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Washington had inadequate controls to stop unemployment fraud, audit finds

A state audit found Washington's Employment Security Department didn't have adequate controls to prevent hundreds of millions of dollars in fraud this spring.

SEATTLE — The state Employment Security Department (ESD) did not have adequate controls to prevent a slew of illegal unemployment insurance claims last spring that totaled about $600 million and grew into the largest fraud in state history. 

That's according to a report from the Washington State Auditor on Friday. 

The audit provided the first accounting of the circumstances surrounding schemes that targeted Washington state’s unemployment benefits as the coronavirus pandemic was growing.

Key findings include that the “known and suspected” loss resulting from fraud, as of June 30, was about $600 million. This sum covers more than 122,000 known or suspected fraudulent claims. But the state had recovered $250 million by that same time, resulting in an estimated net loss of $350.9 million.

ESD has continued to recover lost funds since the audit was taken and as of Friday has recovered at least $357 million, according to ESD Commissioner Suzi LeVine.

RELATED: Fraudsters filed for Washington unemployment in my name, here’s what stopped them

The audit also found that ESD's internal controls left it "vulnerable" to fraud. In March, ESD eliminated the waiting week for benefits, which, according to the audit, was driven by federal incentives to quickly distribute pandemic relief. However, that also meant ESD paid benefits before verifying an applicant's eligibility.

An automated process to detect claims at high risk of identity fraud was also not working for a good portion of the year and wasn't repaired until May, according to the report.

The audit also found the federal Pandemic Unemployment Assistance program, which expanded benefits for more workers, was vulnerable to fraud, because it offered benefits to people who normally wouldn't qualify, including self-employed workers.

LeVine said that the causes of fraud identified in the audit were already disclosed, identified and acted on where possible.

"This audit finding also recognizes the incredible pressure and conditions that resulted in the criminal attack against our unemployment insurance program in the spring of 2020," LeVine said in a statement. "Some of these conditions were created by the federal law or guidance."

Since the fraud was discovered in May, LeVine said the department has taken many countermeasures, including standing up a team to handle fraud reports, establishing a secure portal for fraud victims and implementing a two-day hold on payments to investigate fraud claims.

The auditor's office expects to release an accountability audit of ESD in the first quarter of 2021.