KDOL Answers: State audit shows reason for unemployment fraud, payment delays, call center issues

Unemployment Situation

TOPEKA (KSNT) -The Kansas Legislative Division of Post Audit, LPA, released the final series of estimates on state unemployment fraud on Monday.

The estimates are the second part of an extensive audit on the state’s unemployment system, showing an estimated $700 million lost to fraudsters during the pandemic.

“About half, so $343 million came from federal unemployment funds, and about half, about $344 million came from state unemployment funds,” said state auditor Matt Etzel.

Etzel noted that a vast amount of fraudulent payments were prevented as well, acknowledging that state labor officials were able to prevent an estimated $2 billion worth of payments from going out to fraudsters.

In February, LPA released a preliminary fraud estimate of $600 million. State labor officials quickly pushed back, calling the numbers “seriously flawed.”

Etzel said the audit released in a meeting at the Kansas statehouse on Friday used a “neural network,” or a form of machine learning used to replicate human decision making, to estimate unemployment fraud in Kansas. State auditors said the advanced computer model helped provide a more “precise estimate.” The report focuses on identity theft fraud, a new source of attacks that spiked during the pandemic.

However, Kansas Department of Labor (KDOL) officials joined the meeting to defend their efforts to prevent billions in tax dollars from being lost.

“KDOL believes that a more accurate estimate of the fraud prevented by the agency is more than $20 billion when the potential maximum payout of fraudulent claims is considered. This number continues to increase as KDOL continues to review claims and those that may be revealed as fraudulent in the subsequent audit.”

KANSAS DEPARTMENT OF LABOR

KDOL Deputy Secretary Peter Brady reiterated that the additional dollars estimated by the LPA are in “low confidence,” only agreeing on $380 million lost to unemployment fraud. The department believes anything over that amount would require additional review.

Some lawmakers, like Senator Ethan Corson, D-Prairie Village, agreed, expressing concerns with the LPA’s estimate.

“There are still a lot of questions out there on what the actual amount is,” Sen. Corson said. “I think these questions are at the very, very high end, probably unreasonably high”

Unemployment fraud drained the resources of many states during the pandemic. Brady said that June estimates from U.S. officials show about $89 billion lost to unemployment fraud.

After detailing an extensive amount of challenges the department faced during the pandemic, as they tried to adjust to swift changes in federal pandemic unemployment programs with limited resources, Brady asserted that anyone found eligible for unemployment, will be paid what they’re owed, even after federal programs end September 4.

“Up to the week ending September 4, which is when the federal programs end, regardless of when they’re found eligible, if they are found eligible for those weeks, they will be paid for those weeks,” Brady said.

Brady said getting backpay to claimants could become easier, as their system subsides from the strain of an increased amount of claimants and federal program changes.

This comes as thousands of Kansans have experienced payment delays during the pandemic, and also struggled to get in contact with the department to talk about their claim.

The LPA’s audit also looked into the reasons behind the extensive delays people were experiencing and long call lines.

CALL CENTER ISSUES

Prior to the pandemic, KDOL had few staff to answer calls because of low unemployment and low federal funding levels. According to auditors, federal funding generally increases and decreases with unemployment rates as needed for unemployment insurance changes. Kansas’ unemployment rate steadily declined, reaching 3% in 2019, which is the lowest it’s been since 1979. Federal funding for the state’s unemployment program also declined during this time.

According to the LPA’s audit, KDOL reported that because unemployment program funding was low, they had 33 fully trained customer service representatives to answer phones in April 2020. At that time, the department had also received 12.5 million incoming calls. The high call volume stemmed from individuals calling multiple times a day because they couldn’t reach a customer service representative.

According to KDOL, up to 120 staff from other divisions and agencies helped answer calls during the spring of 2020. In total, KDOL reported answering about 1%, or about 70,000, of the 12.5 million calls in April 2020.

In July 2020, KDOL contracted with Accenture to provide additional surge staff during the pandemic. The department said the staff helped answer phones, made outbound calls, and helped with other administrative duties.

LPA auditors report that despite the additional surge staff, the number of calls answered did not improve significantly during the pandemic, potentially leading to additional claim delays.

Representative Sean Tarwater, R-Stilwell, said he was disappointed in the suggested shortcomings despite additional staff.

“For some reason, even by adding 500 additional employees, we still could only answer 1% of the calls, and I think that’s unacceptable, and that’s something we really need to take a deep dive into, so this never happens again,” Tarwater said.

KDOL suggested that call complexity increased during the pandemic, with the LPA acknowledging that the possibility of more complex calls could increase call times.

“KDOL does not disagree with LPA’s background of the benefit programs, but believes it is oversimplified.”

KANSAS DEPARTMENT OF LABOR

The report stated that longer calls could have resulted in fewer calls answered per day. KDOL also reiterated that not all Accenture staff were answering phones, which could have limited the number of calls answered per day.

PAYMENT DELAYS

The LPA’s report also looked into the main causes of unemployment delays in Kansas. Auditors pointed to three main issues that could’ve sparked the delays, which include rapid changes to federal unemployment programs, a high amount of unemployment claims, and a poorly equipped computer system.

“During the pandemic, a surge in valid and fraudulent claims strained the state’s piecemeal unemployment system, leading to system failures and claim delays.”

KANSAS LEGISLATIVE DIVISION OF POST AUDIT

Auditors said that frequent changes to the state’s unemployment computer system during the pandemic created system errors and processing delays.

Under normal conditions, auditors said that the department would not have to make any major edits to its unemployment computer system. However, this changed when the pandemic began. KDOL was tasked with quickly building and deploying several changes to an ill-equipped computer processing system.

As an example, auditors pointed to a PUA buildout that expended a large amount of the department’s time and resources. Getting the new system to effectively communicate with the department’s outdated mainframe also presented a new set of challenges. The U.S. Department of Labor also issued additional federal program revisions that required KDOL to review new guidance, edit their underlying code, and test the changes before deployment.

According to the LPA report, these changes to the state’s coding structure created errors and delays.

These changes caused problems because the state’s unemployment system operated on a disorganized coding structure. Despite an internal testing process, KDOL staff were unable to prevent all changes from creating system errors. This led to several claims processing issues.

KANSAS LEGISLATIVE DIVISION OF POST AUDIT

State auditors said the processing issues that resulted as a result of coding changes, included several claimants appearing that they were no longer eligible for benefits when they still had multiple weeks of eligibility remaining. In this case, the LPA said claimants were denied payments because of the error.

Other coding issues led to claimants that were eligible for pandemic-related programs being denied. KDOL officials said these issues mainly occurred as people were transitioning between unemployment programs.

The department said that they learned about these issues, in some cases, from call representatives taking calls from the public. Additionally, they said it takes specialized staff to review claims and identify the issue. KDOL officials said they don’t have many of these specialists, because it takes years of experience to gain the knowledge necessary for the position.

Many of the issues noted in the audit tie back to KDOL’s outdated computer system, which is in the process of being modernized. Officials said other states and U.S. agencies are also considering the same efforts, after the high levels of fraud experienced during the pandemic.

A state law passed this year requires the $37.5 million modernization project to be completed by December 31, 2022, but extensions can be granted if necessary. The project will also allow the department to fix issues tied to its disorganized coding structure, according to auditors.

Rep. Tarwater, who also sits as chair of the state’s Unemployment Modernization Council, said he’s hoping to get these issues corrected soon for the unemployed Kansans that have struggled during the pandemic.

“They were in a terrible situation in their lives, they were losing their cars, their houses, they were trying to feed their children.”

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