Audit finds internal controls at ESD weren’t strong enough to prevent fraud

Dec 18, 2020, 4:46 PM | Updated: 5:26 pm
fraud, employment...
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 results of the first of five state audits of the Employment Security Department show that the department’s internal controls were not strong enough to protect against fraud.

The financial audit found that an automated process that flags suspicious claims was out of commission until May. By the time it was eventually repaired, the fraudsters had already gotten hold of much of the money.

Group suing Employment Security Department questions appeals process

The audit also found that taking away the one-week waiting period for benefits in March — which was done to speed things along, by order of the governor and recommendation of the federal government — led to money being paid out before the people getting it could be properly vetted.

“Benefits were paid before eligibility was verified, so we know that that had an impact,” State Auditor Pat McCarthy told KIRO Radio.

The results of four more audits are expected by April, and these should shed even more light on how the fraud occurred.  McCarthy calls the five audits “building blocks” because of how they will build on each other.

“It’ll be informative for all of us, but in particular for the ESD to make course corrections,” McCarthy said.

The two other regularly-scheduled audits include an accountability audit to make sure public assets were protected and laws were followed, and a federal audit to look at how federal money was spent.

An IT systems audit is among the two new audits.  A performance audit will determine what exactly went wrong at ESD, recommending best practices and any possible legislation for the future. The results of those two are expected this coming spring.

It’s possible some of the audit findings could already inspire legislation this coming session. The goal is for the information from the audits to come up with best practices for the future.

“Our goal is really to be informative, to be able to ensure that this won’t happen again for Washington state,” McCarthy said. “What are those red flags? Are we attending, and do state agencies and local government attend to the red flags that could put them in a vulnerable position for fraud to occur?”

Employment Security said in a statement that it is learning from the feedback and has already put more security controls in place.

“We welcome these audits as an opportunity to make improvements in practices and systems for the future,” Employment Security Commissioner Suzi LeVine stated.

This comes after the state auditor’s office stated that Employment Security was making the audit process difficult and delaying their work. McCarthy says things have been going more smoothly now.

Hundreds of people who are out of work have told KIRO Radio that they have waited since the spring for their benefits. Many said they have received no response to their calls and emails over the months.

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Audit finds internal controls at ESD weren’t strong enough to prevent fraud