Audit: Employment Security Commission Didn't Warn Lawmakers of Problems

COLUMBIA, S.C.-- An audit of the South Carolina Employment Security Commission found numerous problems at the agency, from inadequate reserves that pay unemployment benefits to failure to contain costs. The report by the Legislative Audit Council was released Tuesday morning.

The first problem it highlights is that the state had more than $800 million in reserves in the Unemployment Insurance Trust Fund in 2000. The state blew through that money because of its high unemployment rate and has had to borrow more than $700 million from the federal government to keep playing benefits. The audit says the Employment Security Commission knew as early as 2001 that the fund was inadequate but didn't provide adequate information to state lawmakers about the fund's declining balance.

ESC interim director Sam Foster says the agency did let lawmakers know and is required by law to give the legislature information like that every year.

"There was communication with the General Assembly, perhaps not of the magnitude that is suggested, but there was discussion with them," he told News Channel 7. "We annually report to the Ways and Means Committee and the Senate Finance Committee, but whether those reports were appropriately seen and communicated to the chairs and what not, that's something that we can't answer. But we do notify them."

Senate President Pro Tempore Glenn McConnell, R-Charleston, says of the agency's information on the trust fund, "I'd sure like to know where that message was delivered and what it contained and how much it recommended we increase it."

The audit was also critical of the agency for not containing costs. Unlike most states, South Carolina allows employees to collect unemployment benefits even if they're fired for misconduct. From July 1, 2006 until June 30, 2009, the ESC paid around $171 million to employees who were terminated for cause. That's 10 percent of total benefits.

In one case, a man made a job-related threat and said he had a weapon in his car. Police found a loaded gun in his car. He was fired, but still collected $2,440 in unemployment benefits.

In another case, a man was fired for missing too much work. It turns out he had missed work because he was behind bars, but he still collected $5,868 in benefits.

"It makes absolutely no sense to me to be paying benefits to people who have lost their jobs through misconduct or fault of their own," Sen. McConnell says.

But Foster says the agency has to follow state law. When someone is fired for cause, that person loses some of their benefits, but not all of them. "The law provides for a penalty of anywhere from five up to 26 weeks," Foster says.

The fact that the state has had to borrow hundreds of millions of dollars to continue paying unemployment benefits will have consequences for the entire state. Businesses will likely see their unemployment insurance taxes go up to pay back what the state has borrowed and replenish the trust fund.

Sen. Shane Martin, R-Spartanburg, says, "Once that happens, that person who hires 18 people every year, he may only start hiring 16 or 17, and the ones that have 16 or 17 employed, they may have to cut somebody to cover that tax increase."

But the state will have to pay the interest on what it has borrowed and that cannot be paid for from the unemployment taxes. That means it will have to come from the state budget. The state's first payment will be due in September 2011 and is estimated to be $52 million.

The audit recommends several options for changing the Employment Security Commission, including making it a cabinet agency under the governor's control, allowing him to appoint the director, or allowing the governor to appoint commission members and having them appoint an executive director.

House Speaker Bobby Harrell, R-Charleston, says, “Hopefully this exposing of how severely broken this agency has become will open the eyes of all lawmakers to the need for major reforms at the ESC. This is one of the reasons why our state’s unemployment rate is far too high; an employment agency in disarray has done little to combat joblessness.”

You can read the LAC summary report by clicking here

You can read the LAC full report by clicking here