Audit Fixes Arizona DES Unemployment Benefit Issues

The new report details how DES is still working on issues that first surfaced at the height of the COVID-19 pandemic when it was paying out federal unemployment benefits.

PHOENIX — A new state audit finds the Arizona Department of Economic Security continues to struggle with its unemployment insurance program.

The Arizona Auditor General released the report Tuesday night, which detailed several issues related to state agency finances.

Among them, the auditor general noted that DES overpaid billions in federal money for fraudulent claims and insecurity when the department overpaid millions more, and also said DES reported months late in reporting the agency’s financial information for the audit.

Possible overpayments unclear

According to the Auditor General’s report, there are more than 108,000 Arizonans who were paid more than the minimum unemployment benefit amount by DES during the peak of the pandemic.

The report adds that DES still doesn’t know if they may have overpaid Arizonans with up to $218 million in federal money, as DES is still determining whether people qualify for the pandemic unemployment assistance program. However, DES recently told 12News that the department had to cut staff because federal funding has dwindled.

The report also said DES only introduced overpayment procedures in early 2022, months after federal unemployment benefits payments ended.

The Auditor General said that not only does this affect how quickly DES can recoup and repay overpayments, which they are required to do unless a waiver is granted, but “could create a burden for those claimants”.

“As indicated in the agency’s corrective action plans, work to address the Auditor General’s findings is well underway,” a DES spokesman said in part of an emailed statement.

“Who I hold responsible is the director”

In the meantime, however, thousands of Arizonans are receiving letters telling them their case has been reviewed and the benefits they were approved for may need to be repaid.

TIED TOGETHER: Arizona lawmakers say non-fraudulent DES overpayments should be treated with leniency

Andrea Derk is one of those who received such a letter. Derk was a musician when the pandemic struck and was applying for PUA funds.

In the letter, DES alleges that Derk must provide documentation to prove employment.

However, Derk tells 12News they were sent out years ago.

“I sent them considerable amounts of evidence, including video and photo evidence, as well as copies of one of his only shows I’ve ever done. It was a private party for a retirement, and I actually got a check written for it,” Derk said.

Derk is now appealing the decision

“What’s the point of trying to take your money away from me? When I wasn’t making any money and I’m barely making any money now,” Derk said.

In a corrective action plan, DES said the agency is considering “debts arising from the establishment of an overpayment for a waiver.”

But Derk believes responsibility for the overpayment lies with DES.

“Whoever is responsible I think is the director because he’s the one overseeing everything. And he’s the one who pretty much has to come down and answer for that,” Derk said.

Multiple and repeated requests by 12News to interview DES Director Michael Wisehart on overpayments and fraud in the unemployment system have been denied or ignored since August.

“The Department is sensitive to the impact that overpayment situations can have on applicants, and we are doing everything we can to assist in these situations while complying with federal and state laws,” a DES spokesman told 12News in part of a statement.

Paid $4.3 billion in fraudulent claims

The report also states that DES paid out an estimated $4.3 billion in fraudulent federal pandemic unemployment claims. Last year, the same report said DES paid out an estimated $4.4 billion in fraudulent claims.

The Auditor General reiterated findings from last year’s report, saying that DES did not implement critical identity checks or other anti-fraud measures before disbursing federal unemployment benefits.

The report adds that at least two of these mandatory requirements were only introduced by DES in May 2022, 8 months after services ended in September 2021.

“The reality is: where did the money go? That’s where we need to figure things out. They have to follow the paper trail where all the money they didn’t send to whoever they shouldn’t send it to. From there, the money has to be paid back,” Derk said.

According to the Auditor General’s report, 580 fraud cases have resulted in criminal charges for benefits paid on fraudulent claims.

“In response to the nearly insurmountable fraud encroaching on the PUA program nationwide, Arizona was one of the first in the country to implement comprehensive fraud prevention and detection through identity verification and data analysis, and we continue to build on our efforts to investigate.” Fraud and recover fraudulent claims based on the Auditor General’s findings,” a DES spokesman said in part of a statement emailed to 12News.

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