Millions Misspent Last Fiscal Year on Unemployment Claims, Suit Contends

November 23, 2011

Investigative Reports

Print Friendly, PDF & Email

The NerveThe state Department of Employment and Workforce misspent about $87 million in federal unemployment funds last fiscal year, mainly by paying out claims to people who were not eligible, a lawsuit against the agency contends.

If true, the finding could mean that the department failed to adhere to reforms the S.C. General Assembly approved last year after a state audit determined that the agency in recent years had drained its reserves and paid out tens of millions to workers who were fired for cause.

In her suit, former DEW manager Susan Hair of Lexington County, a 35-year employee, said she was fired in August by former agency director John Finan after she had repeatedly met with staff at the S.C. Legislative Audit Council to “exchange information relating to the overpayment of unemployment compensation, errors, mistakes and fraud occurring within DEW.”

Hair said in the suit that after becoming the agency’s director last year, Finan named her as the “Benefit Accuracy Measurement” manager, which involved “looking for fraud, mismanagement or negligence in the handling of such federal funds.”

She said she initially was instructed to “fully report” her findings to Finan and the Legislative Audit Council, which issued a report in January 2010 that led to changes in state law last year.

The suit contends that Hair and unnamed “others” had “uncovered” about $87 million in federal funds that had been “misappropriated” and “misapplied and paid out to persons who were not eligible” for the benefits under federal law and guidelines in the fiscal year that ended June 30.

That was after the time period reviewed in the 2010 LAC report. If Hair’s findings are accurate, it raises questions about whether the agency complied with changes state lawmakers made last year to crack down on ineligible recipients.

The suit was filed Oct. 27 in Richland County Circuit Court. Contacted this week, DEW spokeswoman Adrienne Fairwell declined comment on the suit, noting, “The agency does not comment on ongoing legal matters.”

George Schroeder, interim director of the Legislative Audit Council, confirmed when contacted by The Nerve this week that Hair had met with LAC staff. But he declined to discuss specifics of her suit, saying, “We have an ongoing audit of DEW,” which he added he hopes to have completed “very early in the new year.”

Schroeder said the changes made last year in state law required the LAC to do a follow-up audit, and that the law prohibits him from discussing details of the review until it is released.

Hair in her suit said she initially reported her findings to Finan and Glenn Holton, the agency’ deputy director of internal audits and quality assurance. Later, she said she was instructed to report to Erica Von Nessen, deputy director of unemployment insurance, according to the suit.

Holton and Von Nessen are named as defendants in the suit. Finan, who was nominated by former Gov. Mark Sanford last year and stepped down this year after Gov. Nikki Haley named Abraham Turner as his replacement, is not listed as a defendant.

After the change in supervisors, Hair said she “experienced a change of attitude and direction” from Holton, who “began to caution her about discussions with the LAC (Legislative Audit Council) or any sources outside of DEW,” the suit said. Hair described herself as the “LAC’s best source of information within DEW.”

Hair in her suit said that starting in the summer of this year, she was told “not to give any information to the LAC but to only answer their questions in the most cryptic ways and finally, not to give them any information at all.”

After being told to report only to Holton and Von Nessen, Hair “became aware” that she was “supposed to stop coding mistakes and stop criticizing errors” to “protect those at the agency,” the suit said.

On Aug. 17, Hair said DEW’s human resources director “without warning” handed her a letter from Finan informing her that she was being fired immediately because she failed to “maintain functional, harmonious or professional working relationships with employees or supervisors,” the suit said.

Hair earned $62,039 annually as a “Program Coordinator II,” state salary records show. Her suit seeks reinstatement to her job with back pay, an award of $250,000 for actual damages, a separate unspecified award under the state whistleblower law, attorney fees and punitive damages.

Her attorney, Lewis Cromer of Columbia, who has brought numerous whistleblower suits against public agencies over the years, declined comment when contacted this week by The Nerve.

The January 2010 Legislative Audit Council report found that the DEW’s predecessor, the state Employment Security Commission, had paid about $171 million, or about 10 percent of total benefits, to employees who were fired for cause from July 1, 2006, to June 30, 2009.

The audit also found that between fiscal years 2007 and 2009, the agency paid more than $100 million in benefits to workers who were employed but were experiencing a temporary break in service.

But the biggest issue revealed in the audit was that the agency had let reserves steadily decline between 2000 and 2008 without fully informing lawmakers about the seriousness of the problem. When the Great Recession began, reserves had totaled $229 million – $831 million less than recommended minimum amounts – causing the state’s unemployment insurance trust fund to become insolvent, the report said.

That led the state to borrow heavily from the federal government as unemployment rolls swelled during the recession. Fairwell, the DEW spokeswoman, told The Nerve that the state has paid back $210 million so far this year and owes about $758 million, adding that the state trust fund is expected to “become solvent by 2015.”

In response to the LAC report, the General Assembly last year put new restrictions on fired workers receiving unemployment benefits and reorganized the agency, placing its director in the governor’s cabinet.

A tiered system of unemployment insurance premiums also was established to pay back the federal loans. Many businesses, though, have sharply criticized the new system.

South Carolina’s unemployment rate in October was 10.5 percent, the U.S. Bureau of Labor Statistics announced Tuesday. Four other states had higher rates: Nevada (13.4), California (11.7), Michigan (10.6) and Mississippi (10.6).

Reach Brundrett at (803)254-4411 or rick@thenerve.org.