California jobless fraud likely tops $2 billion, bank says

State officials had previously asked Bank of America to freeze 345,000 accounts because of suspected fraud. In a letter to state lawmakers on Monday, Bank of America said its assessment of those accounts revealed only "a very small percentage" was legitimate, estimating fraudulent activity "on the order of approximately $2 billion."

The bank said it has identified at least 295,000 other suspicious accounts it says California should investigate, said Brian Putler, Bank of America's director of California government relations. Putler said those accounts were flagged for a variety of reasons, including instances where hundreds of debit cards were sent to a single mailing address or multiple cards were associated with a common phone number or email address.

He said at least 76,000 of those cards were sent to people in states that do not border California.

"Although in our experience red flags such as these and others are highly correlated with the risk of fraudulent activity, the application of these filters will inevitably impact some legitimate claimants," Putler wrote. "(California) and Bank of America therefore must work to investigate and resolve matters for recipients who are inadvertently impacted by the measures necessary to weed out fraudulent activity."

The $2 billion estimate is less than 2% of the $110 billion California has paid in unemployment benefits since March. But Bank of America said the scale of fraud in California was unique when compared with other states, having reached "unprecedented levels."

The Los Angeles Times reports California's Employment Development Department could not confirm Bank of America's estimate because it is "verifying identities on claims the department has separately identified as non-fraudulent," said Crystal Page, spokeswoman for the California Labor and Workforce Development Agency, which oversees the department.

The department has struggled to process more than 16 million claims since the pandemic began — an unprecedented volume that has overwhelmed the agency. The department has been under immense pressure to work through a backlog of pending claims that at one time totaled more than 1.6 million people.

But its efforts to quickly process claims, coupled with more permissive federal programs, makes the system more vulnerable to fraud. Last month, a group of local and federal prosecutors revealed the state had approved benefits for more than 30,000 prison inmates, including 133 on death row.

Last week,  the state confirmed those fraudulent benefits to prisoners total at least $400 million. It's unclear if that money is part of the estimated $2 billion in fraud that Bank of America has identified.

Bank of America was responding to a letter from Assemblyman Phil Ting, a Democrat from San Francisco, who sent the company's CEO a letter in September that was signed by 58 other lawmakers. Ting was frustrated after receiving complaints from his constituents, who say Bank of America had frozen their legitimate benefits and were not responding to their requests to release the money.

"There was a complete lack of responsibility taken by Bank of America," Ting said. "We didn't see what actions they were taking to address the legitimate issues that my constituents are bringing forward."

Putler wrote in the letter that it is the state's job to verify the veracity of claims, adding the bank is working with the Employment Development Department to validate legitimate recipients. He said it typically takes two to three days to reactivate an account and, since Sept. 1, the bank has unfrozen 54,000 accounts at the state's direction.

State lawmakers, who returned to Sacramento on Monday to start a new legislative session, introduced multiple bills to address the problems at the agency. A proposal from Democratic Assemblywoman Lorena Gonzalez would require California to offer an option of receiving unemployment benefits via direct deposit instead of a debit card to reduce the potential for fraud.

Republican Sen. Shannon Grove says she will author a bill requiring the state to cross-check unemployment claims against state prison records.

"(Gov. Gavin) Newsom's administration was told months ago to take action to prevent this kind of fraud and their inability to do anything has now placed a potential $2 billion screw-up on the backs of our struggling businesses," Grove said.

In a letter to local prosecutors last week, Newsom said he was "deeply alarmed" by the problem and has directed the state agency to take steps to fix it. In September, the Employment Development Department stopped accepting new claims for two weeks so it could install new software that can more easily confirm people's identity. The agency has said the new software is better at rooting out fraud.