OKLAHOMA CITY – A state audit of the Oklahoma Employment Security Commission found that that the agency “failed to assess and collect penalties” totaling almost two-thirds of a million dollars on overpayments.
The significance of that oversight is heightened by the fact that the OESC is coping with an unprecedented volume of unemployment claims arising from the collapse of the oil and gas industry compounded by protective measure enacted in response the coronavirus pandemic.
The report issued by State Auditor & Inspector Cyndi Byrd after an examination of the Oklahoma Employment Security Commission singled out two issues. “The two findings are tied together and represent a period when OESC was under different leadership,” said Trey Davis of the Auditor’s Office, who is “assisting the OESC as Acting Public Information Officer.”
Robin Roberson succeeded Richard McPherson as executive director of the OESC earlier this year.
The state audit claims the agency did not assess $646,212 on overpayments “that were due to fraud.”
However, “overpayments” is the title associated with “payments on initial claims or on additional initial claims paid in error due to a number of reasons, including incorrect wages reported, fraud, fictitious claims, or incorrect determinations that were recovered by the agency,” Davis said.
One finding of the state audit “refers to the prior administration not establishing a system to assess the penalty on fraudulent overpayments,” Davis wrote. “The reason for the finding is that prior to FY20 the agency had not established a process for assessing and collecting this penalty and interest.”
The State Auditor’s finding was “for not recovering fines on overpayments” during state Fiscal Year 2019 (July 1, 2018 – June 30, 2019).
The state audit “did not contain any questioned costs” on the penalty issue, Davis said. “There is no finding of mismanagement by OESC.”
The OESC “did not have an adequate system in place to ensure compliance” with the state statute governing benefit overpayments until after June 30, 2019, Auditor Byrd wrote.
A person who receives an overpayment attributed to fraud is now required to repay to the OESC the amount of the excess payment, plus a penalty of 25% of the amount of the original overpayment and interest at the rate of 1% per month on the unpaid balance. Of the 25% assessment, 15% is earmarked for the Unemployment Insurance Trust Fund and 10% for the Unemployment Insurance Revolving Fund, state law specifies.
Funds deposited in the revolving fund “could be used to pay the excess costs noted above, as these would be considered state funds and would resolve the federal funds issue,” Davis said.
For the period of January to April 2020, penalty and interest collected on overpayments totaled $490,327, “which includes penalties and interest on FY19 and FY20 overpayments,” he said.
The audit also detected that the OESC charged “unallowable costs” to the federally underwritten Unemployment Insurance Program, the audit found.
That is a reference to $37,075 in unallowable costs related to “Pathfinder”, the state’s Defined Contribution (DC) retirement system, which took effect Nov. 1, 2015, replacing the Defined Benefits (DB) plan for all state personnel hired after the effective date of the new plan.
OESC is funded fully by the federal government through the U.S. Department of Labor, Davis noted. The USDOL “took issue with OESC (and other state agencies) utilizing federal funds to pay certain state costs.”
In this matter, OESC charged excess costs for Defined Contribution personnel to the Defined Benefit plan, he said. “For example, when an employer pays for a DC employee’s pension costs, only 6% to 7% of 16.5% paid out goes to the Defined Contribution plan and the remainder (excess costs) goes back to the Defined Benefit plan.” The U.S. Department of Labor “took the position these excess costs going back to the DB plan were not allowable DC employee costs.”
Although the OESC is funded entirely by the federal government, “USDOL stated the excess costs should be charged as state funds,” Davis said.