POLICY HIGHLIGHTER

Volume 14, Number 5
March 31, 2004

State auditor uncovers $767,677 in faulty unemployment benefit payments

A new report issued by the state auditor (SAO) reveals that the Employment Security Department (ESD) wrote $767,677 worth of unemployment benefit checks in fiscal year 2003 that violated state law or failed to meet department eligibility standards. This is especially troubling when the Department is raising the unemployment insurance tax for businesses by an average of 14 percent this year.

Among SAO's concerns regarding these payments:

• [ESD] paid several claimants during their first week of unemployment, which is prohibited by law. [SAO] estimates that $546,000 was paid to claimants during their first week of unemployment.

• Fifteen claimants received benefits while incarcerated, which makes them ineligible for unemployment benefits. These claimants were paid $84,062.

• Ninety-two claimants who received benefits used invalid Social Security numbers (SSN) or SSN belonging to deceased individuals. These claimants are not eligible according to [ESD's] benefit eligibility policies. These payments totaled $96,352.

• Five claimants received both unemployment and worker's compensation benefits for the same time period. This is a violation of state law. These payments totaled $35,944.

• [ESD] made duplicate benefit payments to claimants on 13 occasions, resulting in overpayments of $5,319.

SAO noted that the system error responsible for last year's illegal first-week payments ($546,000) has been a problem since 1997: "Management has been aware of this error since 1997 but considers the overpayments administrative errors. [The] claimants have not been asked to return the overpayments."

Overpayments occur when benefits are provided to ineligible claimants. According to the U.S. Department of Labor, Washington's 2002 rate for all overpayments was 12.24 percent. The national average for the same time period was 9.10 percent.

In addition to these findings, SAO reported that ESD has failed to comply with federal payroll reporting requirements in its UI and Workforce Investment Act programs. These are repeat findings from last year's audit.

Compounding the problems highlighted by SAO, the Joint Legislative Audit and Review Committee (JLARC) reported earlier this year that ESD lacks the tools necessary to evaluate how well it is performing its activities. These tools are essential for measuring the effectiveness of the agency's expenditures.

JLARC concluded that the performance measures ESD does have are not useful in determining how well the agency performs over time, or for comparing the performance of ESD's various regional offices. The Committee expressed the following concerns:

• ESD does not have performance indicators to track the number of UI claimants who are not in compliance with the state's job-search requirements.

• ESD does not have any efficiency measures related to its service delivery or outcome measures.

• Of those performance measures ESD does have, some are not substantive and offer little value in making management decisions.

• ESD's performance measures lack meaningful performance targets.

EFF recommendations
Before ESD asks employers to pay higher UI taxes, the department should resolve the clearly identified problems in its system. The legislature should require the department to: 1) implement adequate performance measures which can be utilized in making management and policy decisions, and 2) aggressively pursue and recover overpayments.

The legislature should also consider petitioning the federal government to allow the state to explore employee-owned unemployment insurance accounts. Allowing individuals to own their unemployment insurance accounts all but eliminates perverse incentives and fraud in the UI system. [See PH 12-23 for a more detailed description of this recommendation.]

Prepared by: Jason Mercier | Budget Research Analyst | 360-956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org