INDIANAPOLIS – Indiana's unemployment agency miscalculated jobless benefits at a rate five times the national average and may be contributing to the insolvency of the state's unemployment insurance trust fund by ignoring a federal mandate to check a national database for newly hired workers, a federal report says.
The Indiana Department of Workforce Development also broke federal laws and rules in writing and awarding contracts, including a rushed $7 million deal with Ivy Tech Community College last June that should be canceled immediately, the U.S. Department of Labor's Employment and Training Administration said.
The March 9 report, obtained this week by The Associated Press, found 41 instances in which Workforce Development did not comply with federal regulations for activities such as delivering services and managing grants and programs. It identified 31 areas of concern over how the agency administers federal employment and training programs.
A Workforce Development spokesman said Wednesday the agency was reviewing the report and had made some changes, including canceling the Ivy Tech contract.
The report comes at a pivotal time for Indiana. Workforce Development distributes jobless benefits and coordinates retraining for unemployed Hoosiers, who numbered 324,000 in February, giving the state a 9.4 unemployment rate - the highest in 25 years.
At the same time, the state's unemployment fund is paying out millions of dollars more in benefits than the employer taxes it takes in.
So far, the state has borrowed about $535 million from the federal government to keep the fund solvent, and fixing the fund has become a key issue in the General Assembly.
Rep. Russ Stilwell of Boonville, the Indiana House Democratic floor leader and a member of the Labor Committee, said the state's unemployment insurance deficit would not be as deep if Workforce Development were doing its job properly.
"It's disheartening to see this at a time when an existing bill empowers the Department of Workforce Development to make decisions on who receives unemployment insurance and who doesn't," Stilwell said.
The Labor Department report found several problems with how the state handles jobless claims.
It said Workforce Development was responsible for 11.2 percent of improper unemployment insurance payments in 2007 - five times the national rate of 2.3 percent - and noted that some managers averaged 250 cases, increasing the risk of poor service.
It also chided the agency for failing to check a database known as the National Directory of New Hires when it calculates unemployment insurance payments to ensure recipients are reporting all of their wages.
A federal mandate required all states to begin using the directory by Jan. 1, 2008.
"Unreported and underreported wages continues to be the largest area of improper (unemployment insurance) payments nationwide, accounting for hundreds of millions of dollars of overpayments, and negatively impacting every states trust fund solvency," the report said.
Workforce Development spokesman Marc Lotter said the agency planned to begin crosschecking unemployment claims with the new hire database when it launches a new unemployment insurance system later this year. He said the Labor Department was "fully aware of our timetable."
Lotter said a job search program begun by the agency last year already was cutting into the 11.2 percent error rate, but a change in state law was needed to further reduce it.
The report also found a lack of accountability in a two-year, $7 million contract awarded to Ivy Tech last June for vocational and academic training and other services.
"This agreement must be terminated immediately," the report said, questioning how Workforce Development could ensure the contracted work would be completed.
Other contracts the report reviewed also drew criticism, including:
•A 2005 contract to the accounting firm Crowe Horwath to serve as the fiscal agent for several regional boards at the same time Crowe already was providing services to subcontractors of the regional boards. As a result, the report said, "they will be monitoring their own work."
Crowe Horwath is the parent company of Crowe Chizek and Co., which donated $5,000 to Gov. Mitch Daniels' campaign for governor in November 2005, according to state campaign finance records. A company spokeswoman had no comment.
•A 2007 contract worth $273,648 to the non-profit Indiana Youth Institute. The report said the contract was "severely flawed" because it was extended in 2008 for the same amount of money without listing any additional work to be done.
That made it appear the original work either wasn't completed in 2007 or was duplicated in 2008. The contract was extended a second time for $174,317 to cover a seven-month period ending Jan. 31, again with no additional duties.
That contract came up for separate criticism because the Indiana Youth Institute's chief executive and president, Bill Stanczykiewicz, is a member of the state agency's State Workforce Innovation Council, creating an apparent conflict of interest.
Stanczykiewicz said former Workforce Development Commissioner Ron Stiver first approached him about the contract in May 2006 and it was signed in August.
During the interim, Daniels approached him about joining the agency board, and he signed a conflict of interest disclosure statement shortly after the contract was signed.
Stanczykiewicz said he abstained from any board votes affecting the Indiana Youth Institute.
Lotter said his agency was reviewing the report and would respond in detail by the end of April, as requested by the Employment and Training Administration.
