Washington State Auditor Pat McCarthy says her office will investigate how the state Employment Security Department (ESD) was duped by a massive unemployment-fraud scheme, as well as probe the agency’s ongoing delays in paying claims to thousands of distressed workers.
McCarthy notified Gov. Jay Inslee and state lawmakers on Wednesday that her office is launching two new audits: one examining potential weaknesses in the employment agency’s computer systems, and another that will look into other factors that led to both delayed and fraudulent payments.
The announcement comes after months of cascading revelations about the looting of Washington’s unemployment system by scammers, including a Nigerian cybercrime network known as “Scattered Canary.” The state has acknowledged paying out between $550 million and $650 million in fraudulent claims while saying $333 million of that has been recovered with the aid of federal law enforcement.
Efforts by ESD to stymie the fraud have slowed payouts of benefits, causing a wave of anxiety and anger among furloughed and laid-off workers who have related horror stories about dealing with the agency’s overwhelmed bureaucracy. Some have sued over halted benefits.
Amid the uproar, as late as last week the auditor’s office had publicly indicated it was not examining the fraud. In a message on its website, McCarthy’s office said it only investigates misconduct by public employees, and that crimes perpetrated by “external actors” would be examined by ESD’s internal fraud unit as well as the FBI and Secret Service.
In an interview, McCarthy said her office has been developing an audit plan for a while and decided to take action after hearing from lawmakers and the general public.
McCarthy stressed her office can examine “the whys of what happened” but won’t be able to speed up benefit payments. “We are not going to be able to go in and expedite the processing,” she said. “We can go in and look at what happened, why it happened. And what ways we can avoid it in the future,” she said.
The widespread phony claims have affected employees at the state’s largest public and private employers, as well as small businesses and nonprofits. Even the auditor’s office was hit — 27 of its 400-plus employees having false unemployment claims filed in their names, according to an agency spokesman. McCarthy said two of her children also had bogus claims filed on their behalf.
“Everybody is frustrated with what happened,” said McCarthy, a Democrat and former Pierce County executive serving her first term as state auditor. She is seeking reelection this fall.
A letter last week signed by 37 Republican state legislators formally requested an ESD audit, saying “public trust in government is so shaken by this malfeasance … we must do something to prevent this from ever happening again.”
The auditor also will review ESD’s stewardship of federal dollars that fattened unemployment payments in the wake of the coronavirus economic shutdown. The added benefits — including an extra $600 a week and 13 months of extended eligibility — helped make Washington’s comparatively generous benefits an attractive target for scammers. ESD officials have said that most of the $4.9 billion the agency has paid in benefits since March 7 come from emergency federal legislation.
McCarthy’s office said the audit is likely to take six to nine months.
ESD Commissioner Suzi LeVine, a former Microsoft executive and top national Democratic political fundraiser who served as ambassador to Switzerland, has faced intense criticism from some lawmakers, as well as from jobless people frustrated by continuing delays in payment of legitimate claims.
As of last Thursday, the claims of roughly 140,000 individuals were being held up by ESD for further identity verification related to the fraud investigation. The claims of another 40,000 or so individuals were being held up for “adjudication” review of other issues.
In a statement, LeVine said ESD welcomes the audit “in the spirit of continuous improvement and, most importantly in our primary charge to provide ever better service to the people of Washington.”
During a regularly scheduled news conference, Inslee called the review “a good idea to have an audit in these circumstances.” The governor said he was told Wednesday morning that “tens of thousands of people who will have resolution of their claims by the end of the week, with more to follow.”
State Sen. Reuven Carlyle, D-Seattle, who heads the committee overseeing state information technology, called the audit a proper avenue for accountability.
“I think at the end of the day, we have a fiduciary and a public and a moral obligation to protect the public’s money. And these dollars are intended for unemployed workers. People have paid into the system, businesses have paid into the system, and it needs to be managed with the highest integrity,” he said.
Seattle Times reporters Joseph O’Sullivan and Paul Roberts contributed to this report.