Delaware offers little explanation for why embezzlement issues never publicly disclosed

The Delaware Department of Labor offered little explanation as to why an embezzlement investigation into the state’s unemployment insurance fund was never disclosed by the department until media outlets began asking questions.

The department confirmed Thursday night that former unemployment insurance administrator Michael Brittingham was found embezzling more than $181,000 from the state’s unemployment insurance trust fund last year.

An open government group on Thursday called on the state General Assembly to investigate the undisclosed embezzlement problem at the labor department’s Division of Unemployment Insurance following news reports about the issue.

John Flaherty, Delaware Coalition for Open Government board member, said the state did not reveal the embezzlement despite state law specifying the disclosure of illegal activity in official reports.

“The disclosure of all this came about through the article on WHYY radio," he said. "We felt that the news media should not have to be the one that would disclose these kinds of violations of public trust.”

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Alejandro Bodipo-Memba, a labor department spokesman, said the internal investigation into embezzlement began March 31, 2023. The “criminal investigation” ended Aug. 23, 2023, and Bodipo-Memba said “legal actions were taken to recover the stolen funds.”

But he did not explain why for months after the investigation’s conclusion the department still hadn’t disclosed the embezzlement publicly, instead only acknowledging it in a May 6 WHYY News story after that media outlet received a tip about the problem.

“This is an important issue and we informed federal and state officials upon learning of the theft by Michael Brittingham,” Bodipo-Memba said. “DOL did not disclose this to the public while an active criminal investigation was ongoing. There were underlying personnel issues involved that had to be considered.”

Brittingham died by suicide in April 2023 shortly after the investigation into the embezzlement began.

Why weren’t adequate records kept?

In a special report issued by Delaware Auditor of Accounts Lydia York in March, auditors said they could not audit the Division of Unemployment Insurance because the office lacked detailed records on “money going in and coming out” of the unemployment fund.

When asked about the lack of records, the labor department said there were “several issues” that contributed to the auditor’s report, “including an antiquated mainframe system, the inability to recruit and retain sufficient accounting resources and poor processes and procedures.”

“In addition, there was extraordinarily high claim volume during the COVID-19 pandemic,” Bodipo-Memba said. “DOL is working to remedy all of these issues. DOL has engaged the accounting firm BDO to help address financial reporting moving forward.”

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Prior audits on the Unemployment Insurance division dating back to at least 2020 show “material weaknesses” and “significant deficiencies” with recordkeeping within the agency, which prompted the Division of Accounting to institute a corrective action plan, to be completed by June 30, 2021, according to the state auditor’s March special report.

“Through the course of our inquiry, (the office) found that the plan ultimately did not rectify the root causes” of the comprehensive audit’s findings, the special audit reads.

The auditor’s office said in the March 2024 report that an outside CPA was brought in to assist the division in April 2023, and their office was notified about that firm’s “concerns with significant internal control deficiencies in January 2024.”

The March audit indicates that while “serious accounting issues” had been mounting over the years, the situation worsened in 2023. It was exacerbated by the hiring of several new managers tasked with overseeing accounting activities that they did not receive proper training for, and management that failed to provide adequate oversight of these processes.

Bodipo-Memba said the department has also hired a “forensic accounting firm to assist in identifying process gaps that may have contributed to the broader problems” flagged in the auditor’s special report.

He directed Delaware Online/The News Journal reporters to contact the auditor’s office for an explanation of why the embezzlement issues weren’t explicitly stated in the special report.

Why wasn’t embezzlement mentioned in the auditor’s report?

The state auditor’s policy advisor Sam Barry said the office wasn’t able to audit the division because of inadequate recordkeeping, which is why the office opted to put out a “special report” to alert state officials to “an unprecedented disclaimer of opinion” issued by independent auditors on the unemployment compensation fund.

“That’s a report we chose to file and make public and send to members of the General Assembly about the disclaimer of opinion,” Barry said. “We were explaining why we were not able to audit the unemployment fund for 2023.”

The open government group pointed to several sections of State Code, as well as an “oath of office” public employees and officers make, for reasons why the embezzlement should have been disclosed sooner.

The auditor’s office is responsible for conducting audits on all financial transactions by Delaware agencies at least on a biennial basis, according to State Code. Those audit reports should include “all illegal and unbusinesslike practices,” the code states.

The Delaware Division of Accounting, which was aware of earlier issues with recordkeeping in the Unemployment Insurance division, also has a responsibility to “report to the General Assembly, the attorney general and the director of the Office of Management and Budget in writing any irregular, illegal or improper financial administration or transaction,” according to State Code.

Because no charges were filed regarding the embezzlement, the state Department of Justice cannot comment on the issue.

Barry stressed that the state auditor is continuing to work with the Department of Labor to piece together the missing records, and once completed, a full audit will be conducted on the unemployment fund. He encouraged anyone who may be witnessing unethical behavior within the state or among state employees to contact the fraud hotline at 1-800-553-7283, or by submitting a complaint online.

Senate Republicans call for legislative probe

Delaware Senate Republicans on Friday issued a statement joining the open government group calling for a legislative probe into how a former employee was able to embezzle more than $181,000 from the unemployment fund.

“We agree with DelCOG’s letter and, too, call for a legislative branch investigation,” according to the emailed statement from the Republican Caucus.

DelCOG also seeks to uncover why the embezzlement issue wasn’t immediately disclosed to the General Assembly and public and what the labor department is doing to ensure similar incidents do not occur in the future.

Lawmakers added that they met recently with the Department of Labor’s Division of Unemployment Insurance to discuss what happened.

“Outside consultants have been brought in to analyze the deficiencies in the agency's systems that led to this happening,” the statement continued. “While we appreciate the department's openness and willingness to meet, we believe, as elected leaders, that we must perform a separate inquiry to both rectify the issue and reestablish trust between the department and the public we serve.”

Got a tip? Contact Amanda Fries at [email protected]. Follow her on X at @mandy_fries.

This article originally appeared on Delaware News Journal: How Delaware kept quiet about embezzlement of unemployment fund