The Tennessean (http://tnne.ws/Z68WAT ) reported details of the state audit that triggered the resignations of former Labor and Workforce Development Commissioner Karla Davis and two other top department officials.
The errors cost the state about $12,000 since July 2011, according to the audit by the state comptroller's audit division.
Labor and Workforce has declined to release the names of those improperly getting payments, citing privacy rules.
The audit outcome has outraged some lawmakers.
"The fact that there were state employees that were receiving unemployment compensation is ridiculous. And the dead people?" said state Sen. Jack Johnson, R-Franklin. "Obviously, I was very disappointed with the findings of the audit, but I'm glad that we at least now know that we have those problems."
Auditors said 18 of the state employees were getting jobless benefits through fraud while the others had a short overlap between unemployment and getting state jobs. Auditors said all seven deceased people's families were getting money through fraud.
The department is trying to recoup the money.
And department spokesman Jeff Hentschel said the culture has changed.
"In the short time the new interim commissioner, Burns Phillips, has been here, there has a tangible shift in the work environment, not only in addressing the audit findings but also creating an atmosphere where employees can effect change," Hentschel said. "Employers, our clients and the general public will see positive results in the coming months."
Johnson said Gov. Bill Haslam must appoint effective new leaders at the department.
"Every dollar that goes out inappropriately or illegally is one dollar out of the trust fund that we've got to maintain solvency with," he said. "It's a dollar that could go to a legitimately unemployed person."
A report by the U.S. Labor Department identified Tennessee as one of 16 states in which 14 percent or more of unemployment benefits were paid to people who should not have been eligible to receive them.