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

CLASSIFICATION

UIS

CORRESPONDENCE SYMBOL

TEUPR

ISSUE DATE

June 21, 1999

RESCISSIONS

None

EXPIRATION DATE

June 30, 2000

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 35-99

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

GRACE A. KILBANE
Director
Unemployment Insurance Service

 

SUBJECT

:

Office of Inspector General (OIG) Audit of Benefit Payment Control Wage/Benefit Crossmatch and Employers Who Fail to Respond

 

  1. Purpose. To distribute copies of "Audit of Benefit Payment Controls -- Examination of UI Benefit/Wage Crossmatch and Analysis of Employers Who Fail to Respond to the States' Requests for Weekly Wage Data" and to make recommendations for State Employment Security Agencies (SESAs) to take appropriate action in areas of weakness.

  2. Availability of Document. In addition to this hard copy distribution, the "Audit of Benefit Payment Controls", Audit Report Number 05-99-005-03-315, Issue Date March 18,1999, will be available on the website of the Office of Inspector General: http://www.oig.dol.gov/public/reports/oa/main.htm

  3. Background. The U.S. Department of Labor OIG recently concluded an audit of benefit payment control (BPC) in the SESAs with a focus on the wage/benefit crossmatch system used to detect benefit overpayments. Crossmatch has been the most effective tool for SESAs to detect overpayments. However, the OIG found weaknesses in the administration of this method, principally the failure of employers to respond to requests for wage information in the crossmatch. The OIG estimates that, as a consequence, millions of dollars in overpayments are being overlooked that could otherwise be detected and recovered.

    Significantly, the OIG has also concluded that another method could be a more efficient and effective benefit overpayment prevention and detection tool than the wage/benefit crossmatch. SESA use of the "New Hires" reports required by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) has the potential to detect benefit overpayments early in the claims series. Savings to the trust fund could be realized because overpayments would be of smaller amounts, and a higher percentage of recoveries might be achieved.

  4. Audit of Crossmatch Process. During the audit, the OIG sent surveys to SESAs to determine what problems existed with the crossmatch system. Subsequently, on-site visits were conducted with seven SESAs to obtain more detailed information.

    1. Findings.The OIG found:

      • Forty-two percent of the SESAs responding to the survey had a 25 percent or higher non-response rate to employer wage requests.

      • In four of the seven States visited, an estimated $17 million of overpayments were not detected because wage requests were not returned by employers.

      • SESAs that used a probability scoring index were able to identify overpayments more efficiently than those SESAs that pursued all claims after an initial screening.

      • Many employers, including major corporations, routinely failed to respond to wage requests.

      • Employers whose wage requests were sent to payroll service providers had a significantly higher non-response rate.

      • Employers and service providers cited several reasons why wage requests were not returned, including lack of understanding of the purpose of the requests and, for employers using service providers, confusion regarding who should respond.

    2. Recommendations.  The OIG made the following recommendations for SESAs to improve the wage/benefit crossmatch system:

      • Conduct outreach to the employer community, including service providers, to explain the importance of the crossmatch and why it is to their benefit to provide the information requested on claimants' wages.

      • Use a probability scoring system to concentrate on claims with the greatest potential for overpayments.

      • Review the wage request forms sent to employers to ensure clarity and convenience for the employers.

      • Consider imposing a penalty on employers who do not respond to wage requests.

      • Develop a data base and tracking system of employers who do not respond to wage requests, that can be used to:

        • Conduct systematic follow-ups with the employers.

        • Analyze to identify trends and develop corrective actions.

  5. PRWORA. Based upon the audit results, the OIG concluded that "optimal overpayment prevention and detection will be accomplished through use of the State and National Directories of New Hires, in conjunction with an effective benefits/wage crossmatch program."

    Under PRWORA, each State is permitted access to the information reported by employers and maintained in its State Directory of New Hires. (However, at this time, Federal law does not permit access by the SESAs to the National Directory of New Hires.) It has been left to each State to determine whether the State Directory is to be housed in the SESA or another agency. The State Directory must contain the name, address, and social security number of each newly hired individual. The work start date is not required by the Federal law; however, it may be required by State law. States may impose penalties on employers who fail to report, but the amounts are limited by Federal law.

    1. Potential Impact on BPC.The OIG foresees that SESAs that use the New Hires data could:

        (1)  Speed detection and improve overpayment recoveries.The wage/benefit crossmatch system is built around the quarterly cycles of employer wage reporting and State base periods. The average length of time to detect overpayments is five to six months after the occurrence. Frequently, by this time, the claimants have exhausted entire benefit years or otherwise ceased filing for benefits. According to private collection agencies, the recovery rate for bad debt decreases significantly as time passes; BPC experiences this with UI overpayments. In the UI program, the national recovery rate has been approximately 50 percent during recent years.

        PRWORA requires employers to report newly hired employees no later than 20 days after the employee is hired (or rehired if a new federal form W-4 is completed). Such information must be entered into the data base of the State Directory of New Hires within five business days of receipt. BPC can run crossmatches of benefit payment records against the New Hires data immediately. Overpayments can be detected and established early in the claims series, often intercepting benefit payments before many weeks have been erroneously paid.

        Thus, use of the New Hires system could result in lower rates of overpayments and higher rates of recovery.

        (2)  Eliminate or reduce the need to follow up with employers.The wage/benefit crossmatch process identifies wages paid and benefits drawn during the same quarter. BPC must contact employers to ascertain if the wages were paid in/for the same weeks as the benefits were paid. This is a staff intensive process that results in many cases eventually being cleared when it is found that there is no conflict. Employers find these contacts to be both annoying and burdensome.

        The New Hires system could be much more precise for identifying overlapping wages paid and benefits drawn. Contacts with employers could be reduced, resulting in better utilization of staff time and better relations with the employer community.

        (3)  Provide a deterrent value. A quick and efficient overpayment detection process, along with timely recoveries and denial of improper claims, could have an impact on claimants and serve as a deterrent to repeat and first time offenders.

    2. UIS Recommendations.The UIS agrees with the OIG assessment regarding the potential of the New Hires system. UIS encourages SESAs to realize this potential by implementing the New Hires system as the primary tool for the detection of overpayments attributable to benefits paid during periods of employment. In addition to the information that PRWORA requires employers to report (name, address, and SSN of each newly hired employee), reporting of additional information is optional. To be most effective, the SESA should try to obtain the newly hired employee's "start work date." This will enable the BPC investigators to more accurately identify claimants who have illegally drawn UI benefits during periods of employment.

  6. Action Required. SESA Administrators are requested to:

    1. Review the attached report from the OIG.

    2. Consider the recommendations offered by the OIG to improve the crossmatch system, and, where necessary, take corrective action. (See section 4b above.)

    3. If not already instituted, consider using the State New Hires system as the primary tool for the detection of overpayments attributable to benefits paid during periods of employment. If the State New Hires system is being used for the detection of benefit overpayments, consider the recommendations offered in section 5 above to maximize the effectiveness of the process.

  7. Inquiries. Direct any questions to the appropriate Regional Office.

  8. Attachment. OIG Report: Audit of Benefit Payment Controls