YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

September 5, 2003

Report No. 2003-91

Unemployment benefits for discharged workers are handled differently here than other states; action still needed to make Unemployment Insurance Trust Fund solvent

This report follows a 2002 audit on the impending insolvency of the Unemployment Insurance Trust Fund, which pays unemployment benefits to thousands of individuals each year.  The report specifically addresses how the state's Department of Labor and Industrial Relations (DOLIR) handles unemployment benefits to those discharged for misconduct, which was questioned during the  last report's release.  In addition, this report dissects the pros and cons of the recently vetoed legislation which attempted to make the fund solvent.

Other states impose harsher penalties for misconduct discharges

Auditors found the department's oversight of discharged worker's claims generally complied with state law,  but how the state penalizes misconduct discharge  greatly differs from other states.  Missouri is one of 12 states allowing individuals discharged for misconduct to receive full unemployment benefits after waiting a 4- to 16-week  disqualification period based on the severity of the behavior.   The department paid $22.5 million in unemployment benefits during 2001 on approximately 10,000 misconduct discharge cases.  In addition,  7 of these 12 states also penalize the individual along with the disqualification period, most often by reducing unemployment benefits by the number of disqualification weeks.  The remaining 39 states deny unemployment benefits to anyone discharged for misconduct and the claimants must go back to work and re-qualify for benefits on a future claim. (See page 5)

Department officials could use stiffer penalties under current law

Auditors found department officials have not fully used the penalties available under current law. State law allows department officials to assess 4 to 16 weeks of disqualification on a misconduct discharge, but auditors found the department seldom  imposed a waiting period of more than 4 to 8 weeks, with an average of 5.5 weeks.  The recently vetoed legislation proposed eliminating these disqualification weeks on misconduct discharges, and proposed such claimants would be ineligible for benefits until they returned to work, earned at least $2,000 and became unemployed again.  Department estimates showed this change could save the state $30 million in benefits annually. (See page 6 and 9) 

Missouri handles drug-related discharge cases differently than other states

Auditors found 14 of 18 states contacted (including those surrounding Missouri) do not allow a person who failed a pre-employment drug screening to receive benefits, and denies their claim; while 17 of the 18 states also consider failure of a random drug test to be misconduct and deny or reduce benefits.   But Missouri allows unemployment benefits for claimants on drug-related discharge cases unless signs of on-the-job impairment are found or the job is deemed safety sensitive.   Courts have agreed with the department's interpretation of the law and the department will not alter its handling of such situation unless state law is changed.  (See page 6)

1 percent of total benefits paid went to drug-related discharges

Auditors estimated about 1 percent of the $476 million paid in unemployment benefits in 2001 went to claims with drug-related discharges.  To reach this estimate, auditors reviewed a statistical sample of 50 drug-related discharges during 2001 and then projected to the total population.  Estimates showed the department paid $4.9 million in unemployment benefits on 1,960 drug-related discharges. About 68 percent of these claims involved misconduct and the claimant served disqualification weeks before receiving benefits, which  totaled an estimated $2.4 million.  Estimates showed the department personnel found no misconduct on 32 percent of the cases,  and the claimant did not have to wait before obtaining unemployment benefits.  Reasons for no misconduct included  employers either refused or failed to provide sufficient information to support misconduct, individuals started work but then failed pre-employment drug tests, or employers could not prove  the drug use was connected to work.  (see page 7)

Vetoed legislation to make fund solvent was costly to employers

Although the 2003 vetoed legislation addressed fund solvency by increasing revenue and reducing benefits, the proposed changes would have cost Missouri employers unnecessary interest, increased federal taxes levied on  Missouri employers by $275 million and did not make the fund solvent long-term.  The vetoed legislation also proposed allowing the department to issue up to $100 million in bonds to finance current and future insolvencies.  The bond had to be repaid through a special assessment on all Missouri employers over a period not to exceed 10 years.  Auditor analysis showed using bonds to finance the current solvency would cost employers approximately $34 million more than financing the full insolvency through the U.S. Department of Labor.  (See page 9)

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