Policy Updates

California Paid Pandemic Unemployment Claims Without Checking Them Against Prison Records and Sent About $810 Million to Inmates. It Then Suspended 1.4 Million Claims Until the Claimants Could Prove Who They Were.

In February 2020 California's unemployment rate was 4.3 percent. By April it was 16.2 percent, and the Employment Development Department, which runs the state's unemployment insurance programme, received nearly 2.4 million claims that month, about 13 times as many as in April 2019. In late March, Congress passed the CARES Act. It added $600 a week to claims until July and created Pandemic Unemployment Assistance for people the system had never covered, such as the self-employed, who had no employer to report their wages or confirm that they had lost work. The programme required applicants to self-certify that they were unemployed for a reason connected to COVID-19. The U.S. Department of Labor told states to backdate these claims to the week the claimant became eligible, which could be as early as February 2020. A new claimant could therefore be owed several months of benefits on the day they applied. The California State Auditor later summarised the result: impostors "had opportunities to earn more benefits without providing verifiable information about their work histories."

The Department of Labor reminded states twice in the spring that it had not relaxed its expectations on fraud. In May 2020 its Office of Inspector General told EDD that, on the basis of the 2.9 million new claims filed in March and April, California was likely to see at least $1.2 billion in potential fraud. EDD's system was already producing daily reports of suspicious claims, and on each of the six days the auditor later sampled from April to June, more than 1,000 claims were flagged. According to the auditor, two staff members were responsible for reading them and stopping each payment by hand.

The Safeguard

Normally, when staff had doubts about a claimant's identity, EDD put a stop-payment alert on the claim until the identity was confirmed. Early in the pandemic, to keep up with the volume, EDD leadership decided to remove certain "barriers to payment," including that one. They believed other safeguards in the system would still stop payments to claimants whose identities had not been confirmed. The auditor found that "the EDD leadership who made these decisions did not adequately understand how the stop payments worked." EDD waived the safeguard on almost 77,000 claims and paid more than $1 billion on claims it later judged potentially fraudulent. The practice continued into August 2020. Other safeguards mostly blocked future payments. They did not block backdated ones. One claimant filed on 3 August 2020, said they had lost work on 2 February, 26 weeks earlier, and had the claim stopped the same day. When the safeguard was waived, EDD paid almost $22,000 for the intervening weeks. EDD never confirmed the claimant's identity. It then disqualified the claim from any further payments.

Other warnings arrived through the post. One person who had just moved house reported receiving more than 65 pieces of EDD mail addressed to at least 15 different people. In September EDD identified 26,000 addresses linked to suspicious claims and stopped payment on claims at 10,000 of them. The auditor picked three of the other 16,000 to examine. More than 80 claims had been filed from one of them.

The Inmates

On 24 November 2020, nine county district attorneys, led by Anne Marie Schubert of Sacramento County, announced that more than 35,000 state prison inmates had been named in unemployment claims between March and August. More than 20,000 had been paid. At least 158 claims had been filed for 133 inmates on death row, and more than $420,000 had been paid on them. The names included Scott Peterson and Cary Stayner. Peterson's lawyer said there was no evidence he had received anything. Some claims were filed under real names and some under false ones. "In one instance, an inmate used the name: 'poopy britches,'" Schubert said. "Quite frankly, the inmates are mocking us." The San Mateo County district attorney, Steve Wagstaffe, said EDD had told prosecutors it could not stop the payments until the claimants had been formally charged with a crime.

EDD did not check claims against prison records. In 2016, according to a survey by the National Association of State Workforce Agencies, 35 states were cross-matching unemployment claims against state prison data and 28 were checking county jail data. Washington state was checking jail records three times a week. EDD told the Legislature in June 2018 that it was considering a prison cross-match. It told the Legislature the same thing in June 2019, and again in June 2020, two months after the first Pandemic Unemployment Assistance claims came in. It asked the California Department of Corrections and Rehabilitation for the data in August 2020 and signed a data-sharing agreement in December, after the district attorneys' announcement. In January 2021 it estimated that it had paid about $810 million to roughly 45,000 claimants whose details matched incarcerated people.

The Senator

The scheme did not always require a prison. Andrea Gervais of Roseville worked for EDD until she was fired in 2018. Federal prosecutors said she filed 97 Pandemic Unemployment Assistance claims in other people's names, with a potential value of more than $2 million. At least 10 were paid, and nearly $200,000 arrived at her house on Bank of America debit cards. The investigation began when federal agents found that someone had filed a claim worth about $21,000 using the identity of a sitting U.S. senator. Bank of America flagged it, but $21,000 went to her address. Gervais received an EDD debit card in the senator's name, and a Bank of America ATM camera recorded her using it. The Associated Press reported that the senator was Dianne Feinstein.

Fontrell Antonio Baines, a rapper from Memphis who performed as Nuke Bizzle, filed 92 claims in the names of other people, including identity-theft victims. The applications said the claimants had worked and lived in California. In a YouTube video called "EDD," according to the Justice Department, Baines boasted about doing "my swagger for EDD" and, holding up a stack of envelopes from the department, getting rich by "go[ing] to the bank with a stack of these." He was sentenced in December 2022 to 77 months in prison and ordered to pay EDD $704,760.

The Freeze

In September 2020 Bank of America, which issued the debit cards, sent EDD a list of more than 309,000 accounts it believed to be fraudulent. EDD approved 271,000 of them, added 73,000 of its own, and directed the bank to freeze about 344,000 accounts. Legitimate claimants were among the frozen, and the auditor noted media reports of people unable to pay their bills or feed their families. At a hearing on 7 October an assemblymember asked EDD's director who had frozen the cards. "This is part of the Bank of America's fraud protection services, I guess," the director said. The auditor "found no public statements that acknowledged that EDD had directed the freezing." Two days before that hearing, EDD had asked the bank to unfreeze all 344,000 accounts. It had done no analysis to support that request, and the bank disregarded it, later telling the Legislature that federal law obliged it to prevent fraud. By 10 December EDD had verified the identities of about 7,500 of the affected claimants.

In October EDD hired ID.me, a private company, to verify identities online. Around the turn of the year it suspended payments on 1.4 million claims until the claimants could verify their identity and eligibility. "If no official response is received, claims will be canceled," an EDD spokeswoman, Loree Levy, told the Los Angeles Times. Claimants reported waiting up to eight hours a day for a video call with ID.me. "I would set an alarm and then wake up a couple hours later to see if the clock moved," said Kerry Harvell, a former restaurant worker in Monterey County. EDD extended the deadline from ten days to 30. By 11 February 2021 it had verified nearly 388,000 of the suspended claimants. The rest, KQED reported, were "now subject to disqualification."

The Tally

On 28 January 2021 the State Auditor, Elaine Howle, reported that EDD had paid about $10.4 billion on claims whose claimants it could not identify, and that it was "highly probable" the final figure would be "significantly more." State officials put the possible total as high as $31 billion. In October 2021 they settled on at least $20 billion, more than 11 percent of the roughly $178 billion California had paid since the start of the pandemic. Officials blamed nearly all of the fraud on Congress's expansion of benefits to the self-employed. "2020 was an anomaly, a criminal assault on the unemployment insurance program across the country," said EDD's director, Rita Saenz. "We closed the door to that type of fraud last year." Saenz said identity verification software and other measures had since stopped an estimated $120 billion in fraud attempts.

EDD had told the Legislature three times that it was considering whether to check claims against a list of people in prison. A claim in the name of a United States senator was flagged by the bank, paid anyway, and collected at a cash machine by a former EDD employee. Meanwhile 1.4 million claimants were instructed to queue for a video call and prove who they were.

Filed from public reporting:

California Paid Pandemic Unemployment Claims Without Checking Them Against Prison Records and Sent About $810 Million to Inmates. It Then Suspended 1.4 Million Claims Until the Claimants Could Prove Who They Were.

The Safeguard

The Inmates

The Senator

The Freeze

The Tally

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