The Employment Development Department (EDD) is responsible for administering the State’s unemployment insurance (UI) program, which provides partial wage replacement benefits to eligible Californians who have become unemployed. In general, individuals who claim these monetary benefits (claimants) must meet certain requirements, such as being unemployed through no fault of their own and being able and available to work. Claimants must also provide certain information, such as their Social Security numbers (SSNs) and information about their previous employment, including their estimated earnings, which can help EDD ensure that it issues proper benefit payments to the correct individuals.
The benefit payments that EDD administers are subject to two main types of potential fraud: benefit fraud and impostor fraud. Benefit fraud can occur when individuals misreport their earnings or employment information under their own identity. For example, individuals may establish legitimate UI claims using their own personal information but then fail to report that they returned to work, fraudulently continuing to collect UI benefits. EDD has several methods for detecting benefit fraud and, in general, this type of fraud is easiest to trace to a specific individual because the person filing the fraudulent claim benefits from it. As we detailed in an earlier report about EDD, in March 2020 it indefinitely postponed most of its required UI eligibility determinations, which has likely increased the UI program’s vulnerability to benefit fraud during the COVID-19 pandemic (pandemic). EDD’s Poor Planning and Ineffective Management Left It Unprepared to Assist Californians Unemployed by COVID‑19 Shutdowns, Report 2020‑128/628.1, January 2021. As we discuss later in the Introduction, the pandemic‑related benefits also increased EDD’s risk of the second type of fraud: impostor fraud, which occurs when a perpetrator uses someone else’s personal information to collect UI benefits.
EDD Has Several Divisions and Offices That Undertake Fraud Detection Efforts
- Investigation Division, Criminal Intelligence Unit: Manages fraud reports submitted by UI staff, by the public, by law enforcement, by state and federal agencies, by the Governor or Legislature, and by others; oversees EDD’s fraud hotline.
- Investigation Division, Enforcement Operations Units: Investigate egregious and costly cases of fraud and may pursue criminal charges against impostors.
- UI Support Division, Integrity and Legislation Unit: Manages a fraud report mailbox and initiates the identity verification process for certain claims.
- UI Integrity and Accounting Division, Identity Verification and Technical Support Section: Verifies claimant identities when potential fraud or other identity issues have been detected.
- UI Integrity and Accounting Division, Benefit Overpayment Section: Performs daily, weekly, and quarterly matches between employer data and UI benefit claims to detect improper payments and potential fraud.
- UI Integrity and Accounting Division, Benefit Claims Section: Assigns new unique identifiers to potentially fraudulent claims to reduce the impact on the true owners of compromised SSNs.
- Information Technology (IT) Branch: Facilitates fraud detection efforts through EDD’s technical systems, including as directed by other responsible parties.
- Local field offices: Report potential fraud and suspicious claims to the fraud report mailbox and initiate the identity verification process for certain claims.
Source: Analysis of EDD roles and responsibilities, EDD documentation, and interviews with EDD staff.
EDD’s Fraud Detection Processes
A number of divisions and offices within EDD play a role in its efforts to detect UI fraud, as the text box describes. According to EDD’s June 2020 report to the Legislature on fraud deterrence and detection activities, in 2019 EDD investigated 61 ongoing and new UI fraud cases representing potential fraud payments of around $24.4 million, including 14 cases of UI impostor fraud representing more than $5.5 million paid in fraudulent benefits. EDD also reported more than 110,000 UI overpayments due to fraud—or payments that EDD expected claimants to return to EDD—totaling $116.8 million in UI benefits paid in 2019. EDD further reported that this $116.8 million represented only 2.3 percent of its $4.9 billion benefit payments made in 2019.
One of the key ways that EDD attempts to prevent impostor fraud is by verifying the identities of prospective claimants as a condition to providing benefits, as federal law requires. Historically, this process has included basic automated verifications to ensure that the information that claimants submit to EDD, such as SSNs and driver’s license numbers, match the information retained by the U.S. Social Security Administration and California Department of Motor Vehicles. If these verifications detect discrepancies, EDD activates a manual identity verification process to confirm whether the claimant is the true owner of the identity. When it activates the manual identity verification process, EDD’s system suspends or stops payments to the affected claim while EDD attempts to verify the claimant’s identity. EDD will pay eligible claimants whose identities it confirms for the weeks their payments were paused. This process does not block the claimants’ access to UI benefit payments that EDD has already issued. However, in October 2020, EDD introduced a new online identity verification tool, ID.me, as part of its efforts to process claims faster while preventing impostor fraud at the onset of a claim. EDD has indicated that ID.me makes it easier for claimants to verify their identities, reduces the amount of manual work by EDD staff necessary to process claims, and includes more robust protections against impostor fraud.
Reported Cases of UI Fraud During the COVID‑19 Pandemic
Since the pandemic began affecting California unemployment rates in March 2020, individuals, news organizations, and law enforcement officials have reported many cases of potential and actual UI impostor fraud. For example, the Beverly Hills Police Department announced in September 2020 that it had arrested 44 individuals responsible for identity theft and EDD fraud and had recovered EDD debit cards containing more than $2.5 million in fraudulently obtained UI benefits. Moreover, in November 2020, we reported that many individuals had received mail from EDD that was addressed to other people, and that this mail may have been the result of attempts to fraudulently collect UI benefits. Follow‑Up—Employment Development Department: Since the COVID‑19 Pandemic It Continues to Mail Documents Containing Social Security Numbers and Put Californians at Risk of Identity Theft, Report 2020‑502, November 2020. For example, an individual who had recently moved into a new home reported receiving more than 65 pieces of mail from EDD addressed to at least 15 different people. The significant amount of mail returned to EDD because it was undeliverable suggests that such cases have likely been widespread. Finally, in a November 2020 letter to the Governor, several district attorneys reported that EDD fraud was occurring in prisons across the State. We discuss this inmate‑related fraud later in this report.
Two main factors have made the UI program especially vulnerable to fraud during the pandemic: the sudden and massive increase in UI claims and the significant expansion of eligibility for benefits. After the start of the pandemic and the imposition of the statewide stay-at-home order, California’s unemployment rate surged from 4.3 percent in February 2020 to 16.2 percent by April 2020, according to EDD’s labor market information. This surge in unemployment created a dramatic increase in the number of UI claims individuals submitted: EDD received nearly 2.4 million UI claims in April 2020, about 13 times as many as it received in April 2019. This massive increase in demand for benefits may have made it harder for EDD to carry out typical fraud detection efforts.
In addition, in late March 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which expanded UI benefits and relaxed some requirements for receiving those benefits. For instance, the CARES Act extended pandemic unemployment assistance (PUA) to certain individuals who were not eligible for regular unemployment benefits, such as individuals who had been self‑employed and therefore would not have a third‑party employer to report their wages or validate unemployment. Further, the CARES Act added $600 per week to the amount of benefits claimants could otherwise receive under state law between March and July 2020. The U.S. Department of Labor (Department of Labor) has also specified that states must backdate PUA claims to the first week in which claimants became eligible for benefits, which was as early as February 2020—meaning that a larger amount of money was available to claimants because they could receive benefits from many previous weeks before the date that they filed their claims. These factors further contributed to the heightened risk of fraud, since impostors had opportunities to earn more benefits without providing verifiable information about their work histories.