Colorado State Audit Finds 'Significant Deficiencies' In Unemployment Insurance Claims

DENVER (CBS4) - A state audit released Tuesday said it does not have enough evidence to show the unemployment insurance division's finances are clean. The state auditor tells CBS4 that's because there's a backlog of 82,000 unique claimants yet to be adjudicated.

The Office of the State Auditor says it found a significant backlog of unprocessed, un-adjudicated unemployment insurance claims "which may represent overpayments due to errors and/or fraud." The office says it expressed a rare no opinion, also known as a disclaimer of opinion, on the state's funds for unemployment insurance and "business-type activities."

"When the State doesn't get a clean audit opinion, that's a big deal, too," said Kerri Hunter, Deputy State Auditor.

The office says the backlog existed as of June 30, 2020 through March 5, 2021 during the audit.

"The State did not have an adequate method to determine the estimated amount of the unemployment overpayments and potential claims that still need to be paid, as well as potential amounts due back to the federal government within the Unemployment Insurance Fund as of June 30, 2020. As a result, the auditors could not conclude that the Unemployment Insurance Fund and Business-Type Activities were, or were not, materially misstated," the OSA stated in a news release.

State Rep. Dafna Michaelson Jenet (D), who is the chair of the state audit committee, said the findings show just how slammed the Colorado Department of Labor has been during the pandemic.

"Let's think about what was going on in that unemployment insurance division while we were putting in a new computer system, we were getting new orders every day, and then we moved to adjudication to the back end," Michaelson Jenet said. "So, I think it was the right decision to move adjudication to the back end, people needed to get their finances, but now it's time for us to put our house in order."

The committee is now starting what's called a performance audit into the CDLE, to determine what's been going on behind the scenes.

Over the course of the pandemic, CBS4 Investigator Kati Weis has covered changes and problems which Coloradans faced when trying to receive unemployment benefits.

You can read volume one of the OSA's audit online. Volume two will be released in June and will focus on the state's compliance with federal grant requirements.

The office says other state financial statements, like the General Fund, were presented fairly.

The CDLE issued the following statement about the audit released today:

"The Covid-19 pandemic had an unprecedented impact on state unemployment insurance programs. Like our country's health care systems, UI programs were hit almost overnight by a tsunami of new unemployment claims - a 6000% increase from March 9th to March 23rd. Realizing the
critical need to get jobless Coloradans immediate relief, on March 20, 2020, Governor Polis issued Executive Order D2020-12 to ensure workers received payments within ten days and help "shore up economic security, employment, community cohesion, and community
recovery.

As with the Great Recession, the Department made processing adjustments to quickly deliver these benefits to people who desperately needed them, knowing it would create a backlog. CDLE has been working with a vendor partner to adjudicate these claims and will continue
to prioritize this work.

Every state in the nation is similarly dealing with fraud in their unemployment insurance systems. Colorado has been recognized nationally for its ability to manage that fraud and keep it under control. We have even had other states reach out to us and ask for advice on
the anti-fraud measures we have put into place. For example, California paid more than $11 billion in fraudulent claims, whereas Colorado has been able to minimize our exposure to a fraction of that.

Much of the problem stems from policy decisions that were made by the federal government early in the COVID response. Erring on the side of getting benefits to people faster was the right response in such an international emergency, although the tradeoff to that decision
exposed all state governments in the country to an increase in fraud.

This audit reflects the end of last fiscal year - now almost a year old. Since that time, we have implemented several measures against fraud, including changing business processes, implementing technology solutions, and partnering with the Attorney General's Office to investigate and prosecute those suspected of committing UI fraud."