Improper Unemployment Benefit Payments — Performance Audit, Office of the State Auditor, State of North Carolina (September 2022)

Summary

North Carolina Office of the State Auditor performance audit, Improper Unemployment Benefit Payments, of the Department of Commerce Division of Employment Security (DES), dated September 2022, signed by State Auditor Beth A. Wood, CPA. The executive summary states that the objective was to determine whether DES limited improper payments to less than 10% of paid claims as required by the U.S. Department of Labor. It states that DES's reported improper UI payment rate averaged 18% during the period of April 1, 2016, through March 31, 2021, exceeding the 10% federal improper payment rate, and the contents list a finding of $166 MILLION IN IMPROPER PAYMENTS OVER AND ABOVE FEDERAL IMPROPER PAYMENT LIMIT. The recommendations include that DES implement U.S. DOL recommendations to limit its improper payment rate.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Issuer: Source documents
Document type: Report

Cite this document

“Improper Unemployment Benefit Payments — Performance Audit, Office of the State Auditor, State of North Carolina (September 2022).” Original at files.nc.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/report-nc-state-auditor-des-improper-unemployment-payments-per-2022-4650-2022-09/, SHA-256 a4e8be194726af147154b08d762bdd5bf7de37e34023fdebe533a851bb470315.

Full text

STATE OF NORTH CAROLINA 3333 3333333333333333

OFFICE OF THE STATE AUDITOR
BETH A. WOOD, CPA

IMPROPER UNEMPLOYMENT
BENEFIT PAYMENTS
DEPARTMENT OF COMMERCE

DIVISION OF EMPLOYMENT SECURITY

PERFORMANCE AUDIT
SEPTEMBER 2022

The key findings and recommendations in this summary may not be inclusive of all the findings and recommendations
in this report.
EXECUTIVE SUMMARY

OBJECTIVE

The objective of this audit was to determine whether the Department of Commerce, Division of
Employment Security (DES) limited improper payments to less than 10% of paid claims as
required by the United States Department of Labor (U.S. DOL). If not, identify the impact and
causes of improper payments.

BACKGROUND

The North Carolina Unemployment Insurance (UI) program is a joint federal-state program,
funded by employer-paid unemployment taxes, that provides temporary financial assistance
to unemployed workers who lost their jobs through no fault of their own and are able,
available, and actively seeking work.

Federal law 1 requires federal agencies to report an annual improper payment rate 2 below 10%.
As the federal administering agency of the UI program, the U.S. DOL established a
performance measure for state UI programs to meet the 10% requirement. State UI programs
must limit improper payments of UI benefits (payments to ineligible claimants or payments in
an incorrect amount) to less than 10% of paid claims. States are required to report their
improper payment rate to the U.S. DOL quarterly.

The state is also required to report the causes of improper payments, and the planned or
actual actions taken to address the causes. The U.S. DOL, in collaboration with the UI Integrity
Center, 3 review the reported causes of improper payments and develop strategies,
recommendations, and corrective action plans for the state to implement to reduce
improper payments.

The North Carolina Department of Commerce (Department), Division of Employment Security
(DES) is responsible for administering the state’s UI program in accordance with federal and
state law, including limiting improper UI program benefit payments to less than 10% of paid
claims.

KEY FINDINGS

DES’s reported improper UI payment rate averaged 18% during the period of April 1, 2016,
through March 31, 2021, exceeding the 10% federal improper payment rate.

1 31 U.S.C. § 3351(2)(F).
2 Includes UI benefits overpaid plus UI benefits underpaid divided by the total amount of UI benefits paid.
Overpayments, underpayments, and total UI benefits paid are estimated from the Benefit Accuracy Measurement
(BAM) program results of paid UI claims in the state UI program.
3 The federal UI Integrity Center supports the needs of state UI programs in adopting and implementing strategies
to ensure program integrity to bring down the UI improper payment rate and address fraud in UI programs.
EXECUTIVE SUMMARY (CONCLUDED)
KEY RECOMMENDATIONS

• DES management should implement U.S. DOL recommendations, best practices, and
strategies to limit DES’s improper payment rate to less than 10% of claims paid.
• DES management should implement U.S. DOL recommendations to reduce improper
payments attributable to (1) work search requirement errors, (2) benefit year earnings
errors, and (3) separation issue errors.

MATTERS FOR FURTHER CONSIDERATION

• DES management should consider increasing its efforts to recover outstanding UI
overpayments and monitor overpayment recovery effectiveness.
• DES management should consider implementing procedures to ensure that UI
ETA 227 Overpayment Detection and Recovery Activities reports are accurate.
STATE OF NORTH CAROLINA

Office of the State Auditor

2 S. Salisbury Street
20601 Mail Service Center
Raleigh, NC 27699
Telephone: (919) 807-7500
Fax: (919) 807-7647
Beth A. Wood, CPA www.auditor.nc.gov
State Auditor

AUDITOR’S TRANSMITTAL

The Honorable Roy Cooper, Governor
Members of the North Carolina General Assembly
Machelle Baker Sanders, Secretary, Department of Commerce
Pryor Gibson, Assistant Secretary, Division of Employment Security

Ladies and Gentlemen:

We are pleased to submit this performance audit report titled Improper Unemployment Benefit
Payments. The objective of this audit was to determine whether the Department of Commerce,
Division of Employment Security (DES) limited improper payments to less than 10% of paid
claims as required by the United States Department of Labor. If not, identify the impact and
causes of improper payments.

Department of Commerce Secretary, Machelle Baker Sanders reviewed a draft copy of this
report. Her written comments are included starting on page 26.

This audit was conducted in accordance with Chapter 147, Article 5A of the North Carolina
General Statutes.

We appreciate the courtesy and cooperation received from management and the employees
of the Department of Commerce and the Division of Employment Security during our audit.

Respectfully submitted,

Beth A. Wood, CPA
State Auditor
TABLE OF CONTENTS

PAGE

BACKGROUND ....................................................................................................... 1

OBJECTIVE, SCOPE, AND METHODOLOGY ............................................................... 4

RESULTS AND CONCLUSIONS ................................................................................ 6

FINDING, RECOMMENDATIONS, AND RESPONSE

Beth A. Wood, CPA $166 MILLION IN IMPROPER PAYMENTS OVER AND ABOVE FEDERAL IMPROPER
State Auditor PAYMENT LIMIT ................................................................................................7

MATTERS FOR FURTHER CONSIDERATION

1. DES MANAGEMENT SHOULD CONSIDER INCREASING EFFORTS TO RECOVER
UNEMPLOYMENT INSURANCE OVERPAYMENTS ........................................... 17

2. DES MANAGEMENT SHOULD CONSIDER IMPLEMENTING PROCEDURES TO
ENSURE REPORTS ON OVERPAYMENT DETECTION AND RECOVERIES ARE
ACCURATE ...............................................................................................19

APPENDICES

APPENDIX A ...................................................................................................22

APPENDIX B ...................................................................................................24

APPENDIX C ..................................................................................................25

RESPONSE FROM DEPARTMENT OF COMMERCE .....................................................26

ORDERING INFORMATION ......................................................................................29

Chapter 147, Article 5A of the North Carolina General Statutes gives the Auditor broad powers to examine all books,
records, files, papers, documents, and financial affairs of every state agency and any organization that receives public
funding. The Auditor also has the power to summon people to produce records and to answer questions under oath.
BACKGROUND
BACKGROUND

Broad federal guidelines govern UI programs. Each state administers its own UI program in
accordance with a state unemployment compensation law4 that includes methods of
administration of the state’s unemployment compensation law including the payment of
unemployment benefits to eligible claimants.

Federal law 5 requires federal agencies to report an annual improper payment rate 6 below 10%.
As the federal administering agency of the UI program, the United States Department of Labor
(U.S. DOL) established a performance measure for state UI programs to meet the
10% requirement. State UI programs must limit improper payments of UI benefits (payments
to ineligible claimants or payments in an incorrect amount) to less than 10% of paid claims.
States are required to report their improper payment rate to the U.S. DOL quarterly.

The annual improper payment rate is an estimate based on benefits paid from only the
state’s UI program. It does not include benefits paid from other UI programs
administered by the state, such as the federal pandemic unemployment programs. 7 The
annual improper payment rate is calculated using the results of Benefit Accuracy Measurement
(BAM) program samples (random audits). The BAM program determines the accuracy of paid
and denied claims by sampling weekly payments and denied claims in the state UI program
and uses the sample data to make inferences concerning the entire population of claims.

The state is also required to report the causes of improper payments. The U.S. DOL, in
collaboration with the UI Integrity Center, 8 reviews the reported causes of improper payments
and develops strategies, recommendations, and corrective action plans for the state to
implement to reduce improper payments.

North Carolina’s UI program is currently designated as “High-Rate/High Impact” by the
U.S. DOL due to its high improper payment rates. As a “High-Rate/High Impact” state,
North Carolina’s UI program receives additional targeted assistance and strategies to
implement from the UI Integrity Center in an effort to reduce improper payments.

4 Chapter 96 of the North Carolina General Statutes.
5 31 U.S.C. § 3351(2)(F).
6 Includes UI benefits overpaid plus UI benefits underpaid divided by the total amount of UI benefits paid.

Overpayments, underpayments, and total UI benefits paid are estimated from the Benefit Accuracy Measurement
(BAM) program results of paid UI claims in the state UI program.
7 In response to the COVID‑19 pandemic, the federal government took several actions that provided additional UI

benefits to supplement North Carolina’s existing UI program. The additional UI benefits were funded entirely by
the federal government.
8 The federal UI Integrity Center supports the needs of state UI programs in adopting and implementing strategies

to ensure program integrity to bring down the UI improper payment rate and address fraud in UI programs.

1
BACKGROUND

The UI Claim Process

Claimants can file unemployment benefit claims in North Carolina online or by phone.

All claims are sent through DES’s claims processing system, Southeast Consortium
Unemployment Benefits Integration (SCUBI). SCUBI is designed with system edits to identify
any possible issues 9 on initial claims that could affect eligibility.

If no eligibility issues are identified, SCUBI automatically processes the claim to be paid. If
eligibility issues are identified, DES staff manually review the claim and may request additional
information from the claimant to determine whether the claim meets eligibility requirements
(see UI Claims to Payment Process Flowchart in Appendix B for more detail).

DES paid approximately $2.2 billion 10 in UI benefits in its state UI program from April 1, 2016,
through March 31, 2021.

Key terms discussed in this report include:

Improper Payment - Any payment that should not have been made or that was made in an
incorrect amount under statutory, contractual, administrative, or other legally applicable
requirements; and includes any payment to an ineligible recipient. Improper payments include
both over and under payments.

Improper Payment Rate – UI benefits overpaid plus UI benefits underpaid divided by the total
amount of UI benefits paid. Overpayments, underpayments, and total UI benefits paid are
estimated from the BAM survey results of paid UI claims in the state UI program.

Overpayments – Unemployment benefits received by claimants that they were not eligible to
receive.

Benefit Accuracy Measurement (BAM) - Designed to determine the accuracy of paid and
denied claims by sampling weekly payments and denied claims in only the state UI program.
The BAM sample data is used to make inferences concerning the entire population of claims
to estimate DES’s improper payments and improper payment rate.

The U.S. DOL developed the BAM program that is carried out by DES, including establishing
sample sizes and selecting the items for testing. 11 The BAM samples are randomly selected
from the populations of state UI program payments and determinations denying eligibility
issued by the state each week. DES staff audits up to 520 paid cases per year (10 per week)
to verify the accuracy of each paid claim determination in its entirety. DES staff also review up
to 468 denied claims per year (9 per week) to verify the accuracy of denials. The results of
these audits are reported to the U.S. DOL.

9 Examples of eligibility issues include (1) insufficient wage or employment history, (2) reason for separation
(claimant quit vs. being laid off), and (3) inability to attain employment due to a temporary disability.
10 According to U.S. DOL data. Does not include UI benefits paid from other programs such as federal pandemic

unemployment programs.
11 The U.S. DOL BAM program requires DES to audit at least 480 paid cases annually. DES has elected to perform

audits of 520 cases annually so that there are an equal number of cases selected each week (10 cases per week
for 52 weeks). Additionally, the U.S. DOL BAM program requires DES to audit at least 450 denials annually.
DES has elected to perform audits of 468 denials annually so that there are an equal number of denials selected
each week (9 cases per week for 52 weeks). This audit did not examine the sampling methodology used by the
U.S. DOL or the audit results of the audits performed by DES.

2
BACKGROUND

Systems discussed in this report include:

Southeast Consortium Unemployment Benefits Initiative (SCUBI) - DES’s unemployment
insurance claims processing system. Implemented in September 2018, SCUBI resulted from
a three-state consortium made up of North Carolina, South Carolina and Georgia working to
modernize the states’ aging unemployment benefit systems in an effort to increase the
effectiveness and efficiency of unemployment claims processing. SCUBI provides a single
web-based system configured to meet the needs of each of the participating states.

National Directory of New Hires (NDNH) - A national database of wage and employment
information used to identify individuals who may have returned to work but continue to file for
unemployment insurance benefits.

State Directory of New Hires (SDNH) - The state’s repository of employment, unemployment
insurance, and quarterly wage information. Used by DES to identify claimants who have
recently been hired while filing for unemployment benefits.

Responsible parties discussed in this report include:

North Carolina Department of Commerce (Department) 12 – The Department’s mission is to
improve the economic well-being and quality of life for all North Carolinians. To do that, the
Department works closely with local, regional, national, and international organizations to
propel economic, community, and workforce development for the state.

Division of Employment Security (DES) 13 - DES is responsible for the administration of the
unemployment insurance (UI) program in the state of North Carolina. DES is overseen by the
Department.

United States Department of Labor, Employment and Training Administration (ETA) 14 – ETA
is a division of the United States Department of Labor that administers federal government job
training and worker dislocation programs, federal grants to states for public employment
service programs, and unemployment insurance benefits.

12 https://www.nccommerce.com/about-us.
13 https://www.nccommerce.com/about-us/divisions-programs/employment-security-division.
14 https://www.dol.gov/agencies/eta/about.

3
OBJECTIVE, SCOPE,
AND METHODOLOGY
OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of this audit was to determine whether the Department of Commerce, Division
of Employment Security (DES) limited improper payments to less than 10% of paid claims as
required by the United States Department of Labor (U.S. DOL). If not, identify the impact and
causes of improper payments.

The audit scope included DES’s reported improper payments for the period April 1, 2016,
through March 31, 2021. The audit scope did not include determining whether DES’s
improper payment Benefit Accuracy Measurement (BAM) audit results were accurate. 15

DES’s reported improper payments are an estimate based on benefits paid from only
the state’s UI program. It does not include benefits paid from other UI programs
administered by the state, such as the federal pandemic unemployment programs.

To achieve the audit objectives, auditors:

• Reviewed state and federal laws relevant to unemployment insurance and improper
payments.
• Reviewed performance measures instituted by the U.S. DOL, Employment and
Training Administration (ETA) for improper payment requirements.
• Interviewed DES personnel.
• Reviewed DES policies and procedures for processing unemployment insurance (UI)
claims, conducting BAM audits to identify improper payments, and for identifying the
causes of improper payments.
• Reviewed DES BAM reports, corrective action plans, and strategic plans.
• Reviewed U.S. DOL publications that included strategies, recommendations, and
corrective action plans for DES to implement to reduce improper payments.

To determine whether DES limited improper payments to less than 10% of paid claims as
required by the U.S. DOL, auditors obtained DES improper payment data from U.S. DOL
reports and compared the improper payment rates to the federal improper payment limit.

Because of the test nature and other inherent limitations of an audit, together with limitations
of any system of internal and management controls, this audit would not necessarily disclose
all performance weaknesses or lack of compliance.

As a basis for evaluating internal control, auditors applied the internal control guidance
contained in professional auditing standards. However, our audit does not provide a basis for
rendering an opinion on internal control, and consequently, we have not issued such an
opinion. See Appendix C for internal control components and underlying principles that were
significant to our audit objective.

15 The U.S. DOL developed the BAM program that is carried out by DES, including establishing sample sizes and
selecting the items for testing. The BAM samples are randomly selected from the populations of only state UI
program payments and determinations denying eligibility issued by the state each week. DES staff audits up to
520 paid cases per year (10 per week) to verify the accuracy of each paid claim determination in its entirety.
DES staff also review up to 468 denied claims per year (9 per week) to verify the accuracy of denials. The results
of these audits are reported to the U.S. DOL. The U.S. DOL uses the sample data to make inferences concerning
the entire population of claims.

4
OBJECTIVE, SCOPE, AND METHODOLOGY

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.

5
RESULTS AND
CONCLUSIONS
RESULTS AND CONCLUSIONS

The Department of Commerce, Division of Employment Security (DES) reported improper
unemployment insurance (UI) payment rate averaged 18% during the period of April 1, 2016,
through March 31, 2021, exceeding the 10% federal improper payment rate allowed by the
United States Department of Labor (U.S. DOL).

As a result, DES paid approximately $166 million in improper payments over and above the
federal improper payment limit during the same time period.

DES exceeded the improper payment limit because it did not implement certain U.S. DOL
recommendations to reduce improper payments that resulted from (1) work search
requirements, (2) benefit year earnings, and (3) separation information issues.

6
FINDING,
RECOMMENDATIONS,
AND RESPONSE
FINDING, RECOMMENDATIONS, AND RESPONSE

$166 Million in Improper Payments Over and Above Federal Improper Payment Limit
The Department of Commerce, Division of Employment Security (DES) reported improper
unemployment insurance (UI) payment rate 16 averaged 18% during the period of April 1, 2016,
through March 31, 2021, exceeding the 10% improper payment rate allowed by the
United States Department of Labor (U.S. DOL). As a result, DES paid approximately
$166 million in improper payments over and above the federal improper payment limit.
Consequently, these public funds were not used for the intended purpose of providing financial
assistance to unemployed North Carolinians in times of need.

The U.S. DOL required DES to limit improper payments to less than 10% of paid claims.

DES Improper Payment Rate Exceeded Federal Limit
The DES reported improper payment rate 17 averaged approximately 18% during the period of
April 1, 2016, through March 31, 2021, which exceeded the federal 10% improper payment
limit. See Table 1 below.
Table 1 – Improper Payments & Rates
(April 1, 2016 – March 31, 2021)
Total Estimated
State UI Improper
Estimated Estimated Improper
Fiscal Payment
Claim Overpayment Underpayment Payment
Year 18 Amounts 19
Amounts Amounts Amounts Rate
(Overpayments +
Underpayments)

$ 1,430,884,971 $ 211,747,206 $ 14,555,861 $ 226,303,067 15.8%
2021 20
2020 210,970,115 31,521,299 826,296 32,347,595 15.3%
2019 124,099,670 22,619,175 534,907 23,154,082 18.7%
2018 190,921,838 48,284,926 415,518 48,700,444 25.5%
2017 221,363,445 52,307,604 968,901 53,276,505 24.1%
Total: $ 2,178,240,039 $ 366,480,210 $ 17,301,483 $ 383,781,693 17.6%
Source: U.S. Department of Labor data.

16 The annual improper payment rate is an estimate based on benefits paid from only the state’s UI program.

It does not include benefits paid from other UI programs administered by the state, such as the federal
pandemic unemployment programs.
17 This rate includes UI benefits overpaid plus UI benefits underpaid divided by the total amount of UI benefits paid.

Overpayments, underpayments, and total UI benefits paid are estimated from the Benefit Accuracy Measurement
(BAM) program results of paid UI claims only in the state UI.
18 The Unemployment Insurance fiscal year runs from April 1 through March 31.
19 Estimated total improper payments derived from actual improper payments that were identified as part of the

BAM program. The BAM program is designed to determine the accuracy of paid and denied claims by sampling
weekly payments and denied claims and using the sample data to make inferences concerning the entire
population of claims.
20 BAM sampling was suspended from March 29, 2020, through June 27, 2020 (1st quarter in the fiscal year), due

to COVID-19 pandemic. As a result, improper payments were calculated for fiscal year 2021 using the data
available from June 28, 2020, through March 31, 2021.

7
FINDING, RECOMMENDATIONS, AND RESPONSE

Additionally, the North Carolina unemployment improper payment rate has exceeded the
national average for four out of the last five years. See Graph 1 below.

Graph 1 – Improper Payment Rate NC vs US Average
April 1, 2016 – March 31, 2021

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2017 2018 2019 2020 2021

NC US Avg IP Rate

Source: U.S. Department of Labor data.

Resulted in DES Making $166 Million in Improper Payments Over and Above the
Federal Improper Payment Limit

As a result, DES made approximately $166 million in improper payments 21 over and above the
federal improper payment limit during the period April 1, 2016, through March 31, 2021. See
Table 2 below.

Table 2 –Excessive Improper Payments
(April 1, 2016 – March 31, 2021)
Estimated Estimated
State UI Difference =
Fiscal Improper Improper Payment
Claim Excessive Improper
Year 22 Payment Amounts if Limited
Amounts Payments
Amounts to 10% of Claims
2021 $ 1,430,884,971 $ 226,303,067 $ 143,088,497 $ 83,214,570
2020 210,970,115 32,347,595 21,097,012 11,250,583
2019 124,099,670 23,154,082 12,409,967 10,744,115
2018 190,921,838 48,700,444 19,092,184 29,608,260
2017 221,363,445 53,276,505 22,136,345 31,140,160
Total: $ 2,178,240,039 $ 383,781,693 $ 217,824,005 $ 165,957,688
Source: U.S. Department of Labor data and auditor analysis.

21 Estimate based on benefits paid from only the state’s UI program. It does not include benefits paid from
other UI programs administered by the state, such as the federal pandemic unemployment programs.
22 The Unemployment Insurance fiscal year runs from April 1 through March 31.

8
FINDING, RECOMMENDATIONS, AND RESPONSE

Improper payments include any payments that should not have been made, were made in an
incorrect amount, and includes any payment to an ineligible recipient.

Consequently, these public funds were paid or received in error. These public funds paid in
error will ultimately not be used for the intended purpose of providing financial assistance to
unemployed North Carolinians in times of need.

Caused by Failure to Implement Recommendations from the U.S. Department of Labor
DES exceeded the improper payment limit because it failed to implement certain U.S. DOL
recommendations to reduce improper payments. While improper payments include both
overpayments and underpayments, overpayments accounted for approximately 95% of all
improper payments during the period of April 1, 2016, through March 31, 2021. See Table 3
below.

Table 3 – UI Benefit Overpayments %
(April 1, 2016 – March 31, 2021)
Total Estimated
Improper
Fiscal Estimated Estimated Overpayment
Payments
Year 23 Overpayments Underpayments Rate
(Overpayments +
Underpayments)
2021 24 $211,747,206 $14,555,861 $226,303,067 93.6%
2020 31,521,299 826,296 32,347,595 97.4%
2019 22,619,175 534,907 23,154,082 97.7%
2018 48,284,926 415,518 48,700,444 99.1%
2017 52,307,604 968,901 53,276,505 98.2%
Total: $366,480,210 $17,301,483 $383,781,693 95.5%
Source: U.S. Department of Labor data and auditor analysis.

The state is also required to report the causes of improper payments. The U.S. DOL, in
collaboration with the UI Integrity Center, 25 reviews the reported causes of improper payments
and develops strategies, recommendations, and corrective action plans for the state to
implement to reduce improper payments.

23 The Unemployment Insurance fiscal year runs from April 1 through March 31.
24 BAM sampling was suspended from March 29, 2020, through June 27, 2020 (1st quarter in the fiscal year) due
to COVID-19 pandemic. As a result, improper payments were calculated for UI program fiscal year 2021 using
the data available from June 28, 2020, through March 31, 2021.
25 The federal UI Integrity Center supports the needs of state UI programs in adopting and implementing strategies

to ensure program integrity to bring down the UI improper payment rate and address fraud in UI programs.

9
FINDING, RECOMMENDATIONS, AND RESPONSE

While DES has implemented some of the U.S. DOL’s recommendations received since 2016,
DES did not implement certain U.S. DOL recommendations to reduce improper payments that
resulted from (1) work search requirements, (2) benefit year earnings, and (3) separation
information issues. (Each error type is described in detail below. Also see Appendix A for
more information). These three error types accounted for 94% of all DES overpayments over
the last five years. See Table 4 below.
Table 4 – Primary Causes of Overpayments
(April 1, 2016 – March 31, 2021)

Overpayments Due
Overpayment Error Type Overpayments
to Primary 3 Causes
Work Search
$ 91,371,596 $343,895,639
Requirements 26
Benefit Year Earnings 140,983,931 94%
Separation Information
111,540,112
Issues
Other 27 22,584,571
Total Overpayments $ 366,480,210
Source: U.S. Department of Labor data and auditor analysis.

Work Search Requirements
Improper payments due to work search requirements occur when claimants receive
unemployment payments that they were not eligible to receive because they failed to
provide acceptable evidence of their work search in accordance with state law.28 In North
Carolina, claimants are required to be actively seeking work. Claimants are required to make
three work search contacts each week, keep a detailed record of their work search activities
in order to receive unemployment benefits, and provide the record to DES upon request.
Approximately $91 million 29 (25%) of DES’s $366 million in overpayments were attributable to
work search requirements during the last five years. See Table 5 below.

Table 5 – Work Search Requirements
Overpayments
(April 1, 2016 – March 31, 2021)
Overpayments % Overpayments
Fiscal Estimated
Attributable to Work Attributable to Work
Year Overpayments
Search Requirements Search Requirements
2021 $ 211,747,206 $ 0 0% 30
2020 31,521,299 14,846,831 47.1%
2019 22,619,175 12,612,978 55.8%
2018 48,284,926 27,951,702 57.9%
2017 52,307,604 35,960,085 68.7%
Total: $ 366,480,210 $ 91,371,596 24.9%
Source: U.S. Department of Labor data and auditor analysis.

26 NC Executive Order 118 waived the work search requirement during FY 2021 due to the COVID-19 pandemic.
27 Other Eligibility, Base Period Wage Issue, Able + Available, Sev./Vac./SSI/Pension, ES Registration, All Other
Causes, and Dependents Allowance.
28 Pursuant to N.C.G.S. § 96-14.9.
29 According to U.S. DOL data.
30 NC Executive Order 118 waived the work search requirement during FY 2021 due to the COVID-19 pandemic.

10
FINDING, RECOMMENDATIONS, AND RESPONSE

DES did not implement certain U.S. DOL recommendations to reduce improper payments
resulting from work search requirements. Specifically, DES did not:

• Require Work Search Reporting with Weekly UI Certification.
The U.S. DOL UI Integrity Strategic Plan31 stated that increasing the frequency of
work search reporting and capturing the activities 32 as part of the weekly claim
certification may contribute to an increase in work search compliance, resulting in a
decrease of work search errors.

However, DES did not implement a requirement for work search reporting within the
weekly certification process and did not provide claimants with an optional repository
to record work search activities electronically.

Instead, DES only required claimants to keep a detailed record of their work search
activities and maintain the records for five years in the event they are audited. 33

When asked why DES had not implemented a work search repository as part of the
weekly certification process, the Chief Deputy of Programs stated that the while the
U.S. DOL “has been recommending a work search repository for years…DES is
concerned with the feasibility and costs associated with implementing and
maintaining the electronic repository and reporting in weekly certifications…”
[Emphasis Added]

However, the Chief of UI Benefits stated an effort to determine the feasibility of an
electronic repository did not occur due to the volume of UI claims during the
COVID-19 pandemic. Though, as stated above, the U.S. DOL has been
recommending a work search repository for years and as far back as June 2019. 34
Nearly a year before the onset of the COVID-19 pandemic.

• Monitor Requirement for Claimant Assessment Interviews.
The U.S. DOL35 stated that conducting Reemployment Service and Eligibility
Assessment (RESEA) interviews 36 with claimants would result in a reduction in UI
duration through improved employment outcomes and a reduction of improper
payments due to work search requirement errors.

31 U.S. Department of Labor UI Integrity Strategic Plan Fiscal Year 2020.
32 Refers to the work search activities UI claimants are required to complete to be eligible to receive UI benefits.
For example, required activities include contacting at least three different employers each week, participating in
approved and verified reemployment activities, etc.
33 DES conducts BAM program audits annually in which a sample of claims paid and denied will be reviewed for

accuracy, including whether work search activities were completed in accordance with the law. In addition, DES
reviews the work search activities of claimants during EAI and RESEA interviews (explained in “Monitor
Requirement for Claimant Assessment Interviews” below).
34 Unemployment Insurance Program Letter (UIPL) 15-19.
35 Unemployment Insurance Program Letter (UIPL) 13-21.
36 Every RESEA session is required to include a one-on-one assessment of the claimants’ continuing UI eligibility.

This assessment typically includes confirming employment status and a review of the claimant’s work search
activities. The assessment must also provide claimants with support in the development of an individual
reemployment plan and other resources to support the claimant’s return to work.

11
FINDING, RECOMMENDATIONS, AND RESPONSE

Similarly, North Carolina rules 37 require DES to conduct RESEA interviews or
Employability Assessment Interviews (EAIs) with claimants to provide financial and
job-seeking assistance while they seek to become reemployed. 38 In the interviews,
workforce specialists should review claimants’ work search activities and ensure that
required work search has been completed by the claimant. 39

In response, DES entered into an agreement with the Division of Workforce Solutions
(DWS) to schedule and conduct these assessments.

However, DES did not ensure that DWS was conducting RESEA or EAI interviews with
claimants. Auditors reviewed readily available DWS RESEA-EAI Activity Reports and
noted that only 53% of claimants had assessments conducted for either a RESEA
or EAI assessment from January 1, 2019, through March 31, 2020. 40

When asked about the above information, the DES Chief of UI Benefits stated that she
had not been aware there was a report from DWS or otherwise available (from
SCUBI 41) to ensure that all claimants received the required assessments.

Benefit Year Earnings
Improper payments due to benefit year earnings occur when claimants receive unemployment
payments that they were not eligible to receive because they failed to report earnings
after returning to work or inaccurately reported earnings.

Approximately $141 million 42 (39%) of DES’s $366 million in overpayments were attributable
to benefit year earnings errors 43 during the last five years. See Table 6 below.

Table 6 – Benefit Year Earnings
Overpayments
(April 1, 2016 – March 31, 2021)
Overpayments % Overpayments
Fiscal Estimated
Attributable to Benefit Attributable to Benefit
Year Overpayments
Year Earnings Year Earnings
2021 $ 211,747,206 $ 107,686,985 50.9%
2020 31,521,299 8,610,155 27.3%
2019 22,619,175 5,148,843 22.8%
2018 48,284,926 11,918,997 24.7%
2017 52,307,604 7,618,951 14.6%
Total: $ 366,480,210 $ 140,983,931 38.5%
Source: U.S. Department of Labor data and auditor analysis

37 04 NC Admin. Code 24b.0301.
38 Not all claimants are required to receive RESEA interviews. Claimants who are most likely to exhaust UI benefits
and other factors are selected to participate in RESEA interviews. Claimants who receive a RESEA are not
required to attend EAI, as they are considered duplicative.
39 Claimants who receive a RESEA are not required to attend an EAI, as they are considered duplicative.
40 Calculated based on the populations of claimants provided to DWS, but does not necessarily include all claimants

who received a first unemployment insurance payment.
41 DES’s unemployment insurance claims processing system.
42 According to U.S. DOL data.
43 U.S. DOL and DES define errors as unintentional errors and fraud.

12
FINDING, RECOMMENDATIONS, AND RESPONSE

DES did not implement certain U.S. DOL recommendations to reduce improper payments
resulting from benefit year earnings. Specifically, DES did not:

• Cross-Match Claimants with State Directories of New Hires (SDNH). 44

The U.S. DOL45 declared that states should cross-match claimant data with the State
Directories of New Hires (SDNH) and National Directories of New Hires (NDNH) to
identify claimants who have returned to work and may no longer be eligible to receive
unemployment benefits. It is recommended that whenever the NDNH or the SDNH
reveals a match, DES flag a claimant’s next continued claim and require the claimant
to contact a state claims representative before filing the continued claim.

However, DES did not cross-match claimant data with the SDNH until June 2021.
While DES has cross-matched claimant data with the NDNH since 2012, using the
SDNH would have allowed DES to identify claimants who have returned to work more
quickly because DES can cross-match with the SDNH daily. By contrast, DES can only
cross-match with the NDNH weekly. 46

According to DES’s Improper Payment Reduction Plan, 47 DES was supposed to
implement the SDNH cross-match process in August 2019. However, according to the
Chief of Benefits Integrity, “implementation was delayed as a result of the
COVID-19 pandemic.” However, the COVID-19 pandemic did not begin in the
United States until March 2020, seven months after the SDNH cross-match process
was supposed to be implemented.

• Implement Wage Calculator with Weekly UI Certification.

The U.S. DOL designed and then recommended states implement a wage calculator
as part of the weekly claim certification specifically to reduce benefit year
earnings errors.

The wage calculator requires claimants to input wage rate and hours worked per
specific day. 48 This effectively automates the process and greatly reduces the risk of
benefit year earnings errors submitted by the claimant such as miscalculated earnings,
reported net versus gross earnings, or reported earnings for the wrong benefit week 49
or days in a week.

44 SDNH is the state’s repository of employment, unemployment insurance, and quarterly wage information. Used
by DES to identify claimants who have recently been hired while filing for unemployment benefits.
45 UI Directors Guide (2020) and Unemployment Insurance Program Letter (UIPL) 19-11 published in June 2011.
46 NDNH is a repository of employment, unemployment insurance, and quarterly wage information for states. States

have 3 business days to forward data to the NDNH after having 5 business days to enter new hire data into the
SDNH.
47 Developed in collaboration with the UI Integrity Center. The Improper Payment Reduction Plan is the action items

agreed upon between DES and the National Association of State Workforce Agencies’ State Intensive Services
Program in 2019 to reduce the state’s improper payment rate.
48 For claimants who work while receiving unemployment benefits. Claimants must report the money they earn.

Claimants can earn up to 20% of their weekly benefit amount without penalty. Earnings over that amount are
deducted from their weekly benefits.
49 Claimants erroneously report wages when received versus earned or for the wrong ‘week’ such as Monday to

Sunday versus Sunday to Saturday.

13
FINDING, RECOMMENDATIONS, AND RESPONSE

However, DES did not implement the wage calculator as part of the weekly certification
process until June 2021.

According to DES’s Improper Payment Reduction Plan, 50 DES was supposed to
implement the wage calculator by August 2020. However, according to the Chief of UI
Benefits, “implementation was delayed as a result of the COVID-19 pandemic.”

Separation Information Issues
Improper payments caused by inaccurate separation information occur when claimants
receive unemployment payments they were not eligible to receive because they
voluntarily quit employment or were discharged for cause. This improper payment error
most often results when claimants provide an incorrect last employer or an incorrect reason
for separation.

Approximately $112 million 51 (30%) of DES’s $366 million overpayments were attributable to
inaccurate separation information during the last five years. See Table 7 below.

Table 7 – Separation Information Issues
Overpayments
(April 1, 2016 – March 31, 2021)
Overpayments
% Overpayments
Fiscal Estimated Attributable to
Attributable to Separation
Year Overpayments Separation Information
Information Issues
Issues
2021 $ 211,747,206 $ 91,361,256 43.2%
2020 31,521,299 6,491,923 20.6%
2019 22,619,175 4,247,864 18.8%
2018 48,284,926 5,412,248 11.2%
2017 52,307,604 4,026,821 7.7%
Total: $ 366,480,210 $ 111,540,112 30.4%
Source: U.S. Department of Labor data and auditor analysis

DES did not implement a U.S. DOL recommendation to reduce overpayments resulting from
separation information issues. Specifically, DES did not:

Implement a Standardized Process for Making Separation Determinations.
The U.S. DOL 52 states that management is responsible for creating policies, procedures, and
internal controls that effectively protect the integrity and security of UI program staff, program
operations and systems, UI funds, UI data, and other state assets.

However, DES does not have standardized procedures or policies for making separation
determinations when the employers’ and claimants’ reason for separation conflict. Instead,
DES management allows DES staff to make decisions on separation cases based on their
professional judgment.

50 Developed in collaboration with the UI Integrity Center. The Improper Payment Reduction Plan is the action items

agreed upon between DES and the National Association of State Workforce Agency’s State Intensive Services
Program in 2019 to reduce the state’s improper payment rate.
51 According to U.S. DOL data.
52 Unemployment Insurance Directors Guide, March 2020.

14
FINDING, RECOMMENDATIONS, AND RESPONSE

For example, assuming that a claimant is otherwise eligible to receive unemployment benefits,
a claimant would be eligible to receive unemployment if they were laid-off from their job. A
claimant would not be eligible to receive unemployment if they quit their job. When an employer
and a claimant provide conflicting information as to the reason for the employee’s separation
(quit versus laid-off), and there is insufficient evidence to support either one, DES staff are
allowed to decide in favor of the party they “believe.”

This can lead to inconsistencies across the DES unemployment claims process and ultimately
increase overpayments due to separation information errors. When determining improper
payments during the Benefit Accuracy Measurement (BAM) process, DES’s Quality Control
Manager stated that BAM staff decide in favor of the employer when an employer and a
claimant provide conflicting information as to the reason for the employee’s separation.

Further, allowing DES staff to rule in favor of the claimant against conflicting information from
the employer for separation determinations may be in direct conflict with state law.
North Carolina General Statutes § 96-14.5.(a) states:

When an individual leaves work, the burden of showing good cause
attributable to the employer rests on the individual and the burden may not
be shifted to the employer. [Emphasis Added]

U.S. DOL Required DES to Limit Improper Payments to 10% of Paid Claims

Federal law 53 requires federal agencies to report an annual improper payment rate below 10%.

As the federal administering agency of the UI program, the U.S. DOL established a
performance measure for state UI programs to meet the 10% requirement.

According to the U.S. DOL performance measure, state UI programs must limit improper
payments of UI benefits to less than 10% of paid claims.

RECOMMENDATIONS
DES management should implement U.S. DOL recommendations, best practices, and
strategies to limit DES’s improper payment rate to less than 10% of claims paid.

DES management should implement U.S. DOL recommendations to reduce improper
payments attributable to (1) work search requirement errors, (2) benefit year earnings
errors, and (3) separation issue errors. Specifically, DES management should:

(1) Require work search activities to be reported within the weekly certification process.
(2) Ensure that DWS is scheduling and conducting RESEA or EAI interviews with
claimants.
(3) Continue to cross-match with the SDNH to identify as quickly as possible when
claimants return to work and monitor to ensure it is working as intended.
(4) Continue requiring claimants to use a wage calculator as part of the weekly claim
certification and monitor to ensure it is working as intended.
(5) Create standardized policies and procedures for making separation determinations
when the employers’ and claimants’ reason for separation conflict.

53 31 U.S.C. § 3351(2)(F).

15
FINDING, RECOMMENDATIONS, AND RESPONSE

AGENCY RESPONSE
See page 26 for the Department’s response to this finding.

16
MATTERS FOR
FURTHER
CONSIDERATION
MATTERS FOR FURTHER CONSIDERATION

During an audit, Office of the State Auditor staff may uncover potential issues that are outside
of the audit objectives. Although the issues may not have been part of the planned objectives,
the issues need to be presented to those charged with governance and relevant stakeholders.
Below are two such issues.

1. DES MANAGEMENT SHOULD CONSIDER INCREASING EFFORTS TO RECOVER UNEMPLOYMENT
INSURANCE OVERPAYMENTS

Division of Employment Security (DES) management should consider increasing its efforts to
recover outstanding unemployment insurance (UI) overpayments and monitor overpayment
recovery effectiveness.

Over $982 million in actual UI overpayments 54 were identified from April 1, 2020, through
March 31, 2022, but DES recovered only $87 million (9%) during the same time period. After
accounting for adjustments, 55 there were approximately $752 million in unrecovered
overpayments (payments that should not have been made or that were made in the wrong
amount) as of March 31, 2022. See Table 8 below.
Table 8 – UI Overpayments and Recoveries
April 1, 2020 - March 31, 2022

Actual Remaining
Overpayments Recovered Other
UI Benefit Program Overpayments Overpayments
Recovered (%) Adjustments 56
Identified Balance
State UI $ 146,088,998 $ 36,013,027 25% $ 3,858,929 $ 106,217,042
Pandemic Unemployment
167,319,417 4,862,499 3% 96,419 162,360,499
Assistance
Pandemic Emergency
Unemployment 75,421,029 10,628,712 14% 12,062,281 52,730,036
Compensation
Mixed Earner
Unemployment 209,730 31,208 15% 55,531 122,991
Compensation
Federal Pandemic
Unemployment 593,218,561 35,903,817 6% 126,485,609 430,829,135
Compensation
Total $ 982,257,735 $ 87,439,263 9% $142,558,769 $ 752,259,703

Source: DES ETA 227 reports (April 2020 – March 2022) and auditor analysis.

54 Actual UI overpayments identified in all UI programs administered by DES, including the federal
pandemic unemployment programs. As stated in the Background section of this report, the audit’s
finding covers the annual improper payment rate which is an estimate based on benefits paid from only
the state’s UI program.
55 Include amounts waived, written-off, receivables removed, and adjustments from redeterminations and/or

appeals.
56 Ibid.

17
MATTERS FOR FURTHER CONSIDERATION

DES identifies UI overpayments through its Benefits Integrity Unit and the Benefit Accuracy
Measurement (BAM) program. The Benefits Integrity Unit identifies the majority of
overpayments through principal detection methods (Wage/Earning crossmatches, State
Directories of New Hires (SDNH) / National Directories of New Hires (NDNH) crossmatches,
fraud investigations) and operational system checks integrated in DES’s unemployment
insurance claims processing system (SCUBI).

BAM program staff audit samples of weekly UI payments (and denied claims) for accuracy.
The errors identified in both Benefits Integrity and the BAM program are actual, identified
overpayments that are potentially recoverable.

However, DES does not have a plan or process to actively pursue overpayment recovery from
most claimants and does not monitor the effectiveness of its recovery efforts.

For example, DES can recover UI overpayments if claimants respond to monthly
overpayment notices sent by DES by paying in cash or setting up a payment plan. However,
according to DES, a majority of overpaid claimants do not respond and set up payment
plans to repay funds. 57 Additionally, DES does not issue warnings to claimants about
overpayment recovery or impose penalties on claimants who do not respond. 58

If claimants fail to pay or set up a payment arrangement within 180 days, DES may recover
overpayments through other means:

• Criminal prosecution and/or civil court action. 59
• Offsetting UI Benefits. 60
• Tax Refund Interception. 61
• NC Lottery Winnings Interception. 62
• Wage Garnishments. 63

According to DES, each of these methods are limited in their ability to recover overpayments.
If that is the case, DES management should consider approaching the General Assembly to
explore options and alternative methods to increase the ability to recover overpayments.

Further, DES does not monitor the effectiveness of its recovery efforts. While DES has
information available to know whether current claimants are having their UI benefit payments
offset for prior overpayments, DES does not analyze the information to identify and correct
potential issues with overpayment recovery.

Additionally, DES does not have available reports detailing the number of claimants and the
amount of overpayments recovered for any of the other recovery methods listed above.

57 DES was not able to produce a report showing the number of claimants on payment plans.
58 DES does impose penalties for fraudulent overpayments.
59 N.C.G.S. § 96-18.(g)(3)a.
60 N.C.G.S. § 96-18.(g)(3)c and N.C.G.S. § 96-18.(g)(3)d.
61 DES: Overpayment FAQs (nc.gov).
62 Ibid.
63 N.C.G.S. § 96-18.1.

18
MATTERS FOR FURTHER CONSIDERATION

DES does not have available reports detailing the number of claimants who received
overpayments (1) on payment plans, (2) that had their federal/state taxes or lottery winnings
intercepted, or (3) that had their wages garnished. DES also does not have reports detailing
the amount of overpayments recovered by recovery method.

Without monitoring its overpayment recovery efforts, DES management is limited in its ability
to know whether overpayment recovery methods are successful. DES cannot evaluate its
recovery methods and make necessary improvements in a timely manner.

Consequently, there is an increased risk that public funds that were paid or received in error
will not be recovered and ultimately used for the intended purpose of providing financial
assistance to unemployed North Carolinians in times of need.

2. DES Management Should Consider Implementing Procedures to Ensure Reports on
Overpayment Detection and Recoveries are Accurate

Division of Employment Security (DES) management should consider implementing
procedures to ensure that unemployment insurance (UI) ETA 227 Overpayment Detection and
Recovery Activities (ETA 227) reports are accurate.

The ETA 227 report is submitted quarterly to the U.S. Department of Labor, Employment
Training Administration (ETA) and includes information on overpayments of unemployment
claims under the regular state UI program and under various federal UI programs including:

• Identified overpayments – causes.
• Identified overpayments – methods of detection.
• Recovery and Reconciliations of overpayments.
• Criminal and civil actions involving overpayments obtained fraudulently.
• Aging schedule of outstanding benefit overpayment accounts.

Auditors reviewed the ETA 227 reports 64 and identified five errors:

• DES incorrectly reported $0 in overpayments identified using the State Directory of
New Hires (SDNH) crossmatch. DES management was unable to provide the amount
that should have been reported for this period.
DES implemented the SDNH crossmatch process in June 2021 and DES agreed the
report should have reflected the identification of overpayments using SDNH
crossmatch for the period July 1, 2021, through March 31, 2022 (3 quarters).
• DES incorrectly reported the aging schedule data from the third quarter 2019 in the
fourth quarter 2019 (repeating the entire aging schedule). See Table 9.

64 Auditors reviewed quarterly ETA 227 reports spanning January 1, 2017, through March 31, 2022.

19
MATTERS FOR FURTHER CONSIDERATION

Table 9 - Aging Schedule

2019 Q3 2019 Q4
90 days or less $ 1,434,240 $ 1,434,240
91-180 days 1,234,471 1,234,471
181-270 days 1,561,184 1,561,184
271-360 days 610,538 610,538
361-450 days 1,184,283 1,184,283
> 450 days 3,884,535 3,884,535
Total $ 9,909,251 $ 9,909,251
Source: DES ETA 227 reports and auditor analysis.

DES management was unable to provide the amounts that should have been
reported.
• DES incorrectly reported the same totals for beginning and ending outstanding
overpayment balances for the fourth quarter 2019. See Table 10 below.

Table 10 - Outstanding Overpayment Balances

2019 Q3 2019 Q4 2020 Q1
Outstanding at Beginning of Period $ 10,136,749 $ 9,909,251 $ 9,909,251
Outstanding at End of Period $ 9,909,251 $ 9,909,251 $ 7,378,174
Source: DES ETA 227 reports and auditor analysis.

DES management was unable to provide the amounts that should have been
reported.
• DES incorrectly reported approximately $16,000 of overpayments caused by identity
theft as nonfraud.
However, according to DES, all overpayments caused by identify theft should be
categorized as fraud.
• DES incorrectly reported only the number of cases investigated that resulted in the
identification of overpayments rather than all case investigations.
However, the UI Report Handbook No 401 65 defines Cases Investigated as “The
number of cases emanating from a state-initiated overpayment detection process for
which an investigation regarding a potential overpayment has been concluded.”
DES management was unable to provide the number of cases that should have been
reported.
According to the U.S. DOL, the ETA and state agencies need this information to monitor
the integrity of the benefit payment processes in the UI system.

When the above information was presented to DES management, they were unaware of the
inaccuracies.

65 https://wdr.doleta.gov/directives/attach/ETAH/ETHand401_5th.pdf.

20
MATTERS FOR FURTHER CONSIDERATION

Without accurate information, there is the potential for the ETA and DES to make erroneous
judgments and decisions concerning the performance of the state’s delivery of UI
benefits. Additionally, the ETA and DES may not be able to identify and correct the most
serious performance issues in overpayment detection and DES’s recovery activities. As stated
in previous sections of this report:

• DES’s improper UI payment rate averaged 18% during the period of April 1, 2016,
through March 31, 2021, exceeding the 10% federal improper payment rate.
• DES recovered only 9% of identified overpayments from April 1, 2020, through
March 31, 2022.

21
APPENDICES
APPENDICES

Appendix A

Primary Causes of Unemployment Insurance Overpayments

DES’s three primary causes of UI overpayments were due to errors in (1) work search
requirements, (2) benefit year earnings, and (3) separation information issues. See Table
and Graphs below detailing the extent these error types accounted for North Carolina’s (NC)
overall overpayments in relation to the national average.

Summary - 3 Causes % of Overpayments
2021 2020 2019 2018 2017
US Average 2.5% 25.7% 29.6% 31.9% 31.7%
Work Search
NC 0.0%* 47.1% 55.8% 57.9% 68.8%
US Average 34.4% 35.9% 32.8% 31.4% 30.4%
Benefit Year Earnings
NC 50.9% 27.3% 22.8% 24.7% 14.6%
Separation Information US Average 32.9% 18.7% 17.0% 15.8% 16.5%
NC 43.2% 20.6% 18.8% 11.2% 7.7%
Source: U.S. Department of Labor data and auditor analysis.

Work Search Requirements:

(*) NC Executive Order 118 waived the work search requirement during fiscal year 2021 due to the
COVID-19 pandemic.

22
APPENDICES

Benefit Year Earnings (BYE):

Separation Information Issues

23
APPENDICES

Appendix B

UI Claims to Payment Process

Initial A B
Claim Monetary Determination Separation Determination

Nonmonetary Determinations

C
Claimant Call
Center
E
Benefit Integrity
F (uses ID.me for
Adjudication Identity
Verification as of
1/2021)
D
Benefit Claims/Special

G H I
First Payment Weekly Certifications Appeals

A Monetary Determinations: Evaluation of claimant's base-period wages.
B Separation Determinations: Evaluation of employment separation details via request to last bona
fide employer.
C Claimant Call Center: Collection, and limited evaluation, of eligibility documents.
D Benefit Claims/Special: Collection of eligibility documents for special programs and some
adjudications.
E Benefit Integrity: Identity Verification and Fraud Prevention activities.
F Adjudication: Eligibility determination based on documentation review. Inadequate documentation
creates additional work items and restarts time.
G First Payment: Payment is typically made within two days.
H Weekly Certifications: Review of claimant's eligibility status.
I Appeals: Denials may occur at any point and may be appealable.

24
APPENDICES

Appendix C

Internal Control Components and Principles Significant to the Audit Objective

The objective of this audit was to determine whether the Department of Commerce, Division of
Employment Security limited improper payments to less than 10% of paid claims as required
by the United States Department of Labor. If not, identify the impact and causes of improper
payments.

Internal control components and underlying principles that were significant to our audit

COMPONENTS AND PRINCIPLES SIGNIFICANT
CONTROL ENVIRONMENT
1. The oversight body and management should demonstrate a commitment to
integrity and ethical values.
2. The oversight body should oversee the entity’s internal control system.
3. Management should establish an organizational structure, assign responsibility,
and delegate authority to achieve the entity’s objectives.
4. Management should demonstrate a commitment to recruit, develop, and retain
competent individuals.
5. Management should evaluate performance and hold individuals accountable for
their internal control responsibilities.
RISK ASSESSMENT
6. Management should define objectives clearly to enable the identification of risks
and define risk tolerances.
7. Management should identify, analyze, and respond to risks related to achieving
X
the defined objectives.
8. Management should consider the potential for fraud when identifying, analyzing,
and responding to risks.
9. Management should identify, analyze, and respond to significant changes that
could impact the internal control system.
CONTROL ACTIVITIES
10. Management should design control activities to achieve objectives and respond
X
to risks.
11. Management should design the entity’s information system and related control
activities to achieve objectives and respond to risks.
12. Management should implement control activities through policies. X
INFORMATION AND COMMUNICATION
13. Management should use quality information to achieve the entity’s objectives.
14. Management should internally communicate the necessary quality information to
X
achieve the entity’s objectives.
15. Management should externally communicate the necessary quality information
X
to achieve the entity’s objectives.
MONITORING ACTIVITIES
16. Management should establish and operate monitoring activities to monitor the
X
internal control system and evaluate the results.
17. Management should remediate identified internal control deficiencies on a timely
X
basis.

25
RESPONSE FROM
DEPARTMENT OF
COMMERCE
RESPONSE FROM DEPARTMENT OF COMMERCE

26
RESPONSE FROM DEPARTMENT OF COMMERCE

27
RESPONSE FROM DEPARTMENT OF COMMERCE

28
ORDERING INFORMATION
COPIES OF THIS REPORT MAY BE OBTAINED BY CONTACTING:

Office of the State Auditor
State of North Carolina
2 South Salisbury Street
20601 Mail Service Center
Raleigh, North Carolina 27699-0600

Telephone: 919-807-7500
Facsimile: 919-807-7647
Internet: http://www.auditor.nc.gov

To report alleged incidents of fraud, waste or abuse in state government contact the
Office of the State Auditor Fraud Hotline:

Telephone:1-800-730-8477

Internet: http://www.auditor.nc.gov/pub42/Hotline.aspx

For additional information contact the
North Carolina Office of the State Auditor at:
919-807-7666

This audit required 2,584 hours of auditor effort at an approximate cost of $273,904.

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