Audit 374110

Finding 2022-001: Unemployment Insurance Benefit Payments (Material Weakness in Internal Controls) Condition: In March 2020, the President signed the CARES Act that authorized additional funding under the Unemployment Insurance (UI) program. This was followed by additional federal and state funding programs that increased grants available and modified eligibility requirements to support changes in employment status caused by the COVID-19 pandemic. Certain benefits under these programs extended into fiscal year 2022. There was a priority on distributing funds under self-attestation strategy with limited income verification to expedite disbursement of funds and support individuals in greatest need. As a result of this, many states saw a significant increase in fraudulent claims to historical highs. The U.S. Department of Labor and the Agency have partnered to investigate the extent and methods used to perpetrate fraud. For the Agency, eligibility determinations made by the management followed existing policies and procedures for this pandemic funding; however, to meet federal and state expectations regarding the quick payment of federal pandemic benefits, the policies and procedures in place were not the usual policies and procedures and so they were not adequate to completely prevent fraudulent claims. The Agency’s detective controls did identify abnormal claim activity; however, it was after the claims had already been paid. During our testing of a sample of 60 benefit payments we identified 3 payments that were fraudulent, total value of payments tested was $16,776 and total amount of fraud was $835. The extrapolated fraud amount over the total benefit payments of $179.4 million would be $9 million. Criteria: Per 2 CFR §200 Appendix XI, state responsibilities include: (1) establishing specific, detailed policies and operating procedures which comply with the requirements of federal laws and regulations; (2) determining the state unemployment insurance tax structure; (3) collecting state unemployment insurance contributions from employers (commonly called “unemployment taxes”); (4) determining claimant eligibility and disqualification provisions; (5) making payment of UI benefits to claimants; (6) managing the program’s revenue and benefit administrative functions; (7) administering the programs in accordance with established policies and procedures; and (8) enacting state UC law that conforms with federal UC law and that state law and operations substantially comply with federal law. Effect: A lack of adequate internal controls over eligibility determinations may increase the likelihood of fraudulent claims being submitted and incorrectly paid. Known Questioned Costs: During our testing of a sample of 60 benefit payments we identified 3 payments that were fraudulent, the total value of payments tested was $16,776 and total amount of known fraud was $835. Likely Questioned Costs: Based upon the extrapolated fraud amount over the total benefit payment of $179.4 thousand the total amount of fraud would likely be $10 million. Cause: The Agency experienced unprecedented claims volume starting in fiscal 2021 and continuing into fiscal year 2022 with increased funding and additional program requirements with a priority for efficient distribution from both the U.S. Department of Labor and state officials. Recommendation: We recommend that the Agency continue to review, monitor, and enhance eligibility procedures to detect and/or prevent fraudulent claimants from receiving benefits. The Agency should work to enhance and update its assessment of risks related to the eligibility process and implement internal controls to help mitigate future fraudulent claims.

Item 2022-003: Reporting (Material Weakness over Reporting and Non-Material Noncompliance) Condition: The Agency did not submit certain quarterly reports to the United States Department of Labor (“National Office”) by the required due dates. Accordingly, the Agency did not comply with the Reporting compliance requirements related to the Unemployment Insurance program. Criteria: Per Part 4 of the OMB Compliance Supplement: The ETA 191 Report is required to be submitted on a quarterly basis to the National Office by the 25th day of the month following the close of the quarter. The ETA 2208A Report is required to be submitted on a quarterly basis to the National Office by the 45th day of the month following the close of the quarter. The ETA 2112 Report is required to be submitted on a monthly basis to the National Office by the first day of the second month following the close of the month of reference. The ETA 9052 Report is required to be submitted on a monthly basis to the National Office by the 30th day of the month following the month of reference. Cause: Internal controls are not in place to ensure that all required reports are being submitted in accordance with the United States Department of Labor’s timelines. The reports were delayed due to program and system resources focused on claims processing as well as personnel shortages. Effect: As a result, the Agency becomes more susceptible to having its level of federal award funding reduced by the United States Department of Labor when it violates its Reporting compliance requirements applicable to the Unemployment Insurance program. Context: We inspected a sample of quarterly reports and noted the following exceptions: Unemployment Insurance – One (1) ETA 191 quarterly report; Unemployment Insurance – Two (2) ETA 2208A quarterly reports; Unemployment Insurance – One (1) ETA 2112 monthly report; Unemployment Insurance – One (1) ETA 9052 monthly report. Recommendation: We recommend that management carefully review the terms and conditions included in the supporting grant agreements and the Reporting requirements included in the OMB Compliance Supplement applicable to the Unemployment Insurance and the Employment Services Cluster programs and implement controls to ensure that all reports are filed on a timely basis.

Item 2022-002: Report Submission to the Federal Audit Clearinghouse (Other Matter Required to be Reported Under the Uniform Guidance) (Material Weakness) Condition: The Agency did not prepare and submit its Data Collection Form and Reporting Package for the year ended June 30, 2022 to the Federal Audit Clearinghouse by the due date of March 31, 2023. Criteria: Per §200.512 of the Uniform Guidance, Report Submission, the audit shall be completed and the Data Collection Form and Reporting Package shall be electronically transmitted within the earlier of thirty (30) days after receipt of the auditor’s reports, or nine (9) months after the end of the audit period. If the due date falls on a Saturday, Sunday, or federal holiday, the Data Collection Form and Reporting Package are due the next business day. The Uniform Guidance does not permit the recipient to extend the due date. Cause: Management did not submit their Data Collection Form and Reporting Package by the due date due to an OIG review of the June 30, 2022 year end. Management delayed their reporting due to the completion of the OIG review and key accounting/finance personnel turnover. Effect: The Agency’s Data Collection Form and Reporting Package for the year ended June 30, 2022 was not prepared and submitted to the Federal Audit Clearinghouse by the due date. Recommendation: We recommend that management during times of unexpected increase activity ensure that all appropriate controls are in place to allow timely completion of audit procedures as well as submission of Data Collection Form and Reporting Package to the Federal Audit Clearinghouse.