Auditor’s Office: ESD made audits difficult, delayed important work

Nov 30, 2020, 5:47 PM | Updated: Dec 1, 2020, 6:15 am
Employment Security, audit reports, unemployment tax, unemployment suspect...
A sign at the headquarters for Washington state's Employment Security Department at the Capitol in Olympia, Wash. (AP Photo/Ted S. Warren, File)
(AP Photo/Ted S. Warren, File)

The State Auditor’s Office says there have been more than a few bumps in the road during its audits of the Employment Security Department these past several months — and puts the blame on ESD for failing to adequately cooperate.

The Washington State Auditor’s Office is conducting five audits of the Employment Security Department. Three of these audits — a financial audit, accountability audit, and federal audit — were regularly scheduled audits. In response to the backlog of unemployment payments and the spring fraud hit, in which Nigerian hackers scammed the system of hundreds of millions of dollars, audits on the department’s IT systems and performance are also being done.

Last month, in a letter to ESD Commissioner Suzi LeVine obtained by KIRO Radio, Auditor Pat McCarthy told LeVine that Employment Security was making the auditing job more difficult than it should be.

A look at Washington state’s five Employment Security Department audits

“The ESD is imposing significant constraints … If ESD continues on this path, we will report that management interference prevented us from fully completing the audits,” McCarthy wrote.

Kathleen Cooper, director of communications for the Auditor’s Office, explained to KIRO Radio that these constraints included issues such as “increased challenges in scheduling meetings” and “longer than typical response times for standard audit information.”

In addition, she said, in some cases, ESD would not allow auditors to interview Employment Security staff members unless an ESD audit liaison was present.

McCarthy stated in her Oct. 20 letter that this violated state law.

“This Office has a unique role, defined in the state Constitution,” she wrote. “Under state law, [the State Auditor’s Office] is assured access to any information we need to conduct audits the public depends on.”

Cooper explained that the interview issue was what prompted the letter, after a long line of roadblocks from ESD over the late summer and early fall.

“While each of them on their own do not seem to be a big deal, collectively, that unusual behavior resulted in delays in the audit work and put the state of Washington’s Financial Statement Audit deadline at risk,” Cooper said.

In fact, the state’s accountability audit — originally slated to be finished around the end of the year — has now been postponed to early 2021 because of these delays.

Cooper said this experience was especially puzzling because the Auditor’s Office does a financial audit of ESD each year and has never run into these scenarios before.

“In any typical audit, there is often back-and-forth, which is a totally natural part of the process,” Cooper said. “This particular set of challenges was a little bit more than we normally experience.”

However, in the past month, Cooper said the difficulties are starting to get better. For example, private interviews have taken place with ESD staff, without liaisons present.

“We have seen improvements, we are seeing improvements in the working relationship there … we look forward to a further productive working relationship,” she said.

LeVine said in a statement that ESD “welcomes the audits” and has been coming up with new “escalation processes” to make the transfer of information to auditors more efficient.

“We remain firmly committed to full transparency and are collaborating closely with the State Auditor and her staff, as we have all along,” she stated. “The State Auditor’s Office is doing important work with these audits, and we have been doing everything we can to be responsive to them.”

The results of the audits will become available between next month and the spring, with the financial audit wrapping up by the end of the year. The performance audit, due in April, will include a list of recommendations for best practices to avoid fraud in the future — including possible ideas for legislation, Cooper said.

“We believe that it will be the most well-rounded accounting of the circumstances that led to the fraud, and the things that can be done to prevent such things in the future,” she said.

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Auditor’s Office: ESD made audits difficult, delayed important work