Arizona can't account for $257M in COVID unemployment funds
Summary
Arizona's Department of Economic Security is still holding hundreds of millions of dollars in leftover pandemic-era unemployment cash -- and, according to the state's own auditors, can't adequately document where $257.4 million of it should go. A separate $19.9 million gap between DES's books and its bank records adds to the problem -- one auditors say is the same unresolved issue behind a larger, $231.1 million discrepancy from the year before, despite nearly $740,000 already spent on outside consultants to fix it.
Five categories, one large unexplained balance
Auditors traced the $257.4 million by reviewing DES's own benefits-ledger spreadsheets covering May 2020 through June 2024. The largest piece, $123.6 million, was cash-card benefit payments that banks rejected and DES never resolved. Another $53.4 million came from rejected direct-deposit payments, $56.6 million from fraud and overpayment recoveries, $22.8 million from other unresolved recoveries, and just over $1 million from amounts DES simply couldn't reconcile. DES told auditors the money could still be paid out through pending appeals tied to the pandemic programs, but when asked repeatedly between June and September 2025 to document those appeals, DES couldn't provide the total number or dollar amount outstanding.
View data as table
| Cash-card payments rejected by banks | 123,585,339 |
|---|---|
| Direct-deposit payments rejected by banks | 53,382,946 |
| Fraud and overpayment recoveries | 56,566,720 |
| Other unresolved recoveries | 22,782,300 |
| Unreconciled amounts | 1,065,875 |
A second, newer gap: the books don't match the bank
The same audit found a separate problem in the same fund: DES's Unemployment Compensation Fund financial statements reported $281.5 million in cash as of June 30, 2024, but the underlying bank records showed $301.4 million -- a $19.9 million difference DES identified but, per auditors, never investigated or resolved. Auditors said DES hadn't been reconciling its three unemployment insurance bank accounts separately, relied on unreliable manual tracking, and lacked staff with the skills and experience to catch the kind of errors this represents.
View data as table
| Shown in bank records | 301,400,000 |
|---|---|
| Reported in DES financial statements | 281,500,000 |
The same unresolved problem, not a new one
Auditors are explicit that this year's $19.9 million finding "is similar to prior-year finding 2023-05" -- the same $231.1 million cash-balance problem identified as of June 30, 2023. The state paid outside consultants roughly $739,000 in December 2024 to reconcile the unemployment bank accounts back to July 2019, work that led DES to adjust its own beginning cash balance by $227.9 million. But that engagement cleaned up historical account balances; it wasn't scoped to fix the reconciliation process itself. And per the report's own tracking of prior findings, DES's side of the original $231.1 million problem is still listed as "Not corrected" -- DES says the FY2023 audit's recommendations weren't even issued until December 2024, so it couldn't start meaningfully addressing them until after the year covered by this newest audit had already closed.
What DES says it will do
DES concurred with both findings in its formal corrective action plan. For the $19.9 million reconciliation gap, the agency committed to preparing complete monthly reconciliations, resolving the unresolved cash and returning any required money to the federal government, writing formal reconciliation procedures, training staff, and improving management oversight -- targeting December 31, 2026. For the $257.4 million unearned-revenue issue, DES committed to supporting its records with detailed accounting data, resolving outstanding pandemic-program appeals, and returning any money that can't be paid to eligible claimants -- targeting June 30, 2027.
The takeaway
- A quarter-billion dollars sits in limbo, and no one can say where it should go. DES holds $257.4 million in leftover pandemic unemployment cash it can't adequately document -- money that may need to flow back to Washington rather than staying in Arizona's hands.
- This is the same unresolved problem, not a fresh one. Auditors call this year's $19.9 million gap similar to last year's $231.1 million finding -- a $739,000 consultant fix cleaned up historical account balances, but DES's own corrective-action tracking still lists the underlying issue as "Not corrected," in part because the prior audit's recommendations arrived too late in the year to act on.
- DES says it's already committed to fixing both -- on a timeline stretching into 2027. The agency didn't contest either finding, but its own target completion dates mean full resolution, if it happens on schedule, is still well over a year away.
This audit describes accounting and internal-control failures -- incomplete recordkeeping, inadequate reconciliation procedures, and system limitations that blocked access to transaction data -- not an allegation that DES misspent or misappropriated the money. Auditors explicitly frame the federal-repayment risk as conditional: DES may have to return funds only if the underlying cash turns out to be ineligible for future disbursement or tied to recovered overpayments and fraud. DES's own explanation, cited in the report, is that some of the money could still be legitimately paid out through pending appeals -- a claim the agency has not yet been able to document to auditors' satisfaction. The $277.3 million combined figure cited in this piece's analysis is this outlet's own sum of two separately reported findings, not a total the report itself states.
Sources(1) ▾
- Arizona Auditor General, State of Arizona Single Audit Reporting Package, Year Ended June 30, 2024 (2026-04-01) — The statewide Single Audit report covering Arizona's fiscal year ended June 30, 2024, published April 2026, read directly for this piece via its extractable text layer. This piece draws specifically on Financial Statement Findings 2024-05 and 2024-06, both concerning the Department of Economic Security's (DES) Unemployment Compensation Fund recordkeeping, and their corrective action plan entries; the report's dozens of other, unrelated agency findings are not covered by this piece. azauditor.gov · original document
Comments
Always open. Logged-in readers can annotate paragraphs in place.
When Arizona's Department of Economic Security (DES) distributed pandemic-era unemployment benefits, some of that federal money never made it to claimants -- disbursements rejected by banks, fraud recoveries, unresolved reversals. Years later, DES is still holding that cash. Arizona's statewide Single Audit for the year ended June 30, 2024⧉, published in April 2026, found DES couldn't adequately document $257.4 million of it -- and auditors say the state may have to return some or all of that money to the federal government.