President Donald Trump’s Department of Labor (DOL) has deployed a specialized “strike team” to California to investigate what federal officials describe as systemic fraud and financial mismanagement within the state’s unemployment insurance (UI) program.
The move comes after California borrowed $21 billion in federal taxpayer funds to sustain its unemployment system.
It comes amid growing concerns over improper payments, eligibility failures, and potential theft of taxpayer dollars.
Labor Secretary Lori Chavez-DeRemer announced the action alongside DOL Inspector General Anthony D’Esposito.
The strike team will include specialists from the department’s national and regional offices.
Chavez-DeRemer said:
“Financial issues and potential fraud in California’s unemployment insurance program will be fully examined.
“The previous administration turned a blind eye toward failing Labor programs. This ends now.”
$21 Billion Borrowed After Trust Fund Collapse
California received approximately $290 billion in pandemic relief funds.
Despite that influx, the state’s unemployment insurance trust fund was depleted, forcing officials to borrow $21 billion in federal funds to continue benefit payments.
The Department of Labor cited an 83-page report from the California State Auditor identifying deficiencies within the Employment Development Department (EDD), which administers the UI program.
In a letter to the EDD, Chavez-DeRemer highlighted concerns, including:
- Increasing improper payment rates
- Insufficient timeliness in processing claims
- Data accuracy and quality deficiencies
- Questions about eligibility determinations and oversight of taxpayer funds
As a result of the borrowing, California employers face higher federal unemployment taxes to repay the debt.
Nearly $1 Billion in Pandemic Funds Still at Risk
Inspector General D’Esposito stated that his office has identified nearly $1 billion in taxpayer funds at risk nationwide due to pandemic-era unemployment fraud.
An analysis of 6.5 million prepaid debit cards used to distribute pandemic unemployment benefits revealed approximately $720 million still loaded onto those cards and unrecovered.
D’Esposito said:
“My office has warned that, absent swift action, U.S. taxpayers risk losing nearly a billion dollars in fraudulently obtained benefits.”
He added:
“This is taxpayer money, and it demands immediate attention.”
Criminal Convictions Linked to Fraud
At least one California unemployment insurance employee was convicted of filing nearly $860,000 in fraudulent claims.
Additional civilians have also been convicted of exploiting the system, though full details of those cases were not provided in the report.
The involvement of a program employee in fraudulent activity has intensified scrutiny of oversight failures within the state’s administration of benefits.
Federal Oversight Steps In
Fox News reported that the DOL’s strike team deployment signals heightened federal scrutiny of California’s handling of pandemic-era unemployment benefits.
Chavez-DeRemer stated:
“Immediately, we are engaging a specialized strike team to uncover any potential fraud or abuse and quickly moving to protect the American worker and taxpayers.
“I look forward to restoring the California UI program’s integrity and financial health.”
D’Esposito connected fraud recovery efforts to broader economic impacts, stating:
“When we root out fraud, we protect taxpayers and lower the real cost of living.”
Broader Implications
The California Employment Development Department faced widespread criticism during the pandemic for delays, frozen accounts, and processing backlogs affecting legitimate claimants, even as fraudulent claims were approved.
Fox News reported that it reached out to California’s Democrat Gov. Gavin Newsom for comment but did not receive a response.
The strike team investigation will examine eligibility determinations, payment controls, and the extent of improper or fraudulent distributions.
Federal officials say the objective is to restore integrity and financial stability to the state’s unemployment insurance system.
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