Auditor finds issues with state unemployment system; 400,000 unread emails part of concerns

A report released Tuesday by State Auditor Mike Harmon found numerous issues within Kentucky’s Unemployment Insurance System.

Overall, the report, known as the Statewide Single Audit of Kentucky, or SSWAK, had 25 findings, half of which dealt with the Office of Unemployment Insurance and the UI fund.

Due to the high volume of claims and new federal unemployment programs during the pandemic, the report found OUI leadership made decisions that violated federal law and sacrificed program integrity in an attempt to more quickly get payments to unemployed individuals.

One of these changes, referred to as “Auto-Pay,” allowed UI benefits to be automatically paid without requiring claimants to report the weekly wage information needed to determine whether they were actually eligible for benefits. Seasoned OUI and Commonwealth Office of Technology expressed concerns about implementing Auto-Pay, according to the report, but it was implemented in spite of those concerns. Auto-Pay was in effect two weeks for traditional UI and eight weeks for PUA, and it contributed to causing many of the issues identified in the auditor’s findings.

The report notes that despite efforts to pay benefits more quickly, many claims still were not timely processed. As of Oct. 29, 2020, the claims backlog of unprocessed, initial jobless claims totaled approximately 80,000. Additionally, OUI had archived more than 400,000 emails the office received through its UI assistance email account that remained unread as of Nov. 9, 2020. These emails from claimants could include indications or problems for OUI to address, not to mention general questions from unemployed Kentuckians.

To illustrate the Auto-Pay issue, auditors selected a sample of 37 state employees who filed for and received UI benefits and discovered 16 state employees were paid unemployment benefits for the loss of part-time jobs, despite still being employed by the state.

Claimants are required to report any earnings during the week for which they are claiming benefits, and their full-time state wages would have made these employees ineligible for benefits. However, the adoption of the Auto-Pay policy eliminated the system control that asked claimants to report their weekly earnings, so the system did not take into account wages from their full-time state employment. The net overpayment in this sample was more than $116,000.

Furthermore, seven of the employees did not report wages earned from full-time employment even when the Auto-Pay period had ended despite having the ability to do so.

Another issue appearing in the report was data security. OUI failed to inform the Auditor of Public Accounts, along with other state agencies, of three data breaches that occurred in April and May 2020. State law requires agencies to notify APA and others within 72 hours of the occurrence.

On April 23 and 24, 2020, a data breach was reported by a UI claimant who reported they had viewed other claimant’s uploaded documents including Social Security cards, driver’s licenses and birth certificates. OUI did not notify APA and others until after the media learned of the breach, at least a month after it occurred. And on May 6, 2020, after OUI claimed a security patch had permanently resolved the issue, a similar data breach occurred again. APA was not notified about the breach until two months after it happened.

“The majority of the findings involving OUI come back to one common issue, which is the decision to remove controls that provided better oversight on verification and payment of UI benefits,” said Harmon. “It breaks my heart to think of those Kentuckians included in the 400,000 unopened emails who so desperately wanted their voices heard and yet were ignored. The systemic failure of leadership on all levels not only violated federal law, but also let down many who needed relief. It also leaves others facing the prospect of repaying the government for miscalculated payments they received in good faith.”

Responding to the report, the Beshear administration said, “In early March 2020, the COVID-19 pandemic forced state and local governments to close or restrict certain businesses to reduce interpersonal contact, and, by extension, viral spread. As a result, both the federal and state government was forced to move quickly and decisively to assist those newly jobless workers in great need. However, due to the sheer volume of closures and corresponding jobless claims, state and federal agencies were faced, and continue to be faced, with circumstances unknown at the inception of the UI program; the Federal State Unemployment Compensation program created by the Social Security Act of 1935. The findings mentioned above occurred in a short period of time during a once-in-a-century global pandemic.”

They concluded, “Like other states, Kentucky is working diligently and tirelessly to implement and administer all of the traditional UI programs along with the various pandemic assistance programs as quickly as possible to do so effectively. At all times, program integrity will remain the primary objective of the Cabinet and the Office of Unemployment Insurance.”