Ohio unemployment system misallocated $3.8B during pandemic, audit finds

CINCINNATI (WXIX) - One in four dollars paid out through Ohio’s unemployment system over the last year was, very simply, a mistake.

That is according to the definitive audit of the unemployment system, released midnight Wednesday by the Ohio Auditor’s Office.

>> FOX19 Investigates: The Unemployment Crisis

The report covers the fiscal year preceding March 1, 2021, when unemployment payments totaled $14.2 billion, a 51 percent increase from FY 2020 and a 1,477 percent increase from FY2019.

In total, the Ohio Department of Jobs and Family Services, which is responsible for paying out unemployment claims in the state, handed out around $3.8 billion more than it should have during the 2021 fiscal year.

That includes $3.3 billion in overpayments to legitimate Ohio claimants, which those claimants must proactively apply for a waiver to keep.

It also includes more than $475 million paid fraudulently to criminals.

The total amount of misallocated funds equates to $673 for every Ohioan in the labor force, according to the report.

Also per the report, there were more than 141,000 potential instances of payments being sent to a name reported dead at least a week before the benefits were requested.

There were more than 85,000 potential instances of payments being sent to a name also in the state incarceration file.

There were 356 instances where abnormal names were used, including 150 instances of “Dummy;” 54 instances of “Adidas;” 41 instances of “Guess;” and 26 instances of “Demon.”

The audit faults a dated unemployment claims system, a lack of controls and the relaxation of verification requirements. [More]

Ohio Auditor Keith Faber says former ODJFS Director Kimberly Henderson also deserves some of the blame.

Henderson left the department in March 2021 and was replaced by current ODJFS Director Matt Damschroder.

Faber says Henderson could have saved millions and protected thousands of claimants if she would have acted sooner to disclose the risk and magnitude of the ongoing fraud within the unemployment system.

Faber’s statement in full:

“It’s appalling that Ohioans in need were victimized not only by a pandemic that ravaged our economy, but by criminals who took advantage of a system that was outdated, overwhelmed and ill-prepared for the onslaught of unemployment claims caused by COVID.

“The fact that the Department neglected to acknowledge it’s failures until hundreds of millions of dollars in fraud and overpayments had been made, potentially delaying assistance from eligible and deserving Ohioans is more than disappointing. Fortunately, upon his appointment Director Damschroder demanded transparency and efficiency and pursued the necessary assistance to address the weaknesses in the system and pursue the necessary procedures to protect Ohio’s unemployment dollars.”

On Thursday, Damschroder issued the following statement in response to the audit’s release:

“I would like to thank State Auditor Keith Faber and his audit team for the thorough work in conducting their audit. The audit confirms the unprecedented surge in claims and accompanying fraud caused by the pandemic, and the recommendations align with the work already underway in addressing the issues we faced.

“Last year, like every other state in the nation, Ohio experienced an unprecedented surge in unemployment claims as a result of the COVID-19 pandemic. Ohio’s unemployment rate increased from 4.7% in February 2020 to a peak of 17.4% in April 2020. ODJFS went from approximately 7,000 initial unemployment claims filed the week ending March 14 to 471,000 initial claims filed only two weeks later. The 4 million traditional unemployment claims filed since March 15, 2020, eclipse the previous nine years combined. In total, JFS distributed $23.8 billion in benefits to more than 2.4 million claimants since the start of the pandemic.

“The audit included 10 recommendations, focused heavily on combatting fraud, strengthening internal controls, and better utilizing technology. As the audit period ended Feb. 28, 2020, many of the improvements made by ODJFS, which address issues raised in the recommendations, are not reflected.

“We continue to implement new strategies to improve timing of claims processing and safeguarding federal and state taxpayer money,” said Damschroder. “With the help of a public-private sector partnership established by Governor DeWine, we have put a number of enhancements in place related to security and fraud detection.”

“Since March 2021, ODJFS has implemented many measures that address several of the recommendations in the report. These include:

• A robust suite of cybersecurity fraud prevention solutions across programs that includes industry leading solutions from Lexis-Nexis, Experian, and F5 Shape.
• New investigative tools to detect fraud, such as a fraud dashboard developed in conjunction with the Innovate Ohio Platform, and crossmatches with the National Association of State Workforce Agencies (NASWA) Identity Verification Tool and Integrity Data Hub.
• Utilizing new verification and fraud scoring methods from IOP and Google to provide critical data on many aspects related to verifying information provided by the claimant.
• Implementing a rigorous process of cyber fraud defense reviews, investigatory protocols, and front-end defenses and deployed multi-factor authentication that includes one-time passwords, challenge questions, Recaptcha images, and document scanning.
• Continued development of a new unemployment system that will enhance claims processing and better support businesses.

“Much work remains, but we are confident in the improvements we have already made and look forward to utilizing the findings in the audit to inform the future work being planned,” said Damschroder. “I’m proud of the hard work, ingenuity, and adaptability of ODJFS employees, contractors, and private-sector partners, who have spent the last 18 months working to meet these unprecedented challenges.”

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