Spotlight PA is an independent, nonpartisan newsroom powered by The Philadelphia Inquirer in partnership with PennLive/The Patriot-News, TribLIVE/Pittsburgh Tribune-Review, and WITF Public Media. Sign up for our free newsletters.HARRISBURG — Just one day after Spotlight PA contacted the Department of Labor and Industry with a list of questions about a serious error that overcharged unemployed Pennsylvanians millions of dollars in interest for a decade, the agency announced Friday it will issue refunds.

Each year, interest accrues on money people owe to the department because, for various reasons, the state overpaid their unemployment benefits. A Spotlight PA investigation found the Department of Labor and Industry, from 2006 to 2016, did not use interest rates set annually by the state Revenue Department, which ranged between 3% and 8%.

The agency instead charged a fixed, 9% interest rate, because it failed to adjust the number annually in the computer system that processes payments. The department said this was an oversight after a 2005 legal change.

In its response to questions from Spotlight PA, the department on Friday said 250,000 people “were affected by the interest overcharge” and estimated that it owes at least $14 million in refunds, which it said amounts to less than $50 for most people.

But former employees at the Department of Labor and Industry tasked with assessing the mistake have for months told Spotlight PA that the agency owes much more money.

According to internal emails and data sets reviewed by Spotlight PA, records obtained from the department through Right-to-Know requests, and corroborative interviews with former labor employees, the state learned about the mistake in late 2016, referring to it as the “interest rate problem.”

Three former employees who began working on the issue in early 2017 told Spotlight PA they were instructed to keep it confidential during the years of aftermath. The employees said numerous refunds were worth more than $500, not $50, and often several thousands of dollars. The highest refund, one said, exceeded $11,000.

“They wanted everything hush-hush,” said Colleen Staub, an employment security specialist who said she worked at the Department of Labor and Industry for 26 years before retiring in April 2018.

Staub was included in a small group of people tapped to help and said she was explicitly told not to tell her direct supervisor, or anyone else, what she was working on.

“They call me into the office and said, ‘Oh my God. We found out we have been using the wrong interest rate for all these years and we have to recalculate all this stuff,’” she said. Staub said a former department official told her, “‘We don’t want it to get out there.’”

Records show top officials held more than a dozen meetings in the years after the problem’s discovery to figure out how to approach the issue but without avail. Spotlight PA was denied several interviews as the department sought extensions on requests for information and records. The news outlet asked for formal comment Thursday ahead of publication.

On Friday, the Department of Labor and Industry for the first time acknowledged the issue publicly, saying it would adjust overpayment claims to reflect the correct balance and reach out to people whom it may have to refund.

Penny Ickes, a spokesperson for the department, answered a list of 12 questions from Spotlight PA in an email sent Friday two minutes after the agency issued a news release about the interest rates.

After the incorrect rate was discovered, she wrote, the department “first needed to develop a method to calculate the overcharges over the relevant period of time for each affected claimant and to issue the refunds.” Ickes said this process was delayed because staff members were redirected to help with the new unemployment compensation benefits computer system and by the coronavirus pandemic.

Ickes denied that any staff members were told to keep the issue quiet, saying that the “Office of Inspector General … completed an investigation on the issue and approved of L&I’s plan to remediate the issue and prevent recurrence.”

A spokesperson for the Pennsylvania Office of Inspector General said Saturday the agency completed a report on the issue. “Unfortunately, we can’t comment further regarding the report or the follow-up,” he continued.

Spotlight PA contacted 15 people with direct knowledge of the interest-rate issue and three agreed to speak about it on the record.

“They could have cared less about trying to refund people,” Staub, the former department employee, said. “All they wanted to do was cover their asses.”

Staub’s supervisor at the time was Stacy Eshleman, an employment and security specialist and the former head of Benefit Integrity who worked at the department for 17 years before retiring in 2020. Eshleman said that she was alarmed to learn of the issue in 2017 and that some of her staff were pulled on the project without her knowledge.

“They wanted to quietly go in and fix it, rather than having mass fall out,” she said. “Things weren’t done correctly.”

Eshleman and others questioned the department’s estimate that 80% of individuals are owed less than $50 when thousands of claimants over a decade paid interest at roughly 6% higher than they should have.

“This information they are putting out, they have to know that’s wrong,” Eshleman said. “They are lying out their teeth. Those people are owed a lot more than that.”

Assessing the damage

Since the issue was first discovered, records show and former employees confirm, the department had trouble getting a handle on its mistakes.

Between 2006 and 2016, the state established more than 674,000 overpayment claims, totaling $889 million. Over that decade, the state was paid back $423 million from overpayments, according to records reviewed by Spotlight PA.

Of these claims, about 124,000 were considered “at-fault” — representing about $345 million owed by people the state overcompensated because they made a mistake on their paperwork, for example, or their claim was disputed by their employer, or as a result of deliberate fraud.

A non-fault overpayment is the result of a mistake made by the state and is not charged interest.

Steep penalties follow if a person cannot pay their bill and the high interest rate. The state can place liens on a person’s property, causing credit to be significantly diminished by the debt, or place them in a probation program.

The debt further complicates a person’s ability to buy or rent a home, car, or even obtain a phone. Staub said she saw claimants who were entitled to refunds unable to refinance their homes or get security clearances at a job, as well as have their tax refunds improperly withheld by the IRS.

When the mistake was discovered in late 2016, Mark Kopcho, a former information-technology contractor for the department, said it was his job to figure out how much the state had overcharged and just how big the problem was.

In a January 2017 email, Kopcho sent a fragment of a data set he created to Elizabeth Parker, the technology division chief for unemployment compensation, and found significant inflation in how much the department had charged and collected from claimants.

Kopcho initially found the state had overcharged and improperly collected at least $33 million in interest but likely far more. Spotlight PA could not independently verify this number.

In that 2017 email, Kopcho wrote that at 20 gigabytes, the full data set was about 14,000 times larger than the file sent that day with 25,000 claims.

“I’ll have to figure [out] a way to get you the whole spreadsheet — even compressed,” Kopcho wrote Parker, who did not respond to multiple requests to speak with Spotlight PA.

The sample included claims “that have had interest charged over the past 10 years” and needed to be modified to reflect the correct rate, the email said.

It also included 10,000 people who had already paid their bills, with the incorrect interest rate, in full to the state. The department had collected $968,000 more than it was entitled to just from these claimants. For another 10,000 idle claims, the incorrect interest accumulated and added up to the state overcharging $4.9 million in interest, according to the document.

The sentiment internally at the department, according to Kopcho, was “let’s just make this go away.”

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