State audit finds material weaknesses in Colorado's new family and medical leave program accounting

A statewide financial and compliance audit presented to the Legislative Audit Committee found material weaknesses in the Colorado Department of Labor and Employment's accounting for the new paid family and medical leave program.

The Office of the State Auditor (OSA) reported that the department did not record a payable of $127,000,000 for refunds owed to employers that were later approved for exemptions, and that the program recorded more than $1,300,000,000 in revenue for the program in fiscal 2024. The audit also flagged about 4,100 employers who registered for the program but never paid premiums or reported wages, and noted the department has not estimated revenue that could be owed because some employers required to register had not done so.

"We identified two findings classified as material weaknesses," Deputy State Auditor Marissa Edwards told the committee. The audit said the problems stemmed from gaps in communication between program staff and accounting, the lack of documented methods to estimate deferred revenue, and missing reconciliation processes between program systems and the state's core accounting system.

Nut graf: The family and medical leave program began benefit availability in January 2024; the audit says the program's rapid launch left internal controls underdeveloped, producing large reporting errors that must be corrected to ensure the statewide financial statements are accurate.

The audit recommended that the department implement documented policies for program-accounting communication; adopt a method to estimate deferred revenue; perform reconciliations between program and core accounting systems; enforce rules for employers who do not pay or report; document methods to calculate amounts owed for delinquent employers or explain why it cannot estimate; and develop a plan to identify employers who did not register as required.

Tracy Marshall, director of the family paid family medical leave insurance program, told the committee the department "agree[s] with the audit finding" and described steps the agency will take. Marshall said the department will document policies to improve communication with accounting staff, implement reconciliations using its Snowflake platform, and stand up enforcement and compliance units. She told the committee that the reconciliation work is expected to be complete by July 2026 "if not before." Marshall also said the division currently reports a 78% compliance rate for employers who registered but have not fully reported all quarters or paid all premiums.

Committee members pressed the department about whether employers might have collected employee contributions but failed to remit them. Marshall said that number is an "unknown": the department may not be aware of employers that are withholding premiums until an employee files a claim, at which point the division can investigate.

The department said it will research and document methods to estimate amounts owed by nonpaying or unregistered employers and is pursuing data agreements with internal partners and other agencies including the Department of Revenue and the Secretary of State to improve employer identification.

Ending: The audit presentation did not include a committee vote tied to the family program findings; OSA and department officials answered questions and said they will return to the committee as changes are implemented.