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California unemployment agency fraud during pandemic now estimated at $20 billion

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Andrew Nixon
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CapRadio
The Employment Development Department office in downtown Sacramento.

California’s unemployment agency is making progress on recommendations by state officials to reduce wait times for payments and cut down on fraud — which the department now estimates to be around $20 billion.

But many key changes could still take years to fully implement, department leaders told lawmakers at an oversight hearing Monday. The hearing was originally scheduled for August and delayed multiple times.

The Employment Development Department, or EDD, has been plagued by issues since the very beginning of the pandemic, when it was quickly overwhelmed by millions of new claims as businesses shut down and laid off workers following stay-at-home orders. Weak protections led to billions of dollars in fraudulent claim payouts, according to director Rita Saenz. Previous estimates put fraud payments anywhere between $11 billion and $30 billion; that number is now $20 billion.

The unemployment agency also has struggled for more than 18 months to clear a backlog of claims and pay unemployment benefits in a timely manner. It could take until September 2022 to complete them, department officials said.

In March, the backlog of claims topped more than 1 million. While it now sits at 119,000, out-of-work applicants can expect long waits for other services. Saenz said it takes 26 weeks for an interview if the agency has questions about a claim or needs to verify it.

State Auditor Elaine Howle said the EDD has fully implemented about two-thirds of her recommendations from a pair of January audits, such as setting up a feature for claimants to request a call back rather than wait on hold for hours.

Other fixes, like direct deposit, are not “an overnight type of change,” Saenz said.

Asm. Cottie Petrie-Norris, D-Laguna Beach, said lawmakers are committed to making sure the department follows through on major changes so “that we’re not sitting up here in 2032 rehashing these same issues.”

Saenz told lawmakers that most of the biggest issues came from “a failure of systems,” including the agency’s aging software. She said new federal safety net programs like the Pandemic Unemployment Assistance, which allowed people who would not normally qualify for unemployment insurance to get payments, further bogged the department down.

“There is no lack of confidence in this department,” said Saenz, who took over the agency in January following the retirement of former director Sharon Hilliard. “It was the systems EDD was operating under.”

However, lawmakers pointed out the title of one of the audits blames “poor planning and ineffective management” at the agency for many of the issues.

The department is also dealing with annual turnover of about 30% in its call center, which is comparable to other call centers, Saenz said. But agency officials say it takes about four months to train and onboard new hires.

Asm. Wendy Carrillo, D-Los Angeles, stressed the importance of EDD setting and meeting goals for improvement “to ensure that the safety net — that really should just be a functioning safety net — doesn’t have people falling through it because of these gaping holes.”

Saenz said changes at EDD have made it “stronger” and “more efficient,” but lawmakers pledged continued oversight of the department to ensure it is more prepared to handle the next economic downturn.