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State Comptroller: State Labor Dept Has Had Problems W/Unemployment $

November 16, 2022

From State Comptroller Tom Dinapoli:
The state Department of Labor’s (DOL) failure to replace its long-troubled Unemployment Insurance (UI) system and ad hoc workarounds to compensate for the old system weakened oversight and ultimately contributed to an estimated billions of dollars in improper payments during the COVID-19 pandemic, according to an audit released today by State Comptroller Thomas P. DiNapoli. DOL refused to provide auditors with the data that would have enabled auditors to calculate the precise amount of improper payments and was slow to provide requested information that delayed the completion of the audit. The audit examined the period from Jan. 2020 to March 2022.

“The state Department of Labor’s antiquated UI system was ill-equipped to handle the challenges posed by the extraordinary demand caused by the pandemic for unemployment benefits and more lenient federal eligibility requirements,” DiNapoli said. “The agency resorted to stop-gap measures to paper over problems, and this proved to be costly to the state, businesses, and New Yorkers.” DiNapoli said. “The department needs to recoup fraudulent payments and correct its mistakes. I was pleased the department agreed with our recommendations and is moving to implement them.”

DOL officials did not heed warnings as far back as 2010 that its UI system was out of date, nor did it address issues identified in a 2015 State Comptroller’s audit. The system lacked the resources necessary to adjust to new laws or handle workload surges –– a dire forecast with disastrous consequences during the pandemic. Not only did DOL have to manage an unprecedented volume of traditional UI benefit claims, but it also administered UI benefits for the temporary programs created by the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These temporary federal benefits, with less stringent eligibility requirements, contributed to a dramatic increase in UI claims.

Even before the pandemic, the U.S. DOL reported New York’s traditional UI estimated improper payment rate at 10.34%, including a fraud rate of 4.51%, in State Fiscal Year (SFY) 2019-20, exceeding the federal performance threshold of 10%. Unlike temporary programs which are funded 100% by the federal government, New York’s UI program is funded by taxes collected from employers. With the increase of claims during the pandemic, U.S. DOL’s estimated improper payment rate in New York’s UI program increased significantly to 28.89% including a fraud rate of 17.59% in SFY 2021-22.

From April 1, 2020 through March 31, 2021, the state made 218.2 million traditional and temporary UI payments totaling over $76.3 billion, an increase of nearly 3,140% over the amount paid in the prior state fiscal year. Using the U.S. DOL’s estimated fraud rate for New York’s traditional UI program for SFY 2020-21, this would equate to approximately $11 billion lost to fraud in that fiscal year. This likely understates the actual amount, as New York DOL acknowledged that the temporary programs had a significantly higher risk of fraud.

From state senator George Borrello:
“The audit released by Comptroller DiNapoli exposes the incompetence that characterized the Department of Labor’s response to the pandemic-driven demand for benefits. Borrello says his office staff took calls day and night from desperate New Yorkers who were frustrated with unending busy signals, system crashes, incorrect payments and ignored reports of fraud. Borrello also says While the labor department’s front-line staff tried diligently to help us resolve claims, the failure of an outdated system and inept administration were constant obstacles.