Labor IG: 'COVID-19 – ETA Needs a Plan to Reconcile & Return to U.S. Treasury Nearly $5 Billion Unused by States for a Temporary Unemployment Insurance Program'

WASHINGTON, Nov. 5 -- The Labor Inspector General issued the following audit report (No. 19-23-015-03-315) on Sept. 28, 2023, entitled "COVID-19: ETA Needs a Plan to Reconcile and Return to the U.S. Treasury Nearly $5 Billion Unused by States for a Temporary Unemployment Insurance Program."

Here are excerpts:

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INSPECTOR GENERAL'S REPORT

To: Brent Parton, Principal Deputy Assistant Secretary for Employment and Training, U.S. Department of Labor, 200 Constitution Ave. NW, Washington, DC 20210

The U.S. Department of Labor (DOL) Office of Inspector General (OIG) contracted with the independent certified public accounting firm of Rocha & Company, PC (Rocha) to conduct a performance audit of the Employment and Training Administration's (ETA) oversight of Temporary Full Federal Funding of the First Week of Compensable Regular Unemployment for States with No Waiting Week (TFFF) program, a provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The OIG monitored Rocha's work to ensure it met professional standards and contractual requirements. Rocha's independent audit was conducted in accordance with generally accepted government auditing standards.

Rocha was responsible for the auditors' evaluations and the conclusions expressed in the report while the OIG reviewed Rocha's report and supporting documentation.

PURPOSE

The COVID-19 pandemic was historic in its impact on the UI system. Following the start of the pandemic in the United States in early 2020, unemployment compensation claims rose exponentially to historically unprecedented levels. Prior to the pandemic, the numbers of UI claims were low.

On March 27, 2020, the CARES Act/1 was signed into law with the goal of providing expanded UI benefits to workers who were unable to work due to the COVID-19 pandemic. According to ETA, the CARES Act did not include a program development period prior to implementation that would have provided the Department and states an opportunity to properly sequence guidance and operations of the key program requirements. ETA officials reported that states faced the combined challenges of (1) managing and processing an unprecedented increase in claims volume at an unprecedented pace, (2) making the statutory changes to existing UI programs, and (3) implementing the CARES Act UI programs. In addition, states had to develop new systems in order to implement the new programs.

Section 2105 of the CARES Act authorized the TFFF program, whereby the federal government paid the cost of the first week of an eligible claimant's regular UI compensation for states with no waiting week and for states choosing to waive their waiting week requirements. ETA made approximately $12.5 billion of TFFF funding available in Federal Unemployment Accounts/2 (FUA) for 53 participating state workforce agencies (SWAs or states)/3 to access as reimbursement for first-week regular UI compensation already paid to eligible individuals by the state.

The CARES Act created the TFFF program to arrange for emergency relief, specifying that the FUA would provide to each state that entered into an agreement an amount equal to 100 percent of the total amount of regular compensation paid to eligible individuals by the state for their first week of regular UI benefits. Under the CARES Act, weeks between March 29, 2020, and December 31, 2020, were eligible for reimbursement. On December 27, 2020, the Continued Assistance Act (CAA)/4 extended the TFFF program through March 14, 2021. On March 11, 2021, the American Rescue Plan Act (ARPA) of 20215 further extended the TFFF program through September 6, 2021.

Based on the risks associated with expansions of the UI program, we contracted with Rocha to conduct a performance audit to answer the question:

'Did ETA ensure states met TFFF program requirements and used the funding according to the statutory intent of the CARES Act and related subsequent legislation?'

To answer this question, Rocha conducted a performance audit that covered the period March 27, 2020, through September 6, 2021. To determine the amount of TFFF funding that remained in the FUA after September 6, 2021, Rocha obtained TFFF account balances from ETA's summary of the U.S. Department of Treasury's FUA transaction statements as of July 31, 2023. The audit included procedures at both the ETA and the state level to determine compliance with program requirements. Rocha performed in-depth testing and analysis for 6 states--Delaware, Iowa, Louisiana, Minnesota, Nevada, and Oregon--selected by the OIG. The OIG selected these 6 states based on the amount of TFFF funding that states received, stratified into the highest, middle, and lowest range and the extent to which states had not been selected for review in previous OIG audits. Rocha also sent surveys to the remaining 47 SWAs to obtain key information and examine documentation.

RESULTS

Rocha found that ETA and states did not always meet the requirements or statutory intent of the TFFF program. Specifically, individual claimants waited to receive urgently needed UI benefits during the pandemic, states received TFFF funding when they were not eligible, and states' TFFF accounts have unused fund balances that have not been reconciled and closed out for deobligation. As a result, Rocha identified $105.1 million in questioned costs./6

Rocha also identified nearly $5 billion in funds put to better use./7

These funds remained in states' TFFF accounts after the benefit eligibility period expired/8 and should be returned to the U.S. Department of Treasury.

We appreciate the cooperation and courtesies ETA extended to Rocha and the OIG during this audit.

Carolyn R. Hantz, Assistant Inspector General for Audit

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RESULTS

We found ETA and states did not always meet the requirements or statutory intent of the TFFF program. Specifically, individual claimants waited to receive urgently needed UI benefits during the pandemic, states received TFFF funding when they were not eligible, and states' TFFF accounts have unused fund balances that have not been reconciled and closed out for deobligation. As a result, we identified $105.1 million in questioned costs./11

We also identified nearly $5 billion in funds put to better use/12 - in states' TFFF accounts after the benefit eligibility period expired/13 - that should be deobligated and returned to the U.S. Department of Treasury.

ETA allowed 4 states to access TFFF funding as reimbursements despite not meeting program requirements. For example, 2 states with waiting week provisions (Oregon and Louisiana) required by their state laws did not waive those weeks, but were reimbursed for UI benefits paid, after making claimants wait for their first week of UI compensation - contrary to the intent of the program. In addition, 2 states (Delaware and Mississippi) used first-week UI compensation amounts paid outside the scope of the program period as the basis for reimbursement. As a result, states were reimbursed $105.1 million of federal funding they were not eligible to receive.

Furthermore, of the $12.5 billion in funding made available to the 53 SWAs through the TFFF program, nearly $5 billion remained unused as of July 31, 2023 - more than 22 months after the benefit eligibility period expired. ETA had no formal plan to reconcile states' accounts and return funds to the U.S. Department of Treasury. These funds could have been put to better use.

These issues occurred because ETA did not have sufficient controls in place to ensure states accessing funds were in fact eligible for reimbursements or that unused TFFF funds were returned to the federal government.

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RECOMMENDATIONS

We recommend the Principal Deputy Assistant Secretary for Employment and Training:

1. Work with Oregon, Louisiana, Delaware, and Mississippi to ensure the appropriate return of approximately $105.1 million in TFFF reimbursements for first-week regular UI compensation paid that were associated with ineligible weeks.

2. Establish a deadline by which states are required to perform a timely review of past drawdowns and provide evidence that drawdowns were for reimbursement of eligible first-week regular UI compensation paid by the state for claim weeks that fell within the TFFF program period.

3. Reassess the eligibility of all states with waiting week provisions according to their state laws to ensure that the waiting week was not in effect when states accessed TFFF funds prior to December 31, 2020.

4. Ensure that any state drawdowns of the remaining almost $5 billion in TFFF funds are only for the reimbursement of first-week regular UI compensation paid by the state that fall within the TFFF program period (March 27, 2020, through September 6, 2021).

5. Establish a deadline for states to reconcile and close out TFFF accounts so ETA can facilitate deobligation of the funding.

6. Establish written procedures and deadlines for the timely return of funding for TFFF and future similar programs and consult with OMB and Treasury officials to execute the proper return of unused funds that remain within states' accounts.

7. Capture lessons learned from the TFFF program and use the information to develop effective internal control procedures to ensure states meet program requirements, including eligibility, and have sufficient infrastructure in place to pay claimants' UI benefits without delay for similar temporary emergency UI programs that may be established in the future.

8. Capture lessons learned from the TFFF program and use the information to develop and implement controls to ensure the methodology and procedures are documented and maintained for estimating allotments and subsequent adjustments for similar temporary emergency UI programs that may be established in the future.

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The report is posted at: https://www.oig.dol.gov/public/reports/oa/2023/19-23-015-03-315.pdf