Audit criticizes Employment Security Commission management, fund oversight

By Mike Fitts
mfitts@scbiznews.com
Published Jan. 26, 2010

The Employment Security Commission failed to take action that might have prevented the state’s accumulation of a huge federal debt, and the agency needs a thorough review of its performance, according to an audit released today.

The Legislative Audit Council, acting upon legislative request, examined how the commission functions. The audit comes as the Legislature is debating ways to revamp the agency. In his State of the State address last week, Gov. Mark Sanford asked that direct oversight of the agency be made part of the next governor’s Cabinet.

The agency’s interim executive director, Samuel R. Foster, responded in a statement that much of the problem is related to the recession and that, of the measures suggested in the report, more than half are under way already and some others are a matter of opinion.

Part of the audit studies how the state’s unemployment reserve fund went from a surplus of $800 million in 2000 to a deficit that some believe will reach $1 billion in 2010. The report said the commission did not provide adequate information to lawmakers that would have warned them of the fund’s accelerating loss.

The agency also did not heed federal guidelines about the minimum size of the unemployment fund. A 1999 change to the unemployment tax did not cause a decline in revenue, but a gain of $52 million in funding, the report said.

The agency should have observed the increasing jobless claims and been aggressive in seeking remedies through legislation, according to the audit.

The audit report also criticizes the agency’s overall management. Among the findings:

• The commission does not do a good job of placing people in new jobs. Less than half of all jobs available in the state are listed with the agency; claimants who are referred for interviews but don’t attend still receive their benefits.
• The agency’s accounting practices are weak and have not been improved. Internal auditors at the agency have not been monitoring the unemployment insurance trust fund.
• The agency paid about $171 million over three years to those who were fired for cause; the Legislature should change state law to end that practice, the audit said.

The agency should be restructured for better accountability, the audit recommended. Options include making it a full Cabinet agency, with the executive director appointed by the governor, or having the governor appoint the commission, which then would hire the executive director.

In his response, Foster said that the economic downturn bears much of the responsibility for the depletion of the unemployment fund. Forty states are likely to have insolvent unemployment funds by the end of 2010, Foster said.

He added that 14 of the report’s 26 recommendations have been or are being implemented and that three others would require legislative action. The remaining nine are differences of opinion about administrative matters, he said.

“Not once in the 26 recommendations is there mention of the agency being out of control or incompetent,” Foster noted in the statement.

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