Harrell says state agency is a mess

COLUMBIA -- As South Carolina neared and then entered the nation's deep recession, the state's unemployment agency was handing out millions of dollars in benefits to fired workers, some dismissed for such reasons as smelling like alcohol on the job, threatening to use a weapon and charging motel rooms to the company credit card.

A top legislator said the Legislative Audit Council's findings in a report on the Employment Security Commission released Tuesday revealed an agency in "shambles" that has the state indebted to the federal government to the tune of $1 billion.

"We must act swiftly," House Speaker Bobby Harrell, R-Charleston, said in a statement. "Millions of taxpayer dollars have been lost to fraud and overpayments with no action taken to protect or retrieve our money.

"Job placement has taken a backseat to simply throwing more money at our employment problems," Harrell said.

Interim Director Samuel Foster defended the agency. He said the ESC is noted by the U.S. Department of Labor for the quality of its services, including the hearing of 98.8 percent of appeals within 30 days, compared with 35.6 percent nationally.

Foster said the agency already is addressing some of the recommendations by the auditors, and plans to implement others.

"Not once in the 26 recommendations is there mention of the agency being out of control or incompetent," Foster said, referring to recent allegations.

The report, which took eight months to prepare, shows that the agency has paid out more than $171 million in jobless benefits to workers who were fired for misconduct, including illegal activity, between July 2006 and June 2009.

Another $7.3 million was lost between July 2008 and June 2009 in checks cut to residents gaming the system after agency officials decided to abandon their efforts to prosecute the fraud, the report said.

On Tuesday, Allen Larson, a deputy executive director for the commission, said the agency plans to meet with the attorney general to discuss moving forward.

Meanwhile, the state borrowed more than $700 million -- a number projected to reach $1 billion -- from the federal government because the fund that pays out the benefits has been broke for two years as the state's unemployment rate rose to a record 12.6 percent in December.

The agency and its three commissioners did not properly warn legislators that the fund was running out of cash until it was too late, according to the report.

Former agency Director Ted Halley, who retired at the end of last year, told The Post and Courier that his agency began meeting with legislators in 2006 to alert them to the problem and raise the possibility of increasing taxes on businesses to keep the fund solvent.

"(They told us) basically that they would look at it, but that nobody wants to raise taxes," Halley said last January. "But as far as informing them, we did."

Halley could not be reached for comment Tuesday.

House Majority Leader Kenny Bingham, R-Cayce, said the state pays three commissioners more than $100,000 a year each to oversee the agency, and the part-time Legislature depends on them to raise an alarm if necessary.

"They have not lived up to their role and responsibility," Bingham said.

Senate Majority Leader Harvey Peeler, R-Gaffney, said he did not know where the disconnect is between agency officials saying that they warned the legislators and the audit saying they did not properly do so.

"I wish I knew," he said. "So many times agencies will cry wolf. ... Honestly, if anyone within the agency or outside the agency knew it was this bad, it seems like they would have made their voice heard louder."

Commissioner Becky Richardson said the agency has alerted legislators to the fact that the benefits account was going to run out of money. The warning was spelled out emphatically in an annual report given to the Legislature, she said.

Richardson acknowledged that the agency has room to improve, and that starts with new leadership, she said. Richardson said the agency's management bucked her attempts to change various practices over the years.

"I have disagreed with the management from the day I got there until Mr. Halley retired in December," she said.

Overhauling the agency this session is one of the Legislature's top priorities, along with finding a way to pay back the federal government.

Businesses could face higher federal taxes if the loans are not repaid in a timely manner, according to the audit. The state's first interest payment will be due in September 2011 and is estimated to be $52 million.

South Carolina is not alone in borrowing money. As of December, 24 states had insolvent funds, a number that is projected to grow to 41 by the end of the year.

An immediate law change is pending in the Senate to stop employees fired in the future from collecting benefits.

One proposal to reform the agency before lawmakers follows one of the auditors' recommendations -- to make the Employment Security Commission part of the governor's Cabinet.

Gov. Mark Sanford has long advocated for the agency to be put under executive branch oversight, to provide a direct line of accountability.

"The report again highlights the gross incompetence and lack of accountability that have infested the Employment Security Commission," Sanford said in a statement. "As we've made clear for more than a year and a half now, these shortcomings have real-world consequences."

The agency

The South Carolina Employment Security Commission, a 1,200-worker agency, pays out weekly unemployment benefits and provides resources for people who are looking for a job. It oversees a now-insolvent fund that pays out benefits using tax money that businesses pay on the first $7,000 of each employee's salary.

The agency operates 36 offices throughout the state, including locations at 176 Lockwood Blvd. in Charleston, 107 E. Main St. in Moncks Corner and 2885 W. 5th N. St. in Summerville.

Reach Yvonne Wenger at 803-926-7855 or ywenger@postandcourier.com.