Report: California’s Covid Fraud Was Much Worse Than You Think

How bad was the scale of fraud — and the governmental incompetence that permitted it — during Covid? Unfortunately, prosecutors and federal officials are still tallying up the damage.

The House Oversight Committee recently released a report summarizing its own findings on the proliferation of pandemic scams. While other federal analyses have focused on the effects at the federal level, the committee report showed how incompetence at the state level, where unemployment benefits actually get administered, sowed the seeds for the Covid-era grifts.

Invitation to Criminals

The House investigation examined how numerous state decisions made identity fraud and other scams a near-certainty. For instance, the report references this nugget from a federal Justice Department press release announcing that a married couple had agreed to plead guilty to wire fraud charges:

According to court documents, Tiffany [Pacheco] was hired by the Massachusetts Department of Unemployment Assistance (DUA) in April 2020, shortly after her release from federal prison following a conviction for aggravated identity theft. While employed by DUA, Tiffany allegedly misused her position to submit fraudulent [unemployment] claim information on behalf of herself and her husband, Arthur, who was incarcerated in Texas until September 4, 2020, and thus ineligible for [unemployment] funds. (Emphasis mine.)

The only natural response consists of one word: Really? One can read that paragraph over and over again to try to make sense of it — a government agency hiring someone just out of prison after a federal identity fraud conviction and placing her in a position with access to names, Social Security numbers, and other personal information allowing said individual to engage in more identity theft. Honest, hard-working taxpayers can only wonder why the Justice Department didn’t try to charge the Massachusetts official who hired Mrs. Pacheco with First-Degree Stupidity.

Golden State Grift

Of all the states that suffered problems with their unemployment systems during the pandemic, California stands out, with estimates of fraud in the Golden State alone ranging from $20-32 billion.

California’s obsolete and clunky unemployment systems didn’t just cause harm by leading crooks to defraud taxpayers. In many cases, legitimate applicants couldn’t receive the benefits they needed to get them through the Covid lockdowns. Some 5 million applicants reportedly had their benefits improperly delayed, with at least 1 million wrongly denied.

When authorities froze debit cards to crack down on fraud, thousands of legitimate claimants saw their benefits cut off too. (The state’s systems were too old and decrepit to deposit benefits directly into recipients’ bank accounts, creating another source of fraud via the debit cards.) California officials also reportedly refused benefits to 3.4 million workers for not sending in required documents — even as the average state unemployment office had 450 pounds of unopened mail and no way to process it.

In short, the system in California was rigged in favor of fraudsters. Crooks who copy-pasted information from stolen identities sailed through the state’s minimal fraud checks, while individuals who made an inadvertent typo on their application suffered from months of delays. Honest taxpayers also had their risk of fraud increased by the state itself, which sent out 38 million pieces of mail with full Social Security numbers, “sometimes to wrong addresses, sometimes visible through envelopes,” according to Cal Matters.

California was one of several states that didn’t cross-reference unemployment applications against prison and jail populations. As a result, the state paid out as much as $1 billion in fraudulent claims for inmates, including those who applied under such names as “Poopy Britches.” (Given the problem of public defecation in the Golden State, this moniker seems particularly inapt.) 

Rewarding Incompetence

Much of the House Oversight report focuses on California’s inability to respond to basic questions from federal authorities about the data relating to its unemployment program. Julie Su, who headed the state’s Labor Department for the first 18 months of the pandemic, comes in for particular criticism.

Su, like other California officials, ignored numerous warnings from government auditors that the state needed to modernize its archaic unemployment systems, to prevent the types of massive fraud that plagued the state during the pandemic. Now, having come to Washington to serve as acting labor secretary, she refused to answer the committee’s questions about whether she will use her federal authority to waive the loans that California had to take to pay out unemployment benefits during the pandemic, effectively bailing out California for her own incompetence.

Therein lies the real scandal: elected and appointed officials fobbing their own incompetence off on taxpayers. When it comes to California, either federal taxpayers will bail out the state, or California businesses will have to pay higher unemployment tax rates to offset the money paid out to crooks and criminals during Covid. Very few of the criminals, some of whom went so far as to make YouTube videos bragging about their scams (“You gotta sell cocaine — I just file a claim”), will get held to account.

Gov. Gavin Newsom, D-French Laundry, knows full well about the pandemic meltdown in the unemployment system that occurred on his watch. When Julie Su still worked in California, one of Newsom’s assistants reportedly emailed her noting that Newsom’s own Social Security number had been used to make a fraudulent claim for unemployment.

But Newsom had a cabinet secretary, not to mention myriad other officials, at his beck and call to solve the problem when identity thieves targeted him. Millions of other Californians trapped in a bureaucratic nightmare of Newsom’s making, however, had no such special privileges. For this reason, some may argue that the true form of accountability (not to mention poetic justice) would come when Newsom faces unemployment himself.

Chris Jacobs is founder and CEO of Juniper Research Group, a policy consulting firm based in Washington, and author of the book “The Case Against Single Payer.” He appeared in the 1995 “Jeopardy!” Teen Tournament and is on Twitter: @chrisjacobsHC.