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Gonzalez blames EDD fraud on federal program, freelancers push back

REGION — A San Diego lawmaker’s recent statements on social media claiming a federal program designed to help independent contractors receive unemployment benefits was responsible for billions in stolen benefits while seemingly ignoring a host of well-documented problems within the state’s own unemployment agency have prompted backlash online.

On her personal Twitter account, Assemblywoman Lorena Gonzalez (D-San Diego) tweeted on Oct. 25 about rampant fraud perpetrated against the California Employment Development Department (EDD), which she blamed on a self-certification process on unemployment assistance forms:

“Please don’t write about the EDD Fraud in CA without noting that this wasn’t the traditional unemployment insurance. This was largely a result of PUA (Pandemic Unemployment Assistance) — which was a taxpayer funded benefit for individuals who didn’t have an ‘employer’ that paid into UI (Unemployment Insurance) & needed a safety net. Without an employer record of payment, we had to let 1099 workers (independent contractors) and self-employed folks self-certify. That allowed for massive fraud.”

But Gonzalez’s remarks were interpreted by many as yet another attack on independent contractors and freelancers by unfairly conflating their need for emergency financial assistance with the state’s failure to protect against massive fraud.

In 2019, the former Teamster boss targeted the same group of Californians during her push to pass Assembly Bill 5, a contentious state bill that upended the state’s $1 trillion gig economy and jeopardized the livelihoods of millions of independent contractors, freelancers and self-employed workers — many of whom are still reeling from the double whammy of Gonzalez’s legislation and the COVID-19 pandemic.

Many pointed out the legislator’s comments fail to acknowledge that despite a laundry of list of problems at the EDD, such as outdated technology and security protocols, the agency did nothing prior to rolling out the largest unemployment benefits system in state history.

“The EDD is an incompetent mess,” wrote Karen Anderson, founder of Freelancers Against AB 5. “Their computer systems are antiquated and couldn’t handle the influx. They’ve known about the ineptitude in the department since the last audit 10 years ago and have done nothing to fix it.”

Ripe for fraud

According to the EDD, from March 2020 to Jan. 2021, California processed 19.5 million claims and paid out $114 billion in unemployment benefits. But the massive influx of pandemic-related unemployment claims quickly overwhelmed the department, which had not implemented sufficient protections against fraudsters.

Across the country, thousands of out-of-state prisoners, a handful of death row inmates, two Postal Service workers and even a former EDD employee, to name only a few, exploited the California unemployment system and fleeced the Golden State for billions.

According to The Associated Press, Bank of America, which issues EDD benefit cards, told state lawmakers it had identified about 345,000 fraudulent claims worth about $2 billion. The State of California has paid $400 million to 21,000 California prison inmates, per the Los Angeles Times.

Last month, state lawmakers admitted that California paid out $20 billion in fraudulent unemployment claims, but Julie Su, then California’s labor secretary, suggested that number could be much higher.

“Of the 114 billion dollars in unemployment paid by California since March, approximately 10% has been confirmed as fraudulent,” Su said during an EDD conference call. “An additional 17% of the paid claims have been identified as potentially fraudulent.”

Problems at the EDD

The state auditor’s office released two reports after the legislature requested an emergency audit of the EDD’s response to the COVID-19 pandemic and fraud prevention protocols.

A Jan. 28 report by California State Auditor Elaine Howle found that “EDD did not take substantive action to bolster its fraud protection efforts” to safeguard its unemployment insurance program, “resulting in payments of $11.4 billion for claims that it has since determined may be fraudulent because it cannot verify the claimants’ identities.” Additionally, the department’s “uninformed and disjointed techniques” to prevent fraud placed the agency at “higher risk” for criminal activity.

A second audit report also found that “EDD’s inefficient processes and lack of advanced planning led to significant delays in its payments” and the agency’s “poor planning and ineffective management left it unprepared to assist Californians unemployed by COVID-19 shutdowns.”

Further compounding the matter was the EDD’s attempt to speed up the claim process by suspending eligibility determinations for most applicants, “thereby compromising the integrity of the UI program,” the report says.

The report also discovered that Su directed the department to pay certain individuals unemployment benefits “without making key eligibility determinations and to temporarily stop collecting biweekly eligibility certifications.”

According to the auditor’s report, Su, who was appointed Deputy Secretary for the U.S. Department of Labor in July, “further directed EDD to temporarily stop collecting the certifications claimants must regularly submit that assert they remain eligible for benefits.”

While Su’s intentions were likely to expedite the benefit delivery process, these decisions “removed a barrier to fraud” and still require the department to process “delayed determinations and certifications of eligibility” with no plans to “address this impending workload,” according to the auditor’s analysis.

Since then, the EDD has signed $236 million in private contracts with consulting firms Deloitte, Accenture, Maximus, Thomson Reuters, EY and others to help with “track jobless claims, verify worker identities, analyze records for potential fraud, assist with customer service and more,” according to reporting by CalMatters. The state legislature has also twice delayed a hearing about the EDD and how it is responding to the audit and fraud due to the recall election of Gov. Gavin Newsom, CalMatters reported.

“Lorena knows that independent contractors in all 50 states pay taxes and had to show proof of income to get pandemic unemployment,” said freelancer JoBeth McDaniel. “California officials had plenty of warning that EDD’s antiquated system was ripe for fraud — yet they failed to put in basic safeguards other states had. The state’s own reports show that organized crime took advantage of these failures, to the tune of $31 billion in losses to taxpayers. Even prisoners were able to steal money — while legitimate freelancers and businesses were often frozen out. I know freelancers who never had their claims resolved. Lorena’s attempts to blame freelancers is disgusting.”

Steve Puterski contributed reporting for this article.