Approximately $166 million in unemployment benefits were paid out incorrectly over the last several years in North Carolina. That’s according to a report from State Auditor Beth Wood’s office.

The investigative report revealed that the N.C. Department of Commerce, Division of Employment Security reported an improper unemployment insurance payment rate averaging 18% during the period of April 1, 2016, through March 31, 2021, which exceeded the 10% federal improper payment rate allowed by the U.S. Department of Labor. As a result, DES paid approximately $166 million in improper payments.

Overpayments accounted for approximately 95% of all improper payments during that period.

In 2019, the U.S. DOL designated North Carolina’s UI program as “High-Rate/High Impact” due to its high improper payment rates. As a “High-Rate/High Impact” state, N.C.’s UI program receives additional targeted assistance and strategies to implement from the UI Integrity Center to reduce improper payments.

Wood’s office said DES exceeded the improper payment limit because it did not follow specific U.S. DOL recommendations to reduce improper payments that resulted from work search requirements, benefit year earnings, and separation information issues.

In North Carolina, claimants are required to actively seek work, make three work search contacts each week, keep a detailed record of their work search activities, and provide it to DES upon request.

The report found that DES didn’t implement a requirement for work search reporting within the weekly certification process or provide claimants with an optional repository to record work search activities electronically. Instead, DES only required claimants to keep a detailed record of their work search activities and maintain the records for five years in the event they are audited. 

When asked why DES had not implemented a work search repository as part of the weekly certification process, the Chief Deputy of Programs said they were concerned with the costs of implementing and maintaining an electronic repository, despite the U.S. DOL recommendation for the last several years.

The Chief of UI Benefits told the auditor’s office that they could not determine the feasibility of an electronic repository due to the volume of UI claims during the COVID-19 pandemic. 

Auditors also found that DES failed to ensure the Division of Workforce Solutions conducted Reemployment Services and Eligibility Assessment or Employability Assessment Interviews with claimants to provide financial and job-seeking assistance while they looked for employment.

They also noted that only 53% of claimants had assessments conducted for either a RESEA or EAI assessment from January 1, 2019, through March 31, 2020. DES had an agreement with DWS to schedule and conduct the assessments. 

The DES Chief of UI Benefits stated that she had not been aware there was a report from DWS or otherwise available to ensure that all claimants received the required assessments.

Issues with benefit year earnings include claimants receiving unemployment payments that they were ineligible to receive because they failed to report earnings after returning to work or inaccurately reported earnings.

Wood’s office found that DES failed to reduce improper payments resulting from benefit year earnings due to not cross-matching claimants with state directories of new hires until June 2021. They also didn’t implement the wage calculator with Weekly UI Certification. as part of the weekly claim certification specifically to reduce benefit year earnings errors. 

The audit also revealed that DES didn’t implement a standardized process for making separation determinations. Improper payments caused by inaccurate separation information occur when claimants receive unemployment payments they were ineligible to receive because they voluntarily quit or were discharged for cause. 

Instead, DES management allowed DES staff to make decisions on separation cases based on their professional judgment.

Wood’s office made the following recommendations:

  • Claimants should report work search activities within the weekly certification process.
  • Ensure that DWS is scheduling and conducting RESEA or EAI interviews with claimants.
  • Continue to cross-match with the SDNH to identify as quickly as possible when claimants return to work and monitor to ensure it is working as intended.
  • Continue requiring claimants to use a wage calculator as part of the weekly claim certification and monitor it to ensure it works as intended.
  • Create standardized policies and procedures for making separation determinations when the employers’ and claimants’ reasons for separation conflict.

They also made two additional recommendations to DES, including increasing its efforts to recover outstanding unemployment overpayments 

Over $982 million in UI overpayments were identified from April 1, 2020, through March 31, 2022, but DES recovered only $87 million or 9% during the same period. After accounting for adjustments, there were approximately $752 million in unrecovered overpayments as of March 31, 2022. 

Auditors say DES does not have a plan or process to actively pursue overpayment recovery from most claimants.

DES also doesn’t monitor the effectiveness of its recovery efforts. While DES has information available to know whether current claimants are having their UI benefit payments offset for prior overpayments, DES does not analyze the information to identify and correct potential issues with overpayment recovery. 

Additionally, DES does not have available reports detailing the number of claimants and the number of overpayments recovered for any other recovery methods.

The second recommendation is for DES to consider implementing procedures to ensure that overpayment detection and recovery activities reports are accurate. 

Machelle Baker Sanders, secretary of the Department of Commerce, accepted the report’s findings and said many of the recommendations have been implemented or will soon be.

They include working on the creation of an online work search repository and reviewing their policies and procedures to further standardize training and ensure consistency across adjudication, benefits accuracy measurement, and legal unit processes.