California’s EDD Unemployment System Disaster: Predictable Fiasco?


The unemployment insurance payment system fiasco presided over by California’s Employment Development Department (EDD) just keeps getting more bizarre by the week. California has the largest unemployment system in the U.S., distributing about $33 million a day in unemployment checks to some 800 000 claimants when everything is working properly. This week it was revealed that EDD management knew its new unemployment system contained potentially major operational flaws, but decided to roll it out anyway.

As I noted last month, the EDD has spent US $157.8 million upgrading the state’s 30-year-old unemployment payment processing system. The upgraded system was originally supposed to cost $35 million and go live in 2009 (pdf), but a series of ridiculously incomplete (if not incompetent) definitions of the system’s requirements by EDD officials significantly pushed up the project’s cost and delayed its delivery schedule.

The EDD finally transitioned to its upgraded unemployment payment system over this year's Labor Day Holiday weekend (31 August to 2 September). There were a few reported hiccups with the transition at that time, but nothing seemed too far amiss during the first week after the switch. In fact, EDD officials reportedly were congratulating themselves on a job well done.

However, by the second week after the transition, it became increasingly clear that there were the proverbial "technical issues" cropping up within the unemployment system. The EDD announced that while the new “system is working as designed,” there were “some processing delays in [the] transition” from the old to new benefits system.  Nonetheless, the EDD said that it was “working around the clock to catch up on unemployment claims.” A San Francisco Chronicle story quoted an EDD spokesperson who claimed only about 5 percent of the unemployment benefit claims—or about 20 000—were negatively affected by the upgrade's technical issues. She added that, “We apologize for the inconvenience to those affected.”

A few days later, though, the EDD started to hint to the press that the problem might be a bit bigger than it first let on. The EDD said that the new system was misreading legacy beneficiary data, and that it didn’t realize the issue would be so widespread. Rule number one in any transition from a legacy system to its replacement is to ensure that existing data is clean, consistent and complete so that it can be imported into the new system with little difficulty as possible. So that admission of wide-spread data quality issues was not an especially good sign. Word was also filtering out from EDD employees that the scope of the problem was in fact huge, but the EDD wouldn’t dignify those claims by making a comment.

Eventually, the EDD admitted that the number of affected claimants was closer to 50 000 instead of its previously estimated 20 000. The agency reiterated that its employees were “working around the clock and through the weekends to try and get these payments issued for the customers eligible and waiting for benefits.”

A few days later, the EDD revised its numbers upwards again, suddenly acknowledging that 185 000 unemployed Californians had been impacted by the system’s operational problems and that 80 000 claimants still hadn’t received their checks three weeks after the upgraded system went live.

As the debacle entered its fourth week, Marty Morgenstern, California's Secretary of Labor and Workforce Development, finally weighed in, saying that the continuing delays were “unacceptable.” With Gov. Jerry Brown’s support, an order was given “to immediately begin the process of paying backlogged claims for continued UI [unemployment insurance] benefits prior to a final determination of eligibility.”

Morgenstern’s order helped whittle down the backlog, and by the middle of the next week, the EDD officially declared victory (pdf). The agency proudly proclaimed during the first week of October that its “aggressive efforts succeed[ed] in eliminating our backlog of certifications.” That is an interesting choice of words, since the backlog was mostly eliminated by Morgensten allowing a bypass around a core system requirement.  Even so, EDD’s claims to have eliminated the backlog were immediately challenged by many unemployed Californians complaining that they still hadn’t received payments due them, a story at the LA Times stated.

Then another problem surfaced: apparently the claim forms needed to keep unemployment benefits flowing to beneficiaries went missing, the LA Times reported in a separate story. The Times reported that when queried about the missing forms, an EDD spokesperson initially “side-stepped” the question, then gave what amounted to a non-answer, and then wouldn’t respond to further questions from the newspaper about the missing forms.

The ongoing problems had, by early October, spurred a number of state legislators to call for an investigation into the system’s contractor, Deloitte Consulting. As I have previously described in more detail, EDD gave the contract to Deloitte despite the company having a long history of troubled IT projects across California state and local governments.

The most recent bombshell hit this Monday, when the Sacramento Bee followed up on a story first reported by television station KXTV in Sacramento last Friday. The station along with the Bee reported that the new unemployment system was "broken from the start," that EDD officials knew it was broken, and that they moved forward with the system’s roll out anyway. Furthermore, said the reports, when EDD realized that there was indeed a major problem with the system after it went live, officials tried to blame the press for magnifying the severity of the issue. And when that didn’t work, they turned to blaming budget cuts for the lack of testing performed on the system. Just as damning were the reports' revelations about insider e-mails indicating that as many as 300 000 Californians had been affected by issues with the system, not the 185 000 the EDD was publicly claiming.

EDD officials claimed that tests conducted before the new system was rolled out indicated that all the problems would be manageable. And, furthermore, if the tests had suggested otherwise, EDD officials insisted, the agency would have delayed the system's debut. Yet the KXTV story indicates that the errors found during unit tests in early system builds were routinely being passed onto future system builds without ever being corrected. (In some quarters, this is considered poor software development practice, while in others, it is seen as a good business strategy for ensuring future software maintenance work.) Internal EDD IT programmers who sounded the alarm about this practice of kicking the can down the road were said to have been ignored.

Massachusetts, whose own unemployment system has been having problems as well, recently admitted that its original contract with Deloitte to modernize that state’s $46 million unemployment system was “flawed” and allowed Deloitte  “to miss deadlines and still charge the state some $6 million more than originally planned,” the Boston Globe reported in September. State legislators in Massachusetts announced earlier this month that hearings are going to be held to look into the problems with the Deloitte-built unemployment system's roll out.

Last week, Florida began its move to a new unemployment system also developed (late and over-budget) by Deloitte, and, you guessed it: there are reported problems there as well. It is too soon to tell if Deloitte will face another embarrassing government hearing in Florida, but I wouldn’t bet heavily against it.

These latest disclosures seemed to finally force reluctant senior California politicians this week to agree to hold hearings on the EDD development next month or in December. Hopefully when they do, they’ll remember to ask Deloitte why it keeps insisting that the unemployment system is working and why it believes that none of the problems experienced to date are because of a “breakdown or flaw in the software Deloitte developed.”

Photo: Damian Dovarganes/AP Photo


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Willie D. Jones