Department of Labor admits it overcharged unemployed Pennsylvanians millions of dollars

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Update, Sept. 3: Pa. to refund $19 million to 109,000 people it overcharged in unemployment error

HARRISBURG — Just one day after Spotlight PA contacted the Department of Labor and Industry with a list of questions about a serious error that overcharged unemployed Pennsylvanians millions of dollars in interest for a decade, the agency announced Friday it will issue refunds.

Each year, interest accrues on money people owe to the department because, for various reasons, the state overpaid their unemployment benefits. A Spotlight PA investigation found the Department of Labor and Industry, from 2006 to 2016, did not use interest rates set annually by the state Revenue Department, which ranged between 3% and 8%.

The agency instead charged a fixed, 9% interest rate, because it failed to adjust the number annually in the computer system that processes payments. The department said this was an oversight after a 2005 legal change.

In its response to questions from Spotlight PA, the department on Friday said 250,000 people “were affected by the interest overcharge” and estimated that it owes at least $14 million in refunds, which it said amounts to less than $50 for most people.

But former employees at the Department of Labor and Industry tasked with assessing the mistake have for months told Spotlight PA that the agency owes much more money.

According to internal emails and data sets reviewed by Spotlight PA, records obtained from the department through Right-to-Know requests, and corroborative interviews with former labor employees, the state learned about the mistake in late 2016, referring to it as the “interest rate problem.”

Three former employees who began working on the issue in early 2017 told Spotlight PA they were instructed to keep it confidential during the years of aftermath. The employees said numerous refunds were worth more than $500, not $50, and often several thousands of dollars. The highest refund, one said, exceeded $11,000.

“They wanted everything hush-hush,” said Colleen Staub, an employment security specialist who said she worked at the Department of Labor and Industry for 26 years before retiring in April 2018.

Staub was included in a small group of people tapped to help and said she was explicitly told not to tell her direct supervisor, or anyone else, what she was working on.

“They call me into the office and said, ‘Oh my God. We found out we have been using the wrong interest rate for all these years and we have to recalculate all this stuff,’” she said. Staub said a former department official told her, “‘We don’t want it to get out there.’”

Records show top officials held more than a dozen meetings in the years after the problem’s discovery to figure out how to approach the issue but without avail. Spotlight PA was denied several interviews as the department sought extensions on requests for information and records. The news outlet asked for formal comment Thursday ahead of publication.

On Friday, the Department of Labor and Industry for the first time acknowledged the issue publicly, saying it would adjust overpayment claims to reflect the correct balance and reach out to people whom it may have to refund.

Penny Ickes, a spokesperson for the department, answered a list of 12 questions from Spotlight PA in an email sent Friday two minutes after the agency issued a news release about the interest rates.

After the incorrect rate was discovered, she wrote, the department “first needed to develop a method to calculate the overcharges over the relevant period of time for each affected claimant and to issue the refunds.” Ickes said this process was delayed because staff members were redirected to help with the new unemployment compensation benefits computer system and by the coronavirus pandemic.

Ickes denied that any staff members were told to keep the issue quiet, saying that the “Office of Inspector General … completed an investigation on the issue and approved of L&I’s plan to remediate the issue and prevent recurrence.”

A spokesperson for the Pennsylvania Office of Inspector General said Saturday the agency completed a report on the issue. “Unfortunately, we can’t comment further regarding the report or the follow-up,” he continued.

Spotlight PA contacted 15 people with direct knowledge of the interest-rate issue and three agreed to speak about it on the record.

“They could have cared less about trying to refund people,” Staub, the former department employee, said. “All they wanted to do was cover their asses.”

Staub’s supervisor at the time was Stacy Eshleman, an employment and security specialist and the former head of Benefit Integrity who worked at the department for 17 years before retiring in 2020. Eshleman said that she was alarmed to learn of the issue in 2017 and that some of her staff were pulled on the project without her knowledge.

“They wanted to quietly go in and fix it, rather than having mass fall out,” she said. “Things weren’t done correctly.”

Eshleman and others questioned the department’s estimate that 80% of individuals are owed less than $50 when thousands of claimants over a decade paid interest at roughly 6% higher than they should have.

“This information they are putting out, they have to know that’s wrong,” Eshleman said. “They are lying out their teeth. Those people are owed a lot more than that.”

Jelani Splawn / For Spotlight PA

Assessing the damage

Since the issue was first discovered, records show and former employees confirm, the department had trouble getting a handle on its mistakes.

Between 2006 and 2016, the state established more than 674,000 overpayment claims, totaling $889 million. Over that decade, the state was paid back $423 million from overpayments, according to records reviewed by Spotlight PA.

Of these claims, about 124,000 were considered “at-fault” — representing about $345 million owed by people the state overcompensated because they made a mistake on their paperwork, for example, or their claim was disputed by their employer, or as a result of deliberate fraud.

A non-fault overpayment is the result of a mistake made by the state and is not charged interest.

Steep penalties follow if a person cannot pay their bill and the high interest rate. The state can place liens on a person’s property, causing credit to be significantly diminished by the debt, or place them in a probation program.

The debt further complicates a person’s ability to buy or rent a home, car, or even obtain a phone. Staub said she saw claimants who were entitled to refunds unable to refinance their homes or get security clearances at a job, as well as have their tax refunds improperly withheld by the IRS.

When the mistake was discovered in late 2016, Mark Kopcho, a former information-technology contractor for the department, said it was his job to figure out how much the state had overcharged and just how big the problem was.

In a January 2017 email, Kopcho sent a fragment of a data set he created to Elizabeth Parker, the technology division chief for unemployment compensation, and found significant inflation in how much the department had charged and collected from claimants.

Kopcho initially found the state had overcharged and improperly collected at least $33 million in interest but likely far more. Spotlight PA could not independently verify this number.

In that 2017 email, Kopcho wrote that at 20 gigabytes, the full data set was about 14,000 times larger than the file sent that day with 25,000 claims.

“I’ll have to figure [out] a way to get you the whole spreadsheet — even compressed,” Kopcho wrote Parker, who did not respond to multiple requests to speak with Spotlight PA.

The sample included claims “that have had interest charged over the past 10 years” and needed to be modified to reflect the correct rate, the email said.

It also included 10,000 people who had already paid their bills, with the incorrect interest rate, in full to the state. The department had collected $968,000 more than it was entitled to just from these claimants. For another 10,000 idle claims, the incorrect interest accumulated and added up to the state overcharging $4.9 million in interest, according to the document.

The sentiment internally at the department, according to Kopcho, was “let’s just make this go away.”

“I would assume that all the claimants will owe less interest due to the adjustment,” Bill Wiley, then an employment security specialist with the Office of Unemployment Compensation Benefits Policy, wrote to Kopcho on the same email chain with Parker and three other staffers after reviewing the data.

“Also, are we going to make any adjustments to the entries in the Zero category if the claimants have repaid the outstanding interest?” he asked. The “zero category” indicated people who had paid their bills.

Wiley did not respond to a request to be interviewed and directed Spotlight PA to the department.

As staffers tried to calculate, over email, how much the agency owed Pennsylvanians, one claim showed that if the interest rate was applied correctly, at 3% between 2011 and 2016, the claimant owed $3,000 less than the state had charged.

The fallout

In the years after Kopcho’s initial analysis, a small but powerful group of technology and labor officials, as well as legal staff, met at least a dozen times to discuss the “interest rate issue,” records show. Among them were Unemployment Compensation Benefits Policy Director Susan Dickinson and Bill Trusky, who at the time was deputy of unemployment compensation programs, though he was recently promoted to executive deputy secretary of the department, the position second to Secretary Jennifer Berrier.

On the first day of February 2017, Dickinson and Lori Pitulski, chief of benefit payment control and benefit integrity, met for a half-hour to speak about the “interest payment results,” according to internal calendar records.

A month later, in early March, Susann Morrison, then the director of the Office of Unemployment Compensation Benefits Policy, wrote an email to Pitulski with the subject line “interest.”

“Please let me know if you have had any recent inquiries or concerns from the field or claimant services about the interest rate,” Morrison wrote. “I received the special claims update and am holding it at the moment.”

In the weeks that followed, Morrison sought overpayment statistics dating back even further, over a 15-year period, from Kirk Baseshore, statistician manager for the department, at the request of Gov. Tom Wolf’s office.

The office did not respond to a request for comment by Spotlight PA’s deadline.

Over that 15-year period, the state paid roughly $41 billion in unemployment insurance to claimants. But it had also established roughly 941,000 at-fault and non-fault unemployment claims, totaling $1.14 billion — with more than $512 million repaid.

These claims, however, represent only those investigated by the department and reported to the federal government during that time frame. Far more claims discovered prior to 2006 continued to collect interest at the improper rate as claimants worked to pay them off. Spotlight PA reviewed claims impacted by the interest issue that were still collecting interest from people who applied for benefits in the 1970s.

Based on state records, it was not until Feb. 26, 2018, that Dickinson set up a meeting with Pitulski, Rebecca Keen, assistant director of the Office of Unemployment Compensation Benefits Policy, and Rebecca Uffner, a specialist with that office, to again review the scope of the problem. The subject heading: “overpayment interest update.”

“We’re looking to take the next step to identify the claimants who would need refunds. We want some stats, first,” she wrote in the meeting memo, to identify the time needed to address the issue. The Office of Information Technology “needs to give us an actual list so we can get staff to start doing refunds where we owe money. Let’s discuss how to narrow down this population that we need.”

Pitulski did not respond to voicemails and messages for comment. The state declined to arrange an interview with Dickinson or Trusky.

Dickinson and Pitulski met again in April to discuss the interest rate and overpayments, records show. Then in May, the labor department reached out to Carnegie Mellon University’s Software Engineering Institute to consult on the problem. The university had previously worked with the department, advising it to terminate the now notoriously unsuccessful and over-budget contract with IBM, which was meant to modernize the state’s benefits technology infrastructure.

“Thanks for taking the time to speak with Susan and I regarding the interest rate issue,” Trusky wrote to Andrew Kotov, a researcher with the software institute, in an email titled “courtesy visit.”

Trusky wrote that Kopcho, copied on the email, had extensive experience with the unemployment compensation mainframe computer system and could answer technical questions, and planned to set up an additional meeting regarding Kotov’s questions about “data sources and data formats.”

Kotov said he had no comment and directed Spotlight PA to the university’s communications department for questions about the meeting. Richard Lynch, a spokesperson for the software institute, declined to make Kotov available for an interview, saying the university “did not perform such a review.”

Lynch did not answer follow-up questions and directed Spotlight PA back to the Department of Labor and Industry.

In response to questions from Spotlight PA, a state spokesperson said Carnegie Mellon had an existing contract with Labor and Industry but declined to help with the interest problem because the university “determined that consulting on this issue would not be within the scope of the work specified in that contract.”

Kopcho was the only person involved in the discussion who agreed to talk to Spotlight PA about the meeting and said that Carnegie Mellon told Trusky it could not work with them on the problem.

“They didn’t want any part of it,” Kopcho said plainly.

Meanwhile, momentum to address the mistake was impeded by a push to renew and update the unemployment benefits computer system through a new contractor, Florida-based GSI. The new system launched in June, and as IT experts and advocates warned, it has since faced widespread public outcry as problems continue.

The pandemic also resulted in the largest influx in claims in the agency’s history, compounded by low staffing, serious training gaps, and ongoing technological problems.

The department has also faced years of cutbacks in staff and funding, including significant layoffs of hundreds of employees in late 2016 that created a chasm in seasoned staff, including numerous IT professionals.

Kopcho said he was told by GSI staff that its system was not equipped to handle the interest-rate problem. The state on Friday told Spotlight PA the interest issue will not be affected by the new system.

Former employees feared that the new system could erase records of decades of overpayment claims and incorrect interest charges before the state could rectify the problem. The department maintained that all the original data will be preserved on the old mainframe system for at least six months, but as of Friday it would not comment on what exactly will happen after that period or give a more succinct time frame.

“There should be checks and balances in place,” Eshleman said, to prevent something like this from happening. But the pace and ongoing mismanagement issues, particularly within the technology department, prevented proper oversight and accountability, she said.

“Unemployment compensation is broken. It needs to be fixed.”

This story was updated to clarify that 250,000 were impacted by the interest mistake, but not all will receive refunds, according to the department.

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