After months of struggling to keep up with unemployment insurance claims—which shot up by more than 1,000 percent at the start of the pandemic according to state officials—California’s Employment Development Department now faces a monumental repercussion: widespread fraud.
Meanwhile, the number of Californians who legitimately qualify for unemployment insurance isn’t showing signs of abatement: The jobless rate in Santa Barbara County and statewide went up in December for the first time in months, making an efficient EDD system more vital than ever, Assemblymember Jordan Cunningham (R-San Luis Obispo) told the Sun.
The Central Coast lawmaker has been a prominent voice in criticizing the flaw-ridden EDD system throughout the pandemic, even before the widespread fraud came to light.
“We’re going to see another deluge of claims as the unemployment rate numbers go back up due to the lockdown policies and the effect of those on the economy,” Cunningham said. “EDD has not instituted the reforms it needs to institute.”
Other state and local officials recently highlighted the scope of the EDD fraud and the impact it’s having on the system and those who depend on it.
“There is no sugarcoating the reality,” Secretary Julie Su of the California Labor and Workforce Development Agency said during a Jan. 25 media briefing. “California did not have sufficient security measures in place to prevent this level of fraud, and criminals took advantage of the situation.”
Between March 2020 and Jan. 15, 2021, Su said California processed 19.5 million claims, resulting in a total payout of $114 billion. Out of those billions of dollars in benefits received statewide, 10 percent are now confirmed to be fraudulent, and an additional 17 percent are flagged as potentially fraudulent, with many claims still being investigated.
“It appears that EDD did not have a way to cross-reference,” Santa Barbara County Senior Deputy District Attorney Brian Cota told the Sun. “They just paid anyone who really applied for benefits, whether they were entitled to them or not.”
Su said most of the fraud the state has identified so far took advantage of Pandemic Unemployment Assistance, a federal program designed to help unemployed people who were not normally eligible for benefits.
“Organized fraud schemes knew that the priority was to get money into the hands of Americans quickly, and they took advantage of the situation,” Su said of the Pandemic Unemployment Assistance program fraud. “However, these facts do not excuse EDD for being underprepared for them.”
Now, much of the onus falls on district attorneys’ offices to investigate and prosecute these crimes, which vary from cases of identity theft to ineligible incarcerated people receiving benefits.
The Santa Barbara County District Attorney’s Office is investigating more than 150 inmates in the local jail system who received roughly $1.2 million in benefits, Cota said, a situation similar to what other jails are facing around the state.
“That’s going a little slower than we would want because we need records from EDD as well as Bank of America, who are the ones handling the issuing of the [payment] cards and keeping track of those,” Cota said. “So right now we’ve made the request for documents, but so has every other county, and it’s just taking a while to get that.”
Cota’s office is also looking into cases of unemployment insurance fraud that stem from identity theft, and some of those investigations are beginning to bear fruit. On Jan. 22, District Attorney Joyce Dudley announced that three individuals pleaded guilty to multiple counts of unemployment insurance benefit fraud that preyed on businesses and individuals across Santa Barbara County.
Gordon Alan Welterlen, 37, of San Diego, admitted as part of a plea agreement that he “illegally accessed computer networks belonging to businesses across the county, including a computer network belonging to Wolf & Associates Property Management of Santa Barbara on multiple occasions,” according to the DA’s Office.
Welterlen further admitted to stealing the identities of more than 9,000 people stored on Wolf & Associates’ network. He, along with Nicole Michelle Milan, 31, also of San Diego, admitted to using the stolen identities to file more than 300 fraudulent unemployment claims.
Rosa Maria Bradley, 40, of Santa Barbara, also pleaded guilty to filing fraudulent claims for benefits and receiving money from the claims, according to the DA’s Office.
“Identity theft can cause significant and long-lasting financial and emotional harm to a victim,” Dudley said in a statement. “It often takes years for the victim [to] fully recover.”
Alongside the efforts of local district attorneys, EDD is implementing new systems to stop fraud at the source. In October, the state began contracting with ID.me, a secure identity verification platform, “to help make claim processing more efficient and to increase fraud detection,” according to Secretary Su of the Labor and Workforce Development Agency.
“This system is now catching fraudulent claims at the front door,” Su said. “We estimate that these actions, along with other actions taken by EDD, prevented up to $50 billion in fraudulent payments.”
But California State Auditor Elaine Howle said in a Jan. 28 report to Gov. Gavin Newsom and state legislators that these actions came too late.
“EDD did not take substantive action to bolster its fraud detection efforts for its UI [unemployment insurance] program until months into the pandemic, resulting in payments of about $10.4 billion for claims that it has since determined may be fraudulent because it cannot verify the claimants’ identities,” Howle wrote.
In the aftermath of the fraud discovery, Howle continued, EDD directed Bank of America to freeze more than 300,000 debit card accounts that provide benefits to claimants.
“However, EDD did not have a plan in place to ensure that it could unfreeze those accounts found to belong to legitimate claimants, and it has been slow to acknowledge its role in freezing these accounts,” Howle wrote.
Going forward, Assemblymember Cunningham said he and his colleagues have introduced a package of reform bills to overhaul the system, but it will take time for those reforms to make it through the legislative process. In the meantime, Cunningham would like to see the governor use his executive powers to implement reforms immediately.
“One common-sense example of that would be EDD should be cross-checking addresses to other public databases,” he said.
Cunningham encouraged any constituents struggling to get the unemployment benefits they are owed to contact his office, which has already helped more than 5,000 Central Coast residents to receive the claims they’re entitled to.
“We can help you cut through the bureaucratic mess,” he said.
Staff Writer Malea Martin can be reached at mmartin@santamariasun.com.
This article appears in Feb 4-11, 2021.