The long-delayed audit, issued Wednesday by the secretary of state’s office, attempts to account for the chaos and confusion that beset the Oregon Employment Department during the early days of the COVID-19 pandemic.
The 32-page report only briefly reiterates the findings of two prior audits, in 2012 and 2015, that the employment department suffered from frequent turnover in its executive ranks and a notoriously obsolete and inflexible computer system that dates to the 1990s.
Those failings became acute during the pandemic, blocking aid for tens of thousands of people during the sharpest economic downturn in Oregon history. State audits director Kip Memmott said the employment department would have performed much better during the pandemic if it had made the technological upgrades recommended in prior audits.
“I think it would have helped a lot,” Memmott said. “I think we were right on point.”
Still, the auditors found that in some respects Oregon didn’t perform much worse than other states. And they cite federal data indicating the state lost less to fraud than many of its peers.
When it came to complex claims that required formal adjudication, though, the auditors say Oregon’s system for managing them had been facing major problems for years and turned into an outright crisis during the pandemic. Adjudication is a main focus of the new report.
The state lacked systems and procedures to ensure claims were being adjudicated correctly, according to the auditors, and didn’t reliably communicate with unemployed workers about the status of their case.
“Some claims end up taking months or years to adjudicate due to insufficient internal controls in (the department’s) antiquated IT systems,” the auditors found. And some racial groups, and claimants with lower incomes, had to wait much longer than others to have their cases addressed.
David Gerstenfeld, now well into his third year as the employment department’s acting director, said he agrees with all the auditors’ findings and said fixes are well underway.
“We needed to operate differently. Nothing that was in there was a surprise,” Gerstenfeld said in an interview. He said the department is now adjudicating claims more rapidly than before the pandemic and has plans in place to implement each of the auditors’ recommendations.
“At this point, the agency really is a very different agency than if you look back just prior to the pandemic,” Gerstenfeld said.
Some changes won’t be in place until 2024, though, when Oregon updates the technology behind its benefits payment system.
The employment department’s troubles were a major crisis in the spring and summer of 2020. In a single month, the state’s jobless rate soared from historic lows to a record high, 13.3%. Oregon paid more than 580,000 jobless claims that year, amounting to nearly $7.5 billion in benefits.
The flood of layoffs overwhelmed the employment department, which resorted to manually processing hundreds of thousands of claims because its balky computers couldn’t handle the volume of applications or the changes in federal programs authorized by Congress.
Thousands of laid-off workers had to wait months for their benefits, and the employment department took seven months to pay workers for their first week of unemployment – the very last state in the nation to make that federally authorized payment. ( Congress had created a temporary exception to the standard, one-week waiting period before jobless benefits kick in.)
The department initially lacked the capacity to handle email inquiries, and its phone lines were swamped for months by laid-off workers seeking help with their claims or an explanation as to why their aid hadn’t arrived. The ancient computers automatically mailed out confusing or incorrect information –notices the department said it was helpless to correct because of the rigid technology.
Wednesday’s audit revives those horror stories and lands amid a hotly contested, three-way gubernatorial campaign. All the leading candidates – Democrat Tina Kotek, Republican Christine Drazan and nonaffiliated candidate Betsy Johnson – held key posts in the Legislature as the employment department struggled to cope with the pandemic.
Adjudication emerged as one of the agency’s central problems early in the pandemic. It’s an arduous, legally mandated process that requires an extra level of scrutiny for claims from people with complicated work histories.
According to the audit, it can take more than 12 weeks just to train adjudicators to evaluate whether someone qualifies for benefits. That long period reflects the complexity of the overlapping state and federal laws governing unemployment assistance.
The adjudication backlog rapidly emerged as one of the employment department’s biggest woes in 2020. The agency said that September that 49,000 people were waiting to have their claims adjudicated, leaving them in a protracted limbo without aid. Critics said the actual number was even higher.
State auditors found the employment department lacked clear, accessible policies governing adjudication decisions. And the department didn’t have procedures in place to ensure claims were processed correctly and promptly.
“Adjudicator guidance is spread across different sources and is not updated, leading to employee workarounds and increased risk of inconsistent determinations,” the auditors wrote.
In a review of 155,000 claims subject to adjudication in 2019 and 2020, the auditors said they found more than 1,000 that appeared to have taken more than a year to resolve. A third were from 2019, even before the pandemic rush. The auditors said they couldn’t tell if those claims really took more than a year or if they had been misdated.
Checking a sampling of four claims with exceedingly long delays, though, the auditors found they did indeed take from 729 to 804 days to process.
“According to agency managers, these claims appeared to have been investigated by (benefit payment control) staff and were set aside while waiting for additional information, where staff then lost track of them and did not follow up on until they were finalized roughly two years later,” the auditors wrote.
The audit didn’t delve into the underlying reasons why the employment department failed to adopt better procedures. Outside consultants the state hired in 2020 to evaluate the department’s performance found “a persistent history of change resistance” within the agency.
Consulting firm Deloitte called out adjudicators, specifically, in the November 2020 report as being “especially resistant to change.” That’s according to a copy of the report obtained by The Oregonian/OregonLive through a public records request.
“Many long-term staff members are entrenched in the systems and methods they have worked in for decades,” Deloitte concluded. However, the consultants also found an influx of new staff hired during the pandemic “helped dilute the change averse culture.”
While the department adopted “ad hoc procedures” to track adjudication during the pandemic, the new audit found it still hadn’t adopted formal monitoring procedures even in the months since the wave of pandemic layoffs abated. (The department says it has done so since the audit was completed.)
Additionally, the audit found big disparities in how long some unemployed Oregonians wait to have their claims adjudicated. Asian Americans, Native Americans and Pacific Islanders appear to wait much longer than whites, Blacks and Hispanics, according to the audit. Lower income workers also wait significantly longer.
The auditors said limitations in the data prevented them from drawing firm conclusions, but they urged the employment department to investigate the issue. They also urged the employment department to consider hiring an ombudsman to help laid-off workers navigate the complexity of the claims process.
In some ways, the auditors’ findings were complimentary.
For example, they said Oregon’s fraud prevention practices – and outdated computers, which slowed payments – kept the volume of stolen jobless benefits far below the levels in neighboring states. The employment department said it has identified just $24 million in losses during 2020, compared to $277 million in fraud losses in Washington and $20 billion in California.
And the auditors say Oregon moved as fast as most other states in implementing new federal benefits programs during the pandemic, including Pandemic Unemployment Assistance for self-employed workers.
Oregon received $85 million to upgrade the employment department’s computers in 2009, but most of that money went unspent until last year, when the upgrade process began in earnest.
The work was derailed by a succession of leadership changes at the employment department and other organizational dysfunction, according to prior audits and a series of investigations by The Oregonian/OregonLive.
Auditors say most states that received the same federal modernization funding in 2009 also hadn’t upgraded their computers by the time the pandemic hit in 2020.
What the auditors didn’t say is that Oregon’s technology started out far behind. As far back as 2013, the employment department told lawmakers that Oregon was one of just two states running legacy mainframe systems.
Auditors made several recommendations for the employment department focused around establishing formalized guidelines and controls for administering claims. The report urges the department to set up a single website for claimants and suggests adopting a text messaging system to give Oregonians another way to communicate with the agency about their claims.
Gerstenfeld, the acting director, said the department has already made several of the changes and is in the process of studying or adopting many of the auditors’ other recommendations.
“The damage to the public’s trust could take a generation to repair but rebuilding that trust begins today,” Secretary of State Shemia Fagan said Wednesday. She ordered the audit in February 2021, seeking an explanation for the employment department’s calamitous performance during the pandemic’s first year. Initially due last fall, auditors extended their deadline twice to gather more information.
The audit doesn’t revisit the root causes of the employment department’s dysfunction, specifically its long history of troubled leadership. The state fired three consecutive department directors before Gov. Kate Brown appointed Gerstenfeld acting director in May 2020.
Last year, Brown said she would wait for the audit before contemplating further changes or choosing a long-term leader for the department. Gerstenfeld said he hasn’t talked with the governor since receiving the finished audit and that he doesn’t know how long he’ll be running the department.
Though he’s been serving in an interim capacity for more than two years, Gerstenfeld said that hasn’t limited his authority or initiative to make the changes he felt were necessary to improve the department’s performance.
“I really haven’t been leading the agency any different than I would have if I hadn’t been in the acting capacity,” Gerstenfeld said.
Oregonian reporter Hillary Borrud contributed to this report.
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