The state’s antiquated unemployment system and “ad hoc workarounds” implemented by the Department of Labor during the early stages of the pandemic weakened oversight and ultimately contributed to billions of dollars in improper payments, the review found.
“The agency resorted to stop-gap measures to paper over problems, and this proved to be costly to the state, businesses, and New Yorkers,” DiNapoli said in a statement.
At the height of the COVID crisis, with businesses shuttered, millions out of work and federal benefits being handled by the state, the flood of unemployment claims nearly collapsed the state’s system.
The problems were compounded by the fact that the DOL had failed to overhaul the “long-troubled” unemployment benefits system, which had been flagged for replacement as far back as 2010.
DiNapoli’s team found that the agency had to compensate for the outdated system by overriding existing controls designed to prevent improper payments and implemented a “pay and chase” approach once claims soared during the early months of the COVID crisis.
That, in turn, increased the risk of overpayments, payments charged to the wrong funding source, and fraud.
“The state Department of Labor’s antiquated UI system was ill-equipped to handle the challenges posed by the extraordinary demand caused by the pandemic for unemployment benefits and more lenient federal eligibility requirements,” DiNapoli said.
In many cases, auditor say the Labor Department could not identify the root cause of overpayments and fraud and did not implement controls to address weaknesses in the system once it realized there were major issues.
Additionally, the DOL refused to provide auditors with data on fraudulent claims and was slow to provide requested information, delaying the review’s completion, according to the comptroller’s office.
The audit, which examined the period between January 2020 and March 2022, found fraud ballooned as the state was inundated with claims.
In 2019, a federal report found New York’s improper payment rate was 10.34 percent, with a fraud rate of 4.51 percent.
DiNapoli’s office found that the improper payment rate in New York shot up to more than 28 percent and the fraud rate reached at least 17 percent of claims during the first year of the pandemic.
The audit was hampered by the fact that the Department of Labor was unable to provide documentation to back up Commissioner Roberta Reardon’s assertion that the state had prevented over $36 billion being paid out in fraudulent claims since the crisis began.
Officials with the department also could not explain to auditors why the estimated number of frauds for traditional unemployment claims more than tripled during the first year of the crisis and would not provide data that would enable an independent analysis to assess the amount of fraudulent claims.
In a statement, the Department of Labor argued that the “pandemic placed an unprecedented amount of stress on unemployment insurance systems nationwide” and the agency is “already implementing changes to improve the system and address the audit’s findings.”
Officials at the department are “stepping up” fraud investigations and data on unemployment benefits are being made available on a new, public dashboard
“We are halfway through a four-year modernization plan that will enhance the overall experience for UI beneficiaries and reduce fraud,” the agency added.
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