Audit: State Paid $166 Million In Unemployment Benefits Incorrectly

By Theresa Opeka
Carolina Journal

Not enough preparedness and no timeline. 

Those were the key factors that the North Carolina House Oversight and Reform Committee heard from officials from the N.C. Department of Commerce’s Division of Employment Security (DES) and State Auditor Beth Wood about an audit Wood’s office did from January 1, 2020, through March 31, 2021, on untimely and improper first-time unemployment benefit payments. 

The audit found that of 3.6 million first payments, only 2.2 million (60%) met the federal requirement of 87% of first-time benefits being issued within 14-21 days. The audit also showed that of the $1.2 billion that was paid out, $438 million (36%) was paid out late. Only 2 (25%) of 8 programs met federal requirements. Also, 1.19 million (32%) of the 3.67 million payments took longer than 30 days to complete. 1.19 million first-time payments, or $342 million, were late in getting out to claimants. 

report issued in September 2022 by Wood also showed approximately $166 million in unemployment benefits were paid out incorrectly between April 1, 2016, through March 31, 2021.

The investigative report revealed that DES reported an improper unemployment insurance payment rate averaging 18% during that, which exceeded the 10% federal improper payment rate allowed by the U.S. Department of Labor. As a result, DES paid approximately $166 million in improper payments during that timeframe.

From 5400 claims a week to 54,000 in one day

At the hearing Wednesday, M. Antwon Keith, Assistant Secretary of DES, said at the beginning of the pandemic in March 2020, they went from 5400 claims a week to a maximum of 54,000 in one day.

M. Antwon Keith, Assistant Secretary of DES. Source livestream

He said they have made improvements to the system, including implementing push text notifications, a multifactor authentication, an overhaul of the website to make it more mobile friendly, and a status update bar for claimants to check on the status of a claim instead of calling in. In addition, they have also implemented fraud protections, which include the blocking of foreign internet provider (IP) addresses.

Keith noted that the department’s quality scores remain high, in the top ten in the nation, and they have recouped over $130 million over the past three years. He also said they have implemented most of the recommendations from Wood’s office, including a readiness plan, and are working on developing the ones not yet in production. “We continue to adopt best practices and learn from past mistakes,” he said.

He stressed that his department may also have to lay off workers due to the recent salary increase for state workers.

“We don’t get any money from the general fund,” Keith said. “We just had an increase that comes out of our budget, and because of that increase, we’re going to have to decrease some of our staffing. It’s all set, the additional salary, so we have no choice but to look at AI.”

Rep. George Cleveland, R-Onslow asked if the department had a plan to reduce the time of a first-time payment and if they are making progress on it. Keith replied yes. 

“I think we have a good handle on it, but it’s not as easy as one would think,” Keith said. “There’s no state in the southeast that’s meeting that number as of yet.”

When Cleveland asked if they would meet the number in a year, Keith said, “I would not say that, mister representative.”

DES not answering phones or returning calls

Wood later testified that her office was receiving phone calls from people saying phone calls from DES were either not being returned or no one would answer. She called the Secretary and was told the phone lines were overwhelmed, and it was a phone issue. She tried calling in herself and got a voice message that the call couldn’t be taken due to call volume and to call back later. 

“I’m thinking to myself that’s the phone line issue because they put a message on the back of the message, and there were no times to call back,” she said. “So that’s what instigated this audit. What did we do as a state to help our citizens in a time of crisis, and absolutely COVID was a crisis.”

Before this audit, Wood said her office found that the state had not hit the federal benchmark of reaching 87% of first-time claimants receiving their initial payment in 14-21 days nine years prior to COVID.

She pointed out that the reasons for not hitting the mark included the design of the claims process, a lack of monitoring, including claims processing, and being unprepared.

“We know every 5 1/2 years (according to the National Bureau of Economic Research) we’re going to have an economic downturn,” Wood said. “When there’s an economic downturn, we’re going to see a rise in unemployment, and yet there was no preparation by DES, none since the Great Recession in 2009 and 10, so when I’m listening to y’all talk about metrics and timelines and time frames that is exactly what needs to be done.”

She also said instead of asking to increase staff, DES should see what the staff they have now has been accomplishing and work with them. 

“The thing I heard a lot is we’re working on it, we’re working on it, we’re working on it,” Wood said. “What we need to see are timelines, when you plan to get this done.”

Bill requires state auditor to make recommendations

There was also mention of H.B. 471, State Auditor/Info Systems/Corrective Action, which has been sitting in the Senate Rules Committee since June. It would allow the state auditor to provide recommendations on corrective action to underperforming state agencies. 

Recommendations from Wood’s office include:

-Requiring work search activities to be reported in the weekly certification process.

-Developing a work search repository.

-Continuing to cross-match with the state directory of new hires.

-Standardized policies.

-A readiness plan.

Rep. John Torbett, R-Gaston praised Wood for her work in notifying the committee of the issues, including how DES hasn’t met the 87% federal benchmark in years.

“I’d like for all of us to think that what if during the normal course of our work that our company when they came to payroll day, the payroll amount was 87% accurate … what about a doctor’s diagnosis? What if we went to a doctor knowing that the doctor may only be 87% right,” he said. “I think we need a new mindset, we’re dealing with the people’s money. We need to implement operational techniques, rules, and standards more in line with financial institutions so we can get much, much, much closer to 100% of taking care of the people’s monetary needs.”

No further action was taken during the hearing.