Report I2012-0651 Summary - March 2014

Employment Development Department:

It Failed to Participate in a Federal Program That Would Have Allowed the State to Collect Hundreds of Millions of Dollars

HIGHLIGHTS

Our investigation at the Employment Development Department (EDD) substantiated the following:

  • EDD officials failed to act efficiently to participate in the federal Treasury Offset Program (Offset Program) that would have allowed the State to collect an estimated $516 million in unemployment benefit overpayments.
  • EDD decided to forego participation even though it estimated it would cost $322,800 for modifications, compared to the projected benefit of recovering more than $100 million in the first year.
  • After our investigation began, EDD officials developed a plan for participating in the Offset Program.

RESULTS IN BRIEF

The Employment Development Department (EDD) failed to take advantage of a federal program that would have allowed it to collect an estimated $516 million owed to the State in unemployment benefit overpayments made to claimants. In January 2011 the U.S. Department of the Treasury (U.S. Treasury) adopted regulations implementing federal legislation that expanded the federal Treasury Offset Program (Offset Program). This expansion of the Offset Program gave states the ability to collect money owed by unemployment insurance claimants who have received overpayments by intercepting federal payments the claimants are due to receive. Several states chose to participate in the Offset Program to collect unemployment benefit overpayments from 2011 through 2013 with great success. However, EDD, acting on behalf of California, declined to participate in this aspect of the Offset Program, and instead persisted with its existing collection efforts.

EDD officials concluded that in light of other projects they were working on, EDD did not have sufficient resources to make the information technology (IT) modifications necessary to participate in the program to collect unemployment benefit overpayments. They reached this conclusion even though in 2012 they initially estimated that they could make the modifications at a cost of a little more than $322,800, compared to the projected benefit of recovering more than $100 million during the first year of program participation. By deciding to forego participation in the Offset Program to collect unemployment benefit overpayments, EDD acted inefficiently and therefore lost an opportunity to recoup an estimated $516 million from February 2011 through September 2014, the month in which EDD now projects it will start collecting unemployment benefit overpayments through the Offset Program.















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