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May 20, 2022

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WA Employment Security Department audit finds unmonitored claims allowed $315K in fraud

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TACOMA — Washington’s Employment Security Department allowed more than $300,000 in public funds to be misappropriated during the COVID-19 pandemic due to weaknesses in its control of unemployment claims, the state Auditor’s Office found.

In a report Monday, the Auditor’s Office announced that an investigation into a now-terminated unemployment insurance specialist found the employee misappropriated at least $315,282 in unemployment insurance benefits between Jan. 1 and Dec. 31, 2020.

The former employee enriched himself with some of the funds by extorting claimants, accepting bribes from friends and family and paying out claims to debit cards he was able to collect.

Auditors identified an additional $121,503 in questionable payments associated with the employee, but they were unable to verify whether the payments were misappropriation.

The fraud overlapped with a huge case involving the loss of hundreds of millions in fraudulent unemployment claims filed under the guise of pandemic-related job loss. Federal prosecutors have indicted two Nigerian men in that fraud case.

The former employee, Reyes De La Cruz, 47, of Moses Lake, was hired in April 2020 to help the department deal with a large amount of filings for pandemic unemployment benefits, according to an Employment Security Department.

A Sept. 24 indictment in U.S. District Court found De La Cruz personally benefited from at least $130,000 in illegitimate claims. De La Cruz faces 20 federal charges including wire fraud, aggravated identity theft, extortion under color of official right and bribery of an agent of an organization receiving federal funds. His trial is scheduled to start March 28, 2022.

In its report, state auditors outlined several recommendations to improve control at the department, including adding a secondary review of claimant benefit decisions, improving the identity verification process and improving the fraud prevention portfolio.

State auditors also recommended seeking recovery of the misappropriated funds from De La Cruz or his insurance bonding company, including $15,000 in investigation costs.

In response, the Employment Security Department said it would improve control by conducting quality review checks of employee activity through sampling case work. It also said it would provide employee training on the negative effects and consequences of internal fraud.

According to the report, the employee extorted claimants by threatening to terminate benefit payments if they did not pay him. The bribes De La Cruz accepted came from friends, family and acquaintances, many of whom were not eligible for benefits.

De La Cruz was fired after the Employment Security Department received a tip from Child Support Enforcement in October 2020 about an illegitimate claim processed by the employee. The department found that $18,345 had been filed and paid using the claimant’s name.

An investigation was started, and the department found that De La Cruz had interacted with a 969 claimant accounts, totaling $14,277,070 in payments. Of these, the department flagged $364,759 as unusual.

In the state auditor’s subsequent investigation, it was found that De La Cruz may have processed claims for people who were ineligible, including people who were incarcerated or had no wage history.

No one reviewed these claims to verify De La Cruz’s decisions to allow payments, according to the report.

In identifying weaknesses at the Department of Employment Security that allowed the fraud to occur, state auditors noted one instance where the department used “questionable documentation” to verify claimants’ identity and determine that payments were allowable.

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