California officials passed up on the chance to collect more than $500 million in unemployment benefit overpayments because the technology they needed would have cost $323,000, according to a report by the state auditor.
The state's Employment Development Department, which administers unemployment benefits, has been insolvent since 2009 and has borrowed billions from the federal government to pay benefits.
But when the U.S. Treasury Department in 2011 offered states the opportunity to participate in a federal program that would help collect millions every year in overpayments, EDD ignored the chance, even though it was already using the same program to collect other kinds of debt.
"[C]onsidering 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 report said.
The Treasury Offset Program allows states to send Treasury information on beneficiaries and the amount they owe, and have that money deducted from federal tax refunds and other payments.
EDD estimated in 2012, a year after the program was expanded to unemployment benefits, that the computer programming needed to update its "antiquated" computers and software would cost $323,000.
Officials vetoed the upgrade because they said EDD didn't have the the information technology resources available, even though they estimated EDD would have collected about $100 million that year alone, and one official called it a "no-brainer." EDD didn't even look for contractors who could supplement their IT team, according to the report.
Even when three employees returned "enthusiastic" from a seminar on using the Treasury Offset program for unemployment, higher-level officials declined to join the program.
"As a result, while other states collected millions of dollars in benefit overpayments through the expanded Offset Program in 2012 and later in 2013, EDD gave up this opportunity," the audit report said.
By 2013, 31 other states had joined the program, and EDD still had no plan to do so, even though the cost of the upgrade as well as the potential revenue kept rising.
It wasn't until state auditors began pressing officials on their lack of participation in May 2013 that EDD began planning to join the program.
Now EDD officials say they hope to have the program up and running by September, at a cost of about $1 million. By then, auditors say, they will have missed out on collecting $516 million, money that could have gone toward the insolvent department's budget or helped pay off the billions it owes the federal government.
The state auditor urged EDD to follow through with implementing the Treasury Offset Program and regularly evaluate other opportunities to improve overpayment collection.