Audit faults California unemployment agency for ‘appalling’ missed opportunity to recover $516 million in overpayments

Published: Friday, Mar. 14, 2014 - 12:00 am

A new state audit blasts California’s Employment Development Department for its “appalling” decision to ignore an offer of federal help to recover hundreds of millions of dollars in overpaid unemployment benefits.

Thursday’s report by the Bureau of State Audits estimated that the EDD will have missed out on recouping an estimated $516 million in overpayments from February 2011, when the federal Treasury Offset Program program kicked in, to September of this year, when the EDD expects to belatedly begin to participate in it.

About $99 million of that would offset the department’s administrative costs, saving the state money amid a time of recession-caused budget cuts. The remaining $417 million would have helped pay down the $10 billion debt that California owes on federal loans to its insolvent unemployment fund.

EDD officials told auditors that the department lacked staffing to make the computer programming changes necessary to participate in the federal program at the same time that it had eight other computer projects costing $572 million. Yet the audit, triggered by a whistle-blower’s complaint, found that the EDD estimated in 2012 that participating in the Treasury program would require only $323,000 in staff time, a number later revised to about $1 million.

“EDD did not even attempt to hire any contractors to perform the work, so Official B’s conclusion that EDD could not hire anyone with the appropriate skills to perform the work was pure speculation at best,” read the audit, referring to an unnamed “high-ranking EDD official,” whom it described as retired, as “Official B.”

The Treasury Offset Program allows states to garnish federal tax refunds and other payments to recover various debts. In 2010, it invited states to participate in an effort to collect on unemployment overpayments, most of which stem from people lying about when they returned to work. California’s uncollected debt stood at $1.4 billion in October 2013.

Some EDD staff attended briefings on the Treasury program and recommended the department’s participation, but superiors dragged their feet, the audit found. Thirty-one other states have signed up. New York, for example, collected on 19 percent of the debts it submitted to the federal program in 2011.

In their response to the audit, EDD officials said they were hindered by the lack of federal regulations until 2011. Other states still managed to prepare for the program’s launch, auditors noted. Department officials also wanted the audit to reflect that the department had participated in the federal program since 2004 to recover outstanding state personal income taxes and disability insurance contributions.

“The EDD values this program and had every intention of using it to collect UI benefit overpayments, but was delayed for other reasons,” Sharon Hilliard, the department’s chief deputy director, wrote in a response to a February draft of the audit.

That makes the latest case particularly egregious, the auditor responded.

“Considering EDD’s extensive familiarity with the effectiveness of the Offset Program as a collection mechanism over the past decade, we find its delay in using the program to collect unemployment benefit overpayments to be even more appalling,” the audit said.

Call Jim Miller, Bee Capitol Bureau, (916) 326-5521. Follow him on Twitter @jimmiller2.

Read more articles by Jim Miller

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