State may have paid millions to unemployed who never looked for work

While Gov. Paul LePage and the legislature focus on welfare fraud, four straight audits have warned the state that it may be improperly paying hundreds of millions of dollars in unemployment checks to people who are not providing the required proof they are looking for work.
Stock photo of an employment benefits claim form that has been stamped by a green APPROVED ink stamp
Photo by Stuart Miles/Shutterstock.

As many as one in three Mainers on unemployment may not be eligible for benefits – yet the state has been cutting them a weekly check anyway.

Four successive audits by the State Auditor, including one released earlier this month, have warned that the Department of Labor has failed to ensure claimants are actively looking for work, a basic requirement to be eligible to get an unemployment check.

The lack of oversight, according to the state’s financial watchdog, may have put the taxpayers on the hook for hundreds of millions of dollars in questionable benefit payments between fiscal years 2011 and 2014, the latest year of the audits.

The precise amount of dollars that may have been improperly paid to Mainers getting unemployment checks has never been determined by either the auditor or the Labor Department. In part, that’s because records were often either not collected, or not reviewed.

In 2012 and 2013 alone, however, auditors questioned $130 million in state-funded payments, based on a rate of improper payments that auditors estimated to be 33 and 46 percent respectively.

“The current procedures in place do not, in our opinion, ensure substantial compliance with work search eligibility requirements,” said Jacob Norton, a certified internal auditor with state’s audit team.

Gov. Paul LePage
Gov. Paul LePage

Gov. Paul LePage has known about the problem since at least 2011. In a radio address in October of that year, titled “MDOL is Cracking Down on Unemployment Fraud,” he warned that “claimants who aren’t doing the proper work search or who turn down suitable job offers can and will lose their unemployment benefits from this point forward.”

Requiring recipients of state benefits to be searching for work has since become a cornerstone of Gov. LePage’s signature welfare-to-work reforms.

Despite millions of dollars at stake and years of repeated warnings, a review of audit reports, working papers, and inter-office memos reveals the problem isn’t going away.

The Department of Labor has responded to the auditor’s findings by overhauling its own monitoring and enforcement procedures and increasing its efforts to help the unemployed find jobs. The new procedures, implemented in 2013, have been blessed by the federal government, which oversees the programs, and closely followed by the governor.

“Despite the progress we understand that no system is perfect and there are certainly people who are not following the rules and are not conducting work searches and are not able and available to work,” said Adrienne Bennett, the governor’s press secretary.

But auditors still aren’t satisfied.

“It’s a big number, and whether or not you’re complying with federal law, it deserves attention,” said Norton.

Business pays the tax

The long-standing problem could have big consequences: Unlike welfare or food stamps, which are heavily subsidized by federal funding, Maine’s unemployment insurance program is shouldered entirely by a tax levied on the state’s businesses. The annual cost of the benefit has ranged from $137 to $200 million. (However, the federal government pays for other unemployment benefits, exclusive of the state’s expense.)

The longer a person collecting unemployment goes without work, the higher the taxes paid by Maine’s businesses the next year.

Laura Boyett, Director, Maine Bureau of Unemployment Compensation
Laura Boyett, Director, Maine Bureau of Unemployment Compensation

The average weekly unemployment check is $295, according to the Department of Labor.

“We have to ask the question, ‘What would taxpayers think about this?” says Norton.

The first hint of a problem cropped up in 2010 (fiscal year 2011), under then-Gov. John Baldacci, according to a review of audit reports.

With the global economic crisis still simmering, Maine was spending upwards of $200 million in unemployment benefits. The big money attracted the attention of auditors.

At the time, the Department of Labor policy was to collect all work search logs — simple forms on which unemployment claimants must document contacts with prospective employers — from every recipient, every fifth week.

Some states waived work search requirements during the crisis. Maine did not. With as many as 30,000 claims filed each week, the agency couldn’t keep up.

John Christie, former manager of the Department of Labor’s Augusta Career Center, recalls working the recession’s front lines.

“Every day my staff came to work hoping they could help somebody find work – they didn’t come in saying, ‘I need to get someone to fill out their work search log,’” Christie recalls. “It really just became about checking the box.”

The lack of vigilance wasn’t lost on claimants, auditors noted.

When then-state auditor Neria Douglass, a Democrat, first identified the problem in the 2011 audit, the Department of Labor immediately agreed with the auditor’s assessment and promised changes.

In 2012, auditors pulled another random sample of claims but, once again, one in three lacked any proof of work search.

Audits lag by almost a year — the time it takes for auditors to review the finances of all of the state’s programs — so Department officials could only reassure auditors that a solution was underway.

This time, however, the auditor’s office took a closer look and put the problem in dollars and cents.

“Approximately $42 million in federally funded unemployment claims and $61 million in claims funded by Maine’s employers were paid to persons who might not have been actively searching for a job and obtaining timely re-employment,” the report stated.

Laura Boyett, director of the department’s Bureau of Unemployment Compensation, questioned some of the auditor’s math, but agreed the old system of collecting — but not reviewing — every work search log had sent the “wrong message to the claimant population — that nothing would happen if they failed to comply.”

Where the two departments couldn’t agree then — and still can’t now — is on a workable solution.

“We’re locked in a disagreement with our State Auditor with regard to the federal statutory requirement around work search,” wrote Boyett in an email to Gay Gilbert, of the U.S. Office of Unemployment Insurance, on November 3, 2014. “The disagreement is growing more contentious and no amount of internal discussions seems to be able to get us to a place of mutual agreement — just the opposite.”

By then, the Department of Labor itself had scrapped its old system of collecting, but not reviewing, all work search logs. Now it was fully auditing 200 unemployment claims a week, a more cost-effective procedure, Boyett said, that would send “a very different message …. first, that work search is a requirement of receiving benefits and second, that benefits will be denied if the claimant fails to comply.”

Gilbert, the federal program administrator, approved Maine’s approach in a letter to Boyett on Nov. 21: “We have reviewed current Maine statute … our official opinion is that they conform to the requirements of federal law,” she wrote.

Maine’s auditors were less enthusiastic.

Auditors said something still wasn’t right.

The Department’s own data, wrote Norton, showed that 52.5 percent of the 200 claimants they audited per month in the first nine months of the new system had failed to produce adequate evidence of work search — an even worse percentage than the State Auditor itself had reported.

“They thought they had procedures in place to correct the problem, but they were missing the key ingredient,” said Norton. “For us to say their controls are working, we’d like to see the rate trend downwards.”

The problem came up at the legislature earlier that year.

In September of 2014, State Auditor Pola Buckley, a Democrat, raised the issue in testimony to the Legislature’s Appropriations Committee, advising that auditors estimated that “forty-six percent of all unemployment compensation payments were made to an individual who had not submitted a work search log…”

When the audit was presented to the committee, Rep. Peggy Rotundo, D-Lewiston, was the House co-chair of the committee.

Rotundo said, “I have great respect for our auditor and her staff, and we take their findings very seriously,” and added that any legislative action would have been taken by another committee that oversees labor and commerce.

Winthrop Sen. Patrick Flood was the ranking Republican on the committee. “I just don’t recall much about that particular topic,” Flood said.

A check of the legislative record shows that the Labor, Commerce and Economic Development Committee did not approve any bills dealing directly with the problems raised by the auditor.

Not an entitlement

Department of Labor spokeswoman Julie Rabinowitz said the reason many claimants don’t do the required job search may be due to a misunderstanding about the program.

She said many claimants, particularly seasonal workers who have long relied on state benefits in winter, mistakenly feel they’re entitled to unemployment because they’ve paid into it, as with Social Security. But it’s employers, not employees, who pay the unemployment taxes, says Rabinowitz.

“This is an insurance program, not an entitlement program. You must satisfy certain requirements in order to get the benefits,” said Rabinowitz. “There’s a lot of confusion around that.”

Work search, the Department acknowledges, is essential to getting people back to work. It’s also one of the hardest requirements to enforce, department data shows.

In 2014, unemployment officials reviewed 8,801 cases of potential work search eligibility problems — but denied benefits in only 650 of them, or seven percent.

Many of Maine’s small employers simply don’t keep records of who called asking for a job, says Boyett, making it difficult to prove one way or another. “What can you definitively prove? That’s the big question,” she says.

Boyett says more resources would help. “I agree that we can strengthen it. But I’ve got very limited resources. Do I pull them off…things that I know we can definitely prove?”

Maine’s auditors don’t propose a solution. And the department has promised a systems overhaul, to be complete by 2016, that Gov. LePage’s office says will give officials more flexibility and tools to beef up efforts to enforce work search requirements and help the unemployed find work.

“We cannot continue to allow systems to remain stagnant. It is an expensive investment to modernize these systems but we must do it and we’re doing it in a way that protects the unemployment trust fund,” said press secretary Bennett.

It’s a model that’s worked in nearby New Hampshire, said Dianne Carpenter, director of that state’s Unemployment Compensation Bureau. New Hampshire’s rate of improper payments due to lack of proof of work search is zero, she said.

In 2013, Carpenter said, New Hampshire began requiring applicants who file an unemployment claim to submit evidence of work search on-line prior to receiving benefits.

When claimants fail to provide evidence, she says, a red flag goes up immediately and the state can focus on what went wrong— and how it can help — long before it hands out benefits.

“Staff contacts them and says, ‘You didn’t look for work. What’s the story here?’”

Editor’s Note: The John Christie quoted in this article is not the John Christie who is the editor-in-chief of the Maine Center for Public Interest Reporting.


Dave Sherwood

Dave Sherwood is a staff reporter for the Maine Center for Public Interest Reporting.
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