Pennsylvania Audit Finds Big Financial Problems in Unemployment Program

The audit shows that, based on L&I's projections, $159.5 million in additional funding is needed over the next four years to maintain operations, avoid additional service center closings, and modernize the computer system.

Pennsylvania's auditor general, Eugene DePasquale, released details of a performance audit by his agency of the state Department of Labor & Industry's Unemployment Compensation Service and Infrastructure Improvement Fund (SIIF) on April 25, saying it found major accounting and oversight problems that must be corrected immediately. "People have a right to be frustrated by what we found here," he said. "If L&I had appropriately accounted for SIIF funding from the beginning, we may not be dealing with this chaos and looking at such high costs to address the problems going forward.

"This audit is about more than finding out what happened to the money and how much additional funding is needed to fix the problem," he said. "It is about providing the people of Pennsylvania with the level of service they deserve. It's about the 312,000 Pennsylvanians who tried to call the UC service centers in January and got a busy signal 99.3 percent of the time. The Department of Labor & Industry must do better."

In January, DePasquale began an audit of the fund, which was created by a law enacted in 2013 to temporarily supplement the decline in federal funding L&I uses to administer the UC program. When legislation to extend SIIF funding for 2017 failed in December 2016, L&I cut $57.5 million from its budget, which resulted in the closure of three of the eight UC service centers and furloughing 488 employees. The audit examined how L&I used SIIF funding from 2013 through 2016 and how much money will be needed in the next four years to maintain efficient operation of the UC program and to avoid additional budget cuts.

Among the findings:

  • L&I spent a total of $178.4 million from the authorized SIIF funding during 2013-2016 but did not use proper accounting methods to record SIIF expenditures.
  • L&I made numerous improvements to the UC system between 2013 and 2016.
  • L&I needs an estimated $159.5 million between 2017 and 2020 to maintain current UC operation of five service centers ($95.7 million) and replace its ancient computer system ($63.8 million), including $29.7 million for 2017 ($12.1 million for current operations and $17.6 million toward modernizing its computer-based benefit system) and $38.9 million for 2018 ($20.2 million for current operations and $18.8 million toward modernizing its computer-based benefit system).
  • L&I estimates it needs an additional $38.5 million to recall furloughed employees for one year.

It shows that, based on L&I's projections, $159.5 million in additional funding is needed over the next four years to maintain operations, avoid additional service center closings, and modernize the computer system, even though those projections do not forecast reopening all three service centers closed in December 2016 or recalling furloughed staff. "The numbers are stunning," DePasquale said. "L&I must immediately work to make administration of Pennsylvania's unemployment compensation program operate more efficiently to serve residents who are forced to use the system when they lose their job through no fault of their own. There is no question that improvements to the UC system were made but, because L&I failed to use proper accounting methods to record and track SIIF funds, my team was unable to determine whether all the funds were used appropriately."

He noted that SIIF funds come from a portion of payroll taxes paid by all employees, not the state's general fund. The audit indicated L&I did not separately record specific expenditures in the SIIF account, but instead lumped all expenditures together. And required reports to the governor and General Assembly were not submitted until January 2016 — more than a year and a half late — and contained too few details to be reliable or of value.

L&I is now evaluating proposals to restart and complete the computer modernization project it started in 2006.

The audit report is available at www.PaAuditor.gov.

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