Audit blasts California unemployment program's costly gaffe

The state's unemployment insurance program passed up on a federal program to recoup $500 million in overpaid benefits.

By Marc Lifsher

5:41 PM PDT, March 13, 2014 - Los Angeles Times

SACRAMENTO — California's deficit-plagued unemployment insurance program missed out on more than half a billion dollars in federal money in recent years when state officials failed to take advantage of a new federal program.

The California state auditor said Thursday that all the Employment Development Department needed to do was invest about $323,000 in computer software modifications to recoup $516 million in money overpaid to people getting jobless benefits between February 2011 and September 2014.

Critics said the EDD whistle-blower audit brought to light only the latest gaffe by an agency that has struggled to provide benefits to millions of jobless Californians while it faced computer glitches, overloaded phone systems and high rates of case worker decision reversals.

"I think we need a top-down look at the whole organization," said state Sen. Anthony Cannella (R-Ceres).

According to State Auditor Elaine M. Howle, the EDD passed up a chance to participate in a U.S. Department of Labor program in which the federal government helps collect money owed to the states by workers who were paid too much in benefits while unemployed.

The program would "intercept" federal payments to individuals, such as tax refunds, and send the money to states that are seeking to recover overpayments to the same people.

"Although other states chose to participate in the expanded program from 2011 through 2013 with great success, the EDD, acting on behalf of California, chose not to participate because it concluded that it did not have sufficient resources," Howle wrote in the preface of her report to the governor and the Legislature.

The Bureau of State Audits launched the investigation into the missed revenue after getting a confidential tip under the state Whistleblower Protection Act. The bureau provides a special telephone hotline and promises to protect tipsters from possible employer retaliation.

Being able to collect all reported overpayments is of high importance because the state's Unemployment Insurance Trust Fund became insolvent in January 2009.

Since then, California has been borrowing money from the federal government to ensure that people who lost jobs in the Great Recession receive up to $450 in weekly benefits.

The state "has borrowed about $10 billion to cover the deficit and paid hundreds of millions of dollars in interest on the money it has borrowed," the audit said.

Only after the audit was underway in May 2013 did EDD top brass start to develop a plan to upgrade its computers to communicate with the Department of Labor, Howle said. EDD expects to start receiving federal intercept payments next September.

The EDD in a statement disputed many of the auditor's contentions.

"The EDD has not lost the ability to collect overpayments as alleged by the audit," agency spokeswoman Patti Roberts said in an email.

Moreover, Chief Deputy Director Sharon Hilliard contested the auditor's estimate that $135 million in benefit repayments could have been recovered in 2011 had EDD been part of the federal program.

The results of the auditor's whistle-blower audit angered some lawmakers and added urgency to a generalized call for a housecleaning at the Employment Development Department, which has been the target of widespread criticism from policymakers, legal aid societies and laid-off workers.

"To lose half a billion dollars is so unbelievable," said Sen. Cannella. "I think we need a top-down look at the whole organization. It's not providing services to the public, and on top of that, it's losing money."

On Wednesday, Cannella suspended his own request for a wide-ranging audit at EDD. Cannella put it on hold after key aides to Gov. Jerry Brown persuaded him that it could impede an administrative initiative to boost services to the unemployed.

At the same time, a joint Assembly-Senate panel approved a separate call for an audit by Assembly Insurance Committee Chairman Henry T. Perea (D-Fresno) into the high rate of reversals of EDD benefit denials by state administrative appeals judges.

"Today's audit report on EDD points to more evidence that the unemployment insurance program operators could use improvement and the need for ongoing oversight, including the audit I requested to examine claimant appeals," Perea said.