IOWA CITY - Lax oversight at the Iowa Workforce Development agency allowed an employee to embezzle money meant for jobless workers, and the agency responded slowly even after irregularities about her handling of benefits were identified, according to a report released Friday.
State Auditor David Vaudt's report examined issues surrounding the $43,000 theft of unemployment benefits by Linda Pippen, a former IWD employee in Cedar Rapids who was sentenced to four years in federal prison last year for embezzlement and identity theft. The theft received attention because Pippen was a lead plaintiff in a class-action lawsuit alleging Iowa's state government systemically discriminated against black workers for years.
Vaudt said IWD needlessly delayed its internal investigation of Pippen, failed to immediately notify his office of suspected theft as required under Iowa law, and later delayed his investigators' access to information. His report also revealed that an initial police investigation closed without catching Pippen, who was eventually indicted in 2011 on federal charges.
Agency Director Teresa Wahlert issued a statement Friday saying she agreed with the audit's findings. She said the administration of Gov. Terry Branstad, which took office after Pippen's theft, was taking steps to improve integrity in the program.
"Procedures and processes used in the previous administration were not stringent enough to prevent a deceptive practice of fraud," Wahlert said.
Pippen has admitted that she abused her state position to carry out the scheme in 2008 and 2009. When unemployment recipients reported that they had found jobs, Pippen did not cut off their benefits. Instead, she accessed their files in the agency's computer system to show they remained eligible and had their money deposited into debit cards and bank accounts she controlled.
An IWD fraud investigator learned on Nov. 2, 2009, that Pippen had changed the name and direct deposit information on an unemployment recipient's account after the individual had returned to work. The investigator contacted the man, who was able to prove that he did not receive the benefits, and he was told to file a police report about possible identity theft.
IWD officials waited nearly three months for the individual to file the police report before starting their investigation, Vaudt wrote, calling the delay unwarranted. Police in Cedar Rapids closed the investigation within a month after being unable to identify the owner of the debit card who deposited the money. Through "substantial research" and a subpoena issued to the debit card company, IWD eventually learned that the card was held in the name of Pippen's daughter. Pippen was terminated in July 2010.
Vaudt's office wasn't notified of the embezzlement until then, and was then "repeatedly denied access to information" by IWD and did not receive IWD's internal report until December 2010. As a result of those delays, Pippen was prosecuted even before Vaudt's office was able to determine the scope of the problems, Vaudt wrote.
IWD spokeswoman Kerry Koonce said the agency would notify the state auditor sooner in the future. But she said the agency also must inform the U.S. Department of Labor's inspector general since unemployment is a federal program, and that office restricts access to information about its investigations.
Koonce said agency officials also had to figure out first whether the discrepancy was an honest mistake. She said that once officials believed crimes had been committed, they contacted the Iowa Division of Criminal Investigation to investigate. Pippen later told a DCI agent that she created a fake name, "S M Binji," using her daughter's initials and her daughter's boyfriend's name, which she used on one of the unemployment accounts she used to embezzle, the auditor's report said.
Koonce said she believes changes to the agency's procedures mean that a similar theft cannot happen again. She said the agency has severely restricted the number of people who can make changes to accounts, and its computer system now automatically sends letters to recipients informing them of any changes made to their information.