Economy

EDD may have paid $9.8B in fraudulent unemployment claims

Written by Hannah Schmidtler

Before controls were installed in October, at least 10% of claims submitted to the state’s Employment Development Department were fraudulent; meaning nearly $9.8 billion was lost to fraud. This is nearly double the original estimate.

According to investigators, this massive fraud has led to unemployment benefits being paid out to organized crime syndicates in Russia, China, and other countries.

California’s EDD office has been massively backlogged due to the influx of unemployment claims associated with the Covid-19 lockdown. At its height, the department faced a backlog of 1.6 million claims. California has processed more than 16 million claims and paid out $13 billion in benefits over the course of the pandemic.

The state addressed the fraud, acknowledging that fraudulent claims were made that allowed prison inmates to receive unemployment benefits, including death row inmates in some cases. The state has also taken steps to address the problem. The biggest being the hiring of Hall’s Company. The company was hired by the Employment Development Department in October to oversee claims. So far they have successfully blocked around 470,000 phony claims.

Hall’s Company explained that surprisingly most fraud came from outside the United States.  More than 20 foreign countries were found to be involved in making fraudulent claims. Claims were made using stolen identity information and “money mules,” which were sent to pick up the unemployment benefits. Hall’s Company made a statement on the severity of the problem, “When the Russians and the Nigerians and the Chinese are the players on the field, they are going to put up some points. This is a very sophisticated cyberattack that’s being run at scale.”

Rita Saenz, the Employment Development Department director, explained that she takes the fraud seriously. “My intention is to do everything we can, working with our law enforcement partners, to catch whoever is doing it and bring them to justice.”