(The Center Square) – Kentucky State Auditor Mike Harmon said last week his team found the state Office of Unemployment Insurance exposed the state to fraud and waste because the agency demonstrated “poor internal controls” over benefit payments. And the financial impact of that has yet to be determined. 

That finding was part of the Comprehensive Annual Financial Report (CAFR) Harmon released. State law requires the report, which provides a complete record of the state’s financial transactions for the previous year as well as the commonwealth’s financial condition at the end of the fiscal year. (https://finance.ky.gov/Office%20of%20the%20Controller/ControllerDocuments/2020%20CAFR%20Report%20FINAL.pdf

The state’s unemployment program, like others across the country, was hammered in the spring as the COVID-19 pandemic prompted Gov. Andy Beshear to ban in-person service at bars and restaurants and shut down such businesses as daycare centers.  

Those steps and others put an incredible strain on the unemployment program. According to the CAFR, initial claims went from 2,800 per week in mid-March to more than 500,000 in a month. Another 500,000 were added over the following 10 weeks. 

That’s when the issues arose, said Harmon in a letter to the Finance and Administration Cabinet Secretary Holly Johnson. 

“During the fourth quarter of fiscal year 2020, the Office of Unemployment Insurance, in an effort to expedite unemployment benefit payments, eliminated key internal controls that were in place to reduce the risk of improper payments,” Harmon wrote. “As a result, payments were paid to claimants without verification of eligibility.” 

Other issues arose as well, including a backlog of unprocessed claims at the end of the fiscal year. The state was still dealing with that as of last week, Harmon noted.  

He fears that may cause issues for lawmakers when they return to Frankfort in in early January to start the 2021 General Assembly. 

“In addition to continuing the uncertainty for thousands of Kentuckians waiting for unemployment claims to be processed, the inability to provide reliable data on the amount of claims still owed adds to the challenge that faces the General Assembly as legislators return in January to craft a new budget,” said Harmon. “It is imperative for UI officials to address the problems that led to this issue, so that reliable data can be provided for the current fiscal year and going forward.”  

During his COVID briefing, Beshear was asked for an update on the unemployment program. He said he won’t be satisfied until that backlog has been cleared but there have been challenges facing the state in accomplishing that.

The governor acknowledged that at the beginning, the direction was to get payments out as quickly as possible, all while doing that with a reduced staff because of previous budget cuts. He added the state also received confusing directions from federal officials that hindered progress. Further, the state’s antiquated system could not deal with all the sudden changes. 

Beshear added that the way the state and federal unemployment system is designed “to create problems” the way it’s currently in operation. 

“We don’t just spend every day on new claims that have been filed or claims that we haven’t gotten to,” he said. “We’ve got people who’ve been on it for two months, and then may answer a question wrong in the system. And you got to spend that 10 or 15 minutes to walk them through it, to get it right for them to continue their benefits. So, it’s hugely burdensome, hugely time intensive.

This article was initially published at TheCenterSquare

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