Over $400M in pandemic unemployment benefits weren’t paid in a timely manner, NC state audit finds

RALEIGH, N.C. (WBTV) – The North Carolina state auditor found that hundreds of millions of dollars in pandemic unemployment benefits were not paid in a timely manner.

According to the audit, the Department of Commerce’s Division of Employment Security (DES) did not issue $438 million of first unemployment benefit payments timely during the period between Jan. 1, 2020, through March 31, 2021.

The reasons the payments weren’t issued in a timely manner “during a time of tremendous need,” according to the audit, were:

DES’ unemployment claim process is not designed to make payments timely
DES management did not monitor payment timeliness
DES was not prepared for economic downturns that will inevitably occur

The audit states that DES did not meet the federal first payment timeliness standard for six of the eight (75%) unemployment benefit programs it administered.

“Federal regulations require states to ensure that at least 87% of first benefit payments are issued to regular unemployment insurance (UI) claimants within 14 days in states with a waiting week, and within 21 days in states with no waiting week,” the audit states.

N.C. law requires claimants to serve a waiting week for each claim filed, but that requirement was waived for weeks ending April 4, 2020, through Sept. 4, 2021, in response to the COVID-19 pandemic, state auditors said. They noted that the requirement to ensure that at least 87% of first benefit payments were issued within 14/21 days was not waived.

According to the report, auditors tested 3.67 million of 3.69 million first payments from eight unemployment benefit programs DES administered and found that DES only issued 2.20 million – or 60% - of these payments within the federal timeliness standard.

The audit stated that DES only met the 87% federal first payment timeliness standard for two of eight – 25% - individual unemployment benefit programs the department administered.

In September 2018, DES implemented a new unemployment insurance claims processing system with the intent to modernize its system, according to the audit.

If there are no eligibility issues, the program automatically processes the claim to be paid. If there are issues, DES staff must then manually review the claim and may request additional information from the claimant to determine whether the claim meets eligibility requirements, the report stated.

According to the audit, the timeframe that DES established for staff to do manual reviews allows the time spent to exceed the 14/21-day federal timeliness standard.

Auditors said because of the way its claims process is designed, DES has failed for the last 10 years – nine of which were prior to the COVID-19 pandemic – to meet the federal requirement that at least 87% of first unemployment benefit payments are issued timely.

DES management also did not monitor the timeliness of manual reviews to process claims, according to the report. Auditors also said the department did not monitor contractor performance or enforce contract requirements.

According to the audit, DES executed contracts totaling more than $261 million to assist with the increased claims processing workload that occurred during the pandemic.

In 2017, the N.C. Department of Commerce issued a report on the impact the Great Recession had on the state’s UI program to help “develop strategies for alleviating unemployment during the next recession,” the report states.

“Despite knowing another economic downturn was inevitable, DES did not have a plan or risk assessment that identified, evaluated, and addressed the risk that a sudden economic downturn could occur and significantly increase unemployment claims,” according to audit.

Recommendations in the audit include:

DES management should review the design of its unemployment benefit claims process to ensure the process is designed so that first payments meet federal unemployment benefit payment timeliness standards
DES should monitor each aspect of the claims process to determine how delays in one functional section could affect the timeliness of the work performed by the other functional sections
DES management should continuously identify, evaluate and address the risk that unemployment claims could increase due to events such as an economic downturn

The state auditor’s full report can be read here.