A $2.5 billion mistake was caught only by chance, in a review of state payments by the auditor for the state's Office of the Comptroller.
Massachusetts "over withdrew" $2.5 billion in federal relief funds to pay jobless claims over the past three years of the pandemic, according to a statement from an Executive Office of Labor and Development spokesperson. Those claims should have been paid with state money.
The costly mishap came to light only this week, after a public meeting of the comptroller. But it turns out the state labor department's loose financial controls have been under scrutiny for the past few years.
"A series of improvements to financial controls has been in the works for that department," said Michael Sangalang, a spokesman for the Office of the Comptroller.
Now the U.S. Department of Labor has stepped in, along with "outside auditors, and other necessary partners to resolve this issue," according to a statement by state Labor Secretary Lauren Jones.
The erroneous tapping of federal funds took place under the Baker administration. And it wasn't the first time the labor department's payouts have raised controversy. Last year, then-Labor Secretary Rosalin Acosta asked the U.S. Department of Labor to waive about $2 billion in jobless benefits to some 300,000 people who were found to have been overpaid or not eligible for the money.
The feds denied the request. The state then went on to find alternative ways to handle the overpayments.
A spokesman for the state labor department in an email Friday said the office is "taking steps to enhance its internal controls and is working to implement those changes," including increasing staff and training, and improving communications with partner agencies.
The latest misspending of federal funds was first reported by the Boston Globe. The labor department spokesman, Matthew Kitsos, said the problem was not detected in two prior audits by independent firms. In 2021, an accounting firm was hired to conduct a "forensic review" of the unemployment insurance trust fund, he said. Still, the $2.5 billion error was not discovered until this year by the comptroller's outside auditor.
In a statement in response to a WBUR inquiry, the U.S. Department of Labor said it "has been in discussion with the state about their error and is working with the state on options to rectify the situation."
In this week's public meeting, Comptroller William McNamara said his department's work over the past year with the labor department was a "difficult and time-consuming process." He added, "it's only been over the last several weeks that the underlying financial data issues were resolved."
The question of what happens next, and how the funds might be clawed back, remained unanswered as of Friday afternoon. One possibility is that employers could have to contribute more to the state unemployment insurance trust fund to help make up for the losses.
But Jon Hurst, president of the Retailers Association of Massachusetts, said that would be an unfair solution to the government's error or poor execution of its job.
"Massachusetts employers have already arguably paid more than their fair share for a variety of the COVID costs," he said. "Government needs to find a way to cover the cost."
Acosta, the former labor secretary, did not immediately respond to requests for comment.
Kitsos, the state labor department spokesman, noted that the payment issues occurred while the state was paying far more jobless claims than usual. In 2020 and 2021, the department paid out $33 billion in relief, he said. The funds were paid to 2.3 million workers in 2020 and to 1.7 million workers in 2021.
Those figures were up from $1.4 billion paid to 400,000 claimants in 2019, according to the state.