Audit: Bogus unemployment claims may have cost Kansas $600M

photo by: Associated Press

Kansas Senate Commerce Committee Chair Rob Olson, R-Olathe, makes a point during a hearing on a bill that would make changes in the state's unemployment system, Wednesday, Feb. 17, 2021, at the Statehouse in Topeka, Kan. (AP Photo/John Hanna)

This story was updated at 4:10 p.m. Wednesday.

TOPEKA — Kansas may have paid $600 million worth of bogus claims for unemployment benefits last year, a legislative audit said Wednesday, more than double an estimate from the state Department of Labor.

The report from the Republican-controlled Legislature’s nonpartisan auditing division suggested that nearly 1 in 4 unemployment claims paid last year could have been fraudulent amid a surge in filings during the COVID-19 pandemic, based on the Department of Labor’s own data. The department on Tuesday estimated last year’s fraudulent claims as worth $290 million.

The department strongly disputed the audit’s figure and said in a written response that the report was “rife” with “factual errors.” The department took the uncommon step of asking the auditing division to withdraw its estimate, but Justin Stowe, the division’s director, immediately stood by its work, calling its estimate not precise but “reasonable.”

For Republican lawmakers, the audit confirmed their view that problems with unemployment fraud and distributing legitimate benefits to jobless workers represents a major failure of Democratic Gov. Laura Kelly’s administration.

“The fraud has been there for a long time, and they’ve mismanaged it,” said Senate Commerce Committee Chair Rob Olson, an Olathe Republican, who called the fraud problem “a disgrace.”

Kelly has said her administration is doing “everything in our power” to combat fraud and resolve problems with distributing benefits during the pandemic. Kelly said in a statement Tuesday that all states “have been overrun with coordinated, sophisticated criminal fraud attempts.”

Deputy Labor Secretary Brett Flachsbarth told the legislative committee that oversees auditors’ work that Republican lawmakers’ repeated suggestions that fraud in Kansas is worse than in other states is a misleading “preconceived narrative.”

“Any sort of assertion — that we have had publicly made and numerous times — that Kansas is somehow the only state or an outlier or No. 1 in fraud is categorically false,” Flachsbarth said.

Republican lawmakers said their assertions that Kansas’ fraud problems are unusually bad are based on information from companies with operations in multiple states and data indicating unusual spikes in claims.

“From what we can tell, Kansas was a much bigger problem,” said House commerce committee Chair Sean Tarwater, a Stilwell Republican.

Olson renewed his call to strip the governor of control over the department and create an independent board to oversee its day-to-day operations, similar to the board that oversees the state pension system for teachers and government workers. Olson said he’s holding off on a committee vote on a bill aimed at overhauling the unemployment system so that he can develop a proposal.

Republican legislators have expressed concerns that employers, who pay taxes to finance benefits, could be on the hook for covering the costs of bogus claims.

House Speaker Ron Ryckman Jr., an Olathe Republican, said that even accepting the department’s estimate, “That’s $290 million that should have gone to Kansans who are out of work and waiting for benefits.”

Kelly and the department have blamed the problems on decades-old computer technology. They’ve said that system wasn’t equipped to handle the surge of 4 million claims that came after restrictions imposed to check the spread of COVID-19, including a statewide stay-at-home order imposed by Kelly last spring. Kelly has included $37.5 million in her proposed budget to upgrade the department’s technology.

The Department of Labor shut down the Kansas unemployment system from Jan. 30 to Feb. 2 to install new security protocols. It said it has blocked about 5 million fraudulent log-in attempts by scammers or internet bots, or roughly three every second. The department said it has referred more than 50,000 cases to federal law enforcement officials.

The governor also sees much of the criticism as Republicans “just laying the groundwork” to try to prevent her reelection in 2022.

Acting Labor Secretary Amber Schultz on Tuesday also blamed Congress for some of the problems when it created several new programs to provide additional benefits to jobless workers. She said congressional measures handcuffed states’ efforts to limit fraud until the most recent COVID-19 relief package in December.

The audit agreed that how Congress structured a program aimed at providing benefits for the first time to self-employed workers and independent contractors made it a big and early target for scammers. It also said scammers have relied on “large scale identity theft.”

But the auditors also said that the department relied on “manual” methods to detect fraud that were “ineffective” amid a flood of claims.

“I want to know when we’re going to stop blaming other people,” said Rep. Kristey Williams, an Augusta Republican and chair of the legislative audit committee. “Somebody has to be responsible.”


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