FRANKFORT, Ky. (KT) – A report released Tuesday by State Auditor Mike Harmon found numerous issues within Kentucky’s Unemployment Insurance System.

Overall, the report, known as the Statewide Single Audit of Kentucky, or SSWAK, had 25 findings, half of which dealt with the Office of Unemployment Insurance and the UI fund.

Due to the high volume of claims and new federal unemployment programs during the pandemic, the report found OUI leadership made decisions that violated federal law and sacrificed program integrity in an attempt to more quickly get payments to unemployed individuals.

One of these changes referred to as “Auto-Pay,” allowed UI benefits to be automatically paid without requiring claimants to report the weekly wage information needed to determine whether they were actually eligible for benefits. Seasoned OUI and Commonwealth Office of Technology expressed concerns about implementing Auto-Pay, according to the report, but it was implemented in spite of those concerns. Auto-Pay was in effect two weeks for traditional UI and eight weeks for PUA, and it contributed to causing many of the issues identified in the auditor’s findings.

The report notes that despite efforts to pay benefits more quickly, many claims still were not timely processed. As of Oct. 29, 2020, the claims backlog of unprocessed, initial jobless claims totaled approximately 80,000. Additionally, OUI had archived more than 400,000 emails the office received through its UI assistance email account that remained unread as of Nov. 9, 2020.  These emails from claimants could include indications or problems for OUI to address, not to mention general questions from unemployed Kentuckians.

To illustrate the Auto-Pay issue, auditors selected a sample of 37 state employees who filed for and received UI benefits and discovered 16 state employees were paid unemployment benefits for the loss of part-time jobs, despite still being employed by the state.

Claimants are required to report any earnings during the week for which they are claiming benefits, and their full-time state wages would have made these employees ineligible for benefits. However, the adoption of the Auto-Pay policy eliminated the system control that asked claimants to report their weekly earnings, so the system did not take into account wages from their full-time state employment. The net overpayment in this sample was more than $116,000.

Furthermore, seven of the employees did not report wages earned from full-time employment even when the Auto-Pay period had ended despite having the ability to do so.

Another issue appearing in the report was data security. OUI failed to inform the Auditor of Public Accounts, along with other state agencies, of three data breaches that occurred in April and May 2020. State law requires agencies to notify APA and others within 72 hours of the occurrence.

On April 23 and 24, 2020, a data breach was reported by a UI claimant who reported they had viewed other claimant’s uploaded documents including Social Security cards, driver’s licenses, and birth certificates. OUI did not notify APA and others until after the media learned of the breach, at least a month after it occurred. And on May 6, 2020, after OUI claimed a security patch had permanently resolved the issue, a similar data breach occurred again. APA was not notified about the breach until two months after it happened.

“The majority of the findings involving OUI come back to one common issue, which is the decision to remove controls that provided better oversight on verification and payment of UI benefits,” said Harmon. “It breaks my heart to think of those Kentuckians included in the 400,000 unopened emails who so desperately wanted their voices heard and yet were ignored. The systemic failure of leadership on all levels not only violated federal law but also let down many who needed relief. It also leaves others facing the prospect of repaying the government for miscalculated payments they received in good faith.”

Beshear mostly blames an antiquated system for the backlog of claims and is asking the 2021 state legislature to improve it. 

“Most concerns noted in the auditor’s report were addressed in the spring, but no one in state government will be satisfied until all Kentuckians receive the unemployment benefits for which they qualify,” the statement said. “Unfortunately, in the years leading up to the pandemic, the previous administration, and previous legislatures, closed in-person offices, sliced the UI budget by $16 million, and cut 95 skilled employees from UI that were desperately needed.”

The once-in-a-lifetime pandemic and a 1,300% year-over-year increase in claims meant Kentuckians have had to wait too long for their payments.

“The office, at the direction of Gov. Beshear, will continue to address any shortcomings in the system and work tirelessly to meet the needs of Kentucky workers who are unemployed due to no fault of their own,” the statement said.

More than 1.6 million unemployment insurance claims were filed in Kentucky in less than a year with the state paying more than $5.6 billion in benefits since March. The statement said it was “unacceptable that some Kentuckians who filed months ago have not been paid and that thousands of emails went unopened.”

“To provide immediate relief, the Governor authorized $48 million in CARES Act funding last month for those who have waited too long to receive unemployment benefits and to help those who missed out on the federal government’s Lost Wages Assistance Program because they did not make enough,” the statement said.

The Better Kentucky Budget he proposed to lawmakers also allocates $47.5 million to correct chronic underfunding of the unemployment insurance system after the administration inherited an operation running on an IT system that has been in operation since the 1970s. The Governor’s proposed budget includes General Fund spending of $1.1 million in fiscal year 2021 and $8.4 million in fiscal year 2022 to provide funding to restore employees to help with unemployment claims at the 12 career centers throughout the commonwealth.