California dropped its guard before it was hit with $2B in unemployment fraud

A California Employment Development Department building is seen in a photo posted on the agency's Flickr account in September 2018.

A California Employment Development Department building is seen in a photo posted on the agency’s Flickr account in September 2018.

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As California grapples with staggering levels of unemployment benefit fraud — $2 billion or more by one estimate — lawmakers and security experts say the state let its guard down well before the COVID-19 pandemic began in March, failing to keep up with what other states have done to flag bogus claims.

Now, faced with what officials describe as the largest fraud scheme against taxpayers in state history, the state Employment Development Department is scrambling to fix past mistakes as prosecutors, government auditors and legislators say their early warnings about vulnerabilities in the unemployment benefit system went unheeded.

Many of the phony claims were preventable, they say, if California had taken precautions implemented in other states, including using sophisticated software to identify suspect applications, keeping Social Security numbers out of official mail and cross-checking benefit claims against personal data on state prison inmates. Cross-checking is routine in 35 other states.

Adding to the problems, there have been delays in trying to address long-standing issues at the agency that have undercut attempts to safeguard against fraud. State prison officials had maintained that they could not legally share prisoners’ Social Security information with the EDD, an assertion that was knocked down this month by a legal opinion from the state Department of Justice.

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