In April 2020, Reyes De La Cruz III, a Moses Lake man who was facing a felony theft charge at the time, was hired by the state unemployment agency to help process the wave of jobless claims spurred by the pandemic.
But due to lax oversight at the Employment Security Department, De La Cruz was able to defraud Washington of at least $315,000 in jobless benefits, a new investigation by the state auditor’s office has found.
Prosecutors contend De La Cruz, who was arrested Sept. 24 and has pleaded not guilty to a 20-count federal indictment, used his position as an unemployment insurance specialist to siphon off tens of thousands of dollars in benefits. He was able to do so at least in part because ESD wasn’t reviewing all his work, according to the auditor’s report released Monday. De La Cruz was fired in October 2020, and ESD notified federal authorities and the state auditor’s office.
ESD’s “internal controls were inadequate to detect and prevent occupational misappropriation and safeguard public resources,” said the report, the latest inquiry into the $650 million fraud wave that upended Washington’s unemployment system in the early months of the pandemic.
De La Cruz altered unemployment claims in ways that may have let him divert, or “hijack,” benefits, the auditor’s report found. He may also have approved benefits for ineligible people, including someone incarcerated, the report found. In many cases, no one at ESD reviewed De La Cruz’s actions “to confirm they were legitimate,” according to the report.
“Today’s report shows the serious risks created by gaps in an agency’s internal checks and controls,” state Auditor Pat McCarthy said in a statement on the auditor’s website.
A trial date has been set for March 28. De La Cruz is being detained pending trial as a flight risk, according to federal filings. His attorney did not respond to a request for comment Monday afternoon.
ESD offered no separate statement on the auditor’s findings, but in its formal response to the report, the agency largely concurred with the auditor and said “it will make necessary changes to improve our internal control structure to better detect and prevent occupational misappropriation.”
In addition to the theft charge, De La Cruz had a history of other criminal convictions when he was hired in April 2020 by ESD to help process the surge in pandemic-related jobless claims, according to law enforcement officials. The auditor’s report does not address whether De La Cruz should have been hired, although ESD earlier said it was reviewing its hiring practices in the wake of his arrest. De La Cruz had previously worked for ESD from 1996 to 2003.
Federal prosecutors charged De La Cruz with using impersonation, bribery and extortion to defraud the government of at least $360,000 in jobless benefits. De La Cruz pocketed at least $130,000 for himself and arranged for hundreds of thousands of dollars in improper payments for family, friends and acquaintances, according to the U.S. Attorney’s Office in Seattle.
In some cases, De La Cruz threatened to stop benefit payments to claimants if they did not pay him, federal prosecutors said. Even after he was fired, De La Cruz continued to try to restart some fraudulent claims, law enforcement officials said.
In its own investigation, the auditor’s office reviewed the federal charges as well as internal reports by ESD, which had flagged as “unusual” $364,759 in benefit payments on claims “touched” by De La Cruz, according to the auditor’s report.
The auditor’s report also suggested indirectly just how much larger the losses could have been: De La Cruz reportedly interacted with, or “touched,” 969 claimant accounts totaling nearly $14.3 million in benefit payments.
The report concluded that De La Cruz had misappropriated at least $315,282 during 2020 and it identified another $121,503 in “questionable payments” associated with De La Cruz that the auditor’s office was unable to verify as misappropriated.
According to ESD’s response to the audit report, $37,862 of those “questionable” payments were subsequently verified as legitimate.
A spokesperson for the U.S. Attorney’s Office in Seattle said the difference in the fraud amounts reported in the federal charges and the state auditor’s response reflected the ongoing nature of the investigations. The federal “government continues to work to determine the loss amount, but at least $360,000 is consistent with the information we have,” spokesperson Emily Langlie said Monday.
Although the auditor’s report contained no major revelations in the case, it shed some new light on the allegations against De La Cruz.
The auditor’s report found instances when De La Cruz had changed claimants’ addresses and payment method information. In some cases, the same address appeared in several claimant accounts, the report said, “and many claimants had a debit card or an online bank designated as their payment method, suggesting the possibility payments were diverted or ‘hijacked.'”
De La Cruz also may have been involved in claims that used the name of someone who was incarcerated as well as someone who had no wage history, according to the report. Although both individuals received benefits, investigators were “not sure whether those people specifically filed their own claims, or if [De La Cruz] was involved in the filing of those claims,” said Kathleen Cooper, spokesperson for the auditor’s office.
The report also offered additional details on how De La Cruz was caught. In October 2020, ESD received a tip about an allegedly illegitimate claim for unemployment insurance, according to the report.
An investigation determined that De La Cruz had processed the $18,345 in benefits on the claim and that the claimant was related to De La Cruz.
The auditor’s report included several recommendations, including more stringent review of claimant “benefit decisions” and systems to better identify “potentially illegitimate claims … such as for people who are incarcerated or have no wage history.”
In its response to the auditor’s report, the ESD seemed to largely agree with the findings and recommendations, with two minor exceptions.
Of the $121,503 identified by the auditor as “questionable payments,” $37,862 was subsequently verified as legitimate, ESD said. An ESD spokesperson was looking into the status of the other $83,641 in benefits.
ESD also noted that, during the pandemic, a claimant’s lack of a wage history wouldn’t have constituted “a red flag” due to changes in unemployment regulations under emergency federal legislation.
De La Cruz’s arrest in September raised questions over ESD hiring practices.
When he was hired by ESD in April 2020, De La Cruz was facing 2019 charges for felony theft and bail jumping, but he wasn’t convicted until May 2020, Washington court records show. De La Cruz’s criminal history includes a 2016 misdemeanor assault conviction, court records show.
ESD screens candidates for any history of unemployment fraud, which is automatically disqualifying. But as of September, the agency didn’t require background checks for other criminal activity for claims specialists, ESD spokesperson Nick Demerice said previously.
Whether ESD would start requiring additional background checks “is absolutely something that we are evaluating right now,” Demerice said at the time. As of Monday afternoon, the agency hadn’t offered an update on that policy.
De La Cruz is one in a growing list of suspects charged in a wave of unemployment fraud that hit Washington, one of many states that lost money to fraudsters.
In May, federal investigators charged Abidemi Rufai, of Lekki, Nigeria, with using stolen identities to steal more than $350,000 in unemployment benefits. A month later, federal prosecutors charged Chukwuemeka Onyegbula, a Nigerian IT engineer, with stealing roughly $290,000 in benefits from ESD and from other states.
In November, Seattle residents Bryan Alan Sparks, 40, and Autumn Gail Luna were charged with stealing more than $1 million in jobless benefits and federal small business loans during the pandemic.