California unemployment fraud measures come under scrutiny


SACRAMENTO — California Governor Gavin Newsom’s administration wants to pay tens of millions of dollars this year so the state can continue to use sophisticated software to stop scammers from filing bogus unemployment claims and stealing the money taxpayers.

But a nonpartisan agency that advises the Legislature said lawmakers should reject Newsom’s proposal, arguing that much of the fraud prevention has done more harm than good by making it harder to pay bills. legitimate claimants.

Nancy Farias, the new director of the California Employment Development Department, told lawmakers on Tuesday that the state shut down $120 billion in fraud attempts in 2020 and 2021, or more than $164 million a day.

The state failed to stop $20 billion in fraud, including $810 million paid on behalf of approximately 45,000 inmates who were ineligible. The state even paid money on behalf of notorious convicted murderer Scott Peterson in what was most likely a case of identity theft. So far, Farias said the department has 850 ongoing fraud investigations and has made more than 200 arrests. Twenty cases were prosecuted.

But nearly all of that fraud has been attributed to a temporary federal program that made more people eligible for unemployment benefits during the pandemic. This program, which did not have as many guarantees as the traditional unemployment compensation process, has ended.

“That risk exposure to the state no longer exists,” said Chas Alamo, an analyst with the Office of the Legislative Analyst.

The state’s aggressive measures to combat fraud have caused problems for legitimate claimants. In December 2020, the state used software owned by a subsidiary of Thompson Reuters to review nearly 10 million unemployment claims. The state then abruptly cut benefits associated with 1.1 million of those claims, forcing people to verify their identity with the state.

But 600,000 of those claims, more than half of those frozen, were found to be legitimate. People had to go days or weeks without payment while they tried to sort things out with the state.

Alamo told lawmakers on Tuesday that if the state approves these anti-fraud contracts, it would “steer the department in the wrong direction with its focus on eliminating fraud, potentially at the expense of the department paying prompt benefits.” and simple to the unemployed”.

But Farias, whom Newsom appointed director of the Employment Development Department last month, said she thinks everyone has underestimated “the identity theft that has happened and, quite frankly, continues to go on.”

“Almost everyone I know has received some kind of scam during the pandemic,” Farias said. “I think to say the fraud is over now…I think that’s a bit dangerous.”

The state also used facial recognition software which, combined with artificial intelligence, verified people’s identities. The Office of the Legislative Analyst has stated that this software is “error-prone, suffers from systematic racial bias, and can be misused.” That was enough to prompt the IRS to stop using facial recognition software for filers.

Lawmakers did not make a decision on Tuesday. They have until June 15 to vote on a state budget. But some members of the Assembly, such as Democrat Jim Cooper of Elk Grove, appeared to favor keeping the contracts.

“It was the biggest fraud in the history of the country,” he said. “Extraordinary times call for extraordinary means.”


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