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Employment Development Department
Significant Weaknesses in EDD’s Approach to Fraud Prevention Have Led to
Billions of Dollars in Improper Benefit Payments

Report Number: 2020-628.2

Appendix A

Scope and Methodology

State law authorizes the California State Auditor (State Auditor) to establish a program to audit and issue reports with recommendations to improve any state agency or statewide issue that we identify as being at high risk for the potential of waste, fraud, abuse, and mismanagement or that has major challenges associated with its economy, efficiency, or effectiveness. In August 2020, we issued a report that designated the State’s management of federal COVID‑19 funds as a high‑risk statewide issue in California. Because EDD administers the UI program and specifically the CARES Act federal funding related to COVID‑19 unemployment, we performed an audit of EDD’s oversight of these funds. The objective of this audit was to evaluate EDD’s recent fraud prevention efforts related to its UI program. In conducting this audit, we interviewed staff at EDD, reviewed public and confidential documents related to EDD’s efforts to detect benefit and impostor fraud, and collected documentation from EDD pertaining to the steps it has taken to address increased fraud during the pandemic, including fraud issues raised by the public. To assess how EDD communicates reports or allegations of fraud internally, we selected five fraud reports from EDD’s fraud reporting portal and evaluated documentation about the resolution of these reports. We also reviewed a selection of claims in EDD’s internal database to assess whether the fraud detection tools EDD described to us had effectively detected fraud and stopped payments to those claims. In addition, we reviewed payment information to assess the amount of benefits paid on potentially fraudulent claims as a result of actions taken by EDD. Last, we reviewed guidance and best practices published by the Department of Labor and GAO to inform efforts that EDD should take in developing a comprehensive approach to fraud prevention and detection.

Assessment of Data Reliability

The GAO, whose standards we are obligated to follow, requires us to assess the sufficiency and appropriateness of computer‑processed information that we use to support our findings, conclusions, or recommendations. In performing this audit, we relied on electronic data files that we obtained from EDD’s UI and IT branches. To evaluate the data, we reviewed existing information about the data, interviewed staff knowledgeable about the data, and assessed documentation to validate general details about the data. Because we performed only limited testing of the data, we found them to be of undetermined reliability. Although we recognize that this determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our audit findings, conclusions, and recommendations.

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