State Audit: Late COVID Unemployment Checks Tangled In Red Tape

Division of Employment Security. Carolina Journal

By Theresa Opkea
Carolina Journal

Nearly half a billion dollars in first-time unemployment benefits in North Carolina were not paid out in a timely manner during the height of the COVID-19 pandemic. That’s according to an audit released from State Auditor Beth Wood’s office on Monday. The Division of Employment Security didn’t issue $438 million of first unemployment benefit payments during the period of January 1, 2020, through March 31, 2021.

The audit said DES’ unemployment claim process was not designed to make timely payments, their management did not monitor the timeliness of payments, and they weren’t prepared for economic downturns like the one associated with the pandemic.

It came at a time when North Carolina’s unemployment rate rose from 3.6% in February 2020 to 13.5% by April 2020, due to Democrat Governor Roy Cooper’s stay-at-home order and the rapid federal expansion of unemployment benefits, according to the report.

As a result, many unemployed people depleted their savings, went into debt, and were unable to pay daily living expenses, like buying food or paying monthly bills, including rent or mortgage expenses, leading some to become homeless.

“This report underscores the chaos created by Gov. Cooper forcibly shutting down North Carolina’s economy and abruptly throwing hundreds of thousands of North Carolinians out of work virtually overnight,” said Brian Balfour, senior vice president of research, John Locke Foundation.  “It’s very unfortunate so many didn’t receive their first unemployment check in a timely manner due to the system being overwhelmed.”

From March 2020 through March 2021, DES reported that it received approximately 3.5 million unemployment assistance claims from approximately 1.5 million claimants.

Specifically, DES did not meet the federal first payment timeliness standard for 6 of the 8 or 75% unemployment benefit programs it administered. Federal regulations require states to ensure that at least 87% of first benefit payments are issued to regular unemployment insurance claimants within 14 days in states with a waiting week, including North Carolina. Due to the pandemic, the waiting week requirement was waived from the weeks ending April 4, 2020, through September 4, 2021. However, the requirement to ensure that at least 87% of first benefit payments were issued within 14/21 days was not waived. Remarkably, DES has failed for the last 10 years (9 of which were prior to the COVID-19 pandemic) to meet that federal requirement.

Most claimants’ payments took over 30 days to arrive, with most coming between 30 and 60 days, but some took more than a year to arrive.

Wood said the North Carolina Department of Commerce (DES is a division of NCCCD) did in fact issue a report in 2017 on the impact the Great Recession had on North Carolina’s UI program to help “develop strategies for alleviating unemployment during the next recession.” Despite knowing another economic downturn was inevitable, the current auditor’s report stated DES did not have a plan or risk assessment that identified, evaluated, and addressed the risk that a sudden economic downturn could occur and significantly increase unemployment claims.

Consequently, without a plan, DES spent critical response time developing a plan and obtaining new resources to address the sudden increase in unemployment claims. For example, DES spent critical response time upgrading the unemployment benefits system, hiring and training new staff, enhancing customer service, and procuring contractors to assist with increased claims volume. When asked whether DES had a plan to ensure the timeliness of payments during the pandemic, Wood said the Chief Deputy of Programs stated that “timeliness was out the window.”

The auditor recommended that DES review its claims process to ensure the process is designed so that first payments meet federal unemployment benefit payment timeliness standards, create policies to monitor all the steps of the payment process, monitor outside contractor’s job performance, and enforce their contract requirements.

Wood also suggested the North Carolina General Assembly should consider enacting a law that requires state agencies to implement Enterprise Risk Management, which is defined as a process by which an entity’s board of directors, management, and other personnel identify possible events that may affect the entity and manage risks involved.

Since ERM is not required, she said state agencies are taking risks that have not been identified, evaluated, planned for, or communicated to oversight committees and boards. As a result, state resources have been wasted and citizens have experienced delays in receiving services and benefits, with DES listed as an example.

Wood said DES agreed with the finding that not all first unemployment benefit payments were made timely during the period covered by the audit. They say they were least timely in payments for programs that were built from scratch during the pandemic, including Pandemic Unemployment Assistance and Lost Wages Assistance, they needed to quickly hire new staff and contractors to handle the overwhelming increase in claims, new guidance coming from the federal government on new unemployment programs was often delayed, and an increase in unemployment fraud across the nation and new federal requirements increased fraud protection measures which slowed down the payment process.