Labor Department Deploys Strike Team to California Over Unemployment Insurance Fraud

The U.S. Department of Labor has launched an investigation into California’s troubled unemployment insurance program, sending a specialized “strike team” to address billions in improper payments and alleged fraud within the state system.

The intervention follows an 83-page California State Auditor report that categorized the state’s unemployment insurance (UI) system as high-risk, citing “inadequate fraud prevention and claimant service” in its employment development department (EDD), along with a high rate of overturned eligibility decisions.

“Financial issues and potential fraud in California’s unemployment insurance program will be fully examined. The previous administration turned a blind eye toward failing Labor programs: This ends now,” Labor Secretary Lori Chavez-DeRemer said in a statement announcing the action.

The investigation reveals a troubling financial situation in California, where the state’s UI trust fund has been depleted, forcing officials to borrow $21 billion in federal funds to maintain operations. This borrowing has created a significant burden for California employers, who now face higher UI taxes to repay the federal debt.

Federal officials have expressed particular concern about increasing improper payment rates, insufficient timeliness, data accuracy issues, and questions about participant eligibility and the use of taxpayer funds. The strike team will include specialists from both national and regional Labor Department offices to conduct a comprehensive review.

California received approximately $290 billion in COVID relief funds, which helped the state rapidly implement expanded unemployment benefits during the pandemic. However, this expansion appears to have created vulnerabilities in the system that were exploited by fraudsters.

In one case highlighting the scope of the problem, a California UI steward was convicted of using her position to file nearly $860,000 in fraudulent UI claims. Other civilians were found guilty of creating nonexistent businesses to fraudulently claim unemployment benefits.

The California investigation is part of a broader effort to address nationwide unemployment fraud. Just before the strike team’s deployment, Department of Labor Inspector General Anthony D’Esposito announced that his office had identified nearly $1 billion in taxpayer funds “at risk” nationwide due to COVID-related UI fraud.

“My office has warned that, absent swift action, U.S. taxpayers risk losing nearly a billion dollars in fraudulently obtained benefits,” said D’Esposito, a former NYPD officer and ex-congressman from Long Island. “This is taxpayer money — and it demands immediate attention.”

D’Esposito’s analysis found that approximately $720 million remains loaded on 6.5 million prepaid debit cards that were used to distribute COVID unemployment benefits. He emphasized that fraud is not a victimless crime, noting that every misspent dollar is one that could have helped a family in genuine need.

“When we root out fraud, we protect taxpayers and lower the real cost of living,” he added.

The Labor Department’s intervention in California represents a significant shift in federal oversight of state unemployment programs. Secretary Chavez-DeRemer made clear her intention to restore “the California UI program’s integrity and financial health,” suggesting a more aggressive approach to ensuring accountability in the use of federal unemployment funds.

The problems in California’s system mirror similar issues in other states, including Minnesota, where childcare fraud schemes have led to calls for stricter anti-fraud measures nationwide. These incidents have prompted lawmakers to introduce legislation aimed at forcing scammers to repay taxpayers and implementing stronger safeguards against future abuse.

For California, the federal intervention comes at a challenging time, as state officials continue to work through the aftermath of unprecedented unemployment claims during the pandemic period. The investigation’s findings could potentially reshape how unemployment insurance programs are administered and monitored across the country.