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U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210

CLASSIFICATION

UI

CORRESPONDENCE SYMBOL

TEUC

ISSUE DATE

June 19, 1991

RESCISSIONS

None

EXPIRATION DATE

June 30, 1992

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 31-91

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

DONALD J. KULICK
Administrator
for Regional Management

 

SUBJECT

:

Field Audit Documentation

 

  1. Purpose. To clarify Unemployment Insurance field audit documentation requirements.

  2. Reference. E.S. Manual (ESM) Part V, Sections 3671 and 3687.

  3. Background. Field audit documentation is an important element of quality. Revenue Quality Control (RQC), when implemented in 1992, will examine field audit quality using ESM requirements as a guide and placing particular emphasis on documentation. In preparation thereof, emphasis is being placed on the requirements for documentation of auditor findings, and it is important for all entities involved with the field audit function to understand the thoroughness to which RQC intends reviewing documentation in a completed audit file.

  4. Policy. The general requirement for documentation in field audits is found in ESM Part V, Section 3671 which defines a field audit as "a systematic examination of a subject employer's books and records, using generally accepted auditing standards and procedures, covering a specified period of time during which the employer is liable for reporting under the law."

    The specific requirement to document field audits is recorded in Section 3671, minimum requirement item 6, which states that an audit must "Include a written report stating all facts contributing to or supporting final determination." The requirement to document field audits is reinforced in Section 3687, Contents of an Audit, which states that "A narrative report, schedules, workpapers and other documentation to support auditor findings, should be required for every completed audit."

    Field audit documentation must be sufficient to determine that all payments for personal services were identified and sufficient facts gathered to determine that all employer payments for personal services were properly classified and reported. Of particular importance to RQC will be documentation that the auditor gathered and analyzed facts to determine whether "non-wage" payments to acknowledged employees were properly classified, and that "non-employees" who received payment for services were properly classified.

    Taken together, the ESM requirements to: (a) use generally accepted auditing standards, (b) include a written report stating all facts contributing to or supporting final determination and (c) require every completed audit to contain a narrative report, schedules, workpapers and other documentation to support auditor findings, mean all field audits must be supported by documentation. While the ESM states that documentation should support auditor findings, it does not define documentation.

  5. RQC Field Audit Documentation. For RQC purposes, a completed audit file should contain documentation to support findings including: (a) the purpose of the audit; (b) identification of the records examined; (c) schedules, workpapers, andor reports that record the evidence or facts discovered; and (d) a written report of the auditor's conclusions that includes all facts contributing to or supporting the final determination. To the extent they adequately document audit findings, the documentation may be in the form of any and all of the following: audit report, audit narrative (or appropriate comments), checklists, schedules, and workpapers. Examples of completed audit files containing acceptable documentation are available and will be provided upon request.

  6. Relationship to Other Areas of Assessment Under RQC. In addition to assessing field audit quality, RQC proposes to assess the field audit function using the following additional measures: (a) employer penetration (same measure as currently employed in Quality Appraisal); (b) wage penetration; and (c) audit change.

    The Performance Measurement Review (PMR) project will be examining whether or not there should be DLAs established for these measures and if so, what they should be. This review will encompass an examination of the current 4 percent employer penetration DLA and its relationship to the new review of audit quality and the other RQC measures for Field Audit. Those measures selected through PMR for Federal oversight will be phased in to replace the current Quality Appraisal.

  7. Action Required. State Administrators are requested to notify appropriate staff of this clarification.

  8. Inquiries. Inquiries should be directed to your Regional Office.