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New Watchdog Probe of Jobless-Aid System Hints at Long-Term Fix

Sept. 17, 2020, 9:31 AM

The U.S. Labor Department watchdog is developing a comprehensive report on how some of the country’s most-populous states have processed unemployment insurance claims during the pandemic, a study poised to inform legislative discussions about whether to reinstate enhanced benefits.

The review, part of the DOL Office of Inspector General’s effort to evaluate pandemic response, is wide-ranging and extends beyond a traditional focus on rooting out fraud and improper payments, according to a copy of a notification letter Bloomberg Law obtained and interviews with eight state employment officials and outside experts.

The watchdog, working with a consulting firm, is seeking information in real time about flaws in the federal-state system that were exposed by the historic spike in claims during the pandemic’s early stages. It also wants to see how states implemented expanded benefits programs that Congress set up through the CARES Act in late March.

A notification letter sent to at least seven states requested detailed responses on topics such as the sufficiency of information technology used to process claims; eligibility verification processes; and handling of claims in which a recipient refuses an offer to return to work, which is grounds for revocation of benefits.

A report based on the review, which could be completed by month’s end, will provide important information for lawmakers when considering whether to continue broadened jobless benefits beyond their Dec. 31 expiration, as well as a potentially larger overhaul to prepare the unemployment system for future economic turmoil.

“Any discussion about extending federal unemployment insurance would look to the inspector general’s findings to protect taxpayer dollars to the greatest extent possible,” said Michael Zona, spokesman for Republicans on the Senate Finance Committee, which has jurisdiction over unemployment benefits.

The House Ways and Means Committee, which handles the program in the House, will “certainly take a close look at the report and its findings,” a spokeswoman for the panel’s Democrats added.

The expiring programs include Pandemic Unemployment Assistance, which provided benefits to independent contractors, gig workers, and others who don’t qualify for traditional unemployment insurance, and an initiative to give workers benefits for an extra 13 weeks.

The review is likely to give ammunition to Democrats and Republicans alike on issues such as offering more generous benefits to a wider pool of applicants than states would pay out in normal times, and balancing an emphasis on processing claims quickly with a need to guard against rampant fraud.

Phase Two

The watchdog office confirmed through a spokesman that the review is part of its second phase of oversight of CARES Act programs, for which Congress provided the office $25 million. In July, the watchdog subpoenaed all states, seeking exhaustive data on processing of pandemic-related unemployment insurance claims.

The watchdog previously set Sept. 30 as a target completion date for phase two of the oversight plan, though it was not clear when a report based on the review would be finished. The office declined to list the total number of states it is reviewing or name them, and wouldn’t answer further questions.

Officials from California, Florida, Georgia, New Jersey, Ohio, Pennsylvania, and Washington state confirmed to Bloomberg Law that their states received a notification letter and/or are responding to a federal review of their unemployment systems.

The states under review were asked to respond to four pages of questions plus requests for comprehensive documentation of their handling of unemployment claims from March 27 to July 31.

The consulting firm conducting the review, GenTech Associates, identified itself in the notification letter as working on behalf of the watchdog, and requested a conference call the week of Aug. 17. The company declined to comment.

GenTech is operating with a sense of urgency and repeatedly checking in for status updates, said a representative for one of the states subject to review, who asked for anonymity because the initiative hadn’t been publicly disclosed.

Labor-Intensive Request

The material requested created a time-consuming task for state unemployment offices that are still digging out from under a backlog of claims.

“The audit is requiring a large team of experts” at California’s Employment Development Department “to work quickly to collect a long list of data, documents, and information requested in a mere matter of weeks,” spokeswoman Loree Levy said by email.

The state official who requested anonymity said his team believes the review presents a “good opportunity” to inform future policymaking that would improve CARES Act compliance problems.

The questions in the notification letter cover the breadth of unemployment insurance challenges triggered by the pandemic. Some are specific, such as initial and continuing determinations of eligibility; detection and recovery of improper payments; and whether states cross-matched applicants’ information against other nationwide databases.

A few are narrow. One example is whether the state has resumed enforcing work-search requirements, a normal component of eligibility that DOL allowed states to waive early in the pandemic. Many others are open-ended, such as asking what went well in the state’s implementation of CARES Act provisions.

On multiple subjects, the watchdog wants to know if DOL’s Employment and Training Administration, which oversees the federal-state unemployment system, could have done more to help states. That could yield answers about whether the federal government should take on a larger role during a future economic crisis, instead of deferring to varying state laws.

Focus Broader Than Fraud

The inquiry’s broad scope is an encouraging sign because similar DOL audits merely targeted fraud and overpayments, said Michele Evermore, senior policy analyst at the left-leaning National Employment Law Project.

“They’re taking their responsibility seriously with regard to making sure it’s not just overpayments that they’re completely focused on, but that program integrity means paying benefits to people who need them,” Evermore said.

Nevertheless, fraud and overpayments are a crucial part of the inquiry, as they’ve been areas of concern from the start of the expanded programs in the CARES Act, particularly Pandemic Unemployment Assistance.

“I would expect some discussion on the Hill asking generally about the high incidence of fraud and improper payments if there is an interest in continuing provisions in the CARES Act,” said Doug Holmes, who lobbies for employers on jobless benefits policy and used to direct Ohio’s unemployment compensation division.

Evermore and other worker advocates are interested in how states respond to questions asking them to evaluate their information technology systems’ ability to incorporate expanded benefits, and what kind of tech support DOL has provided.

The inquiry could spur longer-term improvements, perhaps in the form of more funding for DOL to provide centralized tech support to better aid states, Evermore added.

“Information about how to improve the administration of those programs, how to improve benefit payment timeliness in those programs, and how to improve access to those programs would certainly be helpful to advocates, and, I would hope, to the state agencies themselves,” Julia Simon-Mishel, supervising attorney for Philadelphia Legal Assistance’s unemployment compensation unit, said.

To contact the reporters on this story: Ben Penn in Washington at bpenn@bloomberglaw.com; Chris Marr in Atlanta at cmarr@bloomberglaw.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com