NC was warned about unemployment fraud in 2022. It got worse.
Summary
North Carolina's state auditor first flagged the Division of Employment Security's unemployment insurance overpayments in 2022, finding an 18% improper-payment rate against a 10% federal limit. A follow-up audit released June 2026 found the rate had climbed to 22%, with $168.8 million in overpayments over the intervening four years -- $47.2 million of it confirmed fraud, of which the state recovered just $12.1 million. The fix DES itself proposed for the largest error category took more than three years to roll out statewide, and the agency says it still can't pin down why.
The rate that was supposed to come down went up instead
The 2022 audit gave DES a specific list of U.S. -recommended fixes: report work-search activity within weekly certification, conduct return-to-work interviews, cross-match new-hire databases, and standardize separation determinations. OSA's follow-up review⧉ found DES had fully implemented four of those recommendations. The improper payment rate rose anyway -- from 18%, already above the 10% federal threshold, to 22%, more than double it. Against the $748 million in benefits DES paid out over the follow-up period, OSA calculated the 22% rate produced about $90.3 million in improper payments over and above what the 10% federal limit would have allowed.
View data as table
| Federal limit (U.S. DOL) | 10% |
|---|---|
| 2022 audit period (Apr 2016-Mar 2021) | 18% |
| 2026 follow-up period (Apr 2021-Mar 2025) | 22% |
Fraud was the hardest money to get back
Of the $168.8 million in established overpayments⧉, DES recovered $49.1 million overall -- about 29%. The money confirmed as fraud came back slower than the rest: DES recovered just $12.1 million of the $47.2 million in fraud overpayments, roughly 25.6%, a lower share than the recovery rate across all overpayments combined. The state's own audit doesn't explain why confirmed fraud proved harder to claw back than overpayments generally -- only that it was.
View data as table
| Non-fraud overpayments | 121,600,000 |
|---|---|
| Fraud overpayments | 47,200,000 |
| Total recovered (both categories) | 49,100,000 |
| Fraud recovered | 12,100,000 |
The one fix DES already had money for took three years
The single largest driver of the overpayments was errors in verifying that claimants met required work-search activity -- about $80 million, half of all overpayments, up from a 24.9% share of overpayments in the 2022 audit period to 49.7% in this one⧉. DES had already applied for and received a $6.8 million federal grant to build a work-search repository addressing exactly this problem. About two years and seven months passed between the grant award and the system's initial rollout, and more than three years before it was live statewide -- not completed until December 2025, outside the audit period entirely. Asked why, DES did not identify a specific root cause, citing only a lengthy process and limited staffing.
The takeaway
- The rate got worse, not better, after a formal warning. North Carolina's improper payment rate rose from 18% to 22% in the four years after OSA's original audit -- the newer figure runs more than double the federal limit.
- Confirmed fraud was the hardest money to recover. DES got back just 25.6% of the $47.2 million it classified as fraud, a lower recovery rate than for overpayments overall.
- The one fix already funded took over three years. A federally funded work-search repository, meant to address the single largest error category, wasn't fully live until December 2025 -- and DES says it can't identify why the rollout took so long.
In its formal response, DES said it agrees with all of OSA's recommendations in this follow-up report and that some corrective work is already underway, while noting that further progress depends on funding, staffing, and technology investment. The $90.3 million and $166 million excess-payment figures from the two audits are OSA's own calculated gap against the 10% federal threshold, not identical to the $168.8 million in established overpayments DES itself reported for the same follow-up period -- the two numbers measure related but distinct things and shouldn't be added together.
Sources(1) ▾
- North Carolina Office of the State Auditor (Dave Boliek, State Auditor), Improper Unemployment Benefit Payments Follow-Up (Report No. PER-2026-4650) (2026-06-17) — NC Office of the State Auditor's follow-up performance audit of DES's unemployment insurance improper-payment rate, covering April 1, 2021-March 31, 2025, revisiting the OSA's original September 2022 audit (which covered April 2016-March 2021). Issued June 17, 2026. WebFetch on the auditor's document-open URL returned the PDF directly as binary; converted with pdftotext -layout and read in full, including the Department of Commerce's response. auditor.nc.gov · original document
Comments
Always open. Logged-in readers can annotate paragraphs in place.
North Carolina's Office of the State Auditor first audited⧉ the Division of Employment Security's unemployment insurance payments in September 2022, finding an 18% improper-payment rate against the U.S. Department of Labor's 10% limit. A follow-up audit released in June 2026, covering the four years since, found the rate had risen to 22%. Over that period, DES reported $168.8 million in established overpayments -- $121.6 million non-fraud, $47.2 million confirmed fraud -- and recovered just $12.1 million of the fraud total.