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Widespread fraud information within unemployment system not provided by Ohio Department of Job and Family Services, state auditor says

Updated: Apr. 29, 2021 at 7:50 PM EDT
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CLEVELAND, Ohio (WOIO) - The state auditor said Ohio’s Department of Job and family services did not provide information it had about widespread fraud within the unemployment system for months.

State Auditor Keith Faber said he had a difficult time setting the record straight when he learned that a fraudulent unemployment claim was filed in his name.

“We had a hard time getting information on that even from Job and Family Services,” he said. “When there’s a fake claim against the state auditor, and they are not very responsive, I can only imagine how difficult it was for other regular employers... and individuals across Ohio to deal with those things.”

Faber’s newest audit report says JFS new about how widespread fraud problems were throughout the system and did not turn over the information to his office.

“They certainly didn’t disclose to us what they had a duty under the law to disclose to us,” Faber said. “I’m not going to get into whether it was intentional or an omission, but either way the outcome is the same. they did not give their auditors information that they had.”

FULL INTERVIEW: I spoke with the state auditor one on one. about his new report that says JFS knew about widespread fraud within the unemployment system and did not disclose it for months.

Posted by Hannah Catlett on Thursday, April 29, 2021

Auditors said they asked the Department of Job and Family Services (JFS) about any known or suspected fraud in the Unemployment Compensation System and were only informed of insignificant fraud. Throughout the audit engagement additional procedures and inquiries of management afforded multiple opportunities for disclosure to the auditors of additional known or suspected fraud that had occurred.

In January, subsequent to the opinion qualifications, JFS publicly reported the Unemployment Compensation System was subject to hundreds of millions of dollars in fraud. Subsequent testimony of the JFS Director indicated that the JFS was aware of the fraud in the system as far back as June 2020 – meaning that incomplete information was provided to auditors.

The report also contains two reportable issues identified as material weaknesses related to controls and compliance over financial reporting; one related to public assistance payments for Medicaid and SNAP, the other related to pandemic unemployment. In both cases, the weaknesses in the internal controls related to the eligibility determinations and payment processes, which allowed for incorrect determinations to be made within the systems in place during the FY 2020.

The new report says JFS did not establish proper controls on the unemployment system. Therefore, in some cases, fraudulent accounts continued to be paid out for several weeks before anyone noticed, and other claimants received PUA while also receiving regular unemployment.

Faber says it became apparent former Director Kim Henderson’s department hadn’t been upfront with his office, when she testified in front of the legislature this winter, saying her department had been aware of the fraud since last summer.

Just before the audit was released, Henderson resigned from her position in March.

Faber said, “If we had known about this in June or July maybe we could have offered suggestions of how they could get it under control, but when we’re asking those questions and they’re continuing denying knowledge that ultimately the director of JFS testifying before the legislature said they were aware of as far back as June and July, it would have been helpful for us to know that.”

The audit gives several suggestions for how to prevent fraud in the future.

Many of them, Faber says, have already begun to go into place.

A few months ago, JFS began releasing the number of fraudulent claims filed each week. And, the good news is that number has continued to drop significantly, along with the number of weekly claims filed.

For example, in the first week of February, 33,000 claims were flagged as fraudulent. The latest numbers for last week, show 900 claims were flagged.

JFS is currently under the direction of an interim director. Matt Damschroder testified in a hearing Thursday afternoon in front of lawmakers trying to improve the system.

When we reached out for a statement about the allegations in the new audit report, a spokesperson said,

ODJFS said in a release Thursday that it has enhanced its identity verification and fraud detection methods to intercept fraud attempts resulting in a significant drop in the number of initial claims being filed.

ODJFS provided the number of fraud flags and this editor’s note for the last several weeks to illustrate the main reason behind the rise of initial jobless claims in early February. Since the initial claims are returning to a normal level, the department says it will no longer provide the numbers of fraud flags as part of the weekly initial jobs report.

JFS says Ohioans filed 21,447 initial jobless claims last week, according to statistics ODJFS reported to the U.S. Department of Labor.

The total number of initial jobless claims filed in Ohio over the last 58 weeks (3,264,308) was more than the combined total of those filed from 2013-2019. Ohioans filed 242,365 continued jobless claims last week, which was 533,937 fewer than – or about 31% of – the peak last year. That includes both traditional unemployment claims and claims for extended benefits. In addition, 176,722 Ohioans received Pandemic Unemployment Assistance (PUA) last week.

Over the last 58 weeks, ODJFS has distributed over $9.6 billion in unemployment compensation payments to over 992,000 Ohioans. In addition, ODJFS has issued over $10.5 billion in PUA payments to over 1 million Ohioans.

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