SC agency didn't warn lawmakers of problems
Associated Press
Wednesday, January 27, 2010

COLUMBIA, S.C. - South Carolina's unemployment agency let cash to pay jobless benefits dwindle since 2001 and did nothing before 2008 to head off insolvency that has saddled employers with a $736.2 million debt, according to a state audit released Tuesday.

The Legislative Audit Council report said the agency bears the blame for pushing legal changes that reduced cash reserves and ultimately accelerated the shortfall in the fund. It said the agency could not document asking legislators to address the problem before 2008.

The audit also cites the state's practice of paying people fired for cause, including drinking or sleeping on the job, for costing $171 million over the past three years, 10 percent of the benefits paid out in that time.

South Carolina Gov. Mark Sanford has said the agency is "out of control" and argued that it needs to be part of his Cabinet.

The agency responded to the report by saying it should remain independent and noting that many of the recommendations auditors made have been or will be implemented, with some requiring legislative action. "Not once in the 26 recommendations is there mention of the agency being out of control or incompetent," said Sam Foster, the agency's interim director.

Nonetheless the report leaves the responsibility with the commission for an insolvent trust fund that will take years of higher contributions from employers to repay while restoring reserves.

"While agency management knew as early as 2001 that fund reserves were inadequate, management did not aggressively pursue changes to benefits, or the tax structure, in order to prevent the insolvency of the trust fund," the report says.

"They were losing $2 million a week from 2002-2004," said Tom Bardin, the council's executive director. "The notifications, the warnings just weren't there."

Foster said actions "were taken but they may not have been adequate to the degree the alarm was sounded for some in that we attempted to project that the fund was headed in a downward spiral and needed to be addressed." He said the agency made annual reports to lawmakers.

The council recommended it provide more details, including showing five year trends on charts.

The agency stood by policy decisions to reduce premium collections from employers. Bob Brown, who oversees the agency's economic data and trends, said historical trends for job creation would have had the state having adequate cash on hand through December had the current recession not hit.

"If our unemployment rate had been 3 percent going into the recession, I'd doubt if we'd be having these conversations," Brown said. "Had the trendline continued as it had for 50 years, they would have all looked like geniuses; the trust fund would have been great," Brown said.

South Carolina's unemployment rate in December set a record of 12.6 percent, the nation's fourth highest.

The auditors also say the agency didn't follow U.S. Department of Labor requirements for maintaining reserves. Had they done so, the trust fund would still have a significant surplus, the audit says.

Legislators have been waiting for the report to undertake a sweeping overhaul at the agency that Gov. Mark Sanford says is accountable to no one. Sanford in his state-of-the-state speech last week said moving the agency under the control of his Cabinet is one of his top priorities.

The audit notes governors in all other Southeastern states have more control of similar agencies. It recommended making the agency part of the Cabinet and letting the governor appoint an executive director or allowing him to pick commissioners that the Senate would approve.

That's one of 26 recommendations made in the report. The agency planned a news conference later Tuesday to discuss the report.

State Rep. Kenny Bingham, R-Cayce, said he hopes to get an overhaul to the House floor within weeks. Meanwhile, the Senate has overhaul legislation already on its calendar. Hours after the report was released, the Senate voted 41-2 to debate that bill within the next couple of weeks. Sen. Greg Ryberg, R-Aiken, said the Senate would first deal with the agency's oversight and operations before dealing with the insolvent trust fund.

The House already has approved a temporary change in the law that, among other things, requires the Employment Security Commission to stop paying benefits to workers who are fired for cause. Workers can still appeal those decisions. The report notes that South Carolina is one of a dozen states that permit paying any benefit at all to people fired for cause.

It cites examples that included a worker who collected $3,586 in benefits after making unauthorized charges on his company's credit card for motel rooms and Internet dating; a worker paid $5,868 who was fired for missing work while he was jailed; and $2,440 paid to a worker dismissed after making job related threats and after police found a firearm in his car.

"Each claim is decided on its own particular facts," the agency said in its written response. It said those decisions "have a context, a context which sometimes involves many years in an employment relationship."

The report also says the commission stopped referring fraud cases to criminal prosecutors in February 2008 and in the fiscal year that ended last July it lost $7.3 million to fraud. The agency said it would refer "all cases of significant claimant and employer fraud" to authorities.

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