WITH WHAT TO WATCH FOR TONIGHT. TROUBLES, TRACKING FRAUD, UNANSWERED CALLS AND FRUSTRATED CALIFORNIANS TODAY, FOR THE FIRST TIME, WE’RE GETTING ANSWERS ABOUT WHAT HAPPENED WITH THAT MIDDLE CLASS TAX REFUND. THANKS FOR JOINING US AT FOUR. I’M TY STEELE. I’M LISA GONZALEZ. A NEW AUDIT IS SHEDDING LIGHT ON THE PROBLEMS THE STATE RAN INTO WHEN IT DOLED OUT BILLIONS OF DOLLARS TO CALIFORNIANS STRUGGLING WITH HIGH INFLATION IN 2022. KCRA 3 INVESTIGATES. LYSEE MITRI JOINS US WITH WHAT ELSE THE AUDIT FOUND. LIZ. YEAH, THE AUDIT FOUND THAT THE STATE DID MOVE FAST TO CHOOSE A VENDOR AND NEGOTIATE AN AGREEMENT TO GET PEOPLE HELP. AS SOON AS POSSIBLE. BUT IT ALSO SAYS THAT SPEEDY PROCESS MAY HAVE LED TO SOME OF THESE ISSUES BECAUSE OF HIGH GAS PRICES AND INFLATION IN 2022, THE GOVERNOR AND LAWMAKERS AUTHORIZED CALIFORNIA’S FRANCHISE TAX BOARD TO GIVE OUT MIDDLE CLASS TAX REFUNDS. IT CAME TO A $25 BILLION AGREEMENT WITH A COMPANY CALLED MONEY NETWORK, PUTTING THEM IN CHARGE OF MAKING AND DISTRIBUTING DEBIT CARDS, PROVIDING CUSTOMER SERVICE AND PREVENTING FRAUD. THE STATE GAVE A TOTAL OF NEARLY $9.2 BILLION, SPLIT AMONG NEARLY 7 MILLION CALIFORNIANS. BUT SOON AFTER THAT PROGRAM LAUNCHED, KCRA THREE INVESTIGATES HEARD FROM ABOUT A DOZEN PEOPLE WHO SAID SOMEONE ELSE WAS ALREADY SPENDING THE MONEY ON THEIR DEBIT CARDS, AND MANY MORE PEOPLE WITH QUESTIONS ABOUT THE PROGRAM TOLD US THEY COULDN’T GET ANYONE ON THE PHONE TO HELP THEM. AN AUDIT NOW REVEALS MONEY NETWORK FAILED TO ANSWER NEARLY 900,000 PHONE CALLS FROM PEOPLE WANTING TO TALK TO AN AGENT. WAIT TIMES REACHED NEARLY AN HOUR AT THEIR PEAK IN APRIL OF LAST YEAR. PLUS, WHILE MONEY NETWORK REPORTED A FRAUD RATE OF LESS THAN 1% OF THE MONEY DOLED OUT THROUGH ITS DEBIT CARDS, THE AUDIT FOUND ITS ACTUALLY UNCLEAR HOW MUCH FRAUD THERE WAS BECAUSE OF THE POOR CUSTOMER SERVICE AND AN INADEQUATE SYSTEM TO TRACK IT. WE DISCUSSED THE ISSUES WITH REPUBLICAN ASSEMBLYMAN JIM PATTERSON, WHO IS ON THE JOINT LEGISLATIVE AUDIT COMMITTEE THAT CALLED FOR THIS REPORT. THIS WAS A MONUMENTAL FAILURE, I THINK, AT ONE OF THE MOST FUNDAMENTAL RESPONSIBILITIES TO PEOPLE IN THE STATE OF CALIFORNIA THAT NEED THE HELP. AND SOME GOT IT AND SOME DIDN’T. AND IT TOOK A LONG TIME TO WORK ITS WAY THROUGH. HE SAID HE WAS ASTOUNDED TO LEARN IN THE AUDIT THAT THE FRANCHISE TAX BOARD ALSO PAID OUT MOST OF THE MONEY FOR ITS FOUR YEAR CONTRACT WITH MONEY NETWORK UP FRONT IN THE FIRST YEAR, AND THAT THE CONTRACT DID NOT INCLUDE ANY SAFEGUARDS TO HOLD MONEY. NETWORK ACCOUNTABLE IF IT FELL SHORT. THAT’S SOMETHING THE AUDITOR SAYS SHOULD NOT HAPPEN IN THE FUTURE. SO, LIZ, HOW IS THE FRANCHISE TAX BOARD RESPONDING TO THIS? WE HEARD FROM THEM LATE THIS AFTERNOON, GOT AN EMAIL SAYING THAT THESE ARE IMPORTANT LESSONS FOR ANY FUTURE PROGRAMS OF THIS SIZE. BUT IN TERMS OF THE AUDIT ITSELF, THEY JUST POINTED TO THEIR RESPONSE IN THAT REPORT THAT THEY ESSENTIALLY SAID THEY SUCCESSFULLY PULLED THIS OFF DESPITE A VERY TIGHT TIMELINE TO GET PEOPLE HELP FAST. AND THEY SAID THEY WORKED TIRELESSLY TO PROTECT THE STATE AND THE TAXPAYERS AND THOSE FOLKS THAT WERE LEFT IN THE LURCH. NOW, U
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Middle Class Tax Refund had problems with customer service and fraud, audit finds
A report by the California State Auditor is critical of the state's program to give stimulus money to Californians
A California State Auditor's report released on Thursday has detailed failures of the Middle Class Tax Refund (MCTR) program. In the 71-page report, the auditor uses the 2022-23 program as a lesson for improving future payments via debit cards issued by the state. MCTR was Gov. Gavin Newsom's plan to try and help Californians caught between rising inflation and rising gas prices in 2022. The initial goal of the program was to give every qualified Californian a $400 check. The announcement of this stimulus money came in March of 2022. More than $9.2 billion has been paid out to date in the form of tax refunds. The program went through multiple iterations and ideas. Newsom's initial plan would have had every driver with a DMV registration getting $400. The governor and the Legislature ultimately came to a compromise during budget negotiations to have the Franchise Tax Board handle the payments and not base them on vehicle ownership. Recipients ended up eligible for payments that ranged from $200 to $1,050. Those who don’t file taxes, like seniors who depend solely on social security and disabled Californians, were left out. By June of 2022, after final authorization of the legislature and governor, the FTB planned to use direct deposit to make the payments to those who had filed their taxes electronically. However, a significant number of taxpayers did not have direct deposit. The state needed a vendor to handle distribution via debit cards, customer service, and ensure fraud prevention in the cards that would be distributed. In July, California signed a 49-month contract with Money Network, LLC. In 2022, KCRA 3 Investigates obtained a copy of that contract. In it, Money Network was required to supply debit cards with fraud-prevention chips installed and ensure that fraud with the cards be associated with no higher than 1% of the total cards issued.The first of the Middle Class Tax Refund payments were sent in October of 2022. The payments were staggered, with the schedule shifting in the process, payments going out as late as spring of 2023. More than 7.2 million direct deposits were issued, along with 9.6 million debit cards. From the beginning, there were problems for those slated to get debit cards. Consumers who did not understand how to use the card or who even had questions about the boilerplate terms and conditions could not get through on the MCTR helpline, a line run by Money Network. The audit found that of the 2 million calls made to Money Network, 900,000 of them went unanswered. After hearing from viewers who were unable to get through a maze of voice prompts, we prepared a guide for how to get a real person on the phone. In December of 2022, KCRA 3 Investigates began getting emails and phone calls from Californians with other debit card issues. One Manteca consumer, Micah Ledesma, said, "We have the card itself, it's just that somebody else is using it. We're not sure what happened." By February 2023, that was still happening. Samantha Ocampo told us, "All of a sudden, it has zero balance. I know I had money on there."It turned out that a large number of cards had been shipped without the fraud-preventing chip technology that was planned. Both the Franchise Tax Board and Money Network pointed to supply chain issues and the short timeline to make payments as a reason for the requirement being waived by the state. When asked about fraud reports at the time by KCRA 3, the FTB, Money Network and the governor's office, all claimed that fraud was "less than 1%" and that every program deals with fraud. However, the audit found that "the State cannot determine the precise level of fraud in the MCTR program because Money Network did not answer a substantial portion of cardholder calls and has not specifically tracked fraud in the program."The audit found problems with the contract itself. According to the audit, "FTB paid to Money Network nearly 90 percent of the agreement’s total cost in the first 15 months of the 49-month agreement period. This front‑loaded payment structure does not fully safeguard the best interests of the State. In addition, the agreement with Money Network does not include provisions that would allow FTB to assess agreed-upon liquidated damages if Money Network does not comply with agreement terms—provisions we found in other state agreements for similar services."Among other findings from the audit: A large number of payments made by the Franchise Tax Board were made relatively quickly. But when the auditor looked at 17 random cases to see how payments were handled, nine were delayed. Some were for incorrect addresses, others due to FTB reviewing cases for eligibility or fraud. The average review took four months, but in such cases, they took anywhere from one to nearly eight months.The Franchise Tax Board and Money Network disagree with some of the fraud assessments, according to the audit. They argued that if consumers had thought fraud had occurred they would keep calling until it was resolved. However, the audit also found that the contract wording was vague enough that the definition of what was fraud was not included. There were also no penalties if Money Network did not disclose its fraud numbers. Money Network reported the number of disputes that it refunded but did not include how many of those may have been fraud-related."I think this is just a very damning audit and, quite frankly, I don’t think the state of California ought to do any business with Money Network again," said Assemblymember Jim Patterson (R-Fresno).Patterson is a member of the Joint Legislative Audit Committee, which called for the State Auditor's report."I’m grateful that they put this forward and yet, it is an embarrassment to the state of California," he said.In the end, the audit says California should draw on the experience for future financial relief payments "by establishing master agreements with debit-card vendors. Additionally, the State should consider how it can build a stronger capacity to deliver financial relief payments through a variety of payment methods, including checks, direct deposit, and debit cards."The audit said California's Department of General Services agreed with recommendations to have master agreements and "indicated its willingness to incorporate each of the recommendation's elements if feasible." In a statement to KCRA 3 Investigates, the Franchise Tax Board said, "We concur that there are important lessons to be learned for any future, large-scale financial relief programs, and that, as stated in the report, FTB distributed accurate MCTR payments to eligible Californians relatively quickly."Going forward, the audit found that more than one million MCTR cards are still not activated, amounting to $611 million in payments. FTB says they will send reminder letters to these cardholders encouraging them to activate their cards.
SACRAMENTO, Calif. —
A California State Auditor's report released on Thursday has detailed failures of the Middle Class Tax Refund (MCTR) program.
In the 71-page report, the auditor uses the 2022-23 program as a lesson for improving future payments via debit cards issued by the state.
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MCTR was Gov. Gavin Newsom's plan to try and help Californians caught between rising inflation and rising gas prices in 2022. The initial goal of the program was to give every qualified Californian a $400 check. The announcement of this stimulus money came in March of 2022. More than $9.2 billion has been paid out to date in the form of tax refunds.
The program went through multiple iterations and ideas. Newsom's initial plan would have had every driver with a DMV registration getting $400. The governor and the Legislature ultimately came to a compromise during budget negotiations to have the Franchise Tax Board handle the payments and not base them on vehicle ownership.
Recipients ended up eligible for payments that ranged from $200 to $1,050. Those who don’t file taxes, like seniors who depend solely on social security and disabled Californians, were left out.
By June of 2022, after final authorization of the legislature and governor, the FTB planned to use direct deposit to make the payments to those who had filed their taxes electronically. However, a significant number of taxpayers did not have direct deposit. The state needed a vendor to handle distribution via debit cards, customer service, and ensure fraud prevention in the cards that would be distributed.
In July, California signed a 49-month contract with Money Network, LLC. In 2022, KCRA 3 Investigates obtained a copy of that contract. In it, Money Network was required to supply debit cards with fraud-prevention chips installed and ensure that fraud with the cards be associated with no higher than 1% of the total cards issued.
The first of the Middle Class Tax Refund payments were sent in October of 2022. The payments were staggered, with the schedule shifting in the process, payments going out as late as spring of 2023. More than 7.2 million direct deposits were issued, along with 9.6 million debit cards.
From the beginning, there were problems for those slated to get debit cards. Consumers who did not understand how to use the card or who even had questions about the boilerplate terms and conditions could not get through on the MCTR helpline, a line run by Money Network. The audit found that of the 2 million calls made to Money Network, 900,000 of them went unanswered. After hearing from viewers who were unable to get through a maze of voice prompts, we prepared a guide for how to get a real person on the phone.
In December of 2022, KCRA 3 Investigates began getting emails and phone calls from Californians with other debit card issues. One Manteca consumer, Micah Ledesma, said, "We have the card itself, it's just that somebody else is using it. We're not sure what happened." By February 2023, that was still happening. Samantha Ocampo told us, "All of a sudden, it has zero balance. I know I had money on there."
It turned out that a large number of cards had been shipped without the fraud-preventing chip technology that was planned. Both the Franchise Tax Board and Money Network pointed to supply chain issues and the short timeline to make payments as a reason for the requirement being waived by the state.
When asked about fraud reports at the time by KCRA 3, the FTB, Money Network and the governor's office, all claimed that fraud was "less than 1%" and that every program deals with fraud.
California Middle Class Tax Refund: As issues persist, options narrow for getting a real person to help
However, the audit found that "the State cannot determine the precise level of fraud in the MCTR program because Money Network did not answer a substantial portion of cardholder calls and has not specifically tracked fraud in the program."
The audit found problems with the contract itself. According to the audit, "FTB paid to Money Network nearly 90 percent of the agreement’s total cost in the first 15 months of the 49-month agreement period. This front‑loaded payment structure does not fully safeguard the best interests of the State. In addition, the agreement with Money Network does not include provisions that would allow FTB to assess agreed-upon liquidated damages if Money Network does not comply with agreement terms—provisions we found in other state agreements for similar services."
Among other findings from the audit:
- A large number of payments made by the Franchise Tax Board were made relatively quickly. But when the auditor looked at 17 random cases to see how payments were handled, nine were delayed. Some were for incorrect addresses, others due to FTB reviewing cases for eligibility or fraud. The average review took four months, but in such cases, they took anywhere from one to nearly eight months.
- The Franchise Tax Board and Money Network disagree with some of the fraud assessments, according to the audit. They argued that if consumers had thought fraud had occurred they would keep calling until it was resolved. However, the audit also found that the contract wording was vague enough that the definition of what was fraud was not included. There were also no penalties if Money Network did not disclose its fraud numbers. Money Network reported the number of disputes that it refunded but did not include how many of those may have been fraud-related.
"I think this is just a very damning audit and, quite frankly, I don’t think the state of California ought to do any business with Money Network again," said Assemblymember Jim Patterson (R-Fresno).
Patterson is a member of the Joint Legislative Audit Committee, which called for the State Auditor's report.
"I’m grateful that they put this forward and yet, it is an embarrassment to the state of California," he said.
In the end, the audit says California should draw on the experience for future financial relief payments "by establishing master agreements with debit-card vendors. Additionally, the State should consider how it can build a stronger capacity to deliver financial relief payments through a variety of payment methods, including checks, direct deposit, and debit cards."
The audit said California's Department of General Services agreed with recommendations to have master agreements and "indicated its willingness to incorporate each of the recommendation's elements if feasible."
In a statement to KCRA 3 Investigates, the Franchise Tax Board said, "We concur that there are important lessons to be learned for any future, large-scale financial relief programs, and that, as stated in the report, FTB distributed accurate MCTR payments to eligible Californians relatively quickly."
Going forward, the audit found that more than one million MCTR cards are still not activated, amounting to $611 million in payments.
FTB says they will send reminder letters to these cardholders encouraging them to activate their cards.
