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KCRA EDD Investigates

The staggering amount of money paid out in fraud by California’s Employment Development Department, ranging from $11 billion to $30 billion, could easily have been stopped.

That’s because EDD had a fraud detection system in place but stopped using it.

Long before the world had even heard about a virus strain called COVID-19, EDD had signed a contract with a new company called Pondera Solutions. Their system was a fraud detection program.

The Obama administration gave EDD a Department of Labor grant of nearly $2 million in 2013 to install and begin using the system. It was so successful it started getting attention outside EDD.

“I became aware of it in 2016,” El Dorado County District Attorney Vern Pierson said. “I specifically met directly with Pat Henning who was then the director of EDD on behalf of the D.A.’s association.”

Pierson added, “that system was very successful at detecting high probability of fraud in a large number of cases.”

A former EDD employee emailed KCRA 3 Investigates saying the same thing. That former employee, who wishes to remain anonymous, says that the Pondera system detected “an amazing amount of fraud.” They add that Pondera’s program compared claims to EDD with public databases and then fine-tuned itself to better detect fraud.

By 2016, Pierson was asking to see how the system worked so DAs across California could use it to detect things like worker’s compensation and insurance fraud.

“Unfortunately,” says Pierson, “rather than providing access to it what ended up happening is that the system was turned off in 2016.”

That’s right. EDD shut off Pondera’s system in 2016.

Both that former employee and Pierson say that when the Department of Labor grant ran out, someone at EDD decided that the bill to continue using Pondera — roughly $2 million a year — was too high.

Multiple sources tell KCRA 3 Investigates the system would have caught a large portion, if not the majority, of the fraud that hit EDD in 2020.

“There’s no doubt in my mind that a significant percentage of between $11 and $31 billion would have been saved,” says Pierson. “There still would have been some fraud but nothing on the magnitude of what we saw here in California.”

Pierson has been pushing EDD to return the Pondera system to service since November. That’s when he and DAs from up and down California held a press conference announcing that they found EDD fraud in every jail and prison in the state. His anger goes beyond the billions paid out in fraud. Investigators and DAs across the country are now saddled with investigating the fraud EDD could have prevented simply by using the Pondera systems.

“Local law enforcement, they’re inundated with phone calls with people wanting to provide tips,” says Pierson, “and frankly they don’t know what to do with them because it’s so much it’s so many cases. It’s a rather too big complex investigation to put together and the level of assistance that they’re going to get from EDD is relatively low.”

Still, Pierson and the other DAs’ insistence is beginning to pay off. Thomson Reuters, which bought Pondera, is now contracted to help detect fraud at EDD, using the very same systems that were shut off five years ago.

Pierson says the District Attorneys Association has been told the amount of fraud nationwide is roughly $60 billion. If EDD’s projections are correct, projections that say the fraud could go as high as $30 billion eventually, half the fraud in the U.S. will have been paid out by EDD.

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