The California state auditor on Thursday released the second of two reports this week dissecting the failings of California’s unemployment agency. The audit found the Employment Development Department could have prevented paying out $11 billion and counting in fraudulent unemployment claims.
Too little, too late was the gist of the audit, which said EDD was warned by the U.S. Department of Labor as far back as May that it needed to prepare for more than $1 billion worth of potentially fake claims. In July, Bank of America told the agency it suspected more than 60,000 EDD accounts of being illegitimate. Even with these advance warnings, EDD didn’t implement widespread fraud detection technology until October.
To make matters worse, the audit asserts, EDD has yet to develop an effective system for reactivating legitimate accounts once they’ve been verified; does not appear to know the status of all the frozen accounts; and does not have a centralized tracking process for them.
The report also takes the department to task for not investigating the dollar amount of fraudulent claims until the state auditor asked for the figure.
Among the recommendations from the auditor is that the Legislature require EDD to cross-match its claims against state and local correctional facility rolls, a tool that 35 other states use. The report says this process could have prevented more than $800 million in fraudulent claims linked to incarcerated people.
The auditor also suggests EDD establish a central unit for fraud prevention and detection and a plan to assess the tools it is using to manage fraud by March, and it recommended the state Legislature make such an assessment a biannual requirement.