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As VEC transitions to new IT system for unemployment claims, new report places blame for crisis

As VEC transitions to new IT system for unemployment claims, new report places blame for crisis

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People lined up in Chesterfield County in February for a chance to talk to someone from the VEC about benefits.

The Virginia Employment Commission is completing the last phase of a 12-year effort to replace an antiquated computer system that crippled the state unemployment system’s ability to respond effectively to the COVID-19 pandemic and prevented tens of thousands of unemployed Virginians from getting timely government assistance during the biggest public health emergency in a century.

The old system, which relied on paper forms and manual labor, was scheduled to be shut down at 5 p.m. Monday for a weeklong transition that will prevent anyone from filing new applications for unemployment assistance or updating their continuing claims until the new system goes live early next week.

The VEC and Secretary of Labor Megan Healy had urged unemployed Virginians to file their updated claims to reflect their employment status for the prior week by no later than 2 p.m. Monday, but they said all would be credited for the week’s unemployment because of the transition.

“For individuals who were unable to file a new, additional, or reopened claim, you will be able to request that your claim be made effective for the week that you originally attempted to file, but the system was down,” the agency said in a bulletin on its website.

The temporary shutdown also will idle the VEC’s beleaguered state and contract-operated customer call centers. The centers, like the long-delayed IT modernization, have been at the center of a legislative investigation into the meltdown of the state unemployment system, prompted by the onset of a pandemic 20 months ago that abruptly left hundreds of thousands of Virginians unemployed and the system overwhelmed by an unprecedented number of claims for jobless benefits.

During the pandemic, the VEC received nearly 2 million claims and paid out more than $14 billion in state and federal benefits. Its workforce logged more than 191,000 hours of overtime in the first nine months alone and suffered two employee deaths from COVID-19 in 13 outbreaks of the coronavirus disease in its offices.

A final report by the Joint Legislative Audit and Review Commission on Monday found the VEC unprepared for the pandemic because it lacked a resiliency plan “for effective operations during high UI [unemployment insurance] claims volumes.”

“Significant weaknesses in VEC’s operations — particularly its deficient staffing levels, antiquated UI [unemployment insurance] IT system, performance monitoring, and oversight — were revealed during the COVID-19 pandemic,” states the 200-page report by JLARC, the state’s legislative watchdog agency over government agencies and operations.

The result was backlogs of tens of thousands of unemployed Virginians awaiting adjudication of claims deemed ineligible, primarily because employers hadn’t reported why they lost their jobs, or waiting on hearings on appeals of their claims, as well as millions of unanswered calls from frantic people seeking answers about their claims because they were unable to find them online in the state’s outdated IT system.

Those backlogs led to a class action lawsuit that remains pending in federal court, despite the state’s substantial fulfillment of commitments it made in a settlement agreement in late spring to address the system’s shortcomings in providing timely help or at least answers to people in need.

The backlogs have eased considerably since JLARC made an interim presentation to legislators in September, but the call centers were still answering just 12% of calls two months ago and the number of delayed appeals has risen as the VEC has adjudicated more eligibility claims.

Healy said the VEC is struggling to hire enough qualified people to hear the appeals.

“It’s been very challenging,” she said in an interview Sunday.


The JLARC staff made 40 recommendations in a 10-page appendix, based on priorities that include additional General Assembly oversight; creation of a resiliency plan to enable the VEC to plan for future emergencies and surges in unemployment; and measures to provide emergency staffing and change state law to reduce the number of cases subject to appeal.

“It seems a matter of trying to put out a fire while you’re in the middle of a big one,” JLARC Chairman Ken Plum, D-Fairfax, said Monday.

The potential costs of failing to handle unemployment claims are huge: an estimated $1.25 billion in “incorrect payments” made to people seeking assistance in 2020 and 2021. Some of those reflect fraud, but JLARC said the large majority are due to a lack of timely information from employers about the reasons people lost their jobs and the VEC’s inability to determine eligibility before paying claims.

An unknown portion of those costs may be borne by the federal government because they involved claims under new federal emergency unemployment relief programs that the state administered for workers who weren’t already involved in the state unemployment system, such as so-called “gig” workers not attached to an employer already part of the state system.

Healy had strongly challenged the previous JLARC estimate of “incorrect payments” — $930 million for 2020 alone — and said the state had confirmed just $87 million in overpayments of unemployment benefits. JLARC project leader Lauren Axselle said the smaller number reflected only confirmed cases that had already gone through the system, not the backlog of cases under adjudication or appeal for eligibility.

“The difference is what the numbers are representing,” Axselle told Del. Kirk Cox, R-Colonial Heights.

Healy told legislators in September that the agency had “paused” its efforts to collect overpayments, some of which could be forgiven under a new state law that provided about $19 million to compensate for incorrect payments for claims filed without any intention to defraud.

“A lot of these individuals are going to be struggling to pay them back,” she told the commission after the presentation of an interim staff report on the investigation.

Healy was not present for the final presentation, nor was VEC Commissioner Ellen Marie Hess or any other agency officials because of the litigation still pending in U.S. District Court.

In a statement on Monday, Healy, who became Virginia’s first labor secretary on July 1, thanked JLARC for the report.

“The VEC has successfully paid out 10 years worth of claims over the past 20 months — a remarkable achievement for an agency that has long been under-resourced,” she said. “Call times are down to less than two minutes and adjudications are now back to pre-pandemic wait times. VEC’s new IT system will be live next week, and we will continue to work on the backlog of appeals.”

However, JLARC staff recommended that the VEC “immediately resume” efforts to collect incorrect or excessive payments made during the pandemic and also suggested that the General Assembly consider requiring employers to file “separation reports” electronically instead of relying on U.S. mail to notify the state of the reasons for employees leaving their jobs.

The recommendations range from better staffing and management of the agency to potential legislative efforts to redesign the payroll tax rates that employers pay to provide unemployment benefits under the state system, which JLARC staff said are calculated on an unusually low wage base that benefits higher wage employers in supporting the unemployment trust fund.

The report also found that the maximum unemployment benefit that Virginia pays — $378 a week, based on lost wages and employment history — is the 34th-lowest in the country and replaces about one-third of the income lost, while the income replacement ratio should be above 50%.

“Virginia’s [unemployment insurance] benefits do not cover basic food, housing, and transportation costs for many individuals,” the report states.


The JLARC report acknowledges that Virginia’s funding for administering the system — provided through a share of federal payroll taxes returned to the state — had decreased by 36% from the end of the Great Recession to the year before the pandemic, or slightly higher than the national average.

But the report also said Virginia still received more federal funding in 2019 than the national median and will receive more than $41 million in this fiscal year, about 20% more than the previous year.

The report also said the relatively low federal funding was caused partly by the inefficiency of Virginia’s system, which requires too many administrative staff to oversee a cumbersome process that relies on manual labor and paper forms instead of a modern, automated IT system that customers can use to more easily file and track their unemployment claims.

Virginia began a project to modernize the system — built around a mainframe computer purchased in 1985 — in 2009, under then-Gov. Tim Kaine, a Democrat. The final phase of the three-phase project was supposed to have been completed in 2013, under then-Gov. Bob McDonnell, a Republican.

Two governors later — former Gov. Terry McAuliffe and Northam, both Democrats — the state is still relying on the old system, at least through next week. State officials have blamed the delays on inadequate funding for an agency that does not generally receive any state taxpayer money.

But JLARC came to a different conclusion.

“Insufficient staffing and ineffective project management have caused project delays,” the report states. “Neither VEC nor the contractor have consistently dedicated enough staff to the UI [unemployment insurance] IT modernization project.”

The completion of the new IT system had been scheduled for the beginning of October, but the VEC delayed the transition until the beginning of November after JLARC staff warned in September that the agency hadn’t tested the new system with consumers or completed training of its own staff. It also raised concerns about risks that include the accurate conversion of data from the old system to the new one.

“It ultimately seems like the delay allowed VEC to mitigate some of those risks,” Axselle told legislators.

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