Red Ink, Red Herring?
DOGE and Pandemic Unemployment fraud
When the caffeinated crew at the Department of Government Efficiency (DOGE) recently released that it had found $400 million in pandemic unemployment fraud something seemed a bit off.
It was orders of magnitude too low and focused on a rather odd subset of fraud cases – improper birthdates.
The Government Accountability Office had already estimated that the total amount of pandemic unemployment fraud was well above $100 billion nationally, with California already shown to have accounted for half that figure.
That’s a lot more than $400 million.
What DOGE said it found were thousands of unemployment claims with absurd birthdates, from one-year-olds to 105-year-olds to people who said they were born in 2154.
It now appears that either DOGE misinterpreted certain data, failed to follow up properly, or – if one is of a cynical mindset – was purposefully given data that could immediately be disproved, thereby embarrassing the entire government-wide cost-cutting effort.
At issue is a memo written in the fall of 2023, stating that certain fraudulent accounts were intentionally modified by the Department of Labor (DOL) to have impossible birthdates so as protect potential identity theft victims.
Really.
In response to a damning report by its own Inspector General, the DOL “explained” the process thusly:
Many of the claims identified in this draft alert memorandum were not payments to individuals over 100 years of age, but rather “pseudo records” of previously identified fraudulent claims, where the date of birth was changed significantly to help the state identify these records and protect innocent victims from having future claims denied.
The memo continued, one supposes as an attempt to justify the process:
In alignment with the Department’s guidance, states often transfer the fraudulent claims information to a “pseudo record” to prevent automated systems from flagging future legitimate claims by the claimant. According to the state, approximately 90 percent of the records that the OIG reviewed were “pseudo records.” To make these known fraudulent “pseudo records” easier to identify, the state intentionally used significantly older dates of birth. These “pseudo records” were created to protect the rights of victims on claims that had already been determined to be fraudulent—they were not claims paid to individuals who are over 100 years old.
In other words, according to the DOL that $400 million or so in fraud DOGE referred to was actually fraud that was stopped.
I think.
Note – I’ve left the comments open to everyone for this piece to allow accountants and bureaucrats to try to explain the idea of creating fake accounts – off the books, as it were – as a way to combat fraud. Please add your thoughts below.
I’ve become rather adept at translating bureaucrat into English, but this entire concept has me rather baffled. It appears that the feds spent massive amounts of time and effort individually changing birthdates to create fake accounts but failed to spend enough time to actually prevent the fraud from occurring in the first place.
The term bass ackwards comes to mind.
The idea that the memo was kept in “the back-pocket” by certain bureaucrats who are not at all on board with the new administration as a way to humiliate DOGE becomes even more likely, a red herring used to deflect attention from the actual problem of pandemic unemployment benefit grift if at all possible.
That particular memo made its way somehow to many members of the press a couple of days ago. For example, the Associated Press issued a piece entitled “DOGE trumpets unemployment fraud that the government already found years ago” just yesterday, which included the following quote:
“They’re trying to spin this narrative of, ‘Oh, government is inefficient and government is stupid and they’re catching these things that the government didn’t catch,’” says Michele Evermore, who worked on unemployment issues at the U.S. Department of Labor during the administration of former President Joe Biden. “They’re finding fraud that was marked as fraud and saying they found out it was fraud.”
That statement – in the reporting business – is called “a quote looking for a story.”
Keep up those standards. AP.
Beyond this latest Mobius twist, pandemic unemployment fraud is the theft that keeps on thieving.
During the pandemic, unemployment agencies were put under great stress and most had to turn to a federal back-stop plan (funded by the fed portion of the unemployment insurance tax everyone pays – it’s 0.6% of – and only of – the first $7,000 a person earns, hence it being about $42 bucks a head each year) and borrow to make sure they could meet the government created (lockdowns etc.) demand.
Once the pandemic ended, it turned out that the various states that had had to borrow from the fund had extra “pandemic” money floating around (very separate and very depressing story in and of itself) and chose to use at least some of that to pay off that debt entirely.
But two states (and the Virgin Islands) didn’t pay it off – for example, California had at that time a $79 billion budget surplus and an unemployment debt of about $20 billion.
Gov. Gavin Newsom and the state legislature decided to put aside about $3 billion to repay the debt and spent to rest of the surplus on a dizzying array of absurd progressive projects.
By not paying off the debt an automatic increase in federal unemployment taxes kicked in. Essentially, the feds will tax already beleaguered business owners in California and New York and the VI extra that each year until the debt is paid.
That may not seem like a lot, but imagine you own a 12-employee restaurant – that’s $5,000 a year that will not be available to grow, buy extra stuff, maybe add a weekend busboy, etc.. So it matters.
Right now, California businesses are paying seven times the usual federal unemployment rate, a rate that will soon increase to about $420 per employee per year and remain in place until the debt is paid. Here’s a chart from a couple years ago - not exactly accurate timing wise but it shows the set increase:
Exactly what that final date will be is unclear – in theory it was supposed to be by about 2030 (the differences in the state fiscal, federal fiscal, and calendar years make that calculation a bit murky) but that target date is no longer even remotely possible because the state’s debt has actually increased since the end of the pandemic.
As of today, California owes $21,861,947,564.04 in principal and $335,510,957.48 in this year’s interest. By law, the state must cover the interest each year but NOT the principal – it’s like paying your loan shark the “vig” to make sure you get to keep your thumbs. In fact, the state keeps borrowing every month from the same fund to meet its current unemployment obligations – California is tied for having the nation’s highest unemployment rate right now at 5.4%, hence the increased borrowing.
In other words, imagine a credit card without a limit or payment schedule that you can “pay down” when you feel like it with extra money from other people and still keep getting credit line increases whatever you want.
Or – considering the intentional decision to dump the fraud debt directly on the state’s business community - taxing Peter to pay Paul and then getting Paul to give you the money back to pay Patrick because you couldn’t pay Pam in the first place.
New York’s current debt is $6,420,728,473.11 in principal and another $101,134,265.48 in interest (the VI has about $55 million in debt total.)
That means California accounts for 77% of the outstanding debt owed to the federal unemployment system.
How did California become the poster child for benefit fraud? Here are a few hints:
A customer service philosophy of having no customer service, antiquated steam-powered tech, a workforce that is considered a joke even by other Sacramento bureaucrats, dismal politically-driven leadership, and no need to actually be better - to this day it is not clear if anyone was actually fired for the wave of fraud – California was prime for pandemic pilfering.
And pilfer people did. From rappers to prisoners to global cybergangs, it now appears that at least a very large percentage of that $55 billion “overpayment” was due to fraud.
Put it this way: California has 12% of the nation’s people. It got 21% of the federal unemployment money.
In addition, California sent out nine million benefit cards. At the height of the pandemic, there were only 3 million unemployed people in the state. In other words, one office was tracking unemployment figures while, down the hall, another department was sending out three times that number of cards. Instead of investing the labor in changing birthdates by hand, maybe take a minute to pick up the phone to the office down the hall or have a chat in the break room about how 9 is bigger than 3.
Those cards carried at least $105 billion dollars already pre-loaded on them, so two-thirds would have carried about $70 billion, a number that is closer to the $55 billion “overpayment” (plus the $7 billion or so in state money lost.)
The other Shaq-size shoe to drop is the issue called “finality.”
For example, California – while Julie Su was still in charge of the federal Department of Labor (she was in charge of California’s Department of Labor and unemployment agency during the pandemic) – received essentially a waiver for $32 billion in other debt/fraudulent payment problems.
That debt is separate from the $21 billion mentioned above, by the way.
Regarding finality, the current administration would not confirm if any other state had been granted such a deal and said the entire unemployment fraud issue remains under investigation:
“States continue to work through compliance findings for claims filed in 2020 and 2021 related to the now-expired temporary pandemic unemployment programs. Some of these findings require states to take retroactive action, including, in some cases, to reconsider prior determinations of eligibility or ineligibility.
As described in the Department’s guidance (see Unemployment Insurance Program Letter No. 05-24, available at https://www.dol.gov/agencies/eta/advisories/uipl-05-24), there may be certain findings where a state is prohibited from taking the retroactive action of redetermining eligibility because of a constraint in state law related to the finality of a previously issued determination. If state law prohibits an agency from taking the action of reconsidering a prior determination after a certain period from when the original determination was made, the state is instructed to provide an explanation of their state law to the appropriate ETA Regional Office to close the outstanding compliance finding. We note that this application of state finality laws does not apply to active appeals of prior determinations.
This remains an ongoing and dynamic situation. The Department is gathering an inventory of all states who have invoked their finality laws related to compliance findings to date and looks forward to sharing soon.”
In other words, um, maybe-ish but we’ll keep poking around…I think.
California’s request for finality was four pages long and did not include any details as to any particular fraud or account.
But that was good enough for Su who essentially said that if California pinky-swore it tried and tried and tried to find fraud money but couldn’t find the rest they would be forgiven that part (it’s a very odd legal issue, actually – the state allowed massive fraud to happen but technically it was the fraudster an not the state that stole the money so that $32 billion had been kept “off-book” anyway – California is morally responsible, ethically responsible yes, but legally?...that seems to be the justification for the concept of finality.)
Interestingly, a spokesman for California’s unemployment agency – hysterically named the Employment Development Department or EDD – said the state “doesn’t process claims this way when administering the UI program, and we have rigorous identity verification systems that have blocked hundreds of billions of dollars in fraud attempts over the years” when asked about the birthdate issue. Meaning none of DOGE’s $400 million could have come from California, even though DOGE said (almost certainly accurately) that California and New York accounted for more than half of all the fraud nationally.
Interestingly, the EDD spokesman also claimed the state has “recovered more than $6 billion in stolen funds,” a number that has been bandied about Sacramento for some time and is almost certainly true (an outside counsel headed up the effort, not an EDD cubiciloid.)
Interestingly, the EDD has always been leery of confirming the recovered money, most likely to avoid the simple question of “if that’s what you got back how many more billion did you not?!?”
At least a good $40 billion – most of which went overseas and large amounts went to gangs and even the North Korean nuclear missile program is the answer to that question, by the way.
While this specific effort may have gone sideways/been a set-up, DOGE must continue its work not only throughout the government but continue to deeply delve into the rat’s nest of pandemic unemployment fraud.
Just be aware of the red herrings.