Auditor: We Don’t Know How Much Kentucky Owes In Unemployment Benefits

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The Office of Unemployment Insurance is unable to determine how much money the state owes in unresolved unemployment claims, according to a report from Kentucky Auditor of Public Accounts Mike Harmon released Tuesday.

Since the start of the coronavirus pandemic in March, many thousands of unemployment claims have gone unresolved for months. The resulting backlog has frustrated the Office of Unemployment Insurance and kept much needed financial support out of the pockets of unemployed Kentuckians.

Now, that backlog has also prevented Kentucky from conducting a full and accurate audit of the unemployment insurance trust fund. Harmon said it is “imperative” that the unemployment office address the lack of reliable data, especially as the General Assembly starts work on a new budget in January.

Harmon said the gap is worrisome for unemployed Kentuckians, state government, and businesses who pay taxes to replenish the unemployment trust fund.

“You’ve got multiple people that are being impacted by this: The people who are expecting unemployment who, to this date, several thousands of people that have not received the unemployment that they are due,” Harmon said in an interview. “You’ve got that, you’ve got the business aspect (the prospect of higher taxes on employers) and then certainly you’ve got the General Assembly trying to craft next year’s budget.”

“The unprecedented number of unemployment claims caused by this pandemic, along with changing and inconsistent guidance from the U.S. Department of Labor, has created this issue in every state across America,” Kentucky Labor Cabinet spokesperson Kevin Kinnaird said in an emailed statement. “Kentuckians can expect the Governor’s next budget will include funding to upgrade the unemployment insurance system, to replace the more than 90 employees the General Assembly cut in previous budgets and reopen offices to help Kentucky workers when they need it most.”

Kinnaird said that the Office of Unemployment Insurance fully cooperated and provided Harmon’s office with estimates, but the auditor did not accept them.

The findings are part of the auditor’s annual financial report for the fiscal year ending on June 30. The annual report is based on financial statements provided by the Finance and Administration Cabinet, which are then audited by the auditor’s office. Auditors were able to report an “unmodified” or clean audit of every state account except the unemployment compensation trust fund, which received a “qualified” report, meaning auditors were unable to provide documentation to back up certain financial claims.

“In this particular case, the biggest concern is that they really did not know how much was still owed to claimants. We received multiple different numbers, it was kind of all over the board,” Harmon said. “The numbers ran everywhere from hundreds of millions to a couple billion (dollars).”

Harmon said the sheer volume of claims and new unemployment programs overwhelmed the unemployment office.

The office also “eliminated key internal controls” to expedite benefit payments but had a significant backlog of unprocessed claims at the end of the fiscal year, Harmon said in an opinion letter to the Finance and Administration Cabinet.

“Management was unable to provide a reasonable or reliable estimate of the financial statement impact of this backlog of claims,” the letter said. “Because of this, we were unable to obtain sufficient appropriate audit evidence to conclude that the accounts payable balance in the unemployment compensation fund was free of material misstatement.”

The Kentucky Center for Investigative Reporting has documented the unemployment office’s hurried steps to make payments quickly as the pandemic shut down businesses in the spring. The unemployment office broke federal unemployment rules in the chaos, and made improper payments. Many people are saddled with debt to the unemployment office for benefits they already spent during the pandemic, and Gov. Andy Beshear since told unemployed people to save their money, in case they need to pay benefits back. Beshear has said inconsistent guidance from the federal government led to much of the confusion.

The auditors annual report says the unemployment compensation fund has a net position deficit of $18 million and the total fund balance decreased by $797.8 million for the 2020 fiscal year.

The report says that, as of June 30, the unemployment office owed at least $511.5 million based on claims filed before the end of the fiscal year, and paid through November 17. The amount owed in unpaid claims filed before June 30 that remained unpaid “could not be reasonably estimated due to system limitations and not being able to determine payment amounts of unprocessed claims,” according to the annual report.

States have to continue paying unemployment claims even if those funds are depleted, and Kentucky has been approved for a loan from the federal government amounting to $350 million per month through February 2021. 

The report also presents a picture of Kentucky’s overall fiscal health. The coronavirus pandemic has severely dented revenues for state and local governments, leading the Commonwealth to decrease its revenue forecasts for the fiscal year. Actual revenues, however, overshot those estimates by $578 million.

UPDATE: This story was updated to include a statement from the Labor Cabinet.

Contact Jared Bennett at jbennett@kycir.org.

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