Audit finds massive problems in Colorado’s unemployment insurance fund management

A report from the state auditor released Tuesday morning found deep financial deficiencies in the Colorado Department of Labor and Employment’s management of the unemployment insurance fund, saying the department’s books were so messy it was impossible to determine how widespread the financial problems are.

The auditor could not say whether or not the unemployment insurance fund’s accounting was wrong because there was nothing in place to help figure it out, according to a news release from the Office of the State Auditor. Part of the reason for an inability to account for money was a backlog of unprocessed or unadjudicated unemployment insurance claims, and that made it impossible to estimate how much was lost to fraud, a report summary said.

“The state did not have an adequate method to determine the estimated amount of the unemployment overpayments and potential claims that still need to be paid, as well as potential amounts due back to the federal government within the Unemployment Insurance Fund as of June 30, 2020,” the news release said.

The labor department also submitted six of 10 exhibits after the auditor’s deadline and had errors and omissions on two of the exhibits that included a $20.9 million understatement of cash and an approximately $1.4 billion omission of expenditures on its budget for federal assistance.

The state auditor issued a “disclaimer of opinion,” which means the auditor could not obtain sufficient accounting information to declare whether or not the books were in order and concluded it was impossible to determine how serious the deficiencies are.

The financial problems within the unemployment insurance fund were reported as part of Colorado’s annual statewide financial audit. The unemployment fund was the only one that did not get a clean report from the state auditor’s office.

The state’s unemployment insurance fund has been fraught with problems since the COVID-19 pandemic began a year ago.

In February, the labor department reported that it had flagged more than a million unemployment applications as potentially fraudulent. Countless Coloradans have been victims, including businesses that have received notice for employees who filed claims when those people were still working or notices of claims from non-existent employees. And workers have received letters about their claims and benefits cards in their names when they never filed.

On top of the fraud, the department has struggled with technology that was put under pressure by the overwhelming number of people who lost their jobs amid the pandemic and needed to receive benefits. At the start of the pandemic, the labor department’s unemployment benefits system was operating on outdated technology and was clunky for users. In January, the department introduced a new, modernized computer system but glitches in the rollout caused thousands of jobless people to wait to receive money.

The Colorado unemployment system is funded by the state’s businesses that pay into the program, based on things such as the number of employees and the company’s history with layoffs. In normal times, out-of-work Coloradans can receive weekly payments between $25 and $618, depending on income, for a maximum of 26 weeks.

However, Congress created pandemic stimulus programs that funneled billions in extra unemployment funds to the states. Those programs increased weekly payments, lengthened the amount of time people could qualify for payments and for the first time created unemployment funds for independent contractors and gig workers, who do not pay into the state system.

It was the latter program — called Pandemic Unemployment Assistance — that triggered massive fraud because states did little in the beginning to verify eligibility in a rush to get money into the hands of people who lost jobs. The auditor also found a significant deficiency in the Governor’s Office of Information Technology, which helps manage the labor department’s computer system, for its oversight of the PUA fund, according to the report.

Unemployment fraud has overwhelmed many states, and it is so widespread that the U.S. Department of Justice organized a task force to stop it and track down violators. Colorado Attorney General Phi Weiser recently announced a statewide effort to prosecute scammers and identity theives.

 

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