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AUDIT: DES overpaid $366 million in claims, shorted some $17 million

A newly released state audit found the Division of Employment Security's error rate is nearly double what the federal government allows.

CHARLOTTE, N.C. — Long before unemployed workers overwhelmed North Carolina's jobless benefits program during the pandemic, a newly released state audit found the Division of Employment Security sent out wrong payments far too often.

A state audit concluded, from early 2016 through early 2021, DES got almost two out of every 10 claims wrong, nearly double what the U.S. Department of Labor allows.

The cost of those errors adds up. Auditors identified more than $366 million in North Carolina unemployment payments DES sent to people who didn't qualify and another $17 million the agency underpaid to those who were actually eligible.

Credit: North Carolina State Auditor

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"This money's off the backs of our employers because this is money they've paid into the State of North Carolina," State Auditor Beth Wood said.

The report concluded those errors accounted for almost 18% of all state claims, far exceeding the federally allowable maximum 10% improper payment rate. Wood said her agency discovered DES failed to put in place long overdue U.S. Department of Labor recommendations that would have better-protected employers' investment in the program.

"DES needs to work faster in implementing these critical processes," she told WCNC Charlotte. "These are processed that, if implemented, could cut this excessive overpayment number down significantly."

Wood said among the necessary changes is a process that better tracks the job search efforts of those receiving benefits.

"I've always wondered, are people applying for jobs that they absolutely know they can't get?" she said. "Are we collecting, we're not, the documentation of the jobs they applied for?"

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In addition, she said DES would benefit from better processes to monitor earnings when people return to work and they leave their jobs.

Auditors also suggested the agency should better collect money when there are errors, concluding most overpayments go uncollected, since "DES does not have a plan or process to actively pursue overpayment recovery from most claimants and does not monitor the effectiveness of its recovery efforts."

Credit: North Carolina State Auditor

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DES spent much of the pandemic trying to overcome benefit delays, fraud and payment errors, but Assistant Secretary Pryor Gibson pledged, while it would take a while "to get where we need to be," the agency was "on a doggone good path to get there."

When asked what led to the delays in implementing the overdue federal recommendations, DES declined to explain, instead directing WCNC Charlotte to its audit response.

"The Division of Employment Security is working proactively to ensure the accuracy of unemployment benefit payments," DES Communications Manager Laura J. Leonard said in an email statement. "DES had steadily improved its improper payment rate over the last five years and continues to implement new strategies and best practices to reduce fraud, waste and abuse in the unemployment benefits system."

WCNC Charlotte is always asking "where's the money?" If you need help, reach out to WCNC Charlotte by emailing money@wcnc.com.

According to the agency's audit response, DES partnered with the National Association of State Workforce Agencies in 2019, after the federal government identified North Carolina as a "high risk/high impact state," to "develop and implement a plan to combat improper payments." DES reported it expanded its integrity plan in fall 2020 and continues to "analyze and strengthen its recovery efforts."

Wood said, right now, there are no real consequences for DES for failing to fall below the federally required 10% improper payment rate. She wants state lawmakers and the governor to see the audit, so they can hold DES accountable.

Contact Nate Morabito at nmorabito@wcnc.com and follow him on FacebookTwitter and Instagram.

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