It appears no one will be prosecuted for the theft of $181,000 from the state’s Unemployment Insurance Trust Fund.
No one is likely to be charged in the 2023 theft of $181,000 from the state’s Unemployment Insurance Trust Fund, state officials told legislators in a letter posted Tuesday on the state’s website with a 21-page report about the situation.
Karryl Hubbard
The theft of the money and lack of information about it has in recent months led to a hailstorm of consternation and demand for details.
The Delaware Coalition for Open Government, a nonprofit that promotes transparency and accountability in government, even asked the U.S. Department of Labor to investigate the auditing and accounting problems in the Delaware Department of Labor’s Division of Unemployment Insurance.
The July 30 letter from Secretary of Labor Karryl Hubbard and Secretary of Finance Rick Geisenberger acknowledged that the fund’s administrator died shortly after the theft was discovered.
“To be sensitive to surviving family members and the privacy of others involved in the investigation and response, the report references persons by their position titles,” the letter said.
“It appears law enforcement does not intend to charge any party with a crime.”
The state’s priorities, according to the letter are:
- Put in place appropriate controls to prevent such events from reoccurring.
- Maximize the prospect of recovery of amounts stolen.
- Work toward an unmodified opinion of the annual Annual Comprehensive
Financial Report, which seems making the full audit possible. - Address the issues impacting DOL financial systems and processes.
“We are making progress on all these fronts,” Hubbard and Geisenberger said.
Unemployment priorities
Rick Geisenberger
Unemployment Insurance is working through appropriate channels to seek recovery of funds, they said.
The Unemployment Insurance office and state Division of Accounting have hired a major accounting firm to assist in developing appropriate control systems, policies and procedures.
“Processes are underway to develop a clean trial balance for the UI Trust Fund for both fiscal year 2023 and 2024,” the letter said. “The governor and General Assembly have provided critical support to address these challenges – specifically, $60 million in ARPA funds to modernize UI’s antiquated information system and enactment … that will dramatically simplify the unemployment tax assessment system for Delaware employers.”
Even with that progress, “the work ahead is considerable and will continue for some time,” the letter said.
The report also provided recommendations for the legislature’s consideration, the letter said.
Hubbard and Geisenberger promised to keep legislators updated periodically “in whatever format or forum you find to be most valuable in exercising your oversight responsibilities.”
DOL_DOFReporttoLeadersofGeneralAssembly_7-30-24
The report
“The Report to the 152nd General Assembly Regarding the Theft of Funds” said that on March 31, 2023, an Unemployment Insurance employee noticed suspicious activity by the Unemployment Insurance administrator.
“Specifically, it was alleged that the UI Administrator had directed a temporary employee to issue a tax refund check to an employer account that shared a home address with the UI administrator,” the report said.
The staff member also “shared” a court document with Human Resources indicating the administrator had engaged in fraudulent activity subsequent to their original
hire date as an officer of a local home-owners association.
The director of the division quickly determined that checks totaling $181,184.68 had been issued in January and March 2023 to a business account at the administrator’s home address.
The administrator denied any wrongdoing. He was suspended pending a full investigation on April 3. Later that afternoon, the Department of Labor was told Harrington Police found the administrator deceased.
“It appears there will be no indictment or trial associated with this theft as the perpetrator of the crime is deceased and there was not credible evidence that any other party knowingly assisted the perpetrator,” the report said.
The state has hired a lawyer to represent the Department of Labor as its personal representative over the former administrator’s estate, so that the Department of Labor would be in control of asset liquidation with the goal of recouping as much as possible.
The estate is expected to be closed by the fall 2024. It’s not yet known how much the state will be able to recoup, “but it is known that the total assets documented in the estate are 56% of the stolen funds.”
Any amount recouped will be placed back into the UI Trust Fund and reduce any recorded loss.
The report stresses that the independent audit of the state’s financial statements were found to be accurate, except for the Unemployment Insurance Trust Fund.
“We have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statement of the business-type activities and unemployment
fund,” that audit said.
The Department of Labor couldn’t provide sufficient appropriate audit evidence for the balances and financial activity of the account balances, the report said.
“The State’s records do not permit us, nor is it practical to extend or apply other auditing procedures, to obtain sufficient appropriate audit evidence to conclude that the account balances
and related cash flows in the business-type activities and unemployment fund were free from material misstatement,” the audit said.
“As a result of these matters, we were unable to determine whether further audit adjustments may have been necessary in respect to the unemployment fund account balances, and the
elements making up the statement of activities and cash flows.”
The former administrator held a key position and was responsible for addressing and remediating the weaknesses in the system.
He “had a high level of autonomy and trust as part of his job responsibilities, which included day-to-day operations, oversight and continuous improvement,” the July report said. “We cannot confidently assess the degree to which the former UI Administrator contributed to the lack of progress or inhibited efforts toward resolving known accounting and control deficiencies.”
Three different accounting firms were hired over several years to help the division. Two failed due to a combination of a lack of resources, focused project management, and unit leadership, as well as pandemic workloads, the report said.
The state has hired the accounting firm BDO USA and the unemployment insurance program has increased investments in a national technology and staffing firm CAI to make sure proper accounting and project management resources are available to work with BDO.
Among the other things the state hopes to do are:
1. Modernizing the state’s unemployment insurance systems. The project is slated to go-live no later than early 2027.
2. Reforming the state’s complex and unique unemployment insurance experience rating methodology with one used by 19 other states.
3. Enhancing funding for unemployment insurance technology, operations and human resources.
4. Expanding the Delaware Office of Accounting’s ability to support temporary, emergency, and ongoing accounting services for state agencies. The department is in the process of issuing a statewide request for proposal for qualified vendors to provide staff augmentation for forensic, emergency and temporary accounting services.
5. Enacting legislation to implement RAP-back checks for key employees, which would explore things like a a charge of theft unrelated to and outside of state employment.
6. Assessing and restructuring unemployment insurance staff to support the division’s complex accounting needs.
7. Ensuring DOA’s ability to monitor and assist with external accounting functions.
8. Exploring opportunities to expand the availability of ethics training. “While such training will not stop theft by a bad actor, it can educate co-workers on their reporting responsibilities,” the report said.
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