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

CLASSIFICATION

UI/RQC

CORRESPONDENCE SYMBOL

TEUQC

ISSUE DATE

May 13, 1993

RESCISSIONS

None

EXPIRATION DATE

May 31, 1994

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 28-93

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

BARBARA ANN FARMER
Administrator
for Regional Management

 

SUBJECT

:

Unemployment Insurance Revenue Quality Control (QC)--for Employer Compliance Audit Pilot

  1. Purpose. To solicit volunteers for a pilot effort to assess the accuracy of contribution reports and completeness of timely payment of contributions of registered employers by performing "random" audits.

  2. References. UIPL 44-90 (September 21, 1990); Core Revenue Quality Control Operations Handbook (July 31, 1992).

  3. Background. Revenue QC is being developed in four separate modules:

    1. Core, which assesses the quality of State Employment Security Agencies' (SESAs') internal tax processing operations;

    2. Benefit Charging, covering how accurately employer chargeability is determined and charges are allocated;

    3. Employer Compliance, which is to measure the accuracy of employers'contributions reports and completeness of payment of contributions due; and

    4. Data Validation, to assess the accuracy of data obtained through required UI reports. The first two modules have been tested and the voluntary stage of RQC reflects the Core RQC test findings.

    Core RQC assesses how timely, accurately, and completely UI tax operations internal to the SESA are conducted. However, it is not concerned with the accuracy of the information tax units receive or how completely employers pay taxes due. The Employer Compliance (EC) module is intended to fill this gap. EC is intended to assess the accuracy of the information reported on contributions reports and the information on which States have made status determinations. This pilot project will test the feasibility of doing this by taking randomly-selected samples of employer accounts and auditing them according to ES manual standards. This sample of firms can also be used to estimate how much of contributions due were paid timely during the audit year, so that the results can be compared with what is obtained from the new RQC computed measure "The percent of amounts due that were paid timely."

    Although all SESAs routinely conduct employer audits, the employers are rarely selected in a way that permits the audit findings to be used to generalize about the behavior of all the State's subject employers. Some SESAs select employers at random but do not take the next step of analyzing the random results to make inferences about compliance rates. Both steps--random selection, and analysis of findings--are part of the EC module, and are the subject of this pilot.

    The basic design for the pilot was developed by Abt Associates, Inc., the current RQC technical support contractor, with input from an expert panel of UI tax administrators. Abt estimated that each pilot State would need to complete 1,600 "random" audits (actually, chosen using an efficient sampling design) to provide a sufficiently precise estimate of compliance. For comparison, it would be desirable to have another 400 audits chosen either from previous blocked claims or IRS 1099 leads, or both. The 2,000 (or 2,400) audits are to be done in a 12-month period, and all will refer to the same base year. All audits will be expected to meet RQC/ESM standards for quality. It is expected that a certain number of out- of-State employers will be selected; the design calls for them to be audited as well as in-State employers.

    The pilot is scheduled to begin in October 1993 and run for 12 months. More details on the pilot are provided in the attached paper.

  4. Objectives. This pilot is intended to assess the feasibility of including an Employer Compliance module in RQC. It will attempt to do this by

    1. measuring the extent of incomplete or inaccurate reporting in the pilot States;

    2. estimating the costs of conducting large-scale random audits, including the foregone audit yield and possibly lower compliance because of reductions in audits selected using the SESA's usual targeting methods;

    3. providing better estimates of sample sizes needed for EC purposes;

    4. noting the operational realities of periodically conducting this kind of large-scale research effort as part of a continuing field audit program, particularly in States with differing ADP capabilities;

    5. determining whether data can be effectively put to use for audit selection and employer education; and

    6. determining whether EC is the most cost-effective way to estimate non-compliance.

    7. The sample will also be used to estimate the percentage of contributions due accrued during the audit year that was paid timely and

    8. will be used to gather information on employee leasing companies and/or their clients, for future research by SESAs or UIS.

  5. Structure and Timing. The Department is seeking five States to implement the basic design developed by Abt Associates, Inc. Staff from the pilot States will be expected to help refine the design. Technical assistance in fine-tuning the design, providing training, and managing the pilot will be provided by a contractor (yet to be selected), who will also evaluate the results.

    Based on the responses to this solicitation, the Department expects to select participants by approximately June 1. The State pilot coordinators will meet with Federal staff and the pilot support contractor to refine the design and set interim deadlines and tasks, including training plans, later in June. Shortly thereafter, State ADP staff will be asked to meet with Federal and contractor staff to refine specifications for the sampling frame, sample selection, and retrieving data relevant to the pilot. The pilot is scheduled to begin in October 1993 and run for 12 months.

  6. Eligibility and Selection Criteria. 

    It is assumed that most States with an interest in the pilot will have audit or field staff programs large enough that it will be feasible to conduct 1,600 random audits. States must be able to conduct audits meeting the new standards for quality and documentation. To meet this criterion, a State must have completed the RQC Field Audit Program Review (preferably as part of having implemented RQC voluntarily) and initiated any program improvements needed. If such has not been done by time of responding to this solicitation, the State must agree to do so by August and complete any needed program improvement by October. Each eligible State must provide a pilot coordinator who is willing to assist in the refinement of the basic design.

    If the number of volunteers permits, selection will emphasize diversity of participants with regard to geographical location, size, industrial mix, and degree of tax (especially audit) automation.

  7. Resources Provided for the Pilot. 

    1. ADP Support.  The pilot has many aspects amenable to or requiring automation: selecting the "random" component of firms to be audited; extracting data elements from the mainframe for the audit record; storing the auditor's data; tracking the progress of audits; analyzing results. The Department will provide software and/or specifications for many of these functions. In addition, each State will receive resources to defray the costs of programming/installing project software.

    2. Auditor Support.  The Department will provide every pilot State with the equivalent of nine staff years over a three-year period to defray most of the additional staffing costs of conducting the pilot.

    3. Travel Funds for Out-of-State Audits.  The Department will provide funds to defray the estimated costs of conducting out-of-State audits as part of the project.

    4. Technical Support.  The Department will secure the services of a technical support contractor to assist with managing and then evaluating the pilot.

  8. Action Required. Interested SESAs are asked to communicate their desire to participate to Regional Offices by 45 days from the date of release of this UIPL.

  9. Inquiries. Inquiries and questions should be directed to the appropriate Regional Office.

  10. Attachment. Workpaper, "The Employer Compliance Pilot".