By Tom Latek
Kentucky Today
State Auditor Mike Harmon’s office has completed its annual audit of the Commonwealth of Kentucky’s Comprehensive Annual Financial Report, or CAFR, and found some serious issues with the Unemployment Insurance fund.
Specifically, Harmon’s office issued a “qualified opinion” on the Unemployment Insurance, or UI Fund, also known as the Unemployment Compensation Fund, because of the UI internal control environment and the unknown amount owed to those who filed for unemployment benefits during Fiscal Year 2020.
“We’ve seen numerous stories about our friends and neighbors who have been displaced from their jobs and filed for unemployment benefits to help them and their families make ends meet,” Harmon said. “What our office found during our CAFR audit is that the Office of Unemployment Insurance is unable to accurately determine the amount of claims still outstanding for the fiscal year that ended on June 30, and a large backlog of claims remain unresolved.”
The CAFR is required under state law, which directs the Finance and Administration Cabinet to submit a complete report of the financial transactions of the preceding year and of the financial condition of the state at the end of the fiscal year. The State Auditor’s office role is to express an opinion as to whether these financial statements are free of material misstatements based on our audit.
An unmodified opinion, commonly referred to as a “clean audit” expresses the auditor’s opinion that the financial statements are presented fairly in all material respects. A qualified opinion is an auditor’s opinion that the financials are fairly presented, with the exception of a specified area, in this case the Business Type Activities and the Unemployment Compensation Fund. All other units of the state received unmodified audit opinions.
In the opinion letter to Finance Cabinet Secretary Holly Johnson, Auditor Harmon wrote: “The Kentucky Office of Unemployment Insurance had poor internal controls over benefit payments which increased the risk of fraud and undetected material misstatements. During the fourth quarter of fiscal year 2020, the Office of Unemployment Insurance, in an effort to expedite unemployment benefit payments, eliminated key internal controls that were in place to reduce the risk of improper payments. As a result, payments were paid to claimants without verification of eligibility. A significant backlog of unprocessed claims existed at year end and as of the date of our audit report. Management was unable to provide a reasonable or reliable estimate of the financial statement impact of this backlog of claims. Because of this, we were unable to obtain sufficient appropriate audit evidence to conclude that the accounts payable balance in the unemployment compensation fund was free of material misstatement.”
Harmon called it “imperative” for UI officials to address the problems that led to this issue, so that reliable data can be provided for the current fiscal year and going forward.
The Kentucky Labor Cabinet, which oversees the unemployment program issued a statement in response to the State Auditor’s report:
“The unprecedented number of unemployment claims caused by this pandemic, along with changing and inconsistent guidance from the U.S. Department of Labor, has created this issue in every state across America. Kentuckians can expect the Governor’s next budget will include funding to upgrade the unemployment insurance system, to replace the more than 90 employees the General Assembly cut in previous budgets and reopen offices to help Kentucky workers when they need it most. The auditor’s report fails to outline how the Office of Unemployment Insurance cooperated fully with the auditor to provide numbers, but the auditor did not accept them.”