East Idaho Times

U.S. Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) and U.S. Senate Health, Education, Labor, and Pensions (HELP) Committee Ranking Member Bill Cassidy, M.D. (R-Louisiana) have expressed concerns over the U.S. Department of Labor’s (DOL) December 2023 guidance that could potentially burden U.S. taxpayers with the approximately $32.6 billion lost to fraud by the State of California during DOL Acting Secretary Julie Su’s tenure as California’s Labor Secretary.

The guidance in question transfers the authority to decide when the federal government forgives lost federal unemployment insurance (UI) funds to California and other states. In a May 1 U.S. House Education and the Workforce Committee hearing, Julie Su stated that the guidance only allows states “to waive non-fraudulent [UI] overpayments.” However, it permits states to apply their own finality laws to determine which lost funds they are required to pay back, without specifically prohibiting states from waiving funds lost to fraud.

California's losses in federal UI funds due to fraud have been estimated at around $32.6 billion - roughly one third of the nation's total UI fraud. The California State Controller found that the state “had inadequate control over its financial reporting for federally funded unemployment insurance benefits … [the State] is unable to provide complete and accurate information” for federally funded UI accounts.

Julie Su was directly in charge of EDD, the agency tasked with distributing UI payments to state residents, during her time as California’s Labor Secretary when widespread fraud occurred. At her direction, EDD waived basic fact-checking fraud prevention requirements for UI payments, contradicting DOL guidance which clarified these protection requirements “must be adhered to” and were “critical to the operations of the UI-related CARES Act programs.”

As a result of this lax oversight, it is estimated that California lost $32.6 billion in fraudulent UI payments. In 2022, the California State Auditor found that, “[d]espite repeated warnings, EDD did not bolster its fraud detection efforts until months into the pandemic, and it suspended a critical safeguard.”

The senators have requested information from DOL on whether and how it ensured California took all proper steps to recover these fraudulently paid funds.

“Under your leadership as Acting Secretary, DOL issued Unemployment Insurance Program Letter No. 05-24 stating that, to allow states to ‘be forward looking,’ the agency will ‘defer to states to apply their finality laws to the CARES Act UC programs,’” wrote the senators. “DOL’s guidance therefore appears to allow California to shift the consequences of a still unknown amount of federal funds that was lost under your leadership as Secretary of LWDA to the American taxpayer.”