State auditors flag major accounting errors at Colorado Department of Labor and Employment; agency vows fixes

The Legislative Audit Committee on March 20 heard that auditors found major weaknesses in how the Colorado Department of Labor and Employment (CDLE) records unemployment insurance (UI) estimates and related exhibits, creating material misstatements in the state's financial reporting.

Menia Hebert, an audit manager with the Office of the State Auditor, told the committee the audit identified finding 2025-14 as a material weakness related to CDLE's methods for estimating UI payables and receivables. Hebert said auditors found the department had overstated UI accounts receivable and revenue balances by about $1.4 billion because staff incorrectly calculated amounts, and overstated UI accounts payable and expenditures by a similar amount. She summarized the total accounting adjustments identified at $10.6 billion, and said the net impact after corrections was $781,200,000. "The department corrected all of the errors," Hebert said, but added that "the department needs strong internal controls to calculate estimates and record the correct amounts in CORE so that the state's financial statements are accurate."

CDLE Deputy Executive Director and Chief Financial Officer Darcy Kennedy introduced department staff and deferred the detailed response to Deputy Controller Alex Fink. Fink told the committee the department "agrees with the auditors' findings and the recommendation" and said the errors arose in part from a change in methodology that lacked sufficient documentation and review. He said the agency will revise and document policies and internal review procedures, and anticipated strengthening internal review of estimates by June 2026 and completing exhibit-management checklist updates by August 2027. "These estimates are subject to professional judgment," Fink said, adding CDLE is shifting its methodology "to focus more on the receivable side of the equation."

Committee members pressed CDLE on the size and collectability of pandemic-era receivables. Vice Chair Senator Mike Weisman noted the difficulty of estimating amounts subject to appeals, adjudications, fraud investigations or clawbacks and asked how the department determines which amounts are collectible. Fink acknowledged those uncertainties and said the department is revising its approach to better estimate collectability. Paulina Delora, a CDLE controller, explained that many receivables represent overpayments owed back to the department, including duplicate or fraudulent payments, and emphasized that receivable and payable entries are interrelated and can be offsetting transactions.

Auditors also presented a second material weakness, finding 2025-15, that identified errors in exhibits submitted to the State Controller (for example, an Exhibit P that overreported certain accounting estimates and an Exhibit K-1 with underreported federal expenditures). Hebert said the department failed to submit revised exhibits after correcting some errors and found an overstatement to the State Controller of approximately $294,300,000 on one exhibit. The auditors also identified an overstatement of capital assets by $14,600,000 that CDLE corrected after notification, and noted an unresolved $79,000,000 UI accounts receivable balance carried forward from fiscal years 2014–2020 that the department has not yet fully researched.

CDLE staff said they are working to research long-outstanding balances and to align their processes with state accounting guidance. In presenting an auditor's addendum, Hebert noted auditors and the department agree the balance needs research and correction. "We will continue to thoroughly review the debts and address them appropriately," Delora said, adding the review involves a multi-year look-back and collaboration with program staff.

The committee asked for assurance the department will implement changes and requested timely follow-up; committee leadership also discussed bundling outstanding audit recommendations for transition materials to the incoming administration. The hearing record shows no formal vote on the findings; auditors and CDLE outlined implementation timelines and follow-up commitments.

The committee moved on after the exchange; auditors and CDLE staff said they will provide updates as they implement policy and procedure changes.