As Massachusetts and federal officials work to resolve the state’s massive mistake in the funding of unemployment benefits, it seems like a good time to discuss what we know and don’t know about the blunder.
I’d also like to relay the perspective of one of the country’s top experts in unemployment insurance, who told me the state is — surprise! — a leader in modernizing its unemployment insurance operations.
To recap: Late last month, in response to questions from the Globe, the Executive Office of Labor and Workforce Development (LWD) issued a statement confirming that $2.5 billion in federal money was used to pay jobless claims during the pandemic. The problem: The claims should have been covered by the state unemployment insurance trust fund, which is financed by assessments on employers.
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The accounting mega-flub occurred when Charlie Baker was at the helm. Governor Maura Healey’s administration has shied away from throwing him under the bus, but it also has revealed very little about what went wrong, who was involved, and why it took so long to uncover the error.
What has the state disclosed?
In its May 31 statement, LWD said only that its finance department “over withdrew” the federal money.
“Due to the complexity and volume of benefits, this over withdrawal went previously undetected by internal operations and external auditors and consultants,” LWD said.
How does such a thing happen?
There’s been no detailed explanation.
LWD said that the discrepancy was missed by at least three outside audits. It was finally caught by an external review of the state’s most recent annual financial report, by a firm that previously blessed the state’s books without finding anything awry.
The annual report — compiled by the Office of the Comptroller and publicly released on June 2 — offered one detail that LWD’s statement lacked: The money designated for federal pandemic unemployment payments was over-withdrawn to the tune of $1.93 billion in fiscal years 2020-21 and 2021-22, and $548 million in fiscal 2022-23, which ended last June.
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Will Massachusetts have to pay back the money?
That’s not clear. The state and the US Department of Labor say they don’t know yet.
The dollars in question were authorized by Congress to help workers not eligible to receive state unemployment, as well as to extend coverage beyond the state’s normal 30-week limit, during the surge in layoffs caused by COVID-19 shutdowns. Instead, the money was used for state jobless claims that should have been paid from the unemployment insurance trust fund.
The Healey administration has said it’s in talks with the Labor Department to resolve the situation and is “determined to provide a solution with the goal of minimizing impact to the Commonwealth.”
Because the scope of Massachusetts’ mistakes is unprecedented, there’s no rulebook for the Labor Department to follow. A department official told me it may take some time for its lawyers to determine what kind of deal, if any, can be worked out, and whether Massachusetts employers will end up on the hook for some or all of the money.
How could anyone lose track of so much money?
It’s natural to assume that LWD’s Department of Unemployment Assistance, which runs the unemployment system, must be poorly managed. And it has been.
Like the Registry of Motor Vehicles, at least in years past, and the MBTA, the DUA’s reputation for inefficiency, bad customer service, and lack of transparency is well deserved.
The staggering magnitude of the latest screw-up reveals just how deficient the DUA’s financial controls were.
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Moreover, in a 2021 assessment of the unemployment insurance trust fund, KPMG consultants hired by the state identified earlier cases in which about $300 million in state jobless benefits had been paid with federal dollars, while $678 million in accounting mistakes went in the state’s favor. (KPMG missed the $2.5 billion mix-up — twice.)
In fairness, the crush of pandemic claims — $33 billion paid in 2020 and 2021 — would have overwhelmed even the best-run unemployment department.
“I would be surprised if a state didn’t make a mistake administering” federal unemployment benefits, said Michele Evermore, a senior fellow at The Century Foundation and a former Labor Department official who worked on unemployment insurance.
What’s the state doing to make DUA better?
While management needs an overhaul, Massachusetts has been a leader among states in updating its obsolete unemployment insurance system technology, according to Evermore.
After the Great Recession, it was one of the few states to qualify — by improving jobless benefits — for federal money under the $7 billion Unemployment Insurance Modernization Act.
In 2020, the Legislature authorized $165 million for new technology across the government, providing much-needed financing for what LWD calls the Employment Modernization and Transformation project.
An LWD spokesman said the recent decision — part of the federal debt-ceiling agreement — to cancel $1 billion out of $2 billion in federal funding for modernizing unemployment systems won’t affect the state’s efforts. EMT’s aims are sweeping: improve service, reduce barriers to signing up for benefits, cut the amount of miscalculated payments and fraud, and lower costs for employers who fund the system.
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But EMT’s rollout appears to have gone slowly. According to LWD, the project’s first phase won’t start until later this year.
Still, the state appears to be ahead of the game, compared with many states.
“Massachusetts is well above average but clearly there is room to do better,” Evermore said. “It’s going to take a while and they’ll never be done, but that’s how modernization works.”
Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.