State auditor: Unemployment office needed stronger checks to prevent employee fraud

A new report from the State Auditor’s Office finds that a lack of controls at the Employment Security Department (ESD) allowed a former employee to misappropriate at least $315,282.

Reyes de la Cruz III of Moses Lake was arrested in September and charged with funneling hundreds of thousands of dollars to friends and family who didn’t qualify for unemployment benefits, as well as to himself. Investigators say some of that money was given in exchange for bribes.

If convicted, he could face decades behind bars.

The auditor’s new report alleges that de la Cruz was able to get away with the crime because, quite simply, no one was checking his work.

Audit report finds that Employment Security failed to protect against fraud

“We found the Department did not properly monitor and review claims to ensure benefit payments were legitimate and to avoid a loss of public funds,” the report states.

Even when the employee used the same address for multiple claims, used a fake social security card as one person’s ID, and processed claims for people in jail, there was no review process to catch these red flags, said Auditor Pat McCarthy.

“This is a wake-up call for every public agency, quite frankly, to set up strong internal checks and balances to minimize fraud risk, … whether you’re at the local level or at the state level, tighten up your internal controls, be fastidious, be vigilant,” McCarthy told KIRO Radio.

McCarthy said this is the only case of potential employee misappropriation at ESD that her office is investigating.

“ESD distributed more than $13.6 billion in unemployment benefits in 2020, so some may argue, ‘Well, it’s $315,000. In the grand scheme of things, it’s not a lot.’ Well, it’s a lot to most people, it is a lot to us,” McCarthy said.

She does sympathize with ESD, noting that the department was overwhelmed by a record number of unemployment claims at the time the fraud happened.

“They were dealing with a tsunami of requests. They were hiring people right and left to deal with those requests,” McCarthy said. “But it doesn’t mean that you can’t look for those red flags.”

McCarthy’s office put a series of recommendations into the report, such as a stronger ID verification system, fraud prevention improvements that can flag suspicious claims more quickly, and “adding a second set of eyes on certain benefit decisions and account changes,” McCarthy said.

She noted that ESD has been making these types of improvements since last year’s fraud, in which the Auditor’s Office says at least $650 million was stolen from ESD by fraudsters.

In its response to the report, ESD stated that it will put in more rigorous training and review processes, but noted that it would slow things down too much to have a second person review each claim.

“A complete review of all clams would not be manageable and would essentially require that claims be worked twice, which would negatively impact our ability to pay legitimate claimants in a timely manner,” the ESD said.

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