EDD says 27 percent of unemployment payments in state could be fraudulent

Potentially more than one-fourth of the unemployment payments made in California might have been fraudulent, state officials revealed Monday in a disturbing new revelation regarding the state’s reeling jobless benefits system.

Of the $114 billion that California officials have paid out for unemployment claims since government-ordered business shutdowns began in March 2020, an estimated 10% are known to be fraudulent claims.

But the actual number could be significantly higher, possibly reaching 27%.

“Roughly 10% of the $114 billion in claims are confirmed fraudulent, another 17% are potentially fraudulent,” California Labor Secretary Julie Su said during a question-and-answer session regarding the EDD’s efforts to combat unemployment insurance fraud.

Crime rings operating out of Nigeria, Hong Kong in China, and Moscow in Russia have unleashed a crime wave of fraud that has focused on California’s unemployment benefits as their most tempting target.

“We are continuing to investigate the rest of that 17%,” Secretary Su said. “A lot of that could be confirmed fraud.”

State officials conceded California wasn’t ready to combat the fraudulent attempts.

“There is no sugarcoating this,” Su said. “California did not have sufficient security measures in place to prevent this level of fraud. Criminals took advantage of the situation.”

As a result of the fraud crime wave, the EDD suspended unemployment payments to 1.4 million California workers — and has made only modest progress in unfreezing those redflagged accounts.

Just over 300,000 workers of the 1.4 million have taken steps to validate their accounts, said Loree Levy, a spokesperson for the EDD.

That indicates another 1.1 million workers continue to face suspended payments while their accounts are verified.

“We so appreciate the patience of individuals,” Levy said.

The fraud rings are using a variety of schemes to steal the identity of a victim and then arrange to have the payments mailed to a house in the state where the claimant lives. Typically the crime rings are seeking to have a Bank of America debit card used for unemployment payments to be mailed to an empty house, perhaps one that is up for sale.

After that, the crime rings find a “mule” to pick up the debit card for a cut of the stolen money. Then the funds are mailed to the crime rings, officials said Monday.

The crooks are also sharing open-source code software on the dark web for hackers to use, which could be causing the crime wave to widen.

Su estimated that anticrime efforts have been able to block as much as $60 billion in fraud payments in California.

At one point, investigators believed the fraud payouts could have been in the $4 billion range.

However, 10% of $114 billion in EDD unemployment payments between early March 2020 and mid-January 2021 would amount to $11.4 billion. And 27% of $114 billion could amount to $30.78 billion.

In October, the EDD launched a new identity verification technology called ID.me that the state government hopes will help turn the corner against fraudulent payments. Blake Hall, chief executive officer with ID.me, believes progress has been made.

“California was able to stop the bleeding and put a tourniquet on the fraud,” Hall said.

It’s not surprising that the crime rings picked California, whose economy is one of the world’s largest, as a target to exploit unemployment insurance payments.

“In California, it’s easier to hide in the crowd,” Hall said. “Organized crime is approaching this as a business process.”

The EDD also is hoping that it will be able to cope with the mammoth backlog of unpaid claims that the state agency is reporting on its official dashboards.

As of Jan. 20, the total backlog of unpaid unemployment claims was 941,020, a sharp increase of 130,270 from the week before, according to the official EDD backlog.