Labor I.G.: 'ETA Should Do More to Assist Vulnerable States Prepare for Disaster Unemployment Assistance Program Implementation'

WASHINGTON, Oct. 20 -- The Labor Inspector General issued the following audit report (No. 04-20-002-03-315) entitled "Employment and Training Administration Should Do More to Assist Vulnerable States Prepare for Disaster Unemployment Assistance Program Implementation" on Sept. 29. Here are the excerpts:

BRIEFLY...

WHY OIG CONDUCTED THE AUDIT

In Fiscal Year 2017, Hurricanes Harvey, Irma and Maria devastated parts of the Caribbean Islands and the United States. The Federal Emergency Management Agency, by way of administration from the Employment and Training Administration (ETA), granted $85 million in Disaster Unemployment Assistance (DUA) funds to the states of Florida, Georgia, Texas, and islands of Puerto Rico and the U.S. Virgin Islands (USVI). We conducted the audit because prior OIG reports indicated a breakdown of essential systems during disasters and increased risk of fraud, improper payments, and untimely benefit payments.

WHAT OIG DID

We conducted this performance audit to answer the following questions: Were controls established to ensure DUA benefits were paid only to eligible claimants? Were controls established to ensure DUA benefits were paid promptly? To answer these questions, we assessed ETA's system of controls and performed tests and other procedures at the Texas Workforce Commission, the Florida Department of Economic Opportunity (FLDEO) and the USVI Department of Labor (VIDOL).

WHAT OIG FOUND

We found ETA's oversight of states vulnerable to major disasters was inadequate. ETA did not establish adequate controls to ensure states paid DUA benefits only to eligible individuals and paid them as promptly as administratively feasible. ETA did not establish adequate controls to ensure states paid benefits only to eligible claimants. ETA did not make a timely on-site monitoring visit to FLDEO, or ensure FLDEO and VIDOL provided DUA training to their staffs or ensure they had developed DUA-specific standard operating procedures. Training and procedures would have better ensured officials collected documentation necessary to substantiate a claimant's eligibility. ETA does not have specific policies and procedures in place that require states to have periodic training or to ensure regional office officials make timely monitoring visits. As a result, FLDEO and VIDOL officials could not substantiate eligibility for 23 percent of the claims we tested at either site. We estimate that $5.6 million could have been put to better use. ETA did not establish adequate controls to ensure states paid benefits promptly. ETA did not provide adequate oversight to ensure VIDOL provided DUA training, developed standard operating procedures, or took the necessary measures to reduce its backlog of claims. ETA does not have specific policies or procedures that require states to provide periodic DUA training. ETA also did not ensure VIDOL had DUA-specific written standard operating procedures. As a result, VIDOL only paid 27 percent of its claims within 21 days. Initial delays were understandable due to the devastation suffered; however, it only paid 42 percent of extended claims timely, even though claimants did not file these claims until at least 18 months after the hurricanes hit.

WHAT OIG RECOMMENDED

We made three recommendations to the Assistant Secretary for Employment and Training to improve DUA oversight of states vulnerable to major disasters. ETA generally agreed with our recommendations.

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TABLE OF CONTENTS:

INSPECTOR GENERAL'S REPORT ... 1

RESULTS ... 3

* ETA Did Not Establish Adequate Controls to Ensure States Paid Benefits Only to Eligible Claimants ... 4

* ETA Did Not Establish Adequate Controls to Ensure States Paid Benefits Promptly ... 10

CONCLUSION ... 15

OIG'S RECOMMENDATIONS ... 15

* Summary of ETA's Response ... 15

EXHIBIT 1: DUA GRANTS FOR HARVEY, IRMA, AND MARIA ... 17

EXHIBIT 2: DUA ELIGIBILITY REQUIREMENTS ... 18

EXHIBIT 3: SAMPLE PROJECTIONS ... 19

APPENDIX A: SCOPE, METHODOLOGY, & CRITERIA ... 20

APPENDIX B: AGENCY'S RESPONSE TO THE REPORT ... 23

APPENDIX C: ACKNOWLEDGEMENTS ... 27

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INSPECTOR GENERAL'S REPORT

To: John Pallasch, Assistant Secretary for Employment and Training, U.S. Department of Labor, 200 Constitution Ave, NW, Washington, DC 20210

This report presents the results of the Office of Inspector General's (OIG) audit of State Workforce Agencies' (states) use of the Disaster Unemployment Assistance (DUA) program after Hurricanes Harvey, Irma, and Maria.

In Fiscal Year 2017, Hurricanes Harvey, Irma and Maria devastated parts of the Caribbean Islands and the United States. The Federal Emergency Management Agency (FEMA), by way of administration from the U.S. Department of Labor (DOL)/Employment and Training Administration (ETA), granted approximately $85 million in DUA funds to the states of Florida, Georgia, Texas, and the islands of Puerto Rico and the U.S. Virgin Islands (USVI). We conducted the audit because prior OIG reports indicated a breakdown of essential systems during disasters and increased risk of fraud, improper payments, and untimely benefit payments.

ETA administers the DUA program in coordination with FEMA. State agencies that receive DUA grants administer the program by issuing press releases throughout declared disaster areas announcing DUA availability and processing DUA claims. The DUA program is available to provide timely unemployment benefits to individuals who have become unemployed because of a presidential-declared disaster, but are not eligible for regular Unemployment Insurance (UI).

We conducted this performance audit to answer the following questions: Were controls established to ensure DUA benefits were paid only to eligible claimants?

Were controls established to ensure DUA benefits were paid promptly?

To answer these questions, we conducted work at ETA's Office of Unemployment Insurance (OUI) national office and at the OUI regional offices in Atlanta, Dallas, and Boston to determine and assess ETA's procedures and internal controls for the period August 25, 2017 to October 30, 2019.

We visited Texas, Florida, and the USVI, where we conducted interviews, assessed controls relevant to our objectives, performed statistical testing, and analyzed performance data.

We determined ETA did not establish adequate controls to ensure states paid DUA benefits only to eligible individuals and paid them as promptly as administratively feasible.

Background

Following a presidential declared disaster, FEMA provides funds for the payment of benefits and reimburses the state for its administrative costs. The program emphasizes the proper and prompt determination of entitlement and payments to eligible applicants/claimants as well as accurate reporting of DUA activities. As the declared administrator of the program, ETA's oversight of the DUA program is to:

* ensure the regional offices are prepared to assist states,

* identify and document risks and mitigate control weaknesses,

* coordinate with FEMA representatives on funding estimates,

* review all reports for accuracy and completeness,

* ensure payments of DUA benefits are made according to regulations, and

* conduct on-site visits to the states during the initial application period.

State agencies are required to:

* act as agents of the Secretary for the purpose of providing assistance to applicants who are unemployed as a direct result of a major disaster;

* accept as timely, applications filed within 30 days of the state announcement of availability of DUA;

* develop necessary operating procedures, instructions, and forms to process DUA;

* establish controls to ensure payments are made only to eligible applicants;

* obtain all information necessary to determine the applicant's eligibility for DUA;

* ensure all staff are fully trained in administering the DUA program; and

* furnish reports on disaster activities using ETA 902 reports and financial transactions using ETA 2112 reports.

Individuals who desire monetary assistance through the DUA program must generally: (1) apply within 30 days of a president's declared disaster, (2) not be eligible for regular unemployment compensation, and (3) meet program eligibility requirements. States may pay DUA benefits to eligible claimants for any eligible week of unemployment during the disaster assistance period, which begins the week following the major disaster and ends after 26 weeks.

RESULTS

We found ETA's oversight of states vulnerable to major disasters was inadequate. Specifically, ETA did not establish adequate controls to ensure states paid DUA benefits only to eligible individuals and paid them as promptly as administratively feasible.

ETA did not establish adequate controls to ensure states paid benefits only to eligible claimants. ETA did not make a timely on-site monitoring visit to the Florida Department of Economic Opportunity (FLDEO), or ensure FLDEO and the Virgin Islands Department of Labor (VIDOL) provided DUA training to their staffs or ensure they had developed DUA-specific standard operating procedures as required by the DUA handbook./1

Training and procedures would have better ensured officials collected documentation necessary to substantiate a claimant's eligibility. ETA does not have specific policies and procedures that require states to provide periodic DUA training to their staffs or to ensure timely monitoring visits by ETA regional office officials. As a result, FLDEO and VIDOL officials could not substantiate eligibility for 23 percent of the claims we tested at either site. We estimate that $5.6 million could have been put to better use.

ETA did not establish adequate controls to ensure states paid benefits promptly. ETA did not provide adequate oversight to ensure VIDOL provided DUA training, developed standard operating procedures, or took the necessary measures to reduce its backlog of claims. ETA does not have specific policies or procedures that require states to provide periodic DUA training. In addition, ETA did not ensure VIDOL had DUA-specific written standard operating procedures. As a result, VIDOL only paid 27 percent of its claims within 21 days. Initial delays were understandable due to the devastation suffered; however, it only paid 42 percent of extended claims timely, even though claimants did not file these claims until at least 18 months after the hurricanes hit.

ETA DID NOT ESTABLISH ADEQUATE CONTROLS TO ENSURE STATES PAID BENEFITS ONLY TO ELIGIBLE CLAIMANTS

ETA did not have a policy that required ETA regional office officials to make timely monitoring visits to states receiving DUA funds, or to ensure at-risk states provided their staffs DUA training. ETA also did not ensure states had DUA-specific standard operating procedures as required. Timely oversight, periodic training, and standard procedures would have better guaranteed the collection of all necessary documentation to substantiate a claimant's eligibility.

The GAO Green Book/2 states that the oversight body is responsible for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing management's design, implementation, and operation of an internal control system.

Federal regulations and the ET Handbook (DUA)/3 provide the specific requirements that ETA must ensure states follow when approving DUA claims.

To be eligible, a claimant must:

1) apply for benefits within 30 days (unless an extension is granted) of the announcement date,

2) have one or more weeks of unemployment during the disaster assistance period,

3) be an unemployed worker or have a firm offer of employment,

4) be an unemployed self-employed individual or have firm plans for self-employment; and

5) be unemployed because of the declared disaster.

In addition, a claimant must provide sufficient documentation to substantiate employment, self-employment, or the scheduled commencement of either employment or self-employment. Claimants who do not provide requested documentation within 21 days of the application date are not eligible for benefits, and any benefits previously paid are subject to overpayment collection.

ETA does not have specific policies or procedures that require states vulnerable to major disasters to provide periodic DUA training to its staff. In addition, although the ETA handbook does state that ETA is to conduct on-site visits to states during the initial application period, as appropriate, it does not have specific requirements for ETA regional office staff to conduct timely on-site monitoring visits to states impacted by major disasters. The monitoring visits we refer to here are those that involve a significant review of ongoing program operations and often result in written findings and recommendations. The DUA program is not a new or infrequently used program. According to historical ETA 902 report data, every state but one has been authorized to provide DUA benefits at least once between June 1983 and July 2017. In total, there have been approximately 700 disaster declarations that authorized DUA benefits during that time period.

We found that the Texas Workforce Commission (TWC) operated its DUA program more effectively than the other two sites we visited, as TWC did a better job of verifying eligibility and paid its claims much more promptly due to its early planning. Examples of steps TWC took to improve DUA operations include the following:

* a phone message system to claimants who were on hold - describing how to file quickly;

* a 24/7 filing service to process claims timely;

* extra staff, (retirees and temporary staff to process claims);

* staff participation in DUA meetings and annual disaster trainings; and

* a Disaster Operational Guide based on lessons learned from prior disasters.

In addition to not requiring states to provide their staff training, ETA also did not provide state officials with DUA online training until November 9, 2018, when it issued Training and Employment Notice, 8-18, which announced the availability of online DUA training to states through the National Association of State Workforce Agencies (NASWA). ETA worked closely with NASWA in developing this training. The notice identified the need for readily accessible training for designated DUA personnel to effectively administer DUA. The DUA training is designed to provide a broad overview for staff charged with accepting DUA applications, adjudicating claims, and hearing appeals. The training course includes lessons on DUA background and history, overpayments, and appeals.

ETA issued the Training and Employment Notice approximately one year after Hurricanes Irma and Maria occurred. Consequently, it did not assist the FLDEO or VIDOL staff in correctly processing DUA claims subsequent to Hurricanes Irma and Maria. In addition, subsequent to Hurricane Irma, FLDEO provided its staff DUA training in May 2018 and again in August 2019.

In May 2017, ETA's Atlanta regional office held a regional roundtable for state DUA coordinators, during which ETA provided attendees training and discussed DUA-related issues. FLDEO sent a benefits administrator to this roundtable.

Although we acknowledge ETA's roundtable was well intentioned, it did not result in FLDEO providing training to its staff prior to Hurricane Irma or prevent many of the eligibility issues that both ETA and the OIG later detected.

FLDEO and VIDOL paid benefits to DUA claimants whose eligibility they could not substantiate for 23 percent of the claimants we tested at each of those agencies. To arrive at these results, we selected a stratified random sample of DUA claims at the FLDEO, TWC, and VIDOL, and tested them to verify that state officials made eligibility determinations that were consistent with regulations and supported with sufficient documentation. We did not find any issues with the cases we tested at the TWC.

We found control weaknesses in FLDEO and VIDOL processes in 1) the lack of periodic DUA-specific training, 2) the implementation of standard operating procedures to process DUA, and 3) the establishment of controls to ensure payments are made only to eligible applicants. These weaknesses resulted in officials at these two sites approving an estimated 23 percent of the claims we tested without being able to support the claimants' eligibility.

Overall, our testing resulted in an estimated 2,149 of 35,418 claimants in our sampled universe whose case files did not support claimants' eligibility. To arrive at these results, we selected a statistical, stratified random sample of DUA claims in Texas, Florida and the USVI, and tested them to verify that officials made eligibility determinations that were consistent with regulations and supported with sufficient documentation.

Content omitted.

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CONCLUSION

Hurricane season unfortunately and too often results in multiple states declared as disaster areas. That said, it should not be unreasonable to expect an effective Federal/state plan in place to ensure individuals' immediate needs are met. This includes ensuring eligible individuals receive DUA payments promptly as conditions permit. To meet these demands, ensuring key personnel are properly trained and establishing standard operating procedures are key to having an effective strategy.

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OIG'S RECOMMENDATIONS

We recommend the Assistant Secretary for Employment and Training:

1. Establish policies, procedures, and controls to ensure states provide DUA staff annual training and have required written state DUA policies and procedures in place.

2. Create a rapid response team consisting of Federal and state officials capable of providing technical and other assistance to states impacted by major disasters.

3. Recover $95,699 in questioned costs from the FLDEO and VIDOL for participants whose eligibility they could not substantiate.

SUMMARY OF ETA'S RESPONSE

ETA generally agreed with our 3 recommendations. However, in its response to our draft report ETA disagreed with the OIG's characterization of its oversight of the DUA program and provided details on the assistance provided to all three entities mentioned in the report. ETA also expressed concern that the report did not adequately acknowledge the severe damage to the USVI and its impact on VIDOL's ability to administer the DUA program.

Our report focused on improving ETA's oversight by identifying specific ETA and state control deficiencies that resulted in the failure to ensure DUA benefits were paid promptly and only to eligible claimants. As previously noted, FLDEO and VIDOL officials could not substantiate eligibility for 23 percent of the claims we tested at either site; and VIDOL only paid 42 percent of extended claims timely, even though claimants did not file these claims until at least 18 months after the hurricanes hit. We also detailed in our report the severe devastation to the USVI, the immense increase in state UI and DUA claims, and how these factors impacted payment timeliness.

ETA's response to our draft report is included in its entirety in Appendix B.

We appreciate the cooperation and courtesies the Employment and Training Administration extended us during this audit. OIG personnel who made major contributions to this report are listed in Appendix C.

Elliot P. Lewis, Assistant Inspector General for Audit

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REPORT and FOOTNOTES: https://www.oig.dol.gov/public/reports/oa/viewpdf.php?r=04-20-002-03-315&y=2020