Report 2020-628.2 Recommendation 8 Responses

Report 2020-628.2: Employment Development Department: Significant Weaknesses in EDD's Approach to Fraud Prevention Have Led to Billions of Dollars in Improper Benefit Payments (Release Date: January 2021)

Recommendation #8 To: Employment Development Department

To ensure that it maintains a robust set of safeguards against fraud, EDD should, by March 2021, designate a unit as responsible for coordinating all UI fraud prevention and detection. EDD should assign that unit sufficient authority to carry out its responsibilities and align the unit's duties with the GAO's framework for fraud prevention.

The Employment Development Department has staffed the Unemployment Insurance Support Division's (UISD) Fraud Prevention and Detection Group. For the Staff Services Manager (SSM) I position in the Fraud Prevention and Detection Unit One, the candidate accepted the job offer on November 24, 2021 and started on December 6, 2021. This unit has a vacant position due to a staff who left recently for a promotion. The candidate accepted the job offer for the SSM I in the Fraud Prevention and Detection Unit Two position on November 24, 2021, with a tentative start date of December 13, 2021, pending the required background investigation. The UISD will conclude job interviews for the Fraud Prevention and Detection Group SSM II position on December 9, 2021. This position will replace the current Acting SSM II. Please see the UISD Organizational Chart.

California State Auditor's Assessment of Status: Fully Implemented

EDD provided us with documentation that shows it has designated a unit responsible for coordinating fraud prevention and detection. It also provided us with the unit's charter, which grants the unit authority to carry out its fraud prevention activities and establishes the goal to align the UI prevention policy and organizational structure with the GAO's framework for fraud prevention. EDD provided us with an organizational chart that shows it has filled key positions in the unit.

The Employment Development Department (EDD) has completed an organizational augmentation of the Unemployment Insurance Support Division. The augmentation included renaming the preexisting Integrity and Legislation unit to the Fraud Prevention and Detection Group and added a second unit to create a group. Positions have been advertised and recruitment efforts are in place. In addition, the Unemployment Insurance (UI) Branch is considering redirecting knowledgeable internal UI staff to these critical positions.

EDD's Fraud Workgroup continues to assess fraud prevention efforts throughout EDD's program areas. The UI Fraud Prevention and Detection Group will continue to coordinate UI fraud prevention and detection activities. This group will be aligned to the U.S. Government Accountability Office's four-part fraud risk management framework to mitigate fraud perpetrated against government agencies.

The Fraud and Prevention Detection Units have been granted the authority to define fraud policies, determine risk, examine and periodically review fraud policies, act quickly when fraudulent activities are reported, and use data-driven reporting to identify opportunities to improve the efficiency and effectiveness of the UI fraud program. The units' functionality capability architecture will take a phased approach to ensure incremental value gains and move toward data-driven outcomes.

California State Auditor's Assessment of Status: Partially Implemented

EDD provided us with documentation that shows it has designated a unit responsible for coordinating fraud prevention and detection. It also provided us with the unit's charter, which grants the unit authority to carry out its fraud prevention activities and establishes the goal to align the UI prevention policy and organizational structure with the GAO's framework for fraud prevention. As EDD indicates, it is working to fill the positions in this unit. At the next 90-day response, EDD should provide us with an update on progress in filling these positions.

The EDD has completed an organizational augmentation of the Unemployment Insurance Support Division. The augmentation included renaming the Integrity and Legislation unit to the Fraud Prevention & Detection Group and added a second unit. The new unit will add one Staff Services Manager I and five Staff Services Analyst/Associate Government Program Analyst. EDD's Fraud Workgroup continues to assess fraud prevention efforts throughout EDD's program areas. The newly designated "UI Fraud Prevention and Detection" group is responsible for coordinating all UI fraud prevention and detection activities. This group will be aligned to the U.S. Government Accountability Office's four-part fraud risk management framework to mitigate fraud perpetrated against government agencies and will be more agile.

The group will be granted the authority to define fraud policies, determine risk, examine and periodically review fraud policies, act quickly when fraudulent activities are reported, and use data-driven reporting to identify opportunities to improve the efficiency and effectiveness of the UI fraud program. The group will establish the policy and organizational structure, operationalize and refine core capabilities of business rules and performance reporting, and build a foundation for advanced analytics that will employ agile methods and feedback loops to refine capabilities. The unit will have sufficient authority, be the central repository for knowledge about the agency's fraud prevention activities, and be the central coordinator of those activities, including engaging with internal and external stakeholders in collaboration with vendor fraud experts, and creating a schedule and roadmap to support this new group. (see attachment)

California State Auditor's Assessment of Status: Partially Implemented

EDD provided us with documentation that shows it has designated a unit responsible for coordinating fraud prevention and detection. It also provided us with the unit's charter, which grants the unit authority to carry out its fraud prevention activities and establishes the goal to align the UI prevention policy and organizational structure with the GAO's framework for fraud prevention. However, EDD has several vacancies for staff in this unit leaving us with concerns regarding the unit's ability to operate as intended. At the next 90-day response, EDD should provide us with an update on progress in filling these positions.

EDD's Fraud Workgroup continues to assess fraud prevention efforts throughout EDD's program areas. EDD has designated a "UI Fraud Prevention and Detection" group that is responsible for coordinating all UI fraud prevention and detection activities. This group is being aligned to the U.S. Government Accountability Office's four-part fraud risk management framework to mitigate fraud perpetrated against government agencies and will be more agile and be granted the authority to define fraud policies, determine risk, examine and periodically review fraud policies, act quickly when fraudulent activity is reported, and use data-driven reporting to identify opportunities to improve the efficiency and effectiveness of the UI fraud program. The group's functionality capability architecture will take a phased approach to ensure incremental value gains and move toward data-driven outcomes. The first phase will establish the policy and organizational structure; second phase will operationalize and refine core capabilities of business rules and performance reporting; third phase will build a foundation for advanced analytics that will employ agile methods and feedback loops to refine capabilities. The unit will have sufficient authority, be the central repository for knowledge about the agency's fraud prevention activities, and be the central coordinator of those activities, including engaging with internal and external stakeholders, such as the Investigations Division. EDD, in collaboration with vendor fraud experts, is creating a schedule and roadmap to support this new group's vision and mission and is in the process of hiring additional agents to support this group.

California State Auditor's Assessment of Status: Pending

EDD provided us with documentation that shows it has initiated the process to designate a unit responsible for coordinating fraud prevention and detection. However, this effort is still in the planning and approval stages and it has not yet finalized the unit and its responsibilities. We look forward to EDD's next 90-day update on its progress toward fully implementing this recommendation.

All Recommendations in 2020-628.2

Agency responses received are posted verbatim.