State Auditor Says Unemployment Agency Ignored Feds and Blew $516 Million

Monday, March 17, 2014

Last month, the state Employment Development Department (EDD) was blasted for rejecting the unemployment benefit claims of people who, upon appeal, won more than half their cases.

This month, EDD was raked over the coals by the Bureau of State Audits (BSA) for not doing enough to collect overpayments it made to the unemployed. That uncollected debt stood at $1.4 billion in October 2013. The overwhelming majority of overpayments result from claimant fraud, according to the auditor, including when claimants say they returned to work. EDD errors and delayed determination of eligibility also contribute.

State Auditor Elaine Howle’s report (pdf) said EDD failed to participate in an expanded Federal Offset Program that helps collect overpayments by intercepting federal tax refunds and other payments and directing them to the state. The auditor said the state could have collected an estimated $516 million in overpayments made between February 2011 and September 2014.

Although the U.S. Department of Labor program has been successfully used by 31 other states, EDD determined that it could not make the computer modifications necessary to participate, the report said. EDD made that call in 2012, although it estimated the upgrade could be completed for $322,800 and would reap $100 million the first year.

The state currently owes the federal government $10 billion for federal loans it received to pay its share of benefits during the Great Recession, when unemployment skyrocketed. It has paid millions more in interest on the debt. The unemployment fund has been insolvent since January 2009.

The auditor launched the investigation after a confidential tip made under the state’s Whistleblower Protection Act.    

EDD disputed the auditor’s report. The department said it could not have recovered $135.1 million in 2011, as the auditor suggested, because the program wasn’t expanded until January 28 of that year. The auditor responded that other states knew the start date and prepared ahead.

Perhaps at the heart of EDD’s defense was its assertion that it was already struggling to implement eight other technology projects and feared it would have to divert resources from them to participate in a new one. EDD’s technology woes are well known, if not legendary. The auditor responded that picking up $516 million would have made the effort worthwhile.

EDD said it had intended all along to eventually participate in the program and told the auditor during her investigation that they would begin in May of this year.

That isn’t going to happen.

“EDD explained that the work had proved to be more complex than originally anticipated, delaying its participation schedule and increasing its costs,” the auditor said. The new projected date is September and the new projected cost is $1 million, three times what the auditor originally estimated. 

–Ken Broder


To Learn More:

Audit Faults California Unemployment Agency for “Appalling” Missed Opportunity to Recover $516 Million in Overpayments (by Jim Miller, Sacramento Bee)

Audit Blasts California Unemployment Program's Costly Gaffe (by Marc Lifsher, Los Angeles Times)

Californians Who Appeal Denial of Jobless Benefits Win More than Half the Time (by Ken Broder, AllGov California)

Employment Development Department (Bureau of State Audits) (pdf)

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