Pandemic-related fraud totaled billions. California is trying to get some of it back
Minnesota Public Radio (MN)
California is slowly clawing back some of the estimated $20 billion in unemployment money stolen by domestic and international criminals, money earmarked for jobless relief during the height of the pandemic.
It is, by far, the largest reported amount of pandemic related fraud in any state.
But critics say the California money recovery effort remains feeble, with too few people held to account, and that the real fraud figure is likely far higher.
"It's too late and too little, and even the systems they presently have can still be defrauded," says Jim Patterson, a Republican state assemblyman and vice chair of the state's Committee on Accountability and Administrative Review. "That's not good enough."
Nationally, the total amount of unemployment insurance fraud is staggering. The U.S. Department of Labor, Office of Inspector General earlier this year told Congress that "at least $163 billion in pandemic UI benefits could have been paid improperly, with a significant portion attributable to fraud."
The emphasis from federal and state officials was on pushing that money out fast — $5 trillion in all to help ease the biggest economic crisis since the Great Depression. That speediness also meant many claims weren't verified.
In California alone, fraudsters using stolen social security numbers and stolen or made up names made off with what state officials conservatively estimate is $20 billion. That's about 11 percent of the $177 billion in jobless benefits paid out for COVID-19 relief.
And it wasn't hard: Someone claiming to be U.S. Sen. Dianne Feinstein got paid. There was a John Doe and even a Mr. Poopy Pants. They all got money.
"The key to the kingdom for unemployment insurance fraud benefits was a Social Security number," McGregor Scott, a former U.S. Attorney for the Eastern District California, says.
The state hired Scott as special counsel for its Fraud Task Force to help coordinate the investigation and prosecution of pandemic-related unemployment fraud targeting the Employment Development Department or EDD.
"And with the dark web and the black market for Social Security numbers, these transnational criminal organizations have a very large number of Social Security numbers, so that allowed them to submit fraudulent applications - and get money," Scott says.
Investigators identified specific groups of fraudsters
So far, working with federal and local law enforcement and the Bank of America — which administers California's jobless benefits program — the state has recovered more than a billion mostly by freezing EDD bank debit cards obtained through fraud.
"There's balances sitting on all these debit cards that the Bank of America has recovered. And to date they have returned $1.1 billion dollars to the state," Scott tells NPR.
He says California's task force has learned that most of those committing the fraud were domestic and international organized crime rings, as well as prison inmates inside and outside the state. Then he says there were what you might call run-of-the-mill grifters. "People who are not part of really sophisticated or organized criminal groups, but just sort of have made a living of stealing from government programs in various forms over the years. And this became the latest version of that."
So far, Scott says, the Fraud Task Force has also helped law enforcement arrest more than 500 people and secure 203 convictions, including from a former EDD employee who stole more than $4 million in COVID-19-related unemployment relief claims. Gabriela Llerenas, who also uses the name "Maria G. Sandoval," was sentenced earlier this year to more than five years in prison and ordered to pay nearly $4.3 million in restitution.
"Our job is to make sure that the FBI is talking to the local D.A. or that they're getting the documents they need from EDD or we are getting what we need from the Bank of America," Scott says.
Nationally, the U.S. Labor Department Inspector General says so far its investigations have resulted in more than 1,000 people charged with unemployment insurance fraud since the start of the pandemic.
Dozens of people have been arrested. But thousands of criminals have faced no consequence and billions remain unaccounted for.
Outside experts think the real jobless fraud figure in California is far higher than $20 billion.
"I believe the number is closer to 32.6 billion," Haywood Talcove, CEO of the government division of LexisNexis Risk Solutions says.
Talcove gets to that higher figure, in part, by looking at federal Labor Department audits that show California averaged a high jobless fraud and "improper payments" rate in the three years before the pandemic. "And it didn't go down during the pandemic, it only went up," Talcove says. "So you easily get to that $32.6 billion number."
Indeed, the latest U.S. Labor Department audit report in September shows that the California EDD's "improper payment" rate in just the first six months of the pandemic was 36.6%. What percentage of that was outright fraud or mistakes is unclear but most believe the majority was the former.
Watchdogs call for more to be done, including a forensic audit
Whatever the real number of stolen funds, Talcove argues, the bigger issue is the state has yet to put in place robust controls like those used every day in American banking and other private sector transactions.
California did add a drivers' license authentication system called ID.me the state says is a "highly secure" identity verification process. They also hired an outside data analysis firm, among other moves.
But the state has not yet conducted a forensic audit of the fraud. And Talcove says the added protections are simply not enough.
"They are still getting their pockets picked," he says. "We go on to the dark web every day and monitor these criminal groups that are stealing from the unemployment insurance agencies. And we see it."
In just the past few weeks, he says he's seen outside criminal groups from Russia and elsewhere boasting they could still cheat the state's jobless program. The groups, Talcove says, "were advertising their sauce to get into the state of California, which included purchasing a fake driver's license that gets through their system.
Some California lawmakers are frustrated and outraged by what they see as a slow trickle of money recovery and limited accountability.
"The state of California has to stop patting itself on the back that they're doing something. This is patchwork," says Patterson, the Republican state Assemblyman. "We only got a billion back out of maybe 30 or 35 billion. That's a terrible batting average. We've got to do a whole lot better than that."
Patterson says his office today still gets flooded with calls from constituents having a terrible time getting their legitimate jobless claims filled while too few fraudsters have been convicted.
Haywood Talcove says the level of pandemic fraud nationally shows every state should be doing more to lock down their systems against fraud.
"Not just for unemployment insurance, for their tax departments, for their SNAP, for their TANF benefits, making sure there's an enterprise approach to identity," he says. "What makes anyone think that those criminals aren't now headed into other programs after they just robbed the United States Treasury of $250 billion dollars?"
In California, law enforcement and others point to a bill recently signed by Gov. Gavin Newsom making it easier for prosecutors and police to seize assets, including cars and property, from people who defrauded the unemployment program.
"We've got a case going right now where the guy bought a motorcycle and we know he did it with EDD money," special counsel Scott says. "So we've taken the motorcycle."
He says state expects to soon recover another large sum from unemployment debit cards that still have money on them but have been frozen because of fraud indicators.
Ultimately, Scott concedes, there likely will be billions unrecovered.
"There's no doubt there will be a certain amount that will have to be written off at the end," he says. "What that number is, I don't know yet."