Report Wa State Auditor Esd Ui Ar1028000 2021 04
Summary
An Accountability Audit Report, Report No. 1028000, published April 13, 2021 by the Office of the Washington State Auditor on the Employment Security Department for the period July 1, 2017 through June 30, 2020. State Auditor Pat McCarthy transmits it to Commissioner Cami Feek, and the audit was conducted under the authority of RCW 43.09.310. The report states that in the areas examined, covering accounts payable, payroll, paid family and medical leave, and IT procurement, the Department complied in all material respects and provided adequate controls. It also states that during 2020, $646.8 million was misappropriated through imposter claims and $460.5 million was paid in questionable unemployment claims, matters reported in a separate engagement. It opens with a note on a January 2021 cybersecurity incident at the auditor's file transfer service.
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Accountability Audit Report
Employment Security
Department
For the period July 1, 2017 through June 30, 2020
Published April 13, 2021 Find out what’s new at SAO
by scanning this code with
Report No. 1028000 your smartphone’s camera
A note about data involved in this audit
In January 2021, the State Auditor’s Office was alerted to a potential cybersecurity incident
involving its third-party file transfer service. Among the files that may have been compromised
was a set of data files provided by ESD containing personal information of people who received
unemployment benefits in the 2017 to 2020 time period. The data files were provided as part of
our series of audits of the Unemployment Insurance program. We worked collaboratively with
ESD to assess the information included in the files so we could notify those people whose personal
information may have been compromised. The effort to address the cybersecurity incident
involving the data files was handled separately from the audits themselves, and it did not affect
the findings, conclusions or recommendations of any of the audits.
Office of the Washington State Auditor
Pat McCarthy
April 13, 2021
Cami Feek, Commissioner
Employment Security Department
Olympia, Washington
Report on Accountability
Thank you for the opportunity to work with you to promote accountability, integrity and openness
in government. The Office of the Washington State Auditor takes seriously our role of providing
state and local governments with assurance and accountability as the independent auditor of public
accounts. In this way, we strive to help government work better, cost less, deliver higher value and
earn greater public trust.
Independent audits provide essential accountability and transparency for Department operations.
This information is valuable to management, the governing body and public stakeholders when
assessing the government’s stewardship of public resources.
Attached is our independent audit report on the Department’s compliance with applicable
requirements and safeguarding of public resources for the areas we examined. We appreciate the
opportunity to work with your staff and value your cooperation during the audit.
Sincerely,
Pat McCarthy
State Auditor
Olympia, WA
Americans with Disabilities
In accordance with the Americans with Disabilities Act, we will make this document available in
alternative formats. For more information, please contact our Office at (564) 999-0950, TDD
Relay at (800) 833-6388, or email our webmaster at webmaster@sao.wa.gov.
Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (564) 999-0950 Pat.McCarthy@sao.wa.gov
TABLE OF CONTENTS
Audit Results................................................................................................................................... 5
Related Reports ............................................................................................................................... 6
Information about the Department .................................................................................................. 7
About the State Auditor's Office ..................................................................................................... 9
Office of the Washington State Auditor sao.wa.gov Page 4
AUDIT RESULTS
Results in brief
This report describes the overall results and conclusions for the areas we examined. In those
selected areas, Department operations complied, in all material respects, with applicable state laws,
regulations, and its own policies, and provided adequate controls over the safeguarding of public
resources.
However, as noted under the Related Reports – Special Investigations section of this report, certain
matters were examined and reported as part of a separate engagement. During 2020, $646.8
million dollars was misappropriated through imposter claims and $460.5 million was paid in
questionable unemployment claims. The fraud occurred in the midst of a pandemic, when the
Department’s level of activity and control environment were altered in response to significant
increases in both demand and funding for unemployment claims.
In keeping with general auditing practices, we do not examine every transaction, activity, policy,
internal control, or area. As a result, no information is provided on the areas that were not
examined.
About the audit
This report contains the results of our independent accountability audit of the Employment
Security Department from July 1, 2017 through June 30, 2020.
Management is responsible for ensuring compliance and adequate safeguarding of public resources
from fraud, loss or abuse. This includes the design, implementation and maintenance of internal
controls relevant to these objectives.
This audit was conducted under the authority of RCW 43.09.310, which requires the Office of the
Washington State Auditor to examine the financial affairs of all state agencies. Our audit involved
obtaining evidence about the Department’s use of public resources, compliance with state laws
and regulations and its own policies and procedures, and internal controls over such matters. The
procedures performed were based on our assessment of risks in the areas we examined.
Based on our risk assessment for the years ended June 30, 2020, 2019 and 2018, the areas examined
were those representing the highest risk of fraud, loss, abuse, or noncompliance. We examined the
following areas during this audit period:
• Accounts payable – general disbursements and electronic funds transfers
• Payroll – gross wages and overtime
• Paid family and medical leave – billing and compliance with eligibility
• Procurement – information technology contracts and change orders
Office of the Washington State Auditor sao.wa.gov Page 5
RELATED REPORTS
Financial
We perform an annual audit of the statewide basic financial statements, as required by state law
(RCW 43.09.310). Our opinion on these financial statements is included in the Comprehensive
Annual Financial Report (CAFR) prepared by and available from the Office of Financial
Management.
The CAFR reflects the financial activities of all funds, organizations, institutions, agencies,
departments and offices that are part of the state’s reporting entity. That report is issued by the
Office of Financial Management in December of each year and can be found at www.ofm.wa.gov.
A summary of the audit for the period ending June 30, 2020, can be found at
https://www.sao.wa.gov/about-audits/about-state-government-audits/.
Federal programs
In accordance with the Single Audit Act, we annually audit major federal programs administered
by the state of Washington. Rather than perform a single audit of each agency, we audit the state
as a whole. The results of that audit are published in a report issued by the Office of Financial
Management in March of each year.
Performance audits
Initiative 900, approved by voters in 2005, gives the State Auditor's Office the authority to conduct
independent performance audits of state and local government entities. Performance audits may
include objective analysis on ways to improve program performance and operations, reduce costs
and identify best practices.
We will be issuing separate performance audit reports related to misappropriation of public funds
and customer service at the Department. Those reports are available on our website,
http://portal.sao.wa.gov/ReportSearch.
Special investigations
The State Auditor’s Office issued a report on a misappropriation of public funds at the Department.
That report is available on our website, http://portal.sao.wa.gov/ReportSearch.
Office of the Washington State Auditor sao.wa.gov Page 6
INFORMATION ABOUT THE DEPARTMENT
The Employment Security Department (ESD) is led by a governor-appointed commissioner. The
Department currently has approximately 2,600 employees in offices across the state. Its usual
operating budget before the pandemic was about $400 million.
The Department administers Washington State’s unemployment insurance program. In 2020, ESD
processed approximately $1.2 billion in unemployment taxes and paid out more than $13.6 billion
in unemployment benefits.
ESD administers the Workforce Innovation & Opportunity Act (WIOA) and other programs
designed to strengthen and improve Washington’s public workforce system: WorkSource. These
programs help Washingtonians, including young people and those with significant barriers to
employment, find jobs, job training and careers. ESD also helps employers hire and retain skilled
workers.
In July 2019, ESD launched the new Paid Family Medical Leave Program. It’s intended for
workers who have a serious health condition that prevents them from working or when they need
time to care for a family member, bond with a new child or spend time with a family member
preparing for military service overseas.
ESD currently is working on launching its part of the new Long-Term Services and Supports
Program (LTSS.) This new insurance benefit for Washington workers will address their future
long-term care needs. The benefit will be funded through a payroll premium that employees will
start contributing to in January 2022. ESD’s role in the LTSS Program will be collecting premiums
and determining eligibility. Other agencies will be responsible for paying and tracking benefits.
Contact information related to this report
Employment Security Department
Address: P.O. Box 9046
Olympia, WA 98504-9046
Contact: Kari Summerour, External Audit Manager
Telephone: (360) 742-9957
Website: www.esd.wa.gov
Information current as of report publish date.
Office of the Washington State Auditor sao.wa.gov Page 7
Audit history
You can find current and past audit reports for the Employment Security Department at
http://portal.sao.wa.gov/ReportSearch.
Office of the Washington State Auditor sao.wa.gov Page 8
ABOUT THE STATE AUDITOR’S OFFICE
The State Auditor’s Office is established in the Washington State Constitution and is part of the
executive branch of state government. The State Auditor is elected by the people of Washington
and serves four-year terms.
We work with state agencies, local governments and the public to achieve our vision of increasing
trust in government by helping governments work better and deliver higher value.
In fulfilling our mission to provide citizens with independent and transparent examinations of how
state and local governments use public funds, we hold ourselves to those same standards by
continually improving our audit quality and operational efficiency, and by developing highly
engaged and committed employees.
As an agency, the State Auditor’s Office has the independence necessary to objectively perform
audits, attestation engagements and investigations. Our work is designed to comply with
professional standards as well as to satisfy the requirements of federal, state and local laws. The
Office also has an extensive quality control program and undergoes regular external peer review
to ensure our work meets the highest possible standards of accuracy, objectivity and clarity.
Our audits look at financial information and compliance with federal, state and local laws for all
local governments, including schools, and all state agencies, including institutions of higher
education. In addition, we conduct performance audits and cybersecurity audits of state agencies
and local governments, as well as state whistleblower, fraud and citizen hotline investigations.
The results of our work are available to everyone through the more than 2,000 reports we publish
each year on our website, www.sao.wa.gov. Additionally, we share regular news and other
information via an email subscription service and social media channels.
We take our role as partners in accountability seriously. The Office provides training and technical
assistance to governments both directly and through partnerships with other governmental support
organizations.
Stay connected at sao.wa.gov Other ways to stay in touch
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with the Financial Intelligence Tool
Office of the Washington State Auditor sao.wa.gov Page 9
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