respect to fraud.” And said he worried the state Legislature, which is dominated by Democrats, won't do enough to hold the Democratic governor accountable.

“You get very close to politically covering up the responsibility of the governor,” he said.

Democratic Assemblyman Phil Ting said that “it's not really about who to blame.”

“People don't care about blame, people care about getting their money. And that's what we are focused on. We're working with the governor, who is working with EDD,” he said.