State Audit Finds $70M-Plus in Unwarranted Unemployment Payouts

Because of errors and fraud, the state of Tennessee issued $73.4 million in overpayments to people drawing unemployment benefits over the past six years, according to a new audit report.

The problems threaten the integrity of the program, the comptroller’s office said in its report, released this week.

Auditors found poor systems for detecting fraud, backlogs in claims handling, and “automated approval of claims” without verifying that employees qualified. They also faulted workers at the Department of Labor and Workforce Development for not taking simple steps, like verifying the Social Security numbers of people drawing unemployment.

Auditors found the department had paid out $135,000 to people who were not eligible because they were gainfully employed by the state – or in some cases dead.

“The Commissioner should take immediate action to implement a strong system of internal controls over the claimant eligibility process for the (unemployment insurance) program. This control system should be designed to prevent and/or detect errors and fraud and mitigate the risk that (unemployment) benefits will be paid to ineligible claimants.”

The commissioner in question, Department of Labor and Workforce Development chief Karla Davis, resigned earlier this month, citing family reasons. The Haslam administration announced that Burns Phillips, a Finance and Administration official, would serve as acting commissioner.

Lt. Gov. Ron Ramsey, R-Blountville, said Thursday that he’d not yet seen the report but was not surprised auditors had uncovered problems at the labor department.

Ramsey has successfully pushed to tighten requirements on unemployment-insurance beneficiaries, and in the process has developed a bad impression of the labor department.

“To say that that department has been unresponsive and hard to work with would be an understatement,” Ramsey said. “You send email after email after email and get no response. We ask for statistic after statistic and get no response.”

Last year the Legislature toughened requirements on beneficiaries, like requiring them to keep a log of their efforts to find work. Some 400 people were kicked off the program in a random check of more than 6,100 claimants during the first seven weeks the law was in place, the Chattanooga Times Free Press reported in December.

Read the audit here.

Press Releases

State Makes Recommendations to Handle New Federal Unemployment Rules

Press release from the Tennessee Department of Labor and Workforce Development; April 13, 2012:

Department Urges Compliance to Avoid Interruption of Benefits

NASHVILLE – New federal requirements to the unemployment insurance system announced last week require in-person case management meetings and documented work searches, and the Department of Labor and Workforce Development is making several recommendations to help claimants.

“We’re encouraging everyone to pay attention to the information we send in the mail and attend these case management courses,” Labor and Workforce Development Commissioner Karla Davis said. “As more and more claimants miss these sessions, it may become increasingly challenging to find classes with open slots resulting in weeks of delays to get their benefits started again.”

The department recommends updating your address with the agency in order to receive notifications. This can quickly be done by logging into your account online at If individuals miss their appointment they should immediately contact their local Tennessee Career Center to reschedule.

All Claimants in the federal Emergency Unemployment Compensation program (EUC08) received instructions on the newly required documented work searches; however, only those transitioning from the state’s unemployment benefits to EUC08 and those entering the second tier of EUC08 receive additional notifications to attend case management sessions.

In the appointment letter for case management, claimants are instructed to bring their initial work search logs. If they don’t produce the documents, they are required to attend an additional in-person session to ensure they are in compliance with the requirements.

For up-to-date information visit Unemployment Update.html or follow the Tennessee Department of Labor and Workforce Development on Twitter at