An audit of the state unemployment system found agency management did not do enough to warn lawmakers that S.C.'s jobless benefits fund was running out of money. And S.C. workers fired for misconduct over a three-year period collected $171 million - or 10 percent of the total jobless benefits paid during that time.
The report, conducted by the Legislative Audit Council, suggests the governor should have more control over the agency, either appointing its executive director or appointing commissioners who choose a director. The audit argues South Carolina's unemployment tax structure should discourage companies from frequently laying off workers. One company's workers collected $1.8 million more in jobless benefits than the company had paid into the system, the audit notes.
South Carolina has borrowed $736.2 million from the federal government to maintain jobless benefits since the unemployment trust fund ran out of money in December 2008. Those loans will likely have to be repaid through a combination of higher business taxes and devoting more of the state budget to servicing the loans.
Gov. Mark Sanford - who first raised questions about the agency in 2008 - said the audit shows "gross incompetence." Lawmakers said the report will galvanize support for restructuring the agency this year.
"The plain fact is that state government's first line of defense against unemployment has fallen down on the job," Sanford said in a statement, "and we'd again encourage the General Assembly to take this report and pass legislation to institute accountability into the system."
Officials with the commission said the audit shows no agency incompetence and the state's bankrupt jobless benefits fund is due to a decade of job losses.
"Not once in the 26 recommendations is there mention of the agency being out of control or incompetent," said ESC interim director Sam Foster.
Foster said South Carolina is experiencing the same issues as two dozen other states. The real problem, Foster and other agency officials said, is South Carolina has suffered unprecedented job losses over the past decade.
Agency officials said the fund collected only as much as it paid out during the best economic years between 2000 and 2009, and lost money in other years. Despite that, officials said, they could not foresee record high unemployment draining the fund.
The LAC audit concludes the agency failed to comply with state law in reporting the fund's declining balances to lawmakers. If the ESC had followed federal guidelines, the audit concluded, the account would still have money.
Auditors found a number of management problems at the agency, and encouraged the agency to review its mission while it seeks a new executive director. Among the problems auditors found:
- The agency stopped prosecuting fraud claims, a total of $7.3 million in the budget year ended June 30, 2009.
- The agency has not corrected shortcomings in its accounting.
- The agency did not investigate claims of mismanagement at one of its work force centers.
- The agency did not warn lawmakers about a change in state law needed to maintain federal jobless benefits, forcing the Legislature to return in October.
The report also raised issues with the agency's job placement program, noting the agency does not put a higher priority on placing those who are out of work and lists less than half of all vacant S.C. jobs.
House Majority Leader Kenny Bingham, R-Lexington and author of a bill restructuring the agency, said the three ESC commissioners elected by Legislature failed to report agency issues to lawmakers.
"It confirmed our assumptions," Bingham said of the audit. "There was no oversight going on."
The ESC reform bill stalled last year, in part because lawmakers upset with Sanford's rejection of federal stimulus money balked at giving him more authority.
House and Senate lawmakers, Republican and Democrat, said the audit will galvanize support for restructuring.
"What we need to do now is move forward," said Sen. Greg Ryberg, R-Aiken and chairman of the Senate labor committee. "We can use the report as a basis."
Ryberg said senators have a loose agreement on three changes:
- Adding the agency to the governor's Cabinet
- Limiting the duties of the three commissioners to hearing disputes over unemployment awards
- Adjusting the unemployment tax rates so companies who lay off employees more often pay higher rates, and those who don't pay lower rates
House Minority Leader Harry Ott, D-Calhoun, who opposed the bill last year, said the Legislature recognizes something must be done this year.
Replenishing the fund could mean a combination of higher employer taxes and reduced jobless benefits, but Ott said lawmakers still had to decide how best to weigh the impact on struggling employers and those who depend on the benefits.
"We need to stabilize the fund so we don continue to go in the red," Ott said. "I can't say what that balance is yet."
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