NC continued to struggle with making initial unemployment payments on time, audit finds
The North Carolina Division of Employment Security (DES) failed to reduce its rate of late payments last year, even as unemployment plummeted from double-digit highs during the COVID-19 pandemic, a new report from the Office of the State Auditor found.
An earlier report published by the state auditor’s office in March 2022 found that 24% of first unemployment benefits payments, totaling $438 million, were late between January 2020 and March 2021. The report released Thursday found that even though DES was dealing with far fewer claims in 2023, the percentage of first payments that were late, which amounted to $7.8 million in total, increased to 43%.
Federal regulations require states like North Carolina that have a waiting week before the first payment can be made to make at least 87% of first payments within 14 days of the first payable week, according to the auditor’s report.
DES was close to meeting that benchmark when the previous audit found that 76% of first payments were on time between January 2020 and March 2021. It fell further behind in 2023, when just 57% of payments were timely.
Unemployment was at 13.5% in April 2020 and had fallen to 3.5% in December 2023.
The report also found that 11,371 of the total 60,815 first payments made last year were disbursed more than 35 days after the claim was filed, which the report noted exceeds the typical billing cycle for mortgages, rent, utilities and other recurring costs.
In its response to the report, the N.C. Department of Commerce, which oversees DES, said that while it was making 53% of first payments on time in September 2023, DES had seen a significant improvement by September 2024, when 84% of payments were on time.
State Auditor Jessica Holmes, a Democrat who has been leading the office since December, noted in a follow-up response to the Commerce Department’s answers that her office “did not verify or validate” the timeliness of payments in 2024, and “makes no representations as to whether the timeliness of first benefit payments has or has not improved since the conclusion of our audit period.”
Recommendations by auditor’s office and response from DES
In its 41-page report, the auditor’s office said DES failed to fully implement recommendations the office made in 2022. Those recommendations included making sure the division’s claims process was designed to meet the federal standard for timely payments, then monitoring the timeliness of first payments.
The 2022 audit also recommended adopting a plan to respond to economic downturns that could result in a surge in unemployment claims being filed.
In Thursday’s report, the auditor’s office acknowledged that while DES had developed a readiness plan to respond to a downturn or natural disaster, it hasn’t fully implemented it because division staff are still being trained on how to complete the plan’s readiness assessments.
The report notes that DES expects the plan to be fully implemented by the end of the year, but states that as of now, DES “remains at risk of not being prepared for the increased workload that could occur as a result of an economic downturn or catastrophic event such as Hurricane Helene.”
In its response, the Commerce Department said part of the reason for late payments last year was the division struggled with “staff turnover and recruitment issues” in its adjudication unit that began in 2022 and continued in 2023.
The unit saw more than 40 personnel changes and experienced an average of 145 days to fill vacancies, the department said.
In November 2023, “after several employees left to accept higher paying positions outside the agency and several applicants turned down DES job offers due to pay,” the division reclassified positions to a higher salary level.
The department stated that as staffing levels started to stabilize in late 2023, the division was able to address the backlog that had built up, and as the backlog decreased, the division’s rate of making first payments on time increased.
The Commerce Department also disagreed with the finding that DES had not fully implemented a readiness plan to prepare for downturns and natural disasters.
The department outlined the steps DES took beginning with initial readiness assessments in August 2023, and continuing over the course of the following year with multiple rounds of assessments conducted by the division’s 10 business and service units, and the 25 teams under them.
After those assessments were completed, a division-wide readiness review was conducted by senior leadership in August. DES then prepared a report on its readiness. As part of its response to the auditor’s office, the Commerce Department said it had provided a copy of that report.
The department said in the Nov. 6 response that it believes all of those steps “constitute implementation of a readiness plan, and significantly improve DES preparedness to anticipate and respond to economic downturns.”
It said DES implemented the plan on the first day after Western North Carolina was hit by the remnants of Hurricane Helene. That included immediately re-purposing staff and bringing in additional employees who had retired, were temporary or were on loan from other states.
The department said another readiness review, which will include an assessment of how the division has processed claims since Helene, will be conducted next month.
