By James Breslo
The California Employment Development Department (EDD) recently reported that its best estimate of fraudulent unemployment payments totals at least $20 billion. That makes it easily the largest fraud in U.S. history and is more than the entire state budget of about half of U.S. states. None of the money has been reported as recovered.
As the investigation continues, California sits with the highest unemployment rate in the country at 7.5 percent. Might the two be related?
From the outset of the pandemic, it was obvious there was a big risk of EDD fraud. It has historically been a problem, just like fraud in other government programs like Medicare. The government has always been an easy mark.
Second, for the first time, benefits were handed out to independent contractors, like Uber drivers, rather than just employees. The state maintains good records of prior employment; it does not regarding contract work.
Third, for the first time the federal government got involved in unemployment, adding $600 per week to state benefits which normally total only about $300 per week. This increased temptation, with $900 per week now at state, the equivalent of full-time employment at $22.50 per hour.
Finally, the EDD maintained no requirement that recipients show proof that they were searching for work.
As a result, California has paid out at least $179 billion in unemployment benefits since the start of the pandemic, processing over 25.8 million claims. More claims were handled than the total pre-pandemic workforce of about 19.5 million. About 2 million jobs were lost due to the pandemic, meaning the state has paid out about $89,000 per lost job.
The fraud, therefore, should have been obvious, yet it went on for months. Recent investigations have revealed that there were employees within the department involved in the fraud. In one case, $2 million in benefits were sent to a single address. Another $1 billion was sent out in the name of about 20,000 current prison inmates. Fraudulent benefits even went out under the social security number of U.S. Senator Dianne Feinstein.
The Beverly Hills Police Department (BHPD) noticed the trend early on. They reported to the state hundreds of people using multiple EDD cards to purchase designer goods on Rodeo Drive.
I personally saw the lines outside retailers like Louis Vuitton and Prada and can report that those in line often did not look like the usual customers. These retailers were great places to launder fraudulent benefits. Designer handbags, sunglasses, wallets, and jewelry are easy to resell on the internet.
After months of this phenomenon, retailers began requiring ID matching the cards. The lines quickly disappeared. For its efforts to stop the fraud, the BHPD was hit with a lawsuit alleging it used racial profiling in making arrests.
The California EDD fraud was so extensive that investigators believe Russia and China were involved. Yet, no leader has been fired over it. On Oct. 30 of last year at the height of the fraud, the EDD Director Sharon Hilliard announced she planned to retire at the end of the year. The press release provided nothing but praise for her.
“She has helped pave the path for EDD to reset its culture and modernize the system at this critical time,” said California Labor and Workforce Development Agency Secretary Julie Su. Incredibly, Hilliard is quoted as saying, “I retire knowing that EDD is on a great path to success.”
Governor Gavin Newsom faced a recall campaign due to his overreaching pandemic lockdown orders. But he never faced tough questions about the unprecedented fraud and sailed to an easy victory.
Of course, Newsom and other state leaders are attempting to cover up the extent of the gross negligence. But additionally, they do not really care. The fraud served as an easy method of redistributing wealth. This was socialism at work, taking money from taxpayers and giving it to non-taxpayers. Besides, the theft was only about $900 per week, which is not a big deal in California. Thanks to a recent proposition pushed by Democrats, shoplifting less than $950 is now treated as a misdemeanor.
So much money flooding into the hands of both legitimate and illegitimate recipients is a likely explanation for why California’s unemployment rate remains the highest in the country despite an abundance of available jobs.