🗞️ Federal Strike Team to Probe California's Unemployment Insurance Program

On February 18, 2026, the U.S. Department of Labor (DOL) announced the deployment of a specialized strike team to investigate fraud and improper payment concerns in California's Unemployment Insurance (UI) program. In a letter to California's Employment Development Department (EDD), the DOL cited three performance deficiencies: a rising improper payment rate, insufficient payment timeliness, and deficiencies in data accuracy and quality.

The investigation takes place against a backdrop of significant fiscal stress. California's UI trust fund — funded by state employer payroll taxes and used exclusively to pay state unemployment benefits — is depleted. The state has carried roughly $21 billion in outstanding federal loans since borrowing began in June 2020 during the COVID-19 pandemic. Under federal law, outstanding loan balances trigger automatic increases in the Federal Unemployment Tax Act (FUTA) tax rate imposed on employers. A Federal Register notice issued January 12, 2026 formalized the resulting FUTA credit reductions applicable to California employers. California employers are currently paying an extra $84 per employee for the 2025 tax year, with the loan balance projected to reach approximately $21.3 billion by the end of 2027.

The probe also draws on prior state-level findings. In August 2023, the California State Auditor designated EDD as a high-risk agency, concluding that inadequate internal controls failed to prevent suspected fraud during fiscal years 2019–20 and 2020–21 — allowing the payment of more than $30 billion in potentially fraudulent claims. The auditor's designation was based on criteria including potential for waste or fraud, likelihood of harm to state residents, and the absence of adequate corrective action by the responsible agency.

The DOL strike team will draw from specialists in the department's national and regional offices. In announcing the probe, Secretary of Labor Lori Chavez-DeRemer stated that financial issues and potential fraud in the program "will be fully examined" and that a strike team would be engaged "to uncover any potential fraud or abuse." No timeline for the investigation's completion was specified in the release.

Key Points

• The DOL is deploying a specialized UI strike team to investigate fraud and improper payments in California's UI program following a formal letter to the state's Employment Development Department.
• The DOL cited three performance failures: rising improper payment rates, insufficient payment timeliness, and data quality deficiencies.
• California's UI trust fund is depleted; the state carries approximately $21 billion in outstanding federal loans, with the balance projected to grow to $21.3 billion by 2027.
• California employers currently pay an additional $84 per employee in elevated FUTA taxes due to the outstanding loan, with further increases expected annually until the debt is repaid.
• The California State Auditor designated EDD as a high-risk agency in August 2023, finding that inadequate internal controls allowed more than $30 billion in potentially fraudulent claims to be paid during fiscal years 2019–20 and 2020–21.
• The DOL release does not specify an investigation timeline or detail what enforcement actions may follow.

Primary Source Author: U.S. Department of Labor, Office of the Secretary

Primary Source: U.S. Department of Labor, Office of the Secretary

Primary Source Link: https://www.dol.gov/newsroom/releases/osec/osec20260218

Supplemental Links

• Federal Register — FUTA Credit Reduction Notice for 2025 (Jan. 12, 2026)
• California State Auditor Report 2023-601 — EDD High-Risk Designation
• California EDD — Federal Unemployment Tax Act (FUTA) Employer Guidance
• California EDD — January 2026 UI Fund Forecast
• U.S. Treasury Fiscal Data — Advances to State Unemployment Funds
• DOL ETA — State UI Trust Fund Solvency Report
• LAO — Repaying the State's Federal Unemployment Insurance Loan
• DOL OIG — Unemployment Insurance Fraud Investigations