The state Workforce Commission failed to comply with federal unemployment requirements and left billions in benefits vulnerable to fraud in 2021, according to state auditors.

"For the second consecutive year, LWC did not have adequate internal controls and did not comply with requirements of the Unemployment Insurance federal program. LWC issued more than $5.6 billion in benefit payments to more than 619,000 claimants during fiscal year 2021," according to a state-regulated Legislative Auditor report released last week.

"Because of the large amount of funding provided during the COVID-19 pandemic and the lack of identity or wage requirements at the beginning of the year, these programs have been exposed to identity theft and fraud schemes," the report read.

Auditors tested a random sample of 138 claimants who were paid over $1.3 million in unemployment benefits in fiscal year 2021 and found questioned costs totaling $257,728. About 10 percent of the tested claimants had inconsistent or missing information on their unemployment applications. Thirty-three percent of tested claimants who received Pandemic Unemployment Assistance also did not provide proof of wages, as required by law, while others did not have necessary identity verification on file.

The LWC failed to properly withhold child support deductions from six of the 138 claimants, as well.

In addition, auditors found the LWC did not administer the required federal Reemployment Services and Eligibility Assessment to determine if claimants were actually eligible for benefits.

"The March 2021 and June 2021 quarterly progress reports submitted by the LWC to the (U.S. Department of Labor) reported a combined 5,081 (60 percent) out of 8,428 identified participants who did not respond or could not be contacted in the month that they were identified for the program," according to the report.

Because federal regulations require participation in RESEA as a condition of unemployment eligibility, LWC’s failure to follow up on the missing information "could result in (unemployment) payments being made to claimants who are no longer eligible," the LLA reports.

Other issues identified by auditors included inadequate controls over interstate billing and employer charging requirements, and failure to perform adequate monitoring of $50.6 million provided to 15 subrecipients.

The LWC report noted that the recent findings are in addition to millions of potentially improper payments made to deceased individuals, overpayments, and payments to ineligible state employees detailed in prior reports.

LWC Secretary Ava Cates responded to the findings from the LLA report last month, citing "an unprecedented workload" associated with implementing six new unemployment programs within a matter of weeks.

"States were given little time and insufficient guidance to get these program implemented, while also managing a record-breaking surge in claim volume, for which our existing system and staffing resources were not equipped to handle," Cates wrote.

The LWC concurred with some of the report’s findings and disputed others, and outlined a series of measures the agency is taking to resolve the issues and retroactively comply with federal regulations.

The LLA report and LWC’s detailed response are available online.

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