A scathing report released by the California State Auditor on August 24 finds that the state’s Economic Development Department (EDD) continues to mismanage the unemployment insurance (UI) program, resulting in “a substantial risk of serious detriment to the State and its residents.”

The California Labor and Workforce Development Agency, which oversees EDD, was formerly led by Julie Su, whom President Biden has nominated to be the US Secretary of Labor. In addition to UI, EDD administered over $130 billion in federal unemployment benefits during the pandemic. In January 2021, Su admitted that 10 percent of unemployment benefits EDD had administered to that point during the pandemic were fraudulent, while another 17 percent were potentially fraudulent. 

The following are key selections from the California State Auditor’s report.

EDD is a “high-risk agency” that continues to mismanage the UI program:

EDD is a high-risk agency because of its mismanagement of the UI program. Specifically, EDD is unable to reliably estimate improper payments under the UI program, thus adversly [sic] affecting the State’s financial statements as well as impairing efforts to independently evaluate the efficacy of EDD’s own fraud prevention activities. Further, EDD needs to improve customer service to unemployment insurance claimants, while also taking steps to ensure its eligibility decisions are not frequently overturned on appeal. EDD’s mismanagement of the UI program has resulted in a substantial risk of serious detriment to the State and its residents. 

EDD’s mismanagement has cost taxpayers tens of billions of dollars:

Despite the program’s critical importance, EDD’s management of the UI program has been characterized by significant internal control weaknesses. For example, the program did not block addresses used to file unusually high numbers of claims, and it removed a safeguard preventing payment to individuals who had unconfirmed identities. These inadequate internal controls did not prevent potential fraud during fiscal years 2019–20 and 2020–21 and allowed the payments of potentially fraudulent claims, estimated at tens of billions of dollars, most of which have yet to be recovered.

EDD has not yet taken adequate corrective action:

Corrective action is adequate when it prevents a risk—such as the risk of fraud—from presenting a substantial risk of serious detriment. Because the potentially fraudulent payments have already occurred, have not been fully identified, and have largely not been recovered, EDD’s corrective action is not adequate…

EDD cannot effectively measure its progress at addressing potentially fraudulent payments because it is unable to accurately determine how many improper payments it has made…

During the pandemic, millions of Californians were required to wait long periods to receive UI benefits or get answers to questions about their UI claims, and EDD continues to struggle to pay claimants in a timely manner.

For its part, EDD responded to the state auditor’s report by arguing that every state was overwhelmed by fraud, blaming the troubled federal Pandemic Unemployment Assistance (PUA) program for “the vast majority of the fraud,” and pointing to a survey suggesting customer satisfaction was improving.

Every state was impacted by fraud:

Every Unemployment Insurance system in the country, including California, was overwhelmed with the number of Pandemic Unemployment Assistance (PUA) claims during the height of the COVID-19 Pandemic, and all were impacted by fraud.

The federal PUA program was mostly to blame for fraud:

Of note, the vast majority of the fraud that occurred during the pandemic was in the PUA program, which ended in September of 2021. As this department and other UI systems around the country have stated, the PUA program lacked the traditional safeguards of the regular UI program.

Surveys suggest customer satisfaction is growing:

We agree customer satisfaction with the Unemployment Insurance claim process fell during the pandemic, however, we disagree it remains low. Sixty-Nine percent of customers surveyed in 2022 were completely or mostly satisfied with the application process, up from 67 percent in 2021. We are continuing to assess customer feedback to implement additional improvements, so this data continues to trend in a positive direction.

On the last point, the California State Auditor responded to EDD that

EDD’s own response indicates that nearly one-third of customers surveyed in 2022 were not completely or mostly satisfied with the application process. These results indicate that customer satisfaction remains low and warrants continued efforts by EDD to improve its unemployment insurance claims process.