Financial management within the Delaware Department of Labor Division of Unemployment Insurance

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Letter from Auditor York

Dear members of the Delaware public,

One of the primary audit engagements overseen by the Office of Auditor of Accounts is the Annual Comprehensive Financial Report (ACFR) – financial statements on all State of Delaware funds, departments, organizations, bureaus, boards commissions, elected offices, and legal entities. The ACFR is important not only for transparency about the use of public money, but as a tool used to analyze our state’s financial position for bond financing and to maintain our credibility with creditors and federal oversight agencies. Every detail published in the ACFR has far-reaching consequences for our State. My office released the ACFR for fiscal year 2023 on March 26, 2024, with this accompanying special report.

This year, the Independent Auditors’ Report includes an unprecedented disclaimer of opinion related to the Delaware Unemployment Compensation Fund (DUCF). To my office’s knowledge, the Delaware ACFR has never before included a disclaimer opinion.

The DUCF is managed by the Delaware Department of Labor Division of Unemployment Insurance (DOLUI). As of June 30, 2023, the DUCF reported cash assets of approximately $390 million consisting of contributions from the federal government and businesses of all sizes who hire Delawareans. The firm hired to prepare the Independent Auditors’ Report, CliftonLarsonAllen LLP (CLA), has determined that this fund is not auditable for fiscal year 2023. Simply put, DOLUI was unable to provide detailed accounting records of any kind to allow CLA to reach an opinion. The enclosed special report provides details on AOA’s inquiry into how this happened, and our suggestions for a path forward.

Our inquiry revealed several factors contributing to this result. DOLUI management failed to ensure accounting work was performed in a timely manner. State agencies, like Division of Accounting, were slow to respond when the scope of the problems within DOLUI became clear. These failures represent not only an unacceptable lack of adherence to the State’s established accounting policies, but more importantly demonstrate an absence of accountability in a program that Delaware employers fund, and Delawareans rely on.

The breadth of the consequences to our State from publishing a disclaimer of opinion within the ACFR are not yet known. What I hope is made clear in the special report is that this was an avoidable outcome. The large increase in benefits and beneficiaries throughout the Covid-19 pandemic strained the resources of Delaware’s unemployment system, as it did unemployment programs across the country. Regardless, this does not excuse the failures of management that followed.

I truly believe that here in Delaware, we are small enough to get this right. When AOA was presented with evidence of problems, we acted. I believe this report offers a clear direction forward. DOLUI must immediately put itself on a path to rectify the problems with fiscal year 2023, but also ensure that it is never in a similar position again. This will require changes with not only the way DOLUI operates, but also all oversight of state accounting practices.

Our office will continue to monitor this situation and keep you informed as efforts to solve these problems are underway. I want to thank the Department of Labor for their cooperation and assistance in this inquiry, and thank our highly qualified, nonpartisan auditors, who do this important work every day to keep our government transparent.

Thank you,

Lydia E. York
Delaware State Auditor of Accounts