Under fire from D.A.s, Gavin Newsom says he is taking action to curb prison unemployment fraud

Gov. Gavin Newsom on Tuesday defended his response to a surge in unemployment insurance fraud among state prison inmates, saying his administration took action when the scheme surfaced.

With the prison fraud case becoming his latest political headache, Newsom acknowledged that “bad actors” had exploited the unemployment crisis that erupted when the pandemic shut down much of the economy in March.

Last week, Sacramento County District Attorney Anne Marie Schubert criticized Newsom’s administration for doing too little to address fraud that swept through California’s prisons and jails this year, resulting in up to $1 billion in improper payments. She urged Newsom to “turn off the spigot” of money flowing to criminals and said 35 other states had a system to prevent such fraud.

In a Tuesday letter addressed to Schubert, Newsom said most of the fraud has been in the Pandemic Unemployment Assistance program, which the federal government created early this year to help people who had been self-employed or working as independent contractors before the pandemic disrupted their income. Those people aren’t eligible for traditional unemployment insurance.

The federal program used a self-certification process to help people access benefits quickly and provide minimum benefit payments regardless of income, according to the letter.

“While this helped many individuals in need during this pandemic, bad actors took advantage of the crisis to abuse the system,” Newsom said in the letter.

He said the Employment Development Department noticed an uptick in Pandemic Unemployment Assistance program claims in July and August and implemented new security procedures in early September.

The EDD and the Department of Corrections and Rehabilitation are working with the U.S. Department of Labor to crosscheck unemployment claims against state prison rolls to stop fraudulent payments, according to the letter.

Among the recipients of Newsom’s letter was Vern Pierson, the El Dorado County district attorney.

Pierson said the state missed an opportunity to set up a cross-check system, the sort used by 35 other states, six years ago with help from a federal grant.

The state received a one-year, $1.7 million grant from the federal government to run a system that would match unemployment claims with a host of publicly available data, Pierson said. The system was developed by a Folsom company called Pondera Solutions.

Pierson said district attorneys asked EDD for access to the system but were turned down because EDD officials “weren’t sure they were going to keep the system.” Eventually EDD gave up on the system, he said.

“It would have prevented this – this type of fraud,” Pierson said. “We need a cross-match system of that kind.”

To start cross-checking inmates’ Social Security numbers, the state had to clear an administrative hurdle, a Newsom administration official who asked not to be identified told The Bee.

Since the corrections department relies on a Department of Justice database to verify inmates’ Social Security numbers, it can’t share the information with an agency outside law enforcement, such as EDD, the official said.

The administration engineered a temporary workaround, using a Labor Department subpoena that allows the information to be shared. It is working on a permanent fix, said the official.

The administration engineered a temporary workaround, using a Labor Department subpoena that allows the information to be shared. It is working on a permanent fix, said the administration official.

So far, the state has cross-checked about 35,000 records between EDD and corrections department lists, state Labor and Workforce Development Agency spokeswoman Crystal Page said in an email.

Of those, about 19,000 were Pandemic Unemployment Assistance Claims totaling about $380 million in paid benefits, Page said in the email. About 1,800 were other unemployment insurance claims worth $20 million.

The claims could have been paid using Bank of America debit cards or checks, Page said. About 3,700 of the cards have been frozen, and the agency is working with the bank to “take appropriate next steps on the other fraudulent claims,” she said.

Mark Ghilarducci, director of the Office of Emergency Services, is leading a task force to coordinate state efforts and support investigations, according to the letter. The task force includes the state Department of Technology and the California Highway Patrol along with EDD and the Department of Corrections and Rehabilitation.

Pierson he’s encouraged that the well-regarded Office of Emergency Services is working on the problem. But he added that the state has a lot to overcome to get a handle on the situation.

“So far all we’ve had is a meeting and there’s so much that needs to be done,” Pierson said. “I’m cautiously optimistic, but there’s so much that needs to be done to prevent this from continuing to happen.”

Rochelle Beardsley, supervising deputy district attorney for Sacramento County, said Tuesday afternoon that the office hadn’t yet had time to review the letter or respond to it.

Newsom’s letter was also sent to district attorneys from Lassen, Fresno, Monterey, Marin, Riverside, San Diego and Ventura counties.

This story was originally published December 1, 2020 at 2:50 PM with the headline "Under fire from D.A.s, Gavin Newsom says he is taking action to curb prison unemployment fraud."