WIXLIB

Montana Departmentof Labor and IndustryPr e s e n t e d B y :Delsi OsmansonFinancial Compliance Supervisor

Montana Departmentof Labor and IndustryLaurie EsauCommissionerErin WeisgerberCentral Services Division AdministratorPaul MartinUnemployment Insurance Division AdministratorRachel BawdenUnemployment Insurance Division Deputy Administrator

Department Structure Commissioner’s Office Centralized Services Division Employment Relations Division Unemployment Insurance Division Workforce Services Division Business Standards Division Technology Services Division

Recommendation #1Financial MisstatementsIn fiscal year 2021, the department’scontrols did not prevent, or detect andcorrect in a timely manner, several multimillion dollar misstatements in itsaccounting records related to theUnemployment Insurance (UI) program.

Effects of Fiscal Year 2021 Misstatements on Financial SchedulesRecommendation #1Schedule of Changes in Fund EquityLine ItemFund/ProgramOver/(Under)stated)Federal Special Revenue FundBudgeted Revenues & Transfers-In( 2,878,831)Enterprise FundTotal AdditionsFund Equity June 30Budgeted Revenues & Transfers-In( 2,878,831)( 2,878,831)( 29,457,759)Prior Year Revenues & Transfers-In AdjustmentsTotal AdditionsBudgeted Expenditures & Transfers-OutNonbudgeted Expenditures & Transfers-OutTotal ReductionsFund Equity June 30 4,298,161( 25,159,598)( 830,254) 10,630,860 9,800,606( 34,960,204)Schedule of Total Revenues & Transfers-InFederal Special Revenue FundEnterprise FundFines and Forfeits( 2,878,831)Total Revenues & Transfers-In( 2,878,831)Actual Budgeted Revenues & Transfers-In( 2,878,831)FederalPrior Year Revenues & Transfers-In( 25,159,598) 4,298,161Actual Budgeted Revenues & Transfers-In( 29,457,759)Schedule of Total Expenditures & Transfers-OutUnemployment Insurance DivisionOther Expenses 10,630,860Benefits and Claims: To Individuals( 830,254)Total Expenditures & Transfers-Out 9,800,606Expenditures & Transfers-Out by Fund: Enterprise Fund 9,800,606Expenditures & Transfers-Out by Fund: Total Expenditures& Transfers-OutLess: Nonbudgeted ExpendituresActual Budgeted Expenditures & Transfers-Out 9,800,606 10,630,860( 830,254)Unspent Budget Authority 830,254Unspent Budget Authority By Fund: Enterprise Fund 830,254

Recommendation #1Effects of Fiscal Year 2021 Misstatements on Financial SchedulesSchedule of Changes in Fund EquityLine ItemFund/ProgramEnterprise Fund- page A-4Over/(Under)stated)Budgeted Revenues & Transfers-In( 29,457,759)Total Additions( 25,159,598)Fund Equity June 30( 34,960,204)Schedule of Total Revenues & Transfers-In – page A-6Enterprise FundFederal( 25,159,598)Actual Budgeted Revenues & Transfers-In( 29,457,759)

Recommendation #1Effects of Fiscal Year 2021 Misstatements on Financial SchedulesSchedule of Changes in Fund EquityFund/ProgramEnterprise Fund- page A-4Line ItemOver/(Under)stated)Nonbudgeted Expenditures & Transfers-OutTotal Reductions 10,630,860 9,800,606Schedule of Total Expenditures & Transfers-Out – page A-8Unemployment InsuranceDivisionOther Expenses 10,630,860Total Expenditures & Transfers-Out 9,800,606Expenditures & Transfers-Out by Fund:Enterprise Fund 9,800,606Expenditures & Transfers-Out by Fund: TotalExpenditures & Transfers-Out 9,800,606Less: Nonbudgeted Expenditures 10,630,860

Recommendation #1Prior AuditRecommendation #1We recommend the Department of Labor andIndustry implement controls to reconcile theUnemployment Insurance cash balance onthe State’s accounting records to themonthly federal UI trust balance report.

Recommendation #1Results Material weakness in internal controlsoutlined in report on Internal Control andCompliance on page B-1 of report Qualified opinion on fiscal year 2021financial schedules

Recommendation #1Current AuditRecommendation #1We recommend the Department of Labor and Industryenhance its internal controls over the recording offinancial transactions related to its UnemploymentInsurance Program to ensure all necessary transactionsare recorded on the state’s accounting system beforefiscal year-end as required by state law.

Unemployment Insurance (UI)Internal Control and FederalCompliance

Summary of New UI Programs and FundingUI programEffective DatePurposeFederal Pandemic UnemploymentCompensation (FPUC)3/29/2020-7/25/2020Provided extra 600 per weekPandemic EmergencyUnemployment Compensation(PEUC)Pandemic Unemployment 2020Provided an additional 13 weeks ofbenefits to regularUI claimsFederal Pandemic UnemploymentCompensation (FPUC)2020 Total Revenue2021 Total Revenue 446,625,767 82,785,020 5,223,834 3,057,126 27,957,146 36,269,353Federal Emergency ManagementAdministration (FEMA) 46,572,2367/26/2020-9/05/2020Provided extra 100 perWeekInterim Pandemic Assistance(IPA)CARES Act(Direct to the department)Provided benefits to thosenot usually eligible for regularbenefitsProvided extra 300 per weekLost Wages Assistance (LWA)Federal Funding bsequently extended to 9/4/2021- Montana chose to end benefitsJune 26, 2021)Provided extra 200 perweekCARES Act fundingtransferred from theGovernor's Office 30,865,431Provided extra 300 per week12/27/2020-3/13/2021Pandemic Emergency Unemployment (subsequently extended to 9/4/2021 Provided an additional 11 weeks ofCompensation (PEUC)benefits to regular UI claims- Montana chose to end benefitsJune 26, 2021) 220,493,048Continued Assistance forUnemployed Workers Act of2020(Direct to the department) 77,919,568Provided benefits to those not12/27/2020-3/13/2021Pandemic Unemployment Assistance (subsequently extended to 9/4/2021 usually eligible for regular benefits(PUA)- Montana chose to end benefitsJune 26, 2021) 96,859,391Total 479,806,747 594,821,174

Summary of New UI Programs and FundingUI programFederal PandemicUnemploymentCompensation(FPUC)Pandemic EmergencyUnemploymentCompensation(PEUC)Pandemic UnemploymentAssistance (PUA)Effective DatePurpose3/29/2020-7/25/2020Provided extra 600 ided an additional 13weeks of benefits toregular UI claimsProvided benefits tothose not usuallyeligible for regularbenefitsFederal Funding SourceCARES Act(Direct to thedepartment)2020 Total Revenue2021 Total Revenue 446,625,767 82,785,020 5,223,834 3,057,126 27,957,146 36,269,353

Summary of New UI Programs and FundingUI programLost WagesAssistance (LWA)Effective Date7/26/2020-9/05/2020PurposeProvided extra 300 perweekProvided extra 100per weekInterim ed extra 200 perweekFederal FundingSource2020 TotalRevenue2021 TotalRevenueFederal EmergencyManagementAdministration (FEMA) 46,572,236CARES Act fundingtransferred fromthe Governor'sOffice 30,865,431

Summary of New UI Programs and FundingUI programFederal PandemicUnemploymentCompensation (FPUC)Pandemic EmergencyUnemploymentCompensation (PEUC)Effective DatePurpose12/27/2020 3/13/2021(subsequently extended to Provided extra 300 perweek9/4/2021 - Montana choseto end benefits June 26,2021)12/27/2020 3/13/2021Provided an additional 11(subsequently extended to weeks of benefits to9/4/2021 - Montana choseregular UI claimsto end benefits June 26,2021)Provided benefits to those12/27/2020 Pandemic Unemploymentnot usually eligible for3/13/2021Assistance (PUA)regular benefits(subsequently extended to9/4/2021 - Montana choseto end benefits June 26,2021)Federal FundingSource2020 TotalRevenue2021 TotalRevenue 220,493,048Continued Assistancefor UnemployedWorkers Act of 2020(Direct to thedepartment) 77,919,568 96,859,391

PandemicUnemploymentAssistance (PUA) SystemRecommendation #2 De p a r tme nt c o n t racte d w i t h a v e n d or t o u s e s o f t w ared e v e lo ped s p e c i fi cal ly f o r t h e P U A p r o g ram P U A p r o g r am h a d d i f f e rent e l i g i b il i ty r e q u ir emen ts f r o mr e g u la r U I MIST IC S c o u l d n o t e a s i l y p r o c e ss v o l u me o f c l a i m s o r n e wr e q u i rem ents

PandemicUnemploymentAssistance (PUA) SystemAudit IssuesRecommendation #2 Pr o p r ie tary s ys t e m - L A D IS a u d i t ors c o u l d n o t r e v i ew t h es ys t e m t o p r o v i de a u d i t a s s u r ance N o Se r v i ce O r g an iz ati on C o n t r ols ( S O C ) r e p o rt N o d o c u men ted c o n t rol s o v e r u s e r a c c e ss N o d o c u men ted c o n t rol s o v e r c h a n ge m a n a geme ntp r o c ess es

Recommendation #2Recommendation #2We r e c om mend t h e De p a r tme nt o f L a b o r a n d In d u s t r ye n h a nce i n t e r nal c o n t rols b y o b t a in in g a n a p p l i ca tio n-l evelSe r v i ce O r g an iz at ion C o n t r ol s ( S O C ) r e p o rt, o r i m p l e m enta n d f o r m ally d o c u me nt b a s e l in e s e c u rit y c o n t ro ls f o r a l ln e w U n e m p loymen t In s u r a nce p r o g ram- r el ated i n f o r mat iont e c h nology s ys t e ms , a s r e q u i red b y s t a t e p o l i c y a n d f e d e ra lr e g u la tio ns.

Recommendation #3PandemicUnemploymentAssistance (PUA)Benefit Errors

Recommendation #3UI BenefitCalculationsBased on the greaterof 1% of the baseperiod’s earnings or1.9% of the highesttwo quarters ofearnings.

Recommendation #3Income Verification R e g u l a r U I u s u a l l y h a s e m p lo ye r w a g e i n f o r mat ion t ov e r i fy c l a i ma nt i n c o me i n f o r mati on P U A a llo w s t h o s e n o t e li g i b le f o r r e g u l ar U I – i n c o mev e r i fi cati on c o u l d i n c l u de c o m b i nati ons o f : Em p l o ye r i n f o rm ati on Ta x f o r ms B a n k s t a t eme nts Pr o f i t a n d L o s s St a t e men ts

Recommendation #3UI Benefit Errors Two c la i m ants ’ ye a r ly w a g e s w e r e d i v i de d e q u a ll yb e t w e en t h e f o u r q u a r t ers o f t h e ye a r.Base PeriodQ1 2019Q2 2019Q3 2019Q4 2019TotalBase PeriodQ1 2019Q2 2019Q3 2019Q4 2019TotalWages Earned 6,300 11,200 12,500 10,000 40,000Weekly Benefit Calculation1% of all 4 Quarters 1.9% of 2 Highest Quarters 63 112 213 125 238 100 400 450Wages Earned 10,000 10,000 10,000 10,000 40,000Weekly Benefit Calculation1% of all 4 Quarters 1.9% of 2 Highest Quarters 100 100 190 100 190 100 400 380

Recommendation #3UI Benefit Errors cont. O n e c la i m ant h a d t w o S c h e d ule C t a x f o r m s, b u t o n l y t h eo n e s h o w i n g a p r o f i t w a s u s e d f o r w a g e c a l c ula ti on. O n e c l a i m ant w a s a l l o w e d t o u s e a 1 0 9 9-MISC t a x f o r m,b u t i t o n l y s h o w s g r o ss i n c o m e, n o t n e t i n c o me.

Recommendation #3Recommendation #3We recommend the Department of Labor and Industry:A. Enhance internal controls to ensure wage information iscorrectly used to calculate unemployment insurance benefits,andB. Calculate Unemployment Insurance benefits correctly inaccordance with federal regulations.

Recommendation #4OverpaymentRecovery

Recommendation #4Common Causes ofUI Overpayments Claimants providing incorrect informationduring application process Federal guidelines limiting department’sability to verify information Errors in information entered bydepartment staff

Recommendation #4Overpayment RecoveryRequirements Mu s t a s s e s s a 5 0 % p e n a l ty ( 1 5 % f e d e ral , 3 5 % s t a t e )o n a ll o v e r pa yment s t h a t o c c u r d u e t o c l a i man tfraud Mu s t o f f s et o v e r paym ents a g a in st c o n t in ui ng o rf u t u re U I b e n e f it p a ym e n ts

Recommendation #4Overpayment RecoveryTesting Results J u d gm ent al s a m p l e – 1 0 o u t o f 6 0 o v e r paym entsh a d c l a i m an ts c o n t in uin g t o r e c ei ve b e n e fi ts a f t e rb e i n g a s s e s sed w i t h a n o v e r paym ent 4 o f t h e 1 0 d i d n o t h a v e t h e i r b e n e fi ts r e d u ced t or e c o ver t h e a s s e s se d o v e rp aymen t