Applicant errors, not fraud, main source of $70 million in unemployment benefit overpayments

Lawmakers indicated they would support waiving repayments for non-fraud overages

An unprecedented surge in applications for unemployment benefits overwhelmed the state Division of Employment Security, Assistant Secretary Pryor Gibson told state lawmakers this week. And nearly a year into the pandemic, it is still struggling. 

More than 1.4 million North Carolinians have applied for unemployment benefits since last March, when the COVID-19 pandemic first shut down large segments of the economy and led to record layoffs.

“Our offices continue to get calls that we can’t often get answers for in dealing with [DES],” said Sen. Chuck Edwards (R-Henderson), co-chair of the Joint Legislative Oversight Committee on Unemployment Insurance, in Tuesday’s meeting.  “North Carolina citizens deserve an employment system that works for them.”

Gibson became assistant secretary last May after Gov. Roy Cooper appointed him to replace Lockhart Taylor. Taylor was reassigned to other duties.

Although the division has paid out more than $8 billion in state and federal funds, claimants continue to face long waits for approval, rejection of their applications because of errors, accidental overpayments and fraud.

Errors and fraud account for about $70 million in overpayments, money the state is now working to recover. Many people who didn’t know they were overpaid now have found their benefits cut in half as they continue to struggle to make ends meet.

The problems at DES have many sources, Gibson said. Inadequate staffing. Large numbers of claimants navigating the system for the first time, with too few people to guide them. An uptick in fraud during the pandemic chaos – particularly in federal programs. Poor planning and administration at the federal level has also made things more difficult.

Gibson turned to a football metaphor to describe the last 11 months.

“Our team is down in there blocking and tackling with the best of them,” he said. “They’re doing a great job in some very trying conditions. But every time something changes at the federal level, the goal posts move. And we have to kind of stop what we’re doing down this path and look up, make sure we’re headed toward the right goal post.”

“And it’s been pretty difficult, when you go from running one program to running nine programs and then guidance comes sometimes weeks after the program has ended,” Gibson said.

“There are reasons why our timeliness is bad,” Gibson said. “All other systems in the country are struggling with this.”

Asked whether DES is looking to states that are doing better, Gibson said no. States share information nearly every day, he said, and DES knows where it needs to improve. But it’s difficult to compare North Carolina to states like South Carolina or Idaho, Gibson said, where the size of the state or the staffing levels in their divisions are vastly different.

State Sen. Paul Newton (R-Cabarrus) pressed for improvement, saying the division needs to bring its metrics more in line with the states that are better handling the situation.

“We have excuses all day long,” Newton said. “We’re different. We’re bigger. We’ve got more people.”

The division has more funding than that of smaller states, Newton said. They should be able to keep up and do more. “You’ve got a tough job, we appreciate that,” Newton said. But this far into the pandemic, he said, the division needs to be improving and not just “fighting fires as they pop up.”

“Even though we’re in the midst of battle, we need to be setting metrics to know when we’re doing good things,” Newton said.

Overpayments, fraud and what’s next

Much of the information Gibson shared Tuesday was discouraging.

Of the nearly $70 million in overpayments in North Carolina, fraud accounts for about $9 million, mostly attributable to federal programs, which, Gibson said, “are fraught with fraud.” 

The federal Pandemic Unemployment Compensation Program, which provided an additional $600 per week to the unemployed, reported nearly $45 million in overpayments in North Carolina.

But most of the overpayments occurred because of applicant error, Gibson said. People have been trying to navigate the system without assistance — a situation the division is addressing with additional staffing.

State lawmakers can waive the recovery of non-fraud overpayments made under federal programs, from which the majority of assistance to North Carolinians has come. Several committee members supported waiving those repayments.

“When people are already struggling and have been waiting so long I think it weighs on all of our hearts,” said State Sen. Jim Perry (R-Harnett). “Through no fault of theirs they received the check or the funds deposited and they fed the baby or paid the electric bill now and now there’s another round of despair.”

Alexandra Sirota, director of the N.C. Budget and Tax Center, said waiving that repayment is essential. “Fraud should never be acceptable,” Sirota said in a statement. “However, it appears that thousands of workers who did nothing wrong, but were found later to be not eligible are now being saddled with overpayments that is causing even more stress for families.”

“The attention of the Division of Employment Security with the limited resources that it has to operate should be focused on providing jobless workers and business owners with greater support in navigating the system,” Sirota said. “Diverting limited resources to collection of non-fraudulent overpayments that would make a minimal difference to the Trust Fund’s fiscal stability—the balance is nearly $3 billion—is a waste of taxpayer dollars.”

(The N.C. Budget and Tax Center is a project of the N.C. Justice Center, of which Policy Watch is also a project.)

DES has made a series of improvements that should help streamline the process as the pandemic stretches into 2021, Gibson said.

Its staff had 500 employees before the pandemic and has now grown to more than 2,500, including temporary and contracted employees, interns and some retired employees who have returned in the current “all hands on deck” situation.

It also opened a new call center and added up to 1,800 agents to handle incoming calls about claims.

“We see the light in the tunnel,” Gibson said. “And we’re pretty sure it’s not a train.”