INDIANAPOLIS (AP) — Indiana’s plan to balance an unemployment insurance fund
hit hard during the recession might have caused businesses to pay more than
they owed, although no one seems to know how many companies were involved or
the level of impact it had on them.
Indiana Department of Workforce Development Auditor Cathy Luff said Tuesday
that businesses she examined in 2011 had overpaid because of confusion over
when higher unemployment taxes approved by lawmakers in 2009 took effect.
Meanwhile, Luff said she was removed from her auditing duties last Thursday
after talking with WISH-TV about her concerns. A spokesman for the
Department of Workforce Development said Luff is still employed by the state
and has not been formally disciplined in any way, but declined further
comment citing personnel confidentiality.
Department Commissioner Scott Sanders said Monday that if companies did
incorrectly calculate how much they owed the state, it is up to them to let
the department know and seek that money. He called it “a self-reporting
“So employers would need to go back and take a look at what they filed and
if they filed incorrectly, by all means come back and submit a corrected
return,” Sanders said. “We’ll be happy to issue them a credit memo and a
refund if that’s what they would like.”
Neither Luff nor the department knows how many businesses overpaid the state
or by how much. But of the 91 audits Luff performed last year, roughly 15
percent of the businesses made this mistake. She said she cannot reveal the
names of businesses she audited because it is confidential information.
The state is obligated to help them get their money back, Luff said.
“I believe what happened is they don’t want to give money back,” she said
Tuesday of the Department of Workforce Development, citing the need to bring
the state’s unemployment fund back into solvency following the spike in
unemployment claims during the recession.
“At a minimum DWD should notify employers to go back and check to see if
they reported correctly,” she said.
The trouble stems from Indiana’s efforts to repay roughly $2 billion in
loans from the federal government to cover unemployment costs as the
recession hit. Lawmakers developed a two-pronged plan in 2009 to deal with
the problem by increasing the tax businesses pay into the insurance fund and
increasing the amount of employee wages taxed from the first $7,000 earned
by each worker to the first $9,500.
That latter bump, in the amount taxed, is what caused the current problem.
The new plan was set to take effect at the start of 2010, but lawmakers
delayed the tax hike a few months later, leaving businesses with the lower
tax burden through 2010 — whether they knew it or not.
Both Luff and the Department of Workforce Development suspect the problem
stems in part from businesses using software like Quickbooks that was
updated at the start of 2010 with information that was out-of-date after
lawmakers delayed the tax hike in March.
Because the companies file their own calculations, only state auditors such
as Luff would have caught the mistake and the department audited only 2.5
percent of employers last year.
Luff first discovered the problem last year when auditing payments for 2010
and reported it to her bosses at the department. She said she decided to go
to the media after the department did nothing to reduce her level of
“It strikes me that there really is responsibility on both ends of this
equation,” said Craig Hartzer, a Department of Workforce Development
commissioner under former Gov. Frank O’Bannon.
It was up to businesses to be aware that the changes were coming, but the
state was responsible for doing everything possible to let them know, said
Hartzer, who now teaches at Indiana University’s public affairs school.
Democratic gubernatorial candidate John Gregg called the problem another
example of mismanagement by the state, following the discovery of $526
million in tax errors, and asked for an immediate audit of state government.
But the unemployment insurance problem appears to have little in common with
the other, massive tax mistakes discovered by the state over the last