The Department of Labor and Employment may have paid out $73.1 million in potentially fraudulent claims during the first 14 months of the pandemic and has done little to resolve those fraudulent claims, including recovering the money, according to an audit released Monday.

But the department’s lack of effective processes also meant that the majority of those who sought assistance with holds placed on their unemployment benefits got little or no help from the department in resolving those claims, the audit added.

The department is responsible for preventing fraud, and failure to do so means it may have to pay back some of those funds to the federal government, the audit said.

The audit put some of the blame

on an executive order issued in March 2020 by Gov. Jared Polis, as well as guidance from the U.S. Department of Labor, for circumventing processes that would have allowed DOLE to vet certain claims before issuing payments.

However, most of the recommendations for improving the fraud detection system were not disclosed in the audit. The Office of the State Auditor put those recommendations into a confidential report not released by the Legislative Audit Committee when it reviewed the audit Monday.

Out of that $73.1 million, which was paid between March 1, 2020 and April 30, 2021 for 8,200 claims:

• $3.87 million was paid on behalf of 1,065 individuals who were deceased, and some who had been dead for years. Others died while receiving benefit payments but continued to receive them. Most were for claims filed under the federal Pandemic Unemployment Assistance, which the audit identified as a primary target for fraud.

• $5.04 million was paid on behalf of 696 individuals who were incarcerated in the Colorado Department of Corrections, again mostly PUA claims.

• $101,630 was paid to 18 claimants who did not appear eligible because they were not of working age.

• $18.5 million was paid to 2,919 claimants who had suspicious bank account information associated with their claims.

• $45.78 million was paid to 3,308 claimants whose claims had multiple indicators of fraud, such as suspicious email, foreign internet protocol or mailing addresses.

None of those claims was flagged as potentially fraudulent by DOLE, the audit said.

“Unemployment benefits fraud is a high-risk area for the state, which the department will need to continue to combat using additional fraud prevention controls,” the audit recommended.

The audit report also said DOLE lacked an “effective complaint management processes to track and resolve problems that claimants reported, resulting in complaints not being resolved in a timely manner or at all.”

DOLE received 196,000 claims requests tied to holds on unemployment benefits, but showed no proof, the audit said, that these requests were resolved. In addition, of the 70,000 requests it did resolve, the department took an average of seven weeks to resolve those holds, the audit said.

The department also did not track most complaints related to unemployment benefits, the audit said, adding it also did not track complaints about call center staff until last February.

“It’s important to protect taxpayer resources by having measures in place to prevent and detect fraudulent claims. But it’s also important to have effective processes in place to assist those individuals whose legitimate claims may have been put on hold as a result of these same fraud prevention and detection measures,” Audit Manager Jenny Page said.

The audit found that DOLE experienced a 1,100% increase in benefits claims in 2020 compared to the previous year.

In calendar year 2020, the audit said about 852,000 Coloradans received unemployment benefits payments totaling $6.9 billion, the highest amount since 2008. Through October, 2021, about 577,000 Coloradans received payments totaling $4.6 billion.

Eligibility for unemployment benefits includes recent earned wages of at least $2,500 during four consecutive calendar quarters within the last five quarters. Additional restrictions apply for those who receive severance, pension payouts or worker’s compensation during that same period. Claimants must be unemployed through no fault of their own, and must be able, available, willing to work and actively seek employment.

However, the work provision was suspended between March 20 2020 and Jan. 31, 2021 through an through an executive order Polis issued. The oneweek waiting period for benefits was waived by executive order between March 20, 2020 and September 4, 2021.

Polis’ executive order also mandated payments within 10 days of receiving claims. Before then, the audit said, it took four to six weeks to process claims before paying benefits, which allowed DOLE to contact employers and verify claimant employment and wages. That vetting process ended with the governor’s executive order.

In just one week alone in April 2020, the department received 104,220 new claims, more than it had for all of calendar year 2019.

The maximum payout per week ranged from $618 to $649 between July 2019 and June 2021, and $700 per week thereafter.

The audit blamed part of the fraud on pandemic policies, such as expedited payments mandated by the governor’s executive order and guidance from the U.S. Department of Labor. The audit said “it took up to several months after payment for the Department to conduct employment and wage verification on regular state unemployment claims, but it screened these claims for potential fraud and certain issues, such as duplicate claims, before paying them.” An executive order issued Aug. 6, 2021, ended that mandate and the department returned to conducting employment and wage checks before paying claims.

Information technology problems that plagued the department for years also complicated the department’s efforts to address fraud. DOLE used its existing legacy system, the Colorado Unemployment Benefits System, which it had planned to retire, to pay claims through early January 2021 and a new system to process federal PUA claims, in part, the audit said, because pandemic claims became fraud targets.

Another policy that increased the potential for fraud: self-certification that a claimant was eligible, which was allowed under the CARES Act.

“States could not require PUA claimants to provide employment documentation,” making those federal benefits a fraud target, the audit said. The CARES Act also allowed claimants to backdate their PUA claims as far back as Jan. 27, 2020. Those back-dated claims also raised concerns around fraud, the audit said.

DOLE has been implementing fraud detection processes, going back to 2015, including fraud analytics. There are 10 indicators of fraud, the audit said, such as a fake Social Security number, and DOLE began working with its contractor to analyze federal/PUA claims based on those 10 indicators. If a claim had at least one indicator, the claim was put on hold while DOLE investigated.

Despite having that process in place, between June 2020 and January 2021, DOLE did not analyze regular (non-federal/PUA) claims to determine if those claims showed any of those 10 indicators.

“Although the Department reported that, as of September 2021, it had identified $29.8 million paid in fraudulent unemployment benefits, it could not provide a breakdown of the number of claims or payments identified as potentially fraudulent using each of the various checks, data matches, and processes” it has in place, the audit said.

That led to the $73.1 million the audit identified as potentially fraudulent that was not flagged by DOLE.

DOLE told auditors it may take years before it has final statewide and nationwide totals for fraudulent payments.

Paying out fraudulent claims has consequences for employers and taxpayers, the audit said. The state’s unemployment trust fund is $1.01 billion in arrears through Oct. 29, 2021, and the state had to tap federal loans to cover those shortages.

The audit recommended DOLE improve its fraud detection and prevention by improving internal controls, but most of the detail for that recommendation is contained in the confidential report.

The audit also recommended investigating the potentially fraudulent claims identified by auditors and referring them to prosecution or collection. DOLE agreed with the audit recommendations and pledged to implement some by this month and others by December 2023.

The department also said, in response to recommendations, that it would not comment “on whether or not the fraud indicators included in this audit are or are not currently included or will or will not be implemented in our program in the future” due to the extreme caution taken in identifying specific types of fraud.

The audit found 266,284 instances where a claimant submitted a request for help on a fraud hold between July 20, 2020 and June 18,2021. Out of the 266,284 requests, 196,066 had not been resolved by June, 2021, the audit said, and the rest took too long to settle.

DOLE could not say what happened to nearly 30,000 of those requests marked as resolved. Of those 70,135 requests, more than half took 31 days or more to resolve, and that delayed benefits.

The lack of timely resolution also put strains on department resources with multiple requests for assistance. The audit noted one person submitted 112 requests for assistance in a 46-day period. That request was finally resolved 63 days after the first request.

DOLE lacks written policies, procedures and processes for documenting how it assisted claimants whose benefits have been put on hold, the audit said. Such documentation would help the department identify whether claims have been resolved, including those claims with multiple requests.

In addition, DOLE didn’t take action on repeat requests beyond sending the claimant an email with a link to complete the identification system records form repeatedly.

The audit recommended that DOLE develop written polices for providing claimants with assistance in a timely manner and to identify an IT solution to track and monitor multiple requests. DOLE said it would have those recommendations in place by next March.

The audit also discussed the problems with the private call center DOLE contracted with during the early months of the pandemic. The call center was overwhelmed, with 95% of inbound callers between April and July 2020 getting disconnected or receiving a busy signal. The problem of disconnected or busy signal calls continued through the audit period, into April, 2021, with the majority of calls not getting answered, the audit reported.

Given DOLE had a plan in place to address the call volume, the audit did not make a recommendation. The audit, however, offered a recommendation for complaints about the call center, noting more than 40,000 individuals tried calling more than 100 times per day in an attempt to get help. DOLE had no complaint management policy to deal with problems with the call center, the audit said.

The audit recommended DOLE develop policies for resolving complaints in a timely manner, and ensure that future contracts for call centers require contractors to maintain data on complaints. Those recommendations will be implemented by March 2022, DOLE said in its response.