California’s EDD faces questions from Congress on state’s unemployment fraud

A person passes the office of the California Employment Development Department in Sacramento, Calif., in 2020.

A person passes the office of the California Employment Development Department in Sacramento, Calif., in 2020.

Rich Pedroncelli, STF / Associated Press

The California Employment Development Department found itself on the receiving end of a letter from Congress demanding documents and explaining why the state saw, what the letter called, “the worst unemployment fraud in the nation during the pandemic.”

The letter was sent Friday by the House Committee on Oversight and Accountability, which flipped to Republican control after the party took the chamber during the midterm elections and installed Rep. Kevin McCarthy, R-California, as speaker after a days-long battle on the House floor.

The committee, now helmed by Rep. James Comer, R-Kentucky, also sent letters to two other largely Democrat-majority states, New York and Pennsylvania, as well as the U.S. Secretary of Labor Marty Walsh. Those too demanded information and documentation as to why money intended for people knocked out of work by the pandemic had gone to scammers instead.

The EDD said in an email to The Chronicle it could not immediately provide a response Friday afternoon.

The letter to the California state agency cited local news reports demanding to know why a reported $20 billion to $32.6 billion in fraudulent payments had been paid out by the state during the pandemic.

The EDD admitted in early 2021 that it may have paid out as much as $30 billion in fraudulent claims during the early days of the pandemic. The economic effects of the virus caused millions of Americans to lose their jobs and apply for unemployment, overwhelming state agencies like the EDD and resulting in weeks-long waiting times for those desperate for jobless benefits.

The federal government also created new programs to help self-employed people and contract workers, like the Pandemic Unemployment Assistance program, as part of the CARES Act rescue plan. The payments were rushed out to try and avoid an economic collapse as millions were put out of work, but in California bad actors easily siphoned off the money, according to law enforcement and a state auditor’s report.

As far back as September of 2020, it was becoming clear that scammers, many of whom may have been outside the U.S., were making off with hundreds of millions of dollars of the federal funds .

Some claims were apparently paid out in the names of state prisoners, as well as former Speaker Nancy Pelosi, and convicted murderers including Scott Peterson and serial killer Cary Stayner.

The California Department of Justice has since identified one of the scammers, and brought other prosecutions for EDD fraud along with federal prosecutors.

The letter from Congressional Republicans was addressed to Nancy Farias, the current director of the California Employment Development Department. The letter quoted former California Labor and Workforce Development Agency director Julie Su as saying somewhere between 10% to 17% of claims paid out, as of January 2021, had been fraudulent.

Su has since climbed the ladder to Washington and is now the deputy secretary of labor.

The letter also pointed to a January 2021 letter from California’s state auditor saying the EDD had been unprepared to deal with a large job loss event for years, and was using antiquated technology that buckled under the flood of claims.

Gov. Gavin Newsom created a task force to investigate the fraud and recommend avenues for improvement.

The EDD has since taken steps to verify the identity of claimants, including hiring the company, which uses facial recognition software and other methods to verify a claimant’s identity.

In the letter to the EDD, the committee is demanding a large tranche of documentation and communications covering the period from March 1, 2020, to no later than Jan. 27, 2023. It wants to see how the state signed off on unemployment benefits during the period, and its efforts to combat fraud in the system and ensure the right people were being paid.

The letter also demanded to see communications between the EDD and the U.S. Department of Labor regarding its unemployment benefits program, documentation of efforts to recoup stolen benefits money, and documentation identifying which claims were fraudulent to determine if the money was still in the U.S.

Chase DiFeliciantonio is a San Francisco Chronicle staff writer. Email: Twitter: @ChaseDiFelice