The state’s unemployment agency has signed $236 million in private contracts as jobless workers await benefits. EDD says it needs the outside help.
KEEP TABS ON THE LATEST CALIFORNIA POLICY AND POLITICS NEWS
Lea este artículo en español.
Stacy Lira was nearly a year into her unofficial job as an unemployment detective when things went from bad to worse.
The 46-year-old mother of three, who lost her job managing an Inland Empire convenience store last spring, was rushed to the hospital in mid-February. She was struggling to breathe after testing positive for COVID-19. But Lira was adamant that she couldn’t leave home without one thing: She needed her carefully filed unemployment records so she could keep calling from the hospital about the nearly $20,000 she says the state owes her family.
“If you miss one day,” Lira explained, “that could have been the day that it all worked out.”
As the ranks of desperate California workers like Lira swell, the state’s Employment Development Department insists that it’s getting things under control. It has help from an ever-expanding roster of private contractors that are staffing up call centers, modernizing tech systems and rooting out fraud, officials stress on social media and at political hearings in Sacramento — an effort that, all told, has so far cost the state at least $236 million during the pandemic, the agency told CalMatters.
The contracts are part of a nationwide unemployment gold rush, as tech companies and consultants pitch overwhelmed public agencies new solutions for fraud and outdated claims systems. One Bloomberg Law report last summer tallied $173.8 million in pandemic-era unemployment contracts for consulting giants Accenture, Deloitte and EY alone.
But in California, it’s not easy to track who’s getting paid for what, because there is no easily accessible public list of all state unemployment contracts. The state and its contractors stress that both the demand for benefits and volume of fraud are unprecedented. Still, ongoing confusion adds to what state lawmakers have called the Employment Development Department’s “very poor history”of paying outside entities to patch holes in the safety net as workers try to survive in financial limbo.
The $236 million in contracts that the department has signed since last March pay for outside companies to help track jobless claims, verify worker identities, analyze records for potential fraud, assist with customer service and more. CalMatters requested and analyzed detailed contract records for five vendors working on key customer service and anti-fraud projects — Deloitte, Maximus, Thomson Reuters, ID.me vendor V3Gate and Salesforce vendor Outreach Solutions as a Service — which total at least $103.8 million and have ballooned in cost over time, but which the state says were crucial in a crisis.
“The volume of work was staggering,” Employment Development Department spokesperson Aubrey Henry said in a statement. Calls from the public jumped 3,400% to 48 million in April 2020 as the state scrambled to process more than 20 million claims, he said, up from 3.8 million claims at the peak of the Great Recession.
“Vendors, mass hiring, redirecting workers from within the department, and borrowing workers from other departments, and continued staffing up, were all part of an effort to respond to the historic demand for benefits,” Henry said.
The majority of these new contracts went to consulting giant Deloitte, but several other vendors have also signed major deals in recent months, according to the contracts provided to CalMatters:
- At least $69 million went to Deloitte in no-bid emergency contracts for call center and IT services.
- Government contracting giant Maximus signed on to provide up to $11.5 million worth of phone staffing services.
- The state paid $9.5 million to IT firm V3Gate to obtain ID.me identity verification services.
- Outreach Solutions As A Service, a Sacramento consultancy, sold the state $9.4 million worth of services and software, mostly from Salesforce.
- Thomson Reuters signed $4.2 million in contracts for analytics related to fraud.
The state has yet to disclose a price tag for another recently announced deal with Accenture, which the Employment Development Department said it is still negotiating.
While recent state audits recommend more tech vendors to deal with remaining challenges, some government watchdogs question what the Employment Development Department and agencies like it are getting for their money with the pricey contracts. In recent years, the trend toward outsourcing increasingly large chunks of the social safety net has led to a trail of lawsuits and investigations in other states, including scrutiny of Deloitte and Maximus.
California lawmakers, meanwhile, have called Deloitte’s call centers “a mess” and blamed the company for failing to answer millions of calls from jobless workers, CapRadio has reported.
In one notable exception to the unemployment spending spree, the department has kept making money during the COVID recession on a high-profile contract with Bank of America. Under that deal first detailed by CalMatters, the bank provides prepaid unemployment debit cards to workers — many of whom have reported issues with fraud and frozen accounts — and the state and the bank split millions in revenue from transaction fees charged to merchants when the cards are used to buy something.
Since last fall, however, the Employment Development Department has refused to say how much Bank of America has made on the deal. It’s one example of broader anxiety about a lack of transparency.
“We understand other vendors are involved with EDD, but there is little visibility into all projects and contracts,” a bipartisan group of five dozen state lawmakers wrote to Gov. Gavin Newsom in August. “The public is owed a clear explanation.”
Whether the Employment Development Department and its widening array of contractors get it right this time will have huge consequences for workers and businesses who rely on the state’s job safety net. California’s $21 billion and counting in unemployment debt, with few prospects for major reform, is one factor that could undermine its economic recovery.
But the biggest question for state unemployment programs forged in the Great Depression, strained by the Great Recession and nearly broken by a global pandemic is who they are being built to serve. As taxpayers again pick up the tab to keep the program running, some jobless workers worry that they’re being victimized by panic about fraud while still not getting the money they’re owed.
Keeping up with a claim frenzy
Stacy Lira has always been the family bookkeeper, so it made sense that she would handle the unemployment paperwork when she, her husband and her daughter all found themselves out of work last year.
But she didn’t realize that would spiral into an all-day, every-day routine. Each morning, Lira wakes up in the living room of the family’s two-bedroom apartment in Victorville, pulls out the neat plastic filing bins she keeps stowed under the bed, and gets to work.
First, there were the months-long delays for her and her daughters’ initial payments. Then thousands of dollars in suspected fraudulent charges on her Bank of America unemployment debit card. Her husband still hasn’t seen a penny, Lira said, after filing for benefits last spring. All their tax forms are a mess.
“I am constantly trying to figure something out for those three claims,” Lira said. “If I’m lucky, I’m done around 6 or 7 at night.”
On top of all the long hours, extended stretches of little or no income have taken a financial and emotional toll. It’s hard for Lira to sleep at night. Every time she hears a truck outside, she worries the power company has finally come to turn off the electricity. With no money to pay the car registration, the family took a Lyft to the hospital when her son’s baby was born in January.
And then came the virus. Lira’s memory is still a blur, but her lungs seized up, and she was frantic that no one would be able to figure out the unemployment money or keep food in the cabinets if she was gone. Finally, after a week in the hospital — she said she started calling the Employment Development Department again around day three — Lira has mostly recovered.
“That day in there at the hospital,” she said, “I almost wanted COVID to take over.”
Behind the scenes at the unemployment department, a very different scramble has been playing out in response to millions of calls each month from claimants like Lira. In April, Deloitte signed an $11 million emergency call center contract; the department said that “staff cannot keep up.” By early 2021, the contract had grown to $55 million, plus another $14 million for “urgent and temporary” IT services from Deloitte.
Maximus is providing another 300 call center staffers for tax questions under an $11.5 million contract, according to the department.
In addition, a new crop of tech vendors has been brought in to augment the state’s old computer systems and beef up cybersecurity.
In April 2020, the unemployment agency started buying Salesforce software from Outreach Solutions As A Service to help with the bottleneck of claims. The cost started at $2.7 million and more than tripled by November.
ID.me was hired in September, via an IT firm called V3Gate, for its “robust and established identity verification” services in a $3.5 million contract, which nearly tripled by January.
Thomson Reuters, which acquired an analytics tool called Pondera previously used by the state, was hired in November for $771,000 worth of identification and fraud analytics work. That contract grew more than five-fold by January.
To Jon Coss of Thomson Reuters, the spike in contract spending was unavoidable, due to a combustible mix of historic under-funding of unemployment programs, the federal easing of verification requirements on emergency jobless aid during the pandemic, and an avalanche of increasingly sophisticated fraud.
“It was an impossible situation,” Coss said. “States have been passed, and they’re outgunned by these fraud networks now. I just don’t think it’s possible to do it purely with staffing.”
Coss, vice president of risk, fraud and compliance in Thomson Reuters’ government division, also argues that it’s better for the state long-term to contract out technical work during emergencies, rather than hiring new full-time workers whose positions may not be necessary when there are fewer jobless claims.
While some contracts went through a competitive bidding process, others did not. Now, as the unemployment debacle fuels the campaign to recall Gov. Gavin Newsom, it’s colliding with bigger questions about how the state has doled out money during the COVID-19 crisis.
California has also signed hundreds of millions of dollars worth of public health contracts with UnitedHealth and other large Newsom political donors, some through no-bid or expedited emergency processes. “There is no time to do competitive bidding given the urgent need,” Krista Canellakis, deputy secretary for general services at the state Government Operations Agency, recently told CapRadio.
Technical problems persist
Underlying the race to answer clogged phone lines and sort out delayed payments is the Employment Development Department’s long-problematic tech backbone.
The computer system that California uses to track unemployment claims isn’t just old. It’s a relic of the post-World War II era, when COBOL was the world’s default programming language.
But instead, state workers say they have been jumping between the old system and newer software from Deloitte and, most recently, Salesforce. The Deloitte claim management system, known as CUBS, has been around since after the Great Recession, when the Employment Development Department started paying the company what would balloon to nearly $150 million for various online tools and services before the pandemic. Spiraling budgets aside, the problem is that CUBS developed its own reputation for glitches, earning a new moniker among some department personnel: “Completely Useless Bull S***.”
As far back as 2013, when Deloitte was blamed for cutting off payments to thousands of workers, state lawmakers questioned why the department was still working with the company. The scrutiny returned at a July 2020 oversight hearing, when Assemblymember David Chiu, a Democrat from San Francisco, said that Deloitte had “abdicated responsibility” for its role in running state unemployment systems.
“Why do we keep entering into no-bid contracts with someone with a history of cost overruns and problematic IT work?” Chiu asked.
Deloitte, which state records show was awarded two more major contracts during the pandemic totaling at least $69 million, maintains that it’s not to blame for the state’s problems.
“It is important to understand that many of California’s unemployment system functions have not yet been modernized — and they are not part of our contracted scope of services,” Deloitte spokesperson Karen Walsh said in a statement to CalMatters. Widely reported technical problems, Walsh added, “relate to functions that reside in systems Deloitte does not maintain or have not yet been upgraded.”
Still, there are practical reasons that the state may opt for repeat business with a long-term contractor such as Deloitte, said Michael Bernick, special counsel at law firm Duane Morris. A former director of the state jobless agency, he oversaw it through the dot-com bust during his tenure from 1999 to 2004, when talk of modernization was well underway but before Deloitte was hired. The selection process was always complicated, he said, with state technology departments often helping agencies pick vendors.
“Part of the explanation is these guys have the knowledge base built up,” Bernick said. “If you replace them, another firm has to come in.”
The pandemic has changed that calculation. In the face of fraud now estimated at as much as $31 billion, the state says it had no choice but to look to a new crop of tech contractors for help.
Silicon Valley saviors?
Blake Hall didn’t plan to get into the unemployment business. The idea for a one-stop-shop for identity verification — a “PayPal for digital identity” upstart that came to be known as ID.me — came to him around 2010, when he was in Harvard Business School after an Army tour in Iraq. The idea caught on with the federal government, retailers and hospitals.
Fast forward to 2020, when states still struggling to operate basic unemployment websites were suddenly grappling with Nigerian hacker rings. The founder of Virginia-based ID.me found himself on the front lines of a burgeoning anti-unemployment fraud industry. After signing contracts in California and more than a dozen other states, the company has announced plans to hire 1,000 new employees and open two new offices in its current phase of “hyper-growth.”
The Employment Development Department says ID.me has helped stop $60 billion in fraud, but its rollout has at times been turbulent in California. There are entire Internet subcultures dedicated to frustrated unemployment claimants swapping tips on uploading identity documents or navigating hours-long waits for ID.me video calls to verify their identities. Hall says the company is working to improve those times, and that many people don’t realize how extreme the fraud is. There are cyberattacks from Nigeria, China and Russia, “mask attacks” where someone dons a mask to look like the claimant they’re impersonating, and more.
“We have orderlies in the nursing homes who are taking the eldery patients in their care into the bathroom,” Hall said. “There is no criminal that’s not attacking us right now.”
Thomson Reuters uses buzzy technologies such as machine learning to spot fraud trends and suspicious activity in California’s million-claim backlog, which includes many suspected bogus claims. Coss said he sees evidence that the tech onslaught is working — for now. While it appears fraud targeting the Employment Development Department may be waning, other states and social service programs are now getting some of that unwanted attention.
“They’re gonna go to another system in California, or they’re going to go to an unemployment system in another state,” Coss said. “It’s what we call whack-a-mole.”
A more existential question some state workers ask about large tech contractors is whether it really makes sense to use software designed for corporations for unemployment claims. Staffers spend time behind closed doors musing about what it would take to build state-of-the-art public systems to connect data between social service providers and authorities such as the Franchise Tax Board, despite the state’s ugly track record of IT failures. At the federal level, Oregon Democratic Sen. Ron Wyden has proposed a $500 million upgrade of the nation’s unemployment systems.
But those moonshots are a world away from today’s contract-centric approach. Day in and day out, one nagging issue is the sprawling workforce behind each contract, creating a confusing web of customer service contacts with varying degrees of training. Take Bank of America, which contracts out some customer service work for its prepaid unemployment debit card division to a call center company called TTEC.
Camelia Carter, who was driving for Uber and Lyft in Florida before the pandemic hit, said she got hired at TTEC in mid-April and worked from home with limited virtual training. After what she describes as distressing calls from desperate unemployment claimants and mounting frustration about vague timelines to resolve their issues, Carter said she was fired in July for violating company policy.
Four other current and former TTEC customer service workers, who asked not to be identified due to fears about professional repercussions, shared similar concerns about being unable to help callers in dire situations.
“I’ve never seen a bigger clusterf*** in my life,” said Carter, who added that she has reported her concerns to state and federal regulators. “It was an absolute nightmare. We were back-to-back with people in desperation every single day.”
Bank of America has repeatedly insisted that it is investing heavily in customer service to resolve unemployment claims. The company told lawmakers in January that it lost “hundreds of millions of dollars” on fraud and related costs of its contract with the Employment Development Department.
The irony of the repeated technical failures in Silicon Valley’s home state isn’t lost on Mathieu Cabart, an immigrant from France who was working in a Santa Monica restaurant before he lost his job when coronavirus shutdowns hit.
Cabart, 40, has been fighting with Bank of America over $2,980 he says was drained from his unemployment account in mysterious ATM transactions. He’s gone to police and elected representatives for help, so far to no avail. But he’s managed to keep a sense of humor about the unreliable phone systems and glitchy websites in the tech capital of the world.
“We have a saying in France,” Cabart said. “The cobbler always wears the worst shoes.”
more on unemployment
The state went deep into debt to keep jobless benefits flowing during the pandemic. And if it doesn’t fix its $48 billion unemployment problem, that could derail COVID-19 recovery.
After the Great Recession, California signed an exclusive contract with Bank of America to distribute unemployment benefits through prepaid debit cards. A CalMatters investigation reveals that to this day, no one knows how much the bank has made off the deal. Lawmakers are examining the bank’s role in mass account freezes and untold amounts of…