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A new state audit blasts California's Employment Development Department for ignoring an offer of federal help to recover hundreds of millions of dollars in overpaid unemployment benefits.

Thursday's report by the Bureau of State Audits estimates that EDD will have missed out on an estimated $516 million in overpayments from February 2011, when the federal program took effect, to September of this year, when the EDD expects to belatedly begin to participate in it.

About $99 million of that would offset the department's administrative costs, saving the state money amid a time of deep budget reductions. The other $417 million would have paid down the $10 billion debt — with interest — that California owes on federal loans to its insolvent unemployment fund.

EDD officials told auditors that they lacked the staffing needed to compile the necessary computer records to participate in the federal program. Yet the audit, triggered by a whistleblower, found that the EDD estimated in 2012 that it would require only about $323,000 in staff time.

"EDD did not even attempt to hire any contractors to perform the work, so Official B's conclusion that EDD could not hire anyone with the appropriate skills to perform the work was pure speculation at best," the audit reads, referring to an unnamed "high-ranking EDD official," who it described as retired.

Timeline of events
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The federal Treasury Offset Program allows states to garnish federal tax refunds and other payments to recover debts to the state. In their response to the audit, EDD officials complained that the audit didn't note that the department had participated in the federal program since 2004 to help it recover outstanding state personal income taxes and disability insurance contributions.

That makes the latest case even worse, the BSA responded.

"Considering EDD's extensive familiarity with the effectiveness of the Offset Program as a collection mechanism over the past decade, we find its delay in using the program to collect unemployment benefit overpayments to be even more appalling," the audit said.

PHOTO: Binders full of resources at the Employment Development Department office in Sacramento on Feb. 14, 2008. The Sacramento Bee/Randall Benton



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