Auditor General Faults Labor and Industry

Member Group : Citizens Alliance of Pennsylvania

Who Will be Held Responsible?

Last November, the Governor announced the closure of several unemployment compensation (UC) call centers. He blamed Republicans in the Senate. According to Republicans, they weren’t going to pass supplemental funding because the money allocated previously were squandered. Subsequently, the Wolf administration filed a lawsuit against IBM for failing to deliver on a modernized UC filing system. The project was supposed to be completed in 2010, it wasn’t, and is $60 million over budget. The Wolf administration still has not acknowledged that Republican Senators were correct. Earlier this week another chapter opened in the saga.

In response to a senatorial request for an audit of how the Service and Infrastructure Improvement Fund (SIIF), Auditor General Eugene DePasquale released a report earlier this week. The audit found a shocking level of mismanagement and an absence of adherence to the law. The first finding from the report is worth reading in its entirety:

"Finding 1 – Labor and Industry’s failure to use proper accounting methods to record SIIF dollars prevented us from directly matching SIIF dollars with the purposes stated in Act 34 of 2013.

"L&I management considered UC administrative funds from all sources, including not only SIIF monies, but also federal UC administrative funds and interest and penalties on UC tax money owed and collected, as one pot of funds used to administer the UC program. Therefore, management did not account for specific SIIF expenditures as they were incurred, but instead, administrative expenditures from all sources were comingled and recorded in the Administrative Fund and periodically L&I transferred large lump sums to shift expenditure dollars to the SIIF.

"Overall, there were 14 lump sum transfers over the four-year period totaling $178.4 million. Because L&I did not separately account for nor track specific SIIF expenditures, we could not determine whether or not all SIIF funds were used in accordance with Act 34. Failure to separately track and record SIIF expenditures also resulted in L&I preparing generalized reports for the Governor and General Assembly. We found that L&I was not preparing and providing annual reports to the Governor and General Assembly as required by Act 34. L&I did not submit the first annual report until January 7, 2016, or over a year and a half after the calendar year 2014 report was due. In that report L&I indicated that all of the SIIF monies were used to pay for personnel costs of staff engaged in improving the quality, efficiency, and timeliness of UC services; however, L&I’s accounting methodology prevents the direct link for SIIF dollars to personnel cost of specific L&I staff. (Emphasis added)

"L&I subsequently attempted to justify that SIIF monies were not entirely expended on personnel costs as previously stated in the January 7, 2016 report by compiling an after-the-fact report showing SIIF dollars expended for other areas of operations and infrastructure. This report (provided to the General Assembly on May 26, 2016) showed expenditures of SIIF dollars for state fiscal years ending June 30, 2014, 2015, and 2016 (through April 2016). Based on our test work, we found errors in L&I’s compilation of these reports, and therefore, L&I’s accounting of SIIF expenditures is not considered reliable." (Emphasis added)

To summarize, Labor and Industry (L&I) did not track specific expenditures, so there was no way to determine if the money was spent appropriately. They did not submit annual reports as required by law. If any private company failed to follow through with their reporting requirements, there would be civil or criminal penalties and it’s very likely someone would be in handcuffs. This failure to follow the law began under the Corbett administration and continued until the Senate cut off the money. Who is going to be held accountable for this blatant disregard for the law? And, how many other agencies are ignoring their reporting requirements?