Security & Fraud

California Freezes Jobless Claims As Anti-Fraud Efforts Trigger Massive Backlog

California is putting all new unemployment benefits claims on hold for the next two weeks as it tries to sort out an epic backlog affecting more than 1.6 million people who have lost their jobs amid the coronavirus crisis.

Clumsy and dated efforts to combat fraud have gummed up California’s unemployment assistance program, triggering massive backlogs that have left hundreds of thousands of laid off workers, finds a newly released report by a task force appointed by Gov. Gavin Newsom.

More than 600,000 workers are still awaiting their unemployment checks more than three weeks after getting laid off, while another 1 million Californians have had their benefits suddenly cut off as state workers try flag down potential fraud.

The backlog is the result of Employment Development Department (EDD) reliance on a cumbersome, outdated system, one that attempts to verify the identities of recipients through paper forms sent through the U.S. mail, according to the report.

“The cost of finding that small number of imposters is extremely high, both in terms of the literal cost of staff time and in terms of the negative impact on the system,” the report finds

The report, written by an EDD “strike team” co-chaired by Jennifer Pahlka, founder of Code for America and former U.S. deputy chief technology officer, recommends a new, more modern approach to verifying the identity of those filing for unemployment claims, one that relies on a new, online-system that relies on database info and algorithms.

By contrast, the current backlog is a result of a pre-internet process in which the EDD sends out paper notices to applicant whose identities it wants to check, with minor mistakes often enough to trigger a review.

In order to get cleared, applicants must respond via the postal system or fax with copies of the required documents, and then wait for EDD workers to review each case.

However, with a million applicants flagged, that system has all but broken down, requiring a major revamp and a two-week halt.

While there have been some high-profile cases of scammers fraudulently applying for benefits, it is a relatively small number of claims, estimated at .02 of all applicants, the report noted.

And the current system, which relies on double-checking the identity of hundreds of thousands of applicants, has proven ineffective, swamping the system and making it difficult to function, let alone weed out fraudsters.

“EDD routed 1,383,302 claims through manual processing, primarily to further validate their identity, in the hopes of flagging what appears to be .02% of claimants who can be identified as imposters,” the report notes.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.