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State audit finds accounting gaps, compliance shortfalls at Colorado Department of Labor and Employment
Summary
A statewide audit presented to the Legislative Audit Committee identified unrecorded payables, overstated deferred revenue and employer noncompliance in the new paid family and medical leave program, and a separate programming error in the UI rate system that led to about $5 million in employer overpayments.
The Legislative Audit Committee heard a presentation on findings from the fiscal year 2024 statewide financial and compliance audit that identified multiple accounting and compliance problems at the Colorado Department of Labor and Employment (CDLE).
The Office of the State Auditor reported that CDLE failed to record a $127 million payable in the state's CORE accounting system related to exemptions granted to employers under the state's paid family and medical leave program, overstated deferred revenue by more than $51 million, and identified roughly 4,100 employers that registered for the family program but never paid premiums or reported wages.
"This morning, we will be presenting 2 findings and recommendations for the Department of Labor and Employment that are more significant findings," said Marissa Edwards, deputy state auditor, introducing the department-specific section. The audit also found that the department lacked a documented reconciliation process to support program balances in CORE and had not analyzed how many employers required to register had failed to do so.
Tracy Marshall, director of the family paid family medical leave insurance program at CDLE, told the committee the department agrees with the findings and is taking steps to strengthen controls. "We do agree with the audit finding," Marshall said, and described plans to implement documented reconciliation procedures and to stand up enforcement and compliance units supported by new technology for better employer monitoring.
Auditors also flagged a separate federal-compliance issue in the unemployment insurance (UI) program. When CDLE began using a new system, MyUI Plus, to calculate employer experience rates in 2024, a programming error produced incorrect rates for roughly 30,000 employers and led to about $5 million in over-collected premiums; some employers may have underpaid. The auditors recommended CDLE identify affected employers, correct rates, refund overpayments and collect underpayments.
Phil Spesshart, CDLE's unemployment insurance director, said the department agrees with the finding and described the plan for correction. He told the committee the programming error occurred soon after MyUI Plus went live in October 2023. "Where refunds are due, we will provide those refunds. In the case of employers that have underpaid, normally since they've underpaid, by law, you would securely apply penalties and interest. Because this was our error, we will not be applying penalty and interest to those employers," Spesshart said.
Spesshart said the vendor analysis to identify and correct affected accounts was expected to be completed May 7 and that the department aims to complete system adjustments in a phased run by June or July. The audit noted CDLE calculated 2024 rates for more than 221,000 employers; the error affected roughly 13% of those rates. Auditors estimated the average overcollection where refunds are due at about $166.67 per affected employer, though real amounts vary by employer.
CDLE staff told the committee they have fixed accounting entries identified by auditors after the issues were reported, will formalize a reconciliation and deferred-revenue method, and will document enforcement policies for delinquent employers. Marshall said the department currently reports about a 78% compliance rate among registered employers and that an enforcement unit and improved technology platform (Snowflake-based reporting) are being implemented.
Committee members pressed CDLE on the practical effects for small businesses and on whether refunded funds are available. Representative Caldwell asked whether the $5 million in overpayments remains available to return; CDLE said the funds are in the trust fund and will be available to refund employers.
The auditors recommended CDLE strengthen internal controls over the family program, implement documented reconciliations between program records and CORE, develop enforcement policies for nonreporting employers, and document methods to estimate unreported liabilities or document why such an estimate cannot be made.
The auditors presented their findings and recommendations to the committee; CDLE agreed with the recommendations and provided implementation timelines for several actions, including completion of reconciliation processes by July 2026 and phased corrections to MyUI Plus in June–July (vendor-dependent).
