Federal labor officials have opened a formal review of California’s unemployment insurance program, once again placing the Employment Development Department (EDD) under scrutiny after its widely criticized pandemic-era problems. The investigation focuses on suspected financial irregularities and large-scale fraud involving benefit payments. State leaders say the agency has improved, but the new inquiry raises fresh doubts about how much money can still be recovered and how secure the system truly is.

According to the Baltimore Sun, the U.S. Department of Labor sent a formal notice to the EDD confirming the review and announcing that a Washington-based federal task force will be deployed to California. Labor Secretary Lori Chavez-DeRemer said the government will fully examine “financial issues and potential fraud” within the state’s unemployment program. Officials have not yet released the letter or provided a timeline for the investigation.

Nearly $1 billion potentially at risk

Even before the task force was announced, federal auditors warned that a large portion of pandemic-era unemployment funds remains vulnerable. The Department of Labor’s Office of Inspector General reported roughly $912 million sitting on prepaid debit cards or in unclaimed-property accounts. Investigators urged rapid recovery efforts, cautioning that without swift action taxpayers could lose close to $1 billion to fraudulent claims. The concern helps explain the federal government’s renewed focus on how California tracks and recovers questionable payments.

State cites reforms and enforcement efforts

Long criticized by lawmakers, the EDD says it has strengthened safeguards since the peak of the pandemic surge. The agency reports thousands of investigations, hundreds of arrests and more than $5.9 billion recovered, and says it is coordinating with federal authorities on criminal referrals and data-sharing targeting organized fraud networks. Officials say California will cooperate fully with the federal team and provide requested records while continuing to separate fraudulent claims from legitimate ones.

A troubled history

The review follows years of audits and backlogs during the pandemic, when investigators faulted both mismanagement and overly broad anti-fraud measures that delayed valid claims. State analysts previously recommended more targeted, data-driven enforcement rather than sweeping payment freezes. Those earlier findings now form the backdrop for the federal probe, which is expected to examine both the financial losses and the internal controls meant to prevent them.

Possible legal consequences

Such federal reviews can expand beyond audits into criminal cases and restitution efforts. Prosecutors have already pursued multi-million-dollar schemes involving stolen identities and international laundering operations tied to California unemployment benefits. If broader failures are uncovered, investigators could refer cases to the Department of Justice for prosecution and asset recovery.

What comes next

The Labor Department’s review will likely include extensive document requests, on-site work in Sacramento and recommendations to strengthen oversight and recover misspent funds. The EDD is advising claimants who suspect identity theft or fraud to use its reporting tools and follow official updates as the process continues. Both state and federal officials say their priorities are recovering improperly paid benefits and ensuring eligible Californians receive payments without unnecessary delays.