California's unemployment agency might have overpaid millions of people since March after it stopped enforcing some eligibility rules so they could process claims faster, according to a new audit released Tuesday.
As millions of claims poured in during the height of state restrictions on businesses, state officials decided to stop doing some of the time-consuming work necessary to make sure people who applied for benefits were eligible to get them. They also stopped their bimonthly checks with people who were already getting benefits to make sure they were still eligible to receive them.
The result: Up to 4.1 million claimants could have to repay some or all of the unemployment benefits they got during the pandemic — some through no fault of their own. Of those claims. 2.7 million might have been ineligible for benefits at all and 1.7 million might have been overpaid. It's unclear if there is overlap between the two groups.
A new report from California State Auditor Elaine Howle on Tuesday found the agency has “no clear plan” to address that backlog, saying it “represents a workload never before seen by the department.”
“That could have significant consequences for claimants,” the audit said.
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The backlog represents at least 12.7 million eligibility determinations affecting 2.4 million people. Using the agency's estimate of an average of 30 minutes to resolve each issue, it would require more than 3 million hours of work — or more than 342 years — to resolve all of it.
Howle said many of those claims are likely good faith mistakes made by people who did not know the eligibility rules for unemployment benefits. Others represent people who did everything the agency told them to do, but were victims of poor oversight by state officials.
Others were likely fraudulent. On Monday, California Labor Secretary Julie Su estimated the state has paid $11.4 billion in fraudulent claims during the pandemic, representing 10% of the more than $114 billion in benefits paid since March.
Usually, people who the state has overpaid have up to two years to pay it back. The state can waive that repayment under certain conditions, including if there is no fraud involved. But the audit says it's unclear how many people would qualify for this because the agency has not yet analyzed all of the claims. State law gives the agency two years to issue overpayment notices in cases that do not involve fraud.
The Employment Development Department has been under intense pressure by state lawmakers and the public to more quickly process benefits during the pandemic. The agency’s rush to do that, along with Congress approving a major expansion of benefits with few eligibility safeguards, have made the agency — and others like it in states across the country — an easy target for fraud.
Howle said the decision to stop enforcing some eligibility rules to speed up payments was “drastic,” especially given the agency appears not to have learned from its mistakes in the 10 years since the last unemployment spike hit during the Great Recession.
Howle said previous audits of the agency have revealed its lack of planning for recessions, poor management of call centers and a laborious training program for new employees that hindered its ability to respond to any surge in claims.
But in the decade since the last unemployment peak, Howle agency officials adopted no meaningful major reforms. Employment Development Director Rita Saenz, who took over last month after the previous director retired, hinted in a response letter that the blame lies partly on the state Legislature, which usually only pays significant attention to the agency during a recession.
“We agree that in order to function in bad times, the government needs to make investments in good times in infrastructure, technology, funding, and staff training,” Saenz wrote.
Assemblyman Jim Patterson, a Republican who has been in the Legislature for eight years, said lawmakers did not give the agency more money or resources because they did not ask for them.
“We can only do our job if we have access to these individuals and that they tell us the truth,” he said. “They knew (the problems), they ignored it and they did not tell the Legislature the truth about the seriousness of what they knew.”
