Feb. 9—Kentucky Auditor Mike Harmon provided more details Tuesday about the state's beleaguered unemployment insurance office and fund, saying his findings "should be deeply concerning to taxpayers and those who have filed for unemployment insurance benefits."
Harmon found problems ranging from leadership to poor security.
"The majority of the findings involving the unemployment insurance office come back to one common issue, which is the decision to remove controls that provided better oversight on verification and payment of benefits," said Harmon in a release.
"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."
Harmon spokesman Michael Goins said none of the federal law violations rose to the level to have Harmon refer them to any law enforcement agency.
Tuesday's findings were were contained in the 138-page first volume of the Statewide Single Audit of Kentucky for fiscal year 2020 that ended last June 30. An audit Harmon released last December showed the state did not know how much money is still owed to Kentuckians who filed for unemployment benefits and spelled out numerous internal control issues within the unemployment insurance office.
Harmon's latest audit elaborated on problems in the office.
Many thousands of unemployment insurance claims have gone unresolved during the coronavirus pandemic that began last March.
Gov. Andy Beshear, a Democrat, primarily has blamed an antiquated system for the backlog of claims and is asking the 2021 state legislature to improve it.
Harmon, a Republican who is considering running for governor against Beshear in 2023, said the onset of the pandemic presented "many challenges" for the state's unemployment insurance office, as business closures led to thousands of Kentuckians losing their jobs
For example, said Harmon, there were 49,023 new unemployment claims filed during the week ending March 21, 2020, and an additional 113,149 new claims filed during the week ending March 28, 2020.
Also, significant new unemployment insurance programs, he said, were created through the federal Coronavirus Aid, Relief and Economic Security Act (CARES): Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC) and Federal Pandemic Unemployment Compensation (FPUC).
Harmon's latest findings on the state's unemployment insurance system included:
— Due to the volume of claims and new federal programs related to the COVID-19 pandemic, leadership in the unemployment insurance office 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," said Harmon, allowed unemployment insurance 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 staff from the office and Commonwealth Office of Technology expressed concerns about implementing Auto-Pay, said Harmon, but it was implemented in spite of those concerns.
Auto-Pay was in effect two weeks for traditional unemployment insurance and eight weeks for PUA, and it contributed to causing many of the issues identified in the audit, said Harmon.
In late July, Josh Benton stepped down as deputy secretary of the Cabinet for Education and Workforce Development to pursue a job outside of state government. He had been Beshear's voice for unemployment insurance. That role fell to Amy Cubbage, who moved from general counsel in the Labor Cabinet to be Beshear's general counsel.
— Although unemployment insurance officials made high-risk decisions in an attempt to pay benefits more quickly, many claims still were not timely processed, said Harmon.
As of last Oct. 29, he said, the claims backlog of unprocessed, initial jobless claims totaled approximately 80,000.
Additionally, the state unemployment insurance office had archived more than 400,000 emails the office received through its unemployment assistance email account that remained unread as of last Nov. 9.
"These emails from claimants could include indications or problems for the office to address, not to mention general questions from unemployed Kentuckians," said Harmon.
He said a security breach involving user confidentiality earlier in 2020 was only discovered because of an email from a claimant.
— The external pressure of the pandemic incentivized unemployment insurance office management to override important system controls, said Harmon.
Due to the lack of controls over payments during the Auto-Pay period, auditors could not precisely estimate total overpayments or underpayments, he said.
While Auto-Pay was in effect, $17.8 million was paid in traditional unemployment insurance benefits, $129.9 million was paid in PUA benefits, and $507.7 million was paid in FPUC benefits.
While not all of these payments were improper, they were paid in a control environment highly conducive to improper or even fraudulent payments, said Harmon.
— Serving as a good illustration of the problems created by Auto-Pay, auditors selected a sample of 37 state employees who filed for and received unemployment benefits, and discovered 16 of them were paid unemployment benefits for the loss of part-time jobs despite still being employed by the state, said Harmon.
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, he said.
"However, the adoption of the 'Auto-Pay' policy eliminated the system control that asked claimants to report their weekly earnings, and so the system did not take into account wages from their full-time state employment," Harmon said.
The net over-payment in this sample was more than $116,000, the audit said.. 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.
— The state unemployment insurance office did not develop a reasonable and reliable estimate of unpaid claims for the accounts payable balance of the unemployment insurance.
— The state unemployment insurance office had " multiple issues related to information security and data processing."
The unemployment insurance system contains the private, personal taxpayer information for every employed Kentuckian, and the audit revealed that federally mandated and state required monthly system security checks were not performed, Harmon said.
— The state unemployment insurance office failed to inform the state auditor, along with other state agencies, of three data breaches that occurred in April and May 2020.
State law requires agencies to notify the auditor within 72 hours of the occurrence.
On April 23 and 24, 2020, a data breach was reported by a claimant who reported they had viewed other claimants' uploaded documents including Social Security cards, driver's licenses and birth certificates.
The state unemployment insurance office did not notify the auditor until after the media learned of the breach, at least a month after it occurred.
And on May 6, 2020, after the state office claimed a security patch had permanently resolved the issue, a similar data breach occurred again. The auditor was not notified about the breach until two months after it happened, said Harrmon.
Meanwhile, two Democratic state House members announced a legislative plan Tuesday to modernize Kentucky's unemployment insurance program.
The legislative package tries to expand benefits in certain cases, strengthen the state unemployment insurance trust fund, maintain more state unemployment insurance offices across Kentucky, make it easier for employers to choose a reduction in staff hours rather than lay-offs and allow several new groups of people to qualify for unemployment insurance.
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