State auditor slams Labor Department’s UI payout tracking

DENVER — The Colorado Office of the State Auditor chided the Colorado Department of Labor and Employment this week, saying that the agency’s accounting controls were inadequate to keep tabs on the historic demand on the unemployment insurance program due to the pandemic.

In its annual audit of statewide agencies, the state auditor’s office issued a rare “disclaimer of opinion” rating, meaning its staff could not say with certainty if CDLE’s estimate of about $2.1 billion in overpayments during fiscal year 2020 from the unemployment insurance system is or isn’t materially misstated.

Colorado’s 2020 fiscal year ended on June 30, 2020.

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Specifically, auditors noted that the Labor Department did not calculate and record how much in UI claims were owed to state residents at the end of the fiscal year due to a considerable backlog in vetting and approving claims. That was later estimated at $597.3 million, but auditors couldn’t say how reasonable that estimate was.

CDLE’s accountants were also unable to specify how much money may be owed back to the federal government’s state unemployment trust fund, a figure later estimated at $215.3 million.

Auditors noted that an error in an application form led to $52.1 million in overpayments being issued to nearly 11,500 people during the fiscal year. CDLE later decided not to claw back the overpayments, but didn’t make an entry in its accounting to reflect the errors.

CDLE and its sister labor agencies across the country saw an unprecedented wave of demand in early March as states instituted shutdowns to slow the spread of COVID. Colorado saw an increase of approximately 1,500% in unemployment claims during the fiscal year, and thousands of residents are filing initial claims each week due to new layoffs or in response to their employers adapting to how much staffing can be used under county-level COVID restrictions.

At the same time, CDLE has had to contend against a wave of fraudsters using stolen identity information to file fake claims. The department said in late February that it detected more than 1.1 million fraudulent claims since the start of the pandemic.

The audit said poor communication between CDLE staffers in charge of distributing benefits and the department’s accountants led to failures in considering how its actions should be recorded in accounting statements.

Auditors also chided the department for using an inadequate methodology for calculating and recording balance estimates for UI payments, saying that staffers recorded receivables for established overpayments all at once at the end of the fiscal year rather than as those overpayments were identified.

In its response, CDLE agreed to implement all of the auditor recommendations by September 2021, including adjudicating the backlog of outstanding claims by then. The Labor Department also intends to bolster its accounting staff by March 2022, saying that its two top controllers and a handful of accountant staffers had left the agency in the first half of 2020.

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