California unemployment program too focused on fraud, failed to timely provide hundreds of millions of dollars, report finds

California’s unemployment system is too focused on rooting out fraud and minimizing business costs than providing people with timely benefits, according to a new report from the state.

“These failures caused hardship for unemployed workers and their families, held back the economy, and spurred frustration among Californians with their state government,” the Legislative Analyst’s Office report reads. 

The report, which was published on Monday, also states that California’s Unemployment Insurance program and Employment Development Department fails to deliver between $500 million and $1 billion each year to eligible workers because their claims are improperly denied.

Chas Alamo, a principal fiscal and policy analyst with the LAO, says the EDD flags legitimate claims and demands information that the department already has in its databases, which delays payments. He says the EDD should not request additional information if it is not “substantially effective” in reducing the amount of fraud.

“Because we know they slow the process down for workers and lead to delays,” Alamo said.

Despite massive fraud during the pandemic, California's unemployment insurance system typically has a low fraud rate.

In response to the LAO’s report, the EDD says it has addressed many of the recommendations. “The pandemic tested every benefit system in the country, exposing the need to deliver better systems and modernize operations,” the statement read, adding that lawmakers are investing in ways to improve it.

California’s unemployment agency has been working to reduce wait times for payments and cut down on fraud — which the department estimated to be around $20 billion. But it could be years until many of these changes are fully implemented.

During the early months of the pandemic, the EDD was quickly overwhelmed by millions of new claims; this was when businesses closed or laid off workers due to government stay-at-home orders. 

At this same time, people exploited flaws in the EDD system to snatch billions of dollars in fraudulent claim payouts. The EDD also has struggled to clear a claims backlog of claims.

The new analysts report also found:

• Half of claims denied by the EDD are overturned on appeal, “while less than one-quarter are overturned in the rest of the country” 
• “More than half of UI claims were delayed during the peak of the pandemic, for many workers by several months. Between 15 percent and 20 percent of workers who apply for UI during normal economic times experience delays.”
• The EDD needs to simplify its application for benefits, including ending the request for detailed work histories, making initial payments and recalculate benefits if necessary and shortening the application
• “The state UI trust fund does not build large enough reserves during normal times to weather downturns. Without legislative action to address this imbalance, the department may feel pressure to prevent the fund from becoming insolvent.”