A new legislative audit shows the state of Minnesota overpaid as much as US $3.2 million in extra unemployment benefits tied to the federal stimulus, according to an article published in the Grand Forks Herald. The report says the agency mistakenly paid out US $25 weekly supplements — authorized by the stimulus — to some ineligible recipients because its computer system failed to flag the overpayments. The Department of Employment and Economic Development’s commissioner says the department struggled to keep up with internal accounting, as the federal government extended unemployment benefits five times from late 2009 through 2010.

Lessons Learned

There often is a higher level of fraud risk associated with government stimulus programs because of the high visibility and the need to ensure that funds are dispersed quickly. Stimulus programs are usually a rapid response to a specific situation, and management is not given the necessary time to assess the risks and develop and test the mitigating controls. In addition, stimulus programs often target a larger group of recipients than normally would qualify for the program.

Internal auditors should be aware that — even when dealing with an existing program that has been expanded — management must deal with a large influx of applications under extremely tight time frames, and this increases the risk of fraud. For example, the program administrator may not be able to screen applicants adequately, which increases the likelihood of duplicates or that persons who do not qualify for the program are not screened out. Additional risks are introduced in new programs, as procedures, systems, and controls may not be present. Despite these issues, the program is expected to deliver its service or product.

Internal auditing can assist management by taking an upfront look at the risk and controls and letting management know where changes are required to address concerns. This review should be completed as early as possible to prevent errors from happening rather than waiting for auditors to identify the errors that occurred after the fact.

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