National effort to reduce improper unemployment payments

UIPL19-11ACC.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2011/UIPL19-11ACC.pdf)

                                                              CLASSIFICATION
   EMPLOYMENT AND TRAINING ADMINISTRATION                     Unemployment Insurance
               ADVISORY SYSTEM                                CORRESPONDENCE SYMBOL
                                                              DUIO
          U.S. DEPARTMENT OF LABOR
                                                              DATE
             Washington, D.C. 20210                           June 10, 2011



ADVISORY:           UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 19-11

TO:                 STATE WORKFORCE AGENCIES

FROM:              JANE OATES /s/
                   Assistant Secretary

SUBJECT:            National Effort to Reduce Improper Payments in the Unemployment
                    Insurance (UI) Program

1. Purpose. The U.S. Department of Labor (Department) is making an immediate call to action
to all state administrators to ensure that UI integrity is a top priority and to develop state specific
strategies to bring down the UI improper payment rate. This Unemployment Insurance Program
Letter (UIPL) provides information to state workforce agencies about a national strategic plan to
aggressively target UI overpayment prevention and to request that all states participate in a
federal-state collaboration to significantly reduce each state’s and the national UI improper
payment rates.

2. References. UIPL No. 22-06; UIPL No. 3-07, Change 1; Benefit Payment Control (BPC)
Technical Assistance Guide, June 1994; Improper Payment Information Act (IPIA) of 2002
(P.L. 107-300); Improper Payment Elimination and Recovery Act (IPERA) of 2010
(P.L. 111-024); Executive Order (E.O.) 13520 (November 20, 2009).

3. Background. The UI program has been designated by the Office of Management and Budget
(OMB) as one of the major benefit entitlement programs with an unacceptable level of improper
payments. The level of UI improper payments (overpayments plus underpayments) rose to 11.2
percent for the 2010 reporting period and continues to climb. As a result, the program is now out
of compliance with IPERA, which amended the IPIA by adding new requirements. The IPERA
was designed to help reduce improper benefit payments across all federal programs. Programs
with improper payment rates above 10 percent are considered out of compliance which triggers
additional oversight by Congress, OMB, and the Office of the Inspector General.

Before IPERA was enacted, OMB Circular No. A-123, Appendix C, Requirements for Effective
Measurement and Remediation of Improper Payments, implemented the IPIA. The IPIA
requires federal agencies to review their programs and program activities annually, identify
programs and areas that may be susceptible to significant improper payments, identify programs
considered to be “high risk,” and develop and implement corrective action plans for any “high-
risk” programs. The UI program is among the top “high risk” programs in the federal
government.


 RESCISSIONS                                                 EXPIRATION DATE
   None                                                      Continuing

On November 20, 2009, President Obama issued E.O. 13520, Reducing Improper Payments.
This E.O. requires significant efforts be made to reduce improper payments by intensifying
activities to eliminate payment errors, waste, fraud, and abuse in major programs administered
by the federal government while continuing to ensure these programs serve and provide access to
intended beneficiaries. The E.O. requires federal and state agencies to implement procedures
and internal controls to ensure proper payments are made and to develop coordinated efforts in
eliminating and reducing improper payments. Under the direction of OMB, agencies that have
programs susceptible to significant improper payments are expected to determine the estimated
amount of improper payments and the root causes of these improper payments and prioritize
resources so that corrective action plans can be thoughtfully developed and successfully carried
out.

Each year, the Department is required by law to report the rate and amount of UI improper
payments to OMB. The UI Benefit Accuracy Measurement (BAM) program provides the basis
for assessing the accuracy of UI payments. An estimated improper payment rate for the UI
program nationally and for individual states is determined through BAM audit findings based on
random samples of UI weekly benefit payments. For July 2009 to June 2010, the most recent
period for which BAM data was available for 2010 IPIA reporting, the estimated national
improper payment rate for the UI program was 11.2 percent (10.6 percent overpayment rate plus
a 0.6 percent underpayment rate) which translates to over $17 billion in improper payments
nationally. BAM results since the last reporting period show that the improper payment rate
remains well above 10 percent, and the Department will be considered to be out of compliance
for the 2011 reporting period.

A top priority of the Department is to work with states to take aggressive action to significantly
reduce and prevent UI improper payments and to bring down the improper payment rate. The UI
program is under intense scrutiny as a result of IPERA and the President’s E.O., and since state
workforce agencies administer the program, state action is required to reduce the UI improper
payment rate. Therefore, the Department stands ready to partner with states to implement
targeted strategies, develop tools, and share best practices that will prevent improper payments
and reduce the improper payment rate. The Department recognizes this is a critical state issue as
well, in particular, given the impact that improper payments have on states’ unemployment
funds. Enhanced integrity efforts will help to preserve the UI trust fund(s), control UI tax rates,
and maintain the public trust that the program is being protected and administered properly.

4. Scope of the Problem. The entire UI system, including federal and state partners responsible
for administering the program, has a longstanding commitment to program integrity. The system
uses sophisticated sampling and audit methods as well as various tools to prevent, detect, and
recover improper UI benefit payments; however, the UI improper payment rate has increased
during the recession.

The four main causes for UI improper payments include: 1) payments made to claimants who
continue to claim benefits after returning to work and fail to report (or under-report) their
earnings, often referred to as Benefit Year Earnings (BYE), (29.3%); 2) untimely and/or
incomplete job separation information (for example, states may receive important information
about claimants’ separation from work after the issues have been adjudicated and the claims
paid, due to the failure of the employers or their third party administrators to provide timely and
complete information on the reason for the individuals’ separation from employment (19.0%);


 3) the state’s inability to validate that claimants have met the state’s work search requirements
(18.2%); and, 4) claimants’ failure to register with the state’s Employment Service as required
by state law or the agency’s failure to process Employment Service registrations (11.7%).




Other root causes of UI improper payments that are less controllable or that are cost prohibitive
to prevent overpayments include:

      “Able and Available” Requirements (5.4%) – payments made to claimants who are
       unable to work or unavailable for work (for example, an individual who is in the hospital
       or in jail), which would disqualify them from receiving UI benefits;

      Base Period Wages (5.3%) – payments made that are based on incorrect base period
       wages (for example, wages may be over-reported or under-reported due to employer
       error(s) or automation error(s)), causing claimants to be determined eligible for more or
       fewer benefits than they were entitled to receive.

This UIPL focuses primarily on approaches to reducing improper payments caused by benefit
year earnings, separations, and employment service registration (numbers 1, 2, and 4 above).

5. Improper Payment Prevention. Reducing the improper payment rate requires the UI system
to focus on preventing improper payments before they occur. Detection and collection activities
continue to be critical core integrity activities, but the best way to effectively reduce the
improper payment rate is to prevent improper payments before they occur. To accomplish that
goal, ALL state UI staff responsible for the operation of the program must be engaged in a
coordinated effort to address improper payments at all levels of the program. Agency staff must
be aware of the causes of improper payments and what their role is regarding overpayment
prevention. Integrity programs must be designed to discourage fraud and uncover potential

issues of fraud at the earliest possible time. Essentially, everyone owns program integrity and
everyone must help to create and cultivate a culture of integrity throughout the entire UI system.

Workforce system partners also have a responsibility to help in the effort to lower the UI
improper payment rate by working collaboratively with UI program staff. Workforce system
partners help UI claimants meet Employment Service registration requirements. Claimants are
provided comprehensive services upon reporting to One-Stop Career Centers when they are
referred to services through the Worker Profiling and Reemployment Services program (after
being determined likely to exhaust their benefits) or when they are referred to services through
the Reemployment and Eligibility Assessment programs. Good communication between UI and
One-Stop Career Center staff is needed to ensure the integrity and effectiveness of these
programs.

6. Strategic Plan for Reducing the Improper Payment Rate. The Department is focusing on
three specific improper payment root causes for immediate action and overpayment reduction.
These three types of overpayments result in the highest dollar amounts and lend themselves to
targeted prevention efforts.

Benefit Year Earnings - The primary cause of overpayments is due to unreported or under-
reported earnings by claimants while they claim benefits. Cross-matching with State Directories
of New Hires (SDNH) and National Directories of New Hires (NDNH), followed by immediate
contact with the claimant when there is a match to let the claimant know there is a potential
overpayment, is considered to be one of the most effective strategies for addressing this root
cause.

Separation Issues - Overpayments attributable to separation issues are the second leading cause
of overpayments. To address this issue, the Department worked collaboratively with states to
develop the technology solution called the State Information Data Exchange System (SIDES),
which enables more rapid and accurate communications between state agencies and employers
or employers’ third party administrators. The timely exchange of accurate claimant separation
information should result in better determinations and is expected to reduce the number of
improper payments to claimants who are determined to be ineligible for UI due to disqualifying
job separations such as quitting a job without good cause or being discharged for misconduct
under the state UI law. A number of states are in varying phases of SIDES implementation and
rapidly getting all states to use SIDES is a high priority for the Department. Similarly, the
Department is developing outreach and marketing tools for states’ use with employers and their
third party administrators to gain their participation in SIDES.

Employment Service Registration - Improper payment errors due to a claimant’s failure to meet
Employment Service registration requirements are a significant root cause of improper payments
in some states. Efforts are underway in many of these states to correct these types of improper
payments, and the Department continues to closely work with these states and provides technical
assistance, where appropriate.

The Department has collaborated with the National Association of State Workforce Agencies to
form a federal-state Integrity Workgroup to develop and implement a national action agenda for
reducing overpayments. Through collaborative efforts with states, including the members of the
federal-state Integrity Workgroup, the Department has developed a strategic plan to reduce the


UI improper payment rate. The strategic plan’s action items are designed to focus primarily on
prevention of the three root causes of improper payments previously discussed.

Over the course of the coming year, the Department will undertake a number of new strategies as
part of the overall plan to reduce UI overpayments. These include:

      Mandating the use of NDNH in state BPC operations and dissemination of a
       recommended operating procedure to ensure optimal results (see Section 7 and the
       attachment to this UIPL);

      Implementing a campaign to target messages to claimants designed to prevent improper
       reporting of work/earnings while filing for UI and to promote compliance with state work
       search requirements;

      Collaborating with “high impact” states (which are essentially big states) to pilot
       implementation of UI improper payment cross-functional task forces to develop and
       implement state specific action plans to reduce improper payments and to provide some
       leadership nationally with other states to support reduction of improper payments;

      Encouraging all states to implement cross-functional task forces to develop and
       implement state specific action plans to reduce UI improper payments;

      Offering states the opportunity to apply for Supplemental Budget Requests (SBR)
       targeted to the specific root causes and strategies discussed in this UIPL;

      Implementing a new improper payment performance measure aimed at reducing fraud
       overpayments due to claimants who continue to file for benefits (generally, for five
       weeks or more) after they have returned to work;

      Reintroducing to Congress the federal Unemployment Compensation Integrity Act of
       2011 with additional provisions aimed at reducing the overpayment rate;

      Aggressively promoting increased state and employer participation in the use of SIDES
       to reduce improper payments due to untimely and/or inaccurate or incomplete
       information used to adjudicate job separation issues;

      Developing outreach and marketing tools for states to use with businesses and their third
       party administrators to promote their participation in SIDES;

      Modifying the State Quality Service Plan process to add a section for states to describe
       their efforts to reduce improper payment rates;

      Identifying and disseminating integrity “best practices;”

      Exploring methods to ensure sufficient state resources will be targeted toward integrity
       activities;




      Exploring and piloting new data sources such as banking information to identify when
       claimants may have returned to work; and

      Planning a National Integrity Summit in the spring of 2012.

7. Mandatory Use of NDNH. For several years, the Department has encouraged states to use
the NDNH to reduce improper payments in the UI program. The Personal Responsibility and
Work Opportunity Reconciliation Act of 1996 mandated the development of the State and
National Directories of New Hires. These new hire directories, originally created for the purpose
of child support enforcement, have allowed UI agencies improved access to wage data and new
hire information that was previously unavailable. NDNH also contains data on federal civilian
and military wages and new hires reported by multi-state employers to a state other than the state
conducting a match. These data may also be used for “skip-tracing” to locate individuals who
may have relocated and have outstanding overpayments. Studies of the use of NDNH have
concluded that use of this tool results in earlier detection of improper payments, thus, preventing
future overpayments and increasing the likelihood of overpayment recovery.

The use of NDNH for BAM was mandated beginning the week of December 30, 2007
(See UIPL No. 3-07, Change 1).

The mandatory use of NDNH is based on the Department’s authority granted under Section
303(a)(1) of the Social Security Act and Sections 3306(h) and 3304(a)(4) of the Internal
Revenue Code. To achieve an overpayment rate below 10 percent, it is critical that NDNH be
used by the states to quickly detect BYE overpayments. All states will be required to conduct
NDNH cross-matches by December 2011. States are encouraged to begin matching sooner, if
possible. Recommended Operating Procedures (ROP) are attached to this UIPL, which outline
best practices in conducting NDNH and SDNH cross-matches, including procedures reported by
states to be effective for both detecting as well as preventing overpayments. We strongly
encourage states to implement these procedures immediately. As additional effective procedures
and best practices are identified and documented, an enhanced ROP will be disseminated to
states.

8. Next Steps. All states are strongly encouraged to take action immediately to reduce the
state’s improper payment rate. States are requested to take the following steps:

      Conduct weekly and daily cross-matches with NDNH and SDNH respectively. When
       cross matches result in a match, states should have automated processes to immediately
       notify UI claimants that the state has received information indicating they have returned
       to work and that an overpayment may exist. The appropriate employer(s) should also be
       immediately contacted to verify the employment and wage information.

      Review the wording of the state’s continued claims certification form or telephone script
       to assess whether any questions or language should be made clearer to ensure claimants
       understand what is being asked. For example:
           o If the certification form or script contains a two-part question such as:
                   Did you work and earned wages during the week?
           o Two separate questions could be asked instead such as:
                   Did you perform any work during the week?


                     If you worked, what was the amount of wages you earned during the week
                      (report wages earned whether or not these wages have been paid)?

      Implement SIDES as quickly as feasible. The Department will continue to provide
       technical assistance to states in implementing SIDES including providing funding
       opportunities. When the SIDES earnings verification application becomes available,
       technical assistance will also be provided for its implementation.

      Implement a cross-functional integrity task force. The Department will be working with
       the “high impact” states to pilot the use of a task force in effectively reducing improper
       payments and developing effective overpayment prevention methods and tools, however
       all states are encouraged to form a cross-functional task force. States are asked to think
       broadly about the types of UI functions and staff that need to be represented on a state
       task force including front line claims takers, adjudicators, BPC and BAM staff,
       information technology staff, appeals staff, and tax staff. The goal is to develop a
       system-wide approach to bringing down the state’s UI improper payment rate. The focus
       in the short term of this task force should be the three root causes discussed as priorities
       in this UIPL.

The Department will continue to engage with states as the strategies described in this UIPL are
implemented, and it is anticipated that there will be opportunities to offer a wide array of
technical assistance including webinars and newly developed tools to support state efforts.

9. Action Requested. State Administrators are requested to provide the information contained
in this UIPL to the appropriate staff. Outreach efforts should be made to inform all UI and
workforce staff, employers, and the general public of the strategic plan to ensure everyone
understands the importance of maintaining program integrity and protecting UI funds.

10. Inquiries. Questions should be addressed to the Department’s appropriate Regional Office.

11. Attachment. Recommended Operating Procedures for Cross-Matching Activity: National
and State Directories of New Hires

UIPL19-11ATT.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2011/UIPL19-11ATT.pdf)

Recommended Operating Procedures For Cross-Matching Activity:



          National and State Directories of New Hires

                                                     Table of Contents

1.   PURPOSE........................................................................................................................................ 3


2.   SCOPE ............................................................................................................................................. 3


3.   RESPONSIBILITIES ..................................................................................................................... 3


4.   PROCEDURE ..............................................................................................................................3-6
     4.1      PROCESS FLOW

     4.2      FREQUENCY AND TIMING OF CROSS-MATCHES

     4.3      KEY ACTIONS

     4.4      DATA SOURCE AND STATE ACTIONS





1.   PURPOSE
     These Recommended Operating Procedures (ROP) for benefit cross-matching with the
     National Directory of New Hires (NDNH) and the State Directory of New Hires (SDNH)
     contain key guidelines and procedures designed to successfully operate effective
     cross-matching programs that prevent, deter, and detect improper payments. The U.S.
     Department of Labor strongly encourages states to consider and utilize the processes and
     procedures outlined in this ROP in conducting NDNH and SDNH cross-matches.

2.   SCOPE
     This ROP is not definitive and all-inclusive. However, the minimum expectation is for
     states to use the recommendations provided herein as a starting point for results-oriented
     cross-matching activities. States may add or incorporate other successful practices not
     covered in this ROP.

3.   RESPONSIBILITIES
     In most states, the Benefit Payment Control (BPC) unit is generally responsible for
     conducting benefit payment cross-matches against wage data and would be responsible for
     implementing procedures contained in this ROP. States should consider the tasks contained
     in this ROP and determine the appropriate BPC or other staff to carry out these tasks and
     functions.

4.   PROCEDURE
     This section outlines recommended actions and timelines identified as being key activities in
     a state’s cross-matching program.

     4.1 Process Flow
     The following chart is a functional diagram with a recommended work flow to optimize and
     implement a successful cross-match program.





                                              Identify C laim ants for
                                                 N DN H or SDN H
                                                 Crossm atching




                                         Input                   Input            G enerate Individual
                                         D ata                   D ata             Claim ant Request
                                                                                        Records


                                       STATE                   NATIO N AL
                                      NE W HIR E               NEW H IRE



                                                 RECE IV E                      New Hire data returned is
                                               CRO SS M ATC H                    based on input data file
                                                 RESULTS                              param eters



                                                    Various                 Incom plete Em ployer Address
                                                     edits                            Duplicates
                                                                                      Prior Fraud
                                                                              Prior Earnings Adjustm ents

                                                    Identify
                                                    W eeks


                                         Set Issue or Earning                     Based on week(s)
                                              Verification                    certification responses to
                                                                                 work and earnings




           CLA IM AN T
                                        C oncurrent P rocessing                            G EN ER ATE
            CO NTAC T
                                                                                         Em ployer M AIL &
         R E QU IRE D TO
                                                                                               E VF
        RE POR T LETTE R




                                                  PR O CE SS
                                                 RES PON SES




                                                  S ELEC T
                                              DE TERM INATIO N
                                                    TYP E

   C ON DUC T                 C ON DUC T                                                                 CO NDU CT EAR NIN G S
     FR A UD                 NO N-FRAUD                                     NO IS SU E                      V ERIFIC ATIO N
INVESTIG ATIO N            INV ESTIGATIO N                                                                   ADJUSTM EN T


                                                      ISSU E
                                                 DETE RM INA TIO N
                                                  AN D AD JUST
                                                   BE N EFITS


          INQ U IRY &
                                             M AN AG EM EN T
        M AIN TENANC E                                                                   FO RM S
                                              R EPO R TIN G
           S C REENS



                                   Figure 1 – Process Flow





4.2 Frequency and Timing of Cross-Matches - SDNH matches are generally expected to
    be run on a daily basis since these files are updated daily. NDNH matches are
    generally expected to be run on a weekly basis.
4.3 Key Actions – The following actions should be implemented immediately:
          Process data from SDNH and NDNH as soon as it is received (which is daily for
           SDNH and weekly (generally, Mondays) for NDNH). Effective automation and
           innovative workload management should allow the state to prioritize the work and
           screen out those matches that do not require immediate action.
          An immediate and critical action is to send a letter/notice on the same day (or no
           later than the next business day) to those claimants and employers identified by the
           NDNH or SDNH match.
      Sample Notice for Claimants:
         IMPORTANT NOTICE ABOUT YOUR UNEMPLOYMENT BENEFITS

      Agency records indicate that you have filed a continued claim(s) and/or received
      unemployment insurance benefits for a period of time during which you may have also
      been employed. This agency has received employer information that indicates you are
      working or have worked and earned wages.

      We are contacting this employer for a breakdown of actual wages for each week in
      question. We need to resolve any issues arising from this information, and any
      additional information, if wages were earned during the same period, that is, the same
      week(s) that you certified for benefits.

      During each week that you are claiming benefits, you are required to inform this
      agency of your employment status, and if you are working, you must report any and all
      wages earned. Please note: Wages must be reported for the week(s) in which such
      wages are earned, not when the wages are paid. Working, earning wages and failing
      to report such work/wages while filing for unemployment insurance benefits may
      constitute FRAUD. Individuals may be criminally prosecuted, fined and/or imprisoned
      for committing fraud and will be required to repay any benefits determined to be
      overpaid.

   To respond to this notice, please contact this agency by calling (xxx) xxx-xxxx.
   Notify affected claimants that they are required to report to or required to contact the
    agency, preferably before the date of the next continued claim certification in order to
    resolve the issue. (It is also recommended that the continued claim filing system be
    programmed to allow a claims representative to intervene to speak to claimants who
    have been identified as potentially working (based on NDNH/SDNH matches) to
    attempt to conduct necessary fact-finding and resolve the issue with the claimants at
    the time they file their next weekly claim certification).

         Notify appropriate employers and require responses within a specified period of time
          (for example, within seven business days).

           Issue appropriate determination(s) based on the response(s) or lack of response(s)
            after the allotted time has lapsed. Determinations may include denials for failure to
            contact the agency, as required under the state’s UI law (lack of responses from both
            parties prevents a determination based on NDNH matches since these are generally
            needed for independent verification of the NDNH data).

     4.4 Data Source and Activities
              Activity                                              Timeframe
Employers report W-4 (New           Required to be made no later than 20 days after the date the employer
Hire) data to the SDNH              hires the employee; or in the case of an employer transmitting reports
                                    magnetically or electronically, by 2 monthly transmissions (if necessary)
                                    no less than 12 days no more than 16 days apart.
New Hire data received from         Within 5 business days of receiving reports from employers, the new hire
employers entered into SDNH         reports must be entered into the SDNH database.
SDNHs transmit New Hire data to     Within 3 business days after the new hire data is entered into the SDNH,
the NDNH                            the new hire data must be furnished to the NDNH.
New Hire data from Federal          New Hire data must be entered into the NDNH within 2 business days
agencies and SDNHs entered into     upon receiving the data.
the NDNH
State constructs and submits its    The state requests a cross-match for all claimants who have received
cross-match request daily to        payment within the past 40 days. This allows for the business steps
SDNH                                shown above and takes into consideration the biweekly certification
                                    processes. State requests the return of all new hires reported to SDNH
                                    from 47 days prior to the cross-match date for each individual social
                                    security number (SSN).
State constructs and submits its    The state requests a cross-match for all claimants who have received
cross-match request every week      payment within the past 40 days. This allows for the business steps
to NDNH                             shown above and takes into consideration the biweekly certification
                                    processes. State requests the return of all new hires reported to NDNH
                                    from 47 days prior to the cross-match date for each individual SSN.
NDNH returns summary and            NDNH sends transmittal, summary, and error data to the submitting
transmittal data, including error   Federal or state agency and/or SDNH (agency), as appropriate, within 4
reporting, to the submitter         business days of the system receiving the data.
Report matches from the NDNH        NDNH matching information is transmitted to the state within 2 business
to the state                        days of the match. The earliest information would be available is on the
                                    following Sunday or Monday after the cross-match occurs.
State processes the NDNH/SDNH       State eliminates duplicate records from the dataset (Same SSN, employer,
records that are returned           and hire date) on the date of receipt of the information from
                                    NDNH/SDNH.
State compares cross-match          State software determines whether weeks are compensated and claimed
outcomes to compensated and         after the hire date (or W-4 date if hire date is null). If the claimant reports
weeks claimed and determines        work in the weeks identified, the state may verify earnings reported on the
“hits”                              date of receipt of the NDNH/SDNH information.
State begins investigation          State simultaneously sends a letter/notice to the claimant and a request for
                                    earnings verification to the employer no later than the next business day
                                    following receipt of the information from NDNH/SDNH. If feasible, the
                                    state requires the claimant to contact the agency to resolve the issue prior
                                    to the date of filing the next continued claim for benefits. The employer
                                    is required to provide information within a specified time (e.g., 7 business
                                    days).
State concludes investigation       A written determination is made and processed, as appropriate.