U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210
December 31, 1995
December 31, 1996
UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 06-96
ALL STATE EMPLOYMENT SECURITY AGENCIES
MARY ANN WYRSCH
Additional Questions and Answers (Q&As) on the Tax Performance System Revenue Quality Control (RQC) and the Employment and Training (ETA) 581 Report
Purpose. To provide answers for recent questions about the design and implementation of the Tax Performance System (RQC) and instructions for the revised Form ETA 581 (Contributions Operations).
References. UIPL No. 16-94 (3/15/94), UIPL No 31-94 (6/24/94), UIPL No. 21-95 (4/20/95), and ET Handbook No. 401, 2nd Edition, Change 5 (10/31/94).
Background. This is the fifth segment in a Q&A series which provides answer to questions about implementation of the Tax Performance System (RQC). A separate section is included to answer questions about items State Employment Security agencies (SESAs) report on Form ETA 581. These items provide many of the data elements used in the calculation of tax measures. The revised Form ETA 581 became effective January 1, 1995. The Tax Performance System will be mandatory January 1, 1996.
Questions and Answers. The Q&As are arranged in two sections: 1) items reported on the 581, and 2) tax functions assessed by the Tax Performance System (RQC). The numbering of the categories in each section is continuous. This format provides the flexibility to allow periodic Q&A updates to be inserted in the appropriate space. Those questions that pertain both to the 581 report and the RQC review are contained in the first section of the Q&A attachment. Those that pertain only to RQC appear in the second section of the attachment.
Action Required. SESA Administrator" are requested to distribute the Q&A attachment to State RQC Reviewers, SESA Tax staff and appropriate Data Processing (DP) staff a" well as the staff responsible for the preparation and accuracy of the 581 report. Five copies are attached for your convenience.
Inquiries. Direct Inquiries-to your Regional Office.
Attachment. Question and Answers Compilation.
FORM ETA 581
QUESTIONS AND Answers
NOTE THAT QUESTIONS AND ANSWERS WHICH PERTAIN BOTH TO THE REVISED 581 FORM AND THE REVENUE QUALITY CONTROL REVIEW WILL BE FOUND IN THIS SECTION. THOSE THAT PERTAIN ONLY TO RQC WILL BE FOUND IN THE SECOND SECTION, REVENUE QUALITY CONTROL QUESTIONS AND ANSWERS.
Form ETA 581
Problem Types: Status End of Quarter Employers (Items 1-3)
Question 5. Reviewers have asked about official instruction" which inform States to run the inactivations quarterly for those employers who have filed "no wage" reports for eight consecutive quarter. Some states are doing this quarterly; however, others are only conducting this activity once or twice a year.
Answer: October 11, 1994, instructions for completion of the revised Form ETA 581 were issued with the release of ET HANDBOOK NO. 401, 2ND EDITION CHANGE 5. These instructions include direction for counting the total number of active employers subject to the State unemployment compensation law at the end of the report quarter. The Q&A's (1) and (2), Tax Function: Form ETA 581--End of Quarter Employers--provide further clarification about counting active employers at the end of the ETA 581 quarter. If SESAs fail to inactivate employers who have paid no wages for eight quarters on a quarterly basis, the active employer count will be incorrect. If such accounts are inactivated only once a year, the active count would be overstated for up to three quarters. The Data Validation initiative will develop a method for validating the active employer count in each State.
Form ETA 581
Problem Type: Receivables (Items 21-44)
Question 14. If an account receivable is established which is already over 15 months old, should it be reported immediately in Item 25 or should it be reported in Item 32 or 44 for two quarters before it is moved to Item 25?
Answer: A newly established receivable which is already over 15 months old should be reported in Item 32 or 44 for two quarter" before being included in Item 25 or 37.
Question 15. What if an account receivable for $5,000 for Employer "A" had been reported in Item 32 for two quarters; then during the current report quarter period, additional taxes of $1,000 owed for the same old quarters is identified for Employer "A"? Do you report $6,000 in Item 25 on the current report, or are you supposed to show $5,000 in Item 25 and $1,000 in Item 32 for two quarters and then post the $1000 on the third quarter report to Item 25?.
Answer: On the Form ETA 581 for the current quarter $5,000 should be included in Item 25 and the additional $1,000 should be included in item 32. After the additional $1,000 is reported in item 32 for a second quarter and payment is not received, then the additional $1,000 is included in item 25 on the Form ETA 581 for the third quarter.
Form ETA 581
Problem Types Field Audit (Item 51)
Question 7. What is the purpose of Item 51 (Hours spent in auditing)? How is this information used?
Answer: The number of hours spent auditing was originally included on the report for budgetary purposes (funding of "tax enforcement") and was used as an indicator of the time needed to conduct audits at a particular employer penetration level. The average number of hours spent per audit is a rough indicator of the quality of audits being performed. It is unlikely that many "high quality" audits are being conducted, if a State's average time per audit is less than 1 hour consistently from quarter to quarter. With the new requirements of the revised audit policy and implementation of RQC, it is expected that audit hours will increase as the quality of audits improve.
REVENUE QUALITY CONTROL
QUESTIONS AND ANSWERS
PLEASE NOTE THAT QUESTIONS AND ANSWERS WHICH PERTAIN BOTH TO THE REVISED 581 FORM AND THE REVENUE QUALITY CONTROL REVIEW WILL BE FOUND IN THE FIRST SECTION REVISED FORM ETA 581. THOSE THAT PERTAIN ONLY TO RQC WILL BB FOUND IN THIS SECTION.
Question 7. When drawing a conclusion whether reasonable assurance of accuracy exists, the RQC reviewer has the option of: "yes", "no", and "unverifiable". Unverifiable was to be used when more than two cases could not be reviewed because the SESA documents could not be located. Since only a "yes". answer leads to a reasonable assurance of accuracy assessment, why have the "Unverifiable" category? Simply have the other option be that reasonable assurance of accuracy could not be made either because more than 2 cases failed, or 2 or more cases could not be located.
Answer: This was discussed with attendees at the final implementation sessions and consensus was reached to accept the above approach. "Unverifiable" will be taken out as a separate category. Only "yes" and "no" will be options with room for explanation in the Annual report.
Question 8. If an RQC sample case uncovers that something was done in error by the SESA - for instance that an accounts past due was established in error - but it was subsequently corrected due to the actions of the SESA's own internal control system, does the case fail?
Answer: The sample case does not fail if, due to the SESA's own controls, the problem was rectified. However, if the error was brought to the SESA's attention by the employer and not by the SESA's internal controls, then the case should still fail. We will note this in the final version of the RQC Operations Handbook, Chapter II.
Problem Typo-Acceptance Sample
Question 19. In some SESAs, written procedures allow an initial liability decision to be made based on partial information (e.g., a partially completed contribution return which does not contain all the information a SESA requires to set up an account). These SESAs complete their Status Determinations and make any necessary corrections after a Status investigation has been completed. Other SESAs do not make Status Determinations until they have all required information. These SESAs obtain all required information before making a Status Determination. Several States follow the practice of setting up accounts with less than complete information without "written procedures" and have asked RQC to remove the word "written" from this requirement.
Answer: Our Acceptance Sample question asks "Does the SESA have a law or written procedure permitting a liability decision to be made when the required information is less than complete?" In the final handbook, we will remove the word "law" and change the wording to "written procedure.
If no "written" procedure exist, there might be little consistency in the ways SESAs handle early set-ups and the RQC Reviewer would be unable to verify this procedure.
Question 20. In the Status New and Successor Posting Acceptance Samples:
(a.) Should the case being reviewed by the RQC Reviewer fail if the Industry Code (SIC Code) is posted incorrectly even though this code is not used to assign Status new employer rates?
(b.) If the Federal Employment Insurance Number (FEIN) is provided by the employer but is not posted or is posted incorrectly by the SESA, should the case being reviewed by the RQC reviewer fail?
(a.) Yes, if the SESA has The SIC Code and fails to post it or posts it incorrectly, the case should fail the Status Reporting Sample even if the SESA does not use this code to assign new employer rates. SIC Codes are used for various Federal and State purposes in addition to the assignment of rates. (E.g., SIC Codes are often used to collect information about the number of employers in various industries.)
(b.) Yes, if the SESA has the FEIN and does not post it or posts it incorrectly, the case being reviewed should fail. Federal Employer Identification Numbers are used for certification purposes.
INA's are provided for both SIC Code and FEIN questions. If the SESA has evidence to show that efforts were made to obtain these items but were unsuccessful, the RQC Reviewer can mark these items INA (Information Not Available) and such cases will not fail. N/A (Not Applicable) has been removed from these items. Since these items are material, a no" answers will cause the final question which is evaluative to be answered "No" and fail the case.
Tax Function: Report Delinquency
Problem Type: Computed measures
Question 15. Could resolved delinquent reports be over 100% due to taking the count of active employers at the end of the quarter? The number of accounts required to file reports could be greater than the number of active employers.
Answer: The formula for the Computed Measure which calculates the resolution of delinquencies is:
Numerator: The average number of contributory employers whose report delinquencies were resolved within 180 day" (two quarters) for four (581) report qtrs. divided bv:
Denominator: The average number of active contributory employers for the four (581) report quarters ending two quarters earlier
Yes, the indicator can be more than 100 if the denominator is smaller than the numerator. However, because of the averaging, it is unlikely that the percentage will be very much over 100. There are no plans to change this measure at this time.
Tax Function: Report Delinquency Problem Type: Acceptance sampling
Question 6. Consider revising the following question to accommodate those States who do not notify their field staff with the first notice of delinquencies.
When these employers are identified as delinquent, are the appropriate staff also notified?
Answer: In the final handbook, the Acceptance Sample question will read as follows:
Were appropriate SESA staff notified, in accordance with established procedures, that the employer was delinquent (e.g., Field Staff, Delinquency Unit Staff or the Assessment Unit Staff)?
A question has been added to the Methods Survey as well; it will read as follows:
When employers are identified as delinquent, are appropriate staff also notified (e.g., Field Staff, Delinquency unit, Assessment Staff)?
If yes, were they notified at the time of the:
1. 1st delinquent notice
2. 2nd delinquent notice
3. Other (describe)
Problem Type-Syetems Review
Question 1. A Systems Review question asks: Does the SESA have system procedures for controlling lien filing dates? Do we mean automated? Or do we mean does SESA have a procedure for controlling the filing of liens? What is the intent of this question? For example, if auditors are supposed to file liens within 45 days, is this a procedure for controlling the lien dates? Or would that only suffice if a supervisor reviews all A/R assignments over 45 days old and if no lien has been filed, the documentation exists to support why not. Then, could a SESA answer the question, "Yes" they do control the filing of lien dates?
Answer: The intent of the question is to determine if the SESA has internal controls to ensure that proper action is taken on the account receivable and that the action is completed in a timely manner. In order to answer "Yes" to this question, SESAs must meet the following criteria: (1) assign cases for lien filings, using an automated or a manual system, within a prescribed number of days, (2) process such case assignments within a specified time period, and (3) follow-up and/or review of all such case assignments to ascertain that liens were filed or other appropriate action was taken within the prescribed time period. The reason for not meeting the prescribed lien filing date must be documented for each case not handled in the prescribed time period.
SESAs that do not have a process for automatically or manually assigning liens within a prescribed number of days, or SESAs that allow tax staff to file liens at staff discretion without a predetermined number of days and with no follow-up review would have to answer "No" and indicate a risk.
Tax Functions Collections Problem types Acceptance Sampling
Question 15. Please explain why the Collections Sample is considered "random" when there is a sort before a pick. (Cases less than $100 are dropped and then the cases are sorted in ascending order.)
Answers The collection universe is stratified prior to using the random pick number. The reason for stratification is to ensure that collection cases of different dollar levels are included so that SESAs can evaluate the usage of a broad range of their collection tools. (Some tools are used only on collection cases of a certain dollar amount.)
Although the universe is stratified, it is considered "random" if a random pick number is used. (This means that every case in the universe has a chance of being selected.)
Tax Functions Field Audit
Problem Types Computed Measure~
Question 3. Total wages paid (all rated employers) from the ES 202 report is a data element used in the calculation of the Field Audit Computed Measures-annualized percent of total wages audited.
(a) What is the definition of this data element?
(b) If this data figure is collected in June, how can it be used in May's Computed Measures?
(c) How can the ES202 data be verified?
Answers See Global Other Question 1, dated February 1994.
(a) The definition is "total wages of all rated employers"
(b) See Appendix B' page 43--The table shows the usage of E'S 202 data:
1) It is reported quarterly, not just in June.
2) RQC uses four consecutive quarters of 581 data in the numerator and four consecutive quarters of E'S 202 data from one year earlier in the denominator; therefore data is available in sufficient time for RQC use.
(c) Data is sent electronically from the State to the Bureau of Labor Statistics. Check with the person in your State responsible for compiling the ES202 data.
Tax Function: Field Audit
Problem Type: Acceptance Sampling
Question 36: a. In the July 1993 RQC Handbook under the Acceptance Sample Rationale for question 4 section b, it states that "Work-paper(s) must show that the auditor compared a payroll record... to the total wages on the UI Contribution report. Does this mean the SESA's copy of the Contribution report or the Employer's copy?
b. The Acceptance Sample Rationale continues with, "...and to the amount posted to the SESA's record". What constitutes the SESA's record that the auditor would be comparing?
Answer: a. The documentation should show that the auditor compared his/her audit findings to the Employer's copies of the actual contribution report, if they are available at the time of the audit. If the employer's copies of the contribution reports were not available, and the audit documentation reflects this, the audit should not fail based on the auditor being unable to review the reports.
b. The quarterly figures of total, nontaxable and taxable wages posted to the SESA's mainframe on the employer account, downloaded or printed to the audit assignment, are enough. These amounts are what the auditor should be comparing with his/her findings.
Question 37: In the July 1993 RQC Handbook under the Acceptance Sample Rationale for question 4 section a, one of the acceptable methods noted in the RQC Handbook for verifying the employer's payroll posting system, states that the auditor should trace the transactions of at least one employee's wages from source documents through to the SESA's records. Does this mean that the auditor should check the SESA's mainframe to see what is recorded for that individual employee?
Answer: The purpose of this test is to verify the accuracy of the EMPLOYER'S posting system. Therefore, the Handbook is being changed to require the auditor to trace an individual employee's wages from the source document through to the employer's copy of the UI quarterly contribution and wage report. If the SESA has supplied detailed wage information to the auditor prior to conducting the audit, the auditor should insure that the one individual being traced has been properly posted to the SESA records.
Tax Function-Field Audit
Question 7. While reviewing an audit submitted by one of the SESA's it came to our attention that the State was using ~individual earnings records~ to satisfy the 3rd test for "hidden. wages and misclassified workers in Acceptance Sample question 5. When questioned on this, the State referred us to the Sample Audit papers in the RQC Appendix E.
Is an examination of individual earnings records and/or payroll journals an adequate record search, to lead to the discovery of misclassified workers or payments, to satisfy Test 3 of Acceptance Sample Question 5?
Answer: Individual Earnings Records and Payroll Journals are records of acknowledged payroll; thus they are not an adequate source for discovering "hidden" wages or workers that were misclassified. The ESM, UCAT and RQC Handbook were examined to see if they considered use of individual earnings records and payroll journal" a satisfactory test for misclassified workers and hidden wages in these documents. There is no mention of them in the ESM, UCAT or RQC Handbook as records to review to satisfy Test 3. Thus we have removed them from the Sample Audit papers as well. The General Ledger and Chart of Accounts are the records of choice to satisfy Test 3. The changes to the RQC Appendix E will be issued with the official RQC Handbook.
Question 8. A question has been raised as to the merit of using the 940 and 941 records to review for Test 4, Misc. Reports and Accounts, of the Acceptance Sample Question 5.
Answer: An examination of the ESM, UCAT, the RQC Handbook and Appendix E - Sample Audit papers, found that the use of the 940 and 941 as satisfactory tests for Misc. Reports and Accounts appeared only in RQC and the Sample Audit papers. The 940 and 941 will be removed as an adequate choice of record(s) to review to satisfy Test 4 of the Acceptance Sample question 5. They are a record(s) of acknowledged payroll and would not be an adequate source to satisfy a search for hidden wages and/or misclassified workers. The changes to the RQC Handbook and Appendix E, will be issued with the official RQC Handbook.