Unemployment insurance improper payment rate measure

CLASSIFICATION
   EMPLOYMENT AND TRAINING ADMINISTRATION              Unemployment Insurance
               ADVISORY SYSTEM                         CORRESPONDENCE SYMBOL
          U.S. DEPARTMENT OF LABOR                     OUI/DPM
             Washington, D.C. 20210                    DATE
                                                       January 27, 2015

ADVISORY:            UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 9-13,
                     Change 1

TO:                  STATE WORKFORCE AGENCIES

FROM:                PORTIA WU /s/
                     Assistant Secretary

SUBJECT:             Integrity Performance Measure for Unemployment Insurance

1. Purpose. To inform State Workforce Agencies (SWAs) about a revision of the improper
   payment rate methodology for Unemployment Insurance Performs Core Measures.

2. References.

   •   Improper Payments Information Act of 2002 (IPIA), Public Law (Pub. L.) 107-300 (31
       U.S.C. 3321 note);
   •   Improper Payments Elimination and Recovery Act of 2010 (IPERA), Pub. L. 111-204
       (31 U.S.C. 3301 note and 3321 note);
   •   Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA), Pub.
       L. 112-248 (31 U.S.C. 3321 note);
   •   U.S. Department of the Treasury Interim Rule with Requests for Comments – Offset of
       Tax Refunds Payments To Collect Delinquent State Unemployment Compensation Debts,
       76 F.R. 5070;
   •   Notice Requesting Public Comment on Two Proposed Unemployment Insurance (UI)
       Program Performance Measures to Meet Reporting Requirements in the Improper
       Payments Elimination and Recovery Act of 2010 (IPERA), 77 F.R. 7602;
   •   Executive Order (E.O.) 13520, Reducing Improper Payments (November 20, 2009);
   •   Office of Management and Budget (OMB), Circular No. A-123, Appendix C Parts I, II
       and III (Revised) Requirements for Effective Measurement and Remediation of Improper
       Payments, and OMB Memorandum M-15-02, Appendix C to Circular No. A-123,
       Requirements for Effective Estimation and Remediation of Improper Payments
       (Oct. 20, 2014);
   •   Unemployment Insurance Program Letter (UIPL) No. 02-09, Recovery of Unemployment
       Compensation Debts Due to Fraud or to Working while Claiming Benefits from Federal
       Income Tax Refunds;

 RESCISSIONS                                          EXPIRATION DATE
 None                                                 Continuing

   •   UIPL No. 9-13, Integrity Performance Measures for Unemployment Insurance;
   •   Benefits Accuracy Measurement (BAM) State Operations Handbook (ET Handbook
       No. 395, 5th edition); and
   •   Unemployment Insurance Reports Handbook (ET Handbook No. 401, 4th edition).

3. Background. The Improper Payment Information Act (IPIA), as amended, requires agencies
   of the executive branch, including the Department of Labor, in accordance with guidance
   from the OMB, to review their respective programs and activities to identify those that may
   be susceptible to significant improper payments, estimate the amount of those improper
   payments (overpayments and underpayments) using a standardized method determined by
   OMB, and report to Congress on those estimates and corrective actions the agency is taking
   to reduce future improper payments. In 2010, the Improper Payments Elimination and
   Recovery Act (IPERA) amended IPIA to clarify and enhance the responsibilities of federal
   agencies. Under the combined requirements of IPIA, IPERA, and the governing OMB
   guidance, each covered agency must comply with a number of obligations, among them:

   •   Conducting periodic reviews at least once every three fiscal years (FY) of programs and
       activities susceptible to significant improper payments. Significant improper payments
       are defined as gross annual improper payments by a program in the preceding FY that
       exceed either: (1) $10 million and 1.5 percent of program outlays (as of FY 2013), or
       (2) $100 million in improper payments regardless of the improper payment percentage of
       total program outlays;
   •   Include a statistically valid estimate of the improper payments made by each program or
       activity it identifies as susceptible to significant improper payments in its annual financial
       statement; and
   •   Included with its estimate: (1) a report on actions it is taking to reduce improper
       payments, and (2) for programs or activities expending $1 million or more annually, a
       report on actions to recover improper payments that have been identified in recovery
       audits that agencies are now required to conduct, when such audits are determined to be
       cost-effective. In addition, when compiling its plan to reduce improper payments, an
       agency must set OMB-approved reduction targets and a timeline for future levels of
       improper payments.

   The IPERA also requires that the Inspector General (IG) of each agency report annually on
   whether the agency is in compliance with the requirements and amendments put in place by
   the statute. To be in compliance with the law, all programs and activities above 1.5 percent
   and $10 million or $100 million must keep improper payments below 10 percent.

   Each year the Employment and Training Administration (ETA) reports integrity rates for the
   UI program in the Department’s Agency Financial Report (AFR), as required by the IPIA
   and the IPERA. Prior to 2013, the improper payment rate included all overpayments and
   underpayments estimated from the BAM survey. For the 2013 IPIA/IPERA reporting period,
   ETA and OMB developed a new methodology for calculating the UI improper payment rate
   which subtracted UI overpayment recoveries reported on the ETA 227 report from total
   overpayments. However, on January 10, 2013, the IPERIA of 2012 was enacted, requiring
   agencies to include all identified improper payments in the reported estimate and explicitly


   precluding netting out recoveries. As a result, ETA worked with OMB to identify a new
   methodology for estimating the UI improper payment rate for FY 2014. This new
   methodology no longer nets out recoveries but excludes improper payments that are
   determined to be “technically proper” under state UI law. The payments that are deemed to
   be “technically proper” by BAM audit investigators are those which meet applicable state
   statutory requirements.

   Reasons that certain payments are determined to be “technically proper” under state UI law
   include:

    • Finality Reasons – This includes payments with an eligibility issue(s), but the state
      cannot take official action to establish an overpayment for recovery because the time
      elapsed between the decision to pay the claimant and the detection of the eligibility issue
      exceeds the period established in state law for establishing an improper payment. In
      other words, such payments are considered final under the state UI law and cannot be
      legally established for recovery.
    • Other Reasons – This category includes payments with an eligibility issue(s), but the state
      does not take official action to recover the overpayment because the claimant is without
      fault for the error creating the improper payment, and recovery would be against the
      state’s standard of “equity and good conscience.”

   In July 2014, OMB approved the use of ETA’s proposed improper payment rate estimation
   methodology for the FY 2014 IPIA reporting period.

4. Improper Payment Rate Measure. This section provides the new definition and
   calculation of the new measure (which becomes effective for states in IPIA 2015, July 2014
   to June 2015) and reiterates the Acceptable Levels of Performance (ALP), performance
   period, and requirements for failure to meet the performance standard.

   Definition: UI benefits overpaid plus UI benefits underpaid divided by the total amount of
   UI benefits paid. Overpayments, underpayments, and total UI benefits paid are estimated
   from the results of the BAM survey of paid UI claims in the state UI, Unemployment
   Compensation for Federal Employees (UCFE), and Unemployment Compensation for
   Ex-servicemembers (UCX) programs. Overpayments and underpayments that are
   determined to be technically proper under state UI law for finality and other reasons are
   excluded from the measure.

   Calculation: The improper payment rate is estimated according to the following formula:

   IPR = (UI benefits overpaid + UI benefits underpaid) / Total UI benefits paid × 100




   The overpayment, underpayment, and total amount of UI benefits paid components of the
   measure are calculated from BAM using data elements provided in Attachment. The new
   methodology will be effective for the 2015 IPIA reporting period.


   ALP: IPERA requires an improper payment rate of less than 10 percent for each program
   and activity for which an estimate was published under the IPIA. An improper payment is
   defined as any payment that should not have been made or that was made in an incorrect
   amount, including both overpayments and underpayments.

   In accordance with IPIA and IPERA requirements, the Department maintains an ALP of less
   than 10 percent in the IPIA 2014 reporting period.

   Performance Period: The performance period will be based on BAM data for the IPIA
   reporting period (July to June): BAM sampling weeks (referred to as batches) YYYY27 to
   (YYYY+1)26. The IPIA 2015 performance period will include BAM batches 201427 to
   201526. Per the BAM State Operations Handbook (ET Handbook No. 395, 5th edition), 98
   percent of BAM cases must be completed within 120 days after the week ending date of the
   BAM sampling batch. Therefore, state performance will be based on BAM sample cases
   completed (closed by the BAM supervisor) by close of business October 28, 2015 (120 days
   after the ending date for batch 201426).

   Sampling Error: Because the BAM component of this measure continues to be based on
   sample data, the sampling error of the estimated BAM improper payment rate will continue
   to be taken into account when determining whether or not a state meets the ALP. As such,
   the Department will continue to compute the sampling errors of the estimated overpayments
   and underpayments using a probability threshold of 5 percent or less (p ≤ 0.05) in the
   confidence interval used to determine whether or not a state’s improper payment rate exceeds
   the 10 percent ALP with statistical significance.

   Failure to meet the ALP: States failing to meet the ALP for the 2015 IPIA reporting period
   will be expected to develop a corrective action plan (CAP) as part of the FY 2017 State
   Quality Service Plan (SQSP).

5. Action Requested. Copies of this directive should be provided to all pertinent units within
   the SWAs.

6. Inquiries. Questions should be addressed to the appropriate Regional Office.

7. Attachment.

   Attachment: BAM Data Elements Used to Compute the Improper Payment Rate

Attachment

         BAM Data Elements Used to Compute the Improper Payment Rate

• Estimated overpayments and underpayments are derived from the weekly BAM samples.

• Original amount paid is captured in BAM data element f13 and is defined as the amount
  paid to the claimant in the key week.

• Sample data is weighted to make inferences concerning the population. The weight is equal
  to the number of weeks of unemployment compensation paid during the week from which
  the BAM sample was selected (b_comparison table data element cm2) divided by the
  number of completed BAM sample cases for that week (if f13 > 0 and (h9 is not null or
  c1='8' or '9')).



 Rate            Paid Claim Action Code                                               Cause
 Overpayment     BAM investigation determines that the payment was too large:         Includes all
 Rate            Includes key week errors with (ei2) action codes 10, 11, and 12      cause codes
                 with total error amount limited to the maximum amount of the         (ei3).
                 dollars originally paid in the key week (i.e. overpayment
                 amount must be less than or equal to (f13)):                         ET Handbook
                 10 - Fraud                                                           No. 395 (pp.
                 11 - Nonfraud recoverable                                            V-5 through
                 12 - Nonfraud nonrecoverable                                         V-7)
                 For cases with more than one error - the errors are sorted by:
                     • Key Week Action (ei2) (Ascending) [10, 11, and 12]
                     • Amount of Key Week OP (ei1) (Descending)
                     • Error Issue Index Number (eidx) (Ascending)

                 Excludes errors with (ei2) action codes 13, 14, 15, and 16:
                 13 - Technically proper due to finality rules
                 14 - Work Search Formal Warnings
                 15 - Technically proper due to rules other than finality or formal
                 warning rule
                 16 - Overpayment established which was later "officially"
                 reversed, revised, adjusted, or modified and BAM disagrees with
                 "official" action (e.g., Appeals unit reverses BAM determination
                 and BAM disagrees).





          Rate             Paid Claim Action Code                                            Cause
          Underpayment     BAM investigation determines that the payment was too small:      Includes all
          Rate             Includes key week errors with (ei2) action code 20 with total     cause codes
                           error amount limited to the maximum weekly benefit amount         (ei3).
                           plus maximum dependents allowance – the amount originally
                           paid (f13):                                                       ET Handbook
                                                                                             No. 395 (pp.
                           20 - Supplemental check issued/offset applied or increase in      V-5 through
                           weekly benefit amount (WBA), dependents’ allowance (DA)           V-7)
                           entitlement, maximum benefit amount (MBA), or remaining
                           balance (RB)

                           Excludes errors with key week error (ei2) action codes:
                           21 - Technically proper due to finality rules
                           22 - Technically proper due to rules other than finality
                           23 - Supplemental check issued/offset applied which was later
                           officially reversed, revised, adjusted or modified, and BAM
                           disagrees with the official action
                           24 - BAM determines payment was too small, but claimant is not
                           entitled to supplemental payment due to collateral issues.


         • The total UI benefits paid is computed using the population dollars from which BAM
           pulled its sample, adjusted for weighted invalid sample dollars excluded
           (b_comparison.cm4 [Total Dollars Paid or Compensated in the Batch Week]). The table
           below presents an example of this computation.


                                       Total Dollars Paid in Population
                                            Ratio of the      Total paid
Total weighted paid     Total weighted
                                             weighted       population from Dollars excluded
based on the BAM      excluded from BAM                                                             Amount paid
                                              dollars        which samples from the population
      sample                sample
                                             excluded         were pulled
       (A)                    (B)            (C=B/A)              (D)          (E=C*D)                (F=D-E)

$1,413,598,059.92        $41,480,454.27         0.0293       $1,407,411,599      $41,298,919.49   $1,366,112,680