Unemployment Insurance: Enhancing Program Performance by Focusing
on Improper Payments and Reemployment Services (04-MAY-06,	 
GAO-06-696T).							 
                                                                 
Unemployment Insurance (UI) has been a key component in ensuring 
the financial security of America's workforce for over 70 years. 
In fiscal year 2004, UI covered about 129 million wage and salary
workers and paid about $41 billion in benefits to nearly 9	 
million workers who lost their jobs. The Department of Labor	 
(Labor) and states have a shared responsibility to enhance UI	 
program performance by ensuring that only eligible individuals	 
receive benefits while on the UI rolls and fostering		 
reemployment. Labor's Office of Inspector General and others have
found that aspects of UI may be vulnerable to fraud and improper 
payments, and despite the size and scope of UI, there has been	 
little national information to fully assess states' efforts to	 
foster reemployment. This testimony draws upon results of several
GAO reports on (1) Labor's efforts to identify, estimate, and	 
prevent improper benefit payments and (2) federal and state	 
efforts to help speed UI claimants' return to work. We are not	 
making new recommendations at this time. Labor generally agreed  
with the UI findings in our referenced reports, but took issue	 
with our recommendation that the Secretary work with states to	 
consider collecting more comprehensive information on UI	 
claimants' services and outcomes. We continue to believe this	 
information is needed.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-696T					        
    ACCNO:   A53319						        
  TITLE:     Unemployment Insurance: Enhancing Program Performance by 
Focusing on Improper Payments and Reemployment Services 	 
     DATE:   05/04/2006 
  SUBJECT:   Federal/state relations				 
	     Fraud						 
	     Income maintenance programs			 
	     Overpayments					 
	     Performance measures				 
	     Program abuses					 
	     Program evaluation 				 
	     Program management 				 
	     Reemployment					 
	     State-administered programs			 
	     Unemployment compensation programs 		 
	     Unemployment insurance				 
	     DOL Unemployment Insurance Program 		 

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GAO-06-696T

     

     * Background
          * UI Performance Measurement
          * Reemployment Services
          * Labor's 2007 Budget Request
     * More than $3.4 Billion in Overpayments Estimated in 2004, bu
          * The Majority of Overpayments Are Attributable to Claimants
          * Labor is Taking Actions to Help States Detect and Prevent Ov
     * States Make Use of Federal Requirements to Help Speed Reempl
          * States Use Compliance with Work Requirements and Target Serv
          * Little Information Exists to Assess whether States' Efforts
     * Concluding Observations
     * GAO Contacts and Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Testimony before the Subcommittee on Human Resources, Committee on Ways
and Means, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EDT

Thursday, May 4, 2006

UNEMPLOYMENT INSURANCE

Enhancing Program Performance by Focusing on Improper Payments and
Reemployment Services

Statement of Sigurd R. Nilsen, Director

Education, Workforce, and Income Security Issues

GAO-06-696T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to assist you in your deliberations on
Unemployment Insurance (UI) program performance issues as they relate to
the Department of Labor's (Labor) $2.7 billion fiscal year 2007 budget
request for the UI program. My testimony will focus primarily on the
results of our past work in UI benefit overpayment and reemployment
services. The UI program has been a key component in ensuring the
financial security of America's workforce for over 70 years. The UI
program is a federal-state partnership designed to partially replace lost
earnings of individuals who become unemployed through no fault of their
own and, which in turn, helps to stabilize the economy in times of
economic downturn. In fiscal year 2004, the UI program covered about 129
million wage and salary workers and paid about $41 billion in benefits to
nearly 9 million workers who had lost their jobs. Labor and states have a
shared responsibility to enhance UI program performance by ensuring that
only eligible individuals receive benefits while on the UI rolls and to
foster reemployment. However, Labor's Office of Inspector General (OIG)
and others have found that numerous aspects of the UI program may be
vulnerable to fraud and to improper payments to claimants, and, despite
the size and scope of this program, there has been little information at
the national level to fully assess states' efforts to foster reemployment.

Today, I will draw upon results of recent reports we have completed that
provide information on UI program performance issues. In particular, I
will discuss in relation to Labor's budget request (1) Labor's efforts to
identify, estimate, and prevent improper benefit payments, and (2) what is
being done at the state and federal levels to help speed UI claimants'
return to work. To address the first question, we drew upon two of our
recent studies. In the first study, we reviewed Labor guidance, data, and
reports and interviewed Labor officials and groups involved in
unemployment insurance.1 In the second study, which reviewed states'
efforts to estimate improper payments on state-administered federal
programs, including UI, Food Stamps, Medicaid, and other programs, we
primarily conducted surveys of state officials, interviewed federal and
state officials, and reviewed performance and accountability reports and
our prior reports.2 To address the second question, we drew upon the
results of another of our previous study, where we had conducted telephone
interviews with UI and workforce development officials in 50 states; sent
a follow-up questionnaire to gather information on the strategies states
use to collect data on UI claimants who receive reemployment services;
interviewed state and local program officials during site visits in
Georgia, Maryland, Michigan, and Washington; and interviewed Labor
officials and other experts in the area of UI and reemployment services.3

1GAO, Unemployment Insurance: Increased Focus on Program Integrity Could
Reduce Billions in Overpayments, GAO-02-697 (Washington, D.C.: July 12,
2002).

In summary, Labor estimates that about $3.4 billion in UI benefits was
overpaid nationwide in calendar year 2004, but is taking actions to help
states improve their ability to detect and prevent overpayments. Labor
attributes a majority of overpayments to improper actions taken by
claimants, although states and employers can also contribute to
overpayments. Labor has introduced a number of initiatives to help states
improve their ability to detect and prevent overpayments, including new
computer matches with federal databases, a new core performance measure
intended to provide states with added incentives for detecting and
preventing overpayments, and additional funding for states' overpayment
detection efforts. Labor's budget request for fiscal year 2007 includes
funding to continue some of these efforts. As annual overpayments reach
the billions, it will be important for federal and state stakeholders to
take the necessary action to address the overpayment issue. Avoiding
improper payments may do more to enhance program performance in the long
term than detecting and collecting overpayments after they have occurred.
To help UI claimants return to work quickly, states most often make use of
federal UI program requirements to connect claimants with available
services at various points in their claims. In addition, states provide
targeted reemployment services to particular groups of UI claimants. The
federal requirement of claimant profiling is typically the primary
mechanism for targeting reemployment services to specific claimants.
However, despite states' efforts to design systems that link UI claimants
to reemployment services, few data are available to gauge the extent to
which their efforts are having the intended result. Labor's current and
planned initiatives may help fill the information gap, but they fall short
of providing a comprehensive understanding of services and outcomes for UI
claimants.

2GAO, Improper Payments: Federal and State Coordination Needed to Report
National Improper Payment Estimates on Federal Programs, GAO-06-347
(Washington, D.C.: Apr. 14, 2006).

3GAO, Unemployment Insurance: Better Data Needed to Assess Reemployment
Services to Claimants, GAO-05-413 (Washington, D.C.: June 24, 2005).

                                   Background

The UI program was established by Title III of the Social Security Act in
1935 and is a key component in ensuring the financial security of
America's workforce. The program serves two primary objectives: (1) to
temporarily replace a portion of earnings for workers who become
unemployed through no fault of their own and (2) to help stabilize the
economy during recessions by providing an infusion of consumer dollars
into the economy. UI is made up of 53 state-administered programs that are
subject to broad federal guidelines and oversight. In fiscal year 2004,
these programs covered about 129 million wage and salary workers and paid
benefits totaling $41.3 billion to about 8.8 million workers.

Federal law provides minimum guidelines for state programs and authorizes
grants to states for program administration. States design their own
programs, within the guidelines of federal law, and determine key elements
of these programs, including who is eligible to receive state UI benefits,
how much they receive, and the amount of taxes that employers must pay to
help provide these benefits.4 State unemployment tax revenues are held in
trust by the federal government and are used by the states to pay for
regular weekly UI benefits, which typically can be received for up to 26
weeks.

To receive UI benefits, an unemployed worker must file a claim and satisfy
the eligibility requirements of the state in which the worker's wages were
paid. Generally, states require that workers must have a minimum amount of
wages and employment over a defined base period, typically about a year
before becoming unemployed, and have not already exhausted the maximum
amount of benefits or benefit weeks to which they would be entitled
because of other recent unemployment. In addition workers must have become
unemployed for reasons other than quitting a job or being fired for
work-related misconduct, and be able and available to work. In order to
demonstrate that they are able to work and available for work and are
still unemployed, claimants must submit a certification of continuing
eligibility-by mail, telephone, or Internet, depending on the
state-throughout the benefit period. This practice is usually done weekly
or biweekly. States may continue to monitor claimant eligibility through
an eligibility review program, in which certain claimants are periodically
contacted to review their eligibility for benefits, work search
activities, and reemployment needs.

4In accordance with federal law, all state UI systems are experience rated
so that employers' contribution rates vary on the basis of their
experience with unemployment. In practice, this typically means that an
employer who lays off many workers that claim unemployment insurance
benefits will pay more in taxes than an employer that lays off fewer
workers.

UI Performance Measurement

Labor has the responsibility under Title III of the Social Security Act
for ensuring that states operate effective and efficient UI programs.
Various provisions of federal law require that certain UI activities be
performed promptly and accurately. Section 303(a)(1) of the Social
Security Act requires, as a condition of a state's receiving UI
administrative grants, "such methods of administration . . . as are found
by the Secretary of Labor to be reasonably calculated to insure full
payment of unemployment compensation when due." Labor uses various
administrative data to provide information on the functioning of all UI
program activities. Labor divides the measures into two categories: core
measures, which entail oversight on key performance areas representative
of the UI program, and management information measures, which facilitate
the analysis of performance and to assist in planning corrective
activities when necessary.

One of Labor's performance measurement efforts is the Benefit Accuracy
Measurement (BAM) program, which is designed to determine the accuracy of
paid and denied claims in the UI program. It does this by reconstructing
the UI claims process from samples of weekly payments and denied claims
using data verified by trained investigators. For claims that were
overpaid, underpaid, or improperly denied, the BAM program determines the
cause of and the party responsible for the error, the point in the UI
claims process at which the error was detected, and actions taken by the
agency and employers prior to the error. For erroneously paid claims, the
BAM program determines the amount of benefits the claimants should have
received, which becomes the basis for subsequent recovery efforts. BAM
provides two rates of improper payments. The first, the Annual Report
Overpayment Rate, includes estimates of nearly every divergence from what
state law and policy dictate the payment should have been. The second
rate, the Operational Overpayment Rate, includes only recoverable
overpayments states are most likely to detect through ordinary overpayment
detection and recovery procedures. Operational overpayments are the most
likely to be detected and established for eventual recovery and return to
the UI Trust Fund.

Reemployment Services

Since UI was established, there have been two major changes in the
nation's workforce development system that have directly affected states'
UI programs. Specifically, in November 1993, Congress enacted legislation
amending the Social Security Act to require that each state establish a
Worker Profiling and Reemployment Services (WPRS) system and implement a
process typically referred to as claimant profiling. The claimant
profiling process uses a statistical model or characteristics screen to
identify claimants who are likely to exhaust their UI benefits before
finding work. Claimants identified through this process are then referred
to reemployment services while they are still early in their claim. For
profiled claimants, participation in designated reemployment services
becomes an additional requirement for continuing eligibility for UI
benefits. The second major change was the enactment of the Workforce
Investment Act of 1998, which requires states and localities to bring
together about 17 federally funded employment and training services into a
single system-the one-stop system. State UI programs are mandatory
partners in the one-stop system. Another mandatory partner is the federal
Employment Service, established by the Wagner-Peyser Act in 1933 to link
job seekers with job opportunities. The Employment Service (ES) has
historically been collocated with state UI offices to facilitate UI
claimants' access to federally funded labor exchanges, job search
assistance, job referral, placement assistance, assessment, counseling,
and testing.

Labor's 2007 Budget Request

For UI, Labor's fiscal year 2007 budget includes a request for $2.7
billion. This amount is about $101 million higher than the fiscal year
2006 enacted level. This request, according to Labor's budget overview,
funds projected workloads and includes several UI program increases.
First, Labor is proposing a $30 million increase in fiscal year 2007 for
the amount available to states to conduct reemployment and eligibility
reviews. Labor notes that the reviews-which entail in-person interviews
with claimants at one-stop centers-can reduce overpayments as well as
speed reemployment. Second, Labor is proposing a $10 million UI program
increase to prevent and detect fraudulent claims due to identify theft.
Labor proposes to use the new funding for staff to investigate and
reconcile potential identity theft identified through data cross-matching.

 More than $3.4 Billion in Overpayments Estimated in 2004, but Labor is Taking
                   Some Actions to Enhance Program Integrity

Labor estimates that about $3.4 billion in UI benefits was overpaid
nationwide in calendar year 2004, but is taking actions to help states
improve their ability to detect and prevent overpayments. According to
Labor's Benefit Accuracy Measurement program, in 2004 (the most recent
year for which we could obtain specific data) claimants were responsible
for a majority of the overpayments. Claimants may fail to report their
work as required, or may use Social Security numbers (SSN) that did not
exist or that belonged to other individuals to fraudulently obtain UI
benefits, resulting in overpayments. State agencies may also contribute to
overpayments if they fail to properly record eligibility information. In
addition, employers may contribute to UI overpayments if they fail to
report required information to states in a timely manner. Labor has
introduced a number of initiatives to help states improve their ability to
detect and prevent overpayments, including new computer matches with
federal databases, a new core performance measure intended to provide
states with added incentives for detecting and preventing overpayments,
and additional funding for states' overpayment detection efforts. Labor's
budget request for fiscal year 2007 includes funding to continue some of
these efforts.

The Majority of Overpayments Are Attributable to Claimants

Of the $3.4 billion in overpayments identified nationwide by the BAM
program in calendar year 2004,5 almost $2 billion (58 percent) was
attributable to UI claimants alone, while state agency errors and
employers were responsible for overpayments by others (see fig. 1). With
respect to claimants, overpayments may occur because individuals work
while receiving benefits, fail to register with employment services (as
required in most states), fail to look for a new job, or misrepresent
their identity. In calendar year 2004, the most common cause of
overpayments was unreported or erroneously reported earnings and income,
accounting for almost 28 percent of overpayments in that year. The
second-leading cause of overpayments-constituting 21 percent of all
overpayments-was payments to individuals who are not entitled to UI
benefits because of the circumstances under which they became unemployed
(separation issues). Other sources of overpayments were attributable to
individuals who failed to look for work (16 percent) and individuals who
did not register for employment services (10 percent). Federal and state
officials have reported that some types of overpayments are more difficult
to detect than others. For example, in a prior report, some officials told
us that it could be difficult for states to accurately determine, in a
cost-effective manner, if a claimant was actively searching for work (an
eligibility requirement in some states).

5Of this amount, Labor officials told us that the states could have
potentially detected and recovered $1.8 billion, or about 53 percent of
the total overpayments it estimated occurred, using current procedures.

Figure 1: Responsibility for UI Overpayments (Calendar Year 2004)

Note: Percentages do not add to 100 percent because of rounding.

Other sources of overpayments include state agency errors and inaccurate
or untimely information provided by employers. Labor's BAM program shows
that state agency errors, such as failing to properly record important
eligibility information such as wages, accounted for about 15 percent of
all estimated overpayments in 2004. Employers accounted for about 6
percent of the total estimated overpayments in 2004. Employers and their
agents do not always comply in a timely manner with state requests for
information needed to determine a claimant's eligibility for benefits. For
example, one Labor OIG audit found that $17 million in overpayments
occurred in four states because employers did not respond to the states'
request for wage information. Our work suggests that employers may resist
requests to fill out paperwork from states because they view the process
as time-consuming and cumbersome. In addition, because employers are
unlikely to experience an immediate increase in the UI taxes they pay to
the state as a direct result of overpayments, they do not see the benefit
in complying with states' requests for wage data in a timely manner.

Our prior work and work by Labor's OIG also shows that some UI
overpayments result from identity-related violations. For example, our
prior work shows that in 2001, Labor identified about $1.4 million in UI
overpayments resulting from Social Security violations. 8 Labor determined
these overpayments to be the result of fraud. More recently, in its fiscal
year 2007 budget justification, Labor estimated that approximately $313
million in overpayments results from identity theft each year. Labor's OIG
has documented identity theft schemes as a major management challenge. For
example, in its semiannual report to Congress, the OIG reported on a case
in which individuals used more than 200 stolen identities to file 222 UI
claims and obtain more than $693,000 in UI benefits from February 2001
through February 2005.9

Labor is Taking Actions to Help States Detect and Prevent Overpayments

Labor has introduced several initiatives to help states improve their
ability to detect and prevent overpayments in the UI program. First, Labor
has initiated a pilot using the National Directory of New Hires (NDNH) to
further assist in identifying and preventing improper payments, including
overpayments. The NDNH is a database, maintained by the Department of
Health and Human Services' Office of Child Support Enforcement, that
contains information on all newly hired employees, quarterly wage reports
for all employees, and UI claims nationwide. The NDNH enhances states'
ability to detect unreported work violations by UI claimants working in
other states or for certain employers that operate in multiple states. In
addition, the NDNH can help improve the accuracy of Labor's error
estimates. Information from the NDNH cross-match can be readily integrated
into Labor's BAM program by cross-matching the SSNs of the claimants
against the NDNH. In fiscal year 2005, three states (Texas, Utah, and
Virginia) participated in the pilot. According to Labor, initial results
of the pilot show that overpayment detections increased 114 percent in
Texas, 41 percent in Utah, and 73 percent in Virginia. The Texas Workforce
Commission also reported that using the national cross-match in
combination with the existing statewide cross-match helped detect 50
percent more cases of potential fraud in one quarter than it would have
detected otherwise. In addition, on the basis of its NDNH pilot results,
Labor reported in its fiscal year 2005 performance and accountability
report that a substantial amount of additional overpayments could be
detected using the database. Labor reported that it is moving ahead with
full implementation of the NDNH cross-match with 5 states (Connecticut,
Texas, Utah, Virginia, and Washington), and expects 29 states to use the
NDNH by the end of fiscal year 2006.

8GAO, Unemployment Insurance: Increased Focus on Program Integrity Could
Reduce Billions in Overpayments, GAO-02-697 (Washington, D.C.: July 12,
2002).

9Department of Labor, Office of Inspector General, Semiannual Report to
the Congress, April 1, 2005--September 30, 2005, Vol. 54.

In addition to its NDNH pilot, Labor is also pursuing the use of other
data sources to improve UI program integrity. In particular, Labor
continues to promote states' data sharing with other agencies, such as the
Social Security Administration (SSA), to identify and prevent
overpayments. According to Labor's fiscal year 2005 performance and
accountability report, the department has funded states to exchange data
with SSA on a real-time basis, giving states the ability to verify
claimants' identity and prevent most overpayments due to fraudulent or
mistaken use of SSNs. Labor's fiscal year 2007 budget request includes $10
million in funding to detect and prevent fraudulent UI benefit claims that
use personal information stolen from workers. Labor estimates that the
requested funds could generate savings of at least $77 million to the UI
Trust Fund by preventing erroneous payments caused by the use of stolen
identities.

Along with efforts to enhance states' use of data sharing to detect and
prevent overpayments, Labor has taken other steps to enhance UI program
integrity, including the development of a new core performance measure for
overpayment detection at the state level. More specifically, Labor has
announced that states will be given an additional incentive to prevent and
detect overpayments by implementing core measures in states' performance
budget plans based on the level of overpayments the states have detected.
While Labor has established overpayment detection as one of its core
measures, it has not yet specified the level of performance that states
will be required to meet under this measure. In addition, Labor's fiscal
year 2006 budget request contained a legislative proposal designed to give
states the means to obtain funding for program integrity activities,
including additional staff to enhance recoveries and prevent overpayments.
Moreover, to reduce overpayments, Labor awarded Reemployment and
Eligibility Assessments grants to 21 states during fiscal year 2005. The
grants have been used to conduct in-person claimant interviews to assess
claimants' continued eligibility for benefits and to ensure that
individuals understand that they must stop claiming benefits upon their
return to work.10 Labor's fiscal year 2007 budget request includes $30
million in additional funding to continue this effort. Labor estimates
that these funds could be used to conduct an additional 539,000 interviews
and could save the UI Trust Fund as much as $151 million by reducing the
average duration of UI benefits for claimants who are interviewed.

In addition to the initiatives contained in its budget request, Labor
plans to submit a legislative proposal in the near future that includes
several initiatives to further help states detect and recover
overpayments.11 Among other things, this proposal may include suggestions
to allow the Department of the Treasury to garnish federal income tax
refunds to recover UI overpayments as a means of improving overpayment
recoveries. The proposal may also allow states to use a small percentage
of recovered overpayments to fund their benefit payment control and
program integrity activities as an incentive to focus their efforts on
those activities. In addition, the proposal may seek to provide employers
with a stronger incentive to inform the state when inappropriate UI claims
are made. More specifically, the proposal could require states to charge
employers a higher UI tax rate when claimants are overpaid, if it is
determined that the overpayment was the employer's fault (such as when an
employer fails to provide wage information to the state in a timely
manner). Such additional charges could lead to an increase in the UI tax
rate for affected employers.

10These interviews would also promote use of reemployment services
available in One-Stop Career Centers to assist claimants to become
reemployed more quickly.

11According to Labor, this proposal will be similar to the 2005
legislative proposal (the Unemployment Compensation Program Integrity Act
of 2005).

    States Make Use of Federal Requirements to Help Speed Reemployment of UI
  Claimants, but Knowing More about Outcomes Could Enhance Program Performance

In our review of states' efforts to help UI claimants quickly return to
work, we found that states most often make use of federal UI program
requirements to help connect claimants with reemployment services at
various points in their claims, usually beginning at the time their
initial claim is filed. All federally approved state UI programs must
include able-to-work and available-for-work requirements that claimants
must meet in order to receive benefits. In many states, these requirements
also serve to link claimants to reemployment opportunities and services.
In addition, states provide targeted reemployment services to particular
groups of UI claimants. The federal requirement of claimant profiling is
typically the primary mechanism for targeting reemployment services to
specific claimants. Despite states' efforts to design systems that link UI
claimants to reemployment services, few data are available to gauge the
extent to which their efforts are having the intended result. Moreover,
Labor's fiscal year 2007 budget request does not include funding
specifically designated for conducting evaluations of federally required
efforts to target reemployment services.

States Use Compliance with Work Requirements and Target Services to Particular
Groups of Claimants to Help Speed Reemployment

Although all UI claimants can access the range of reemployment services
through the one-stop system at any time, UI program requirements often
provide the context for states' efforts to link claimants to reemployment
services. Specifically, all federally approved state UI programs require
that claimants be able and available to work. To meet these conditions, 44
states require that UI claimants register with the state's labor
exchange-that is, job-matching services provided through the
Wagner-Peyser-funded Employment Service-in order to be eligible for UI
benefits. In addition, 49 states impose a work search requirement as a
condition for continuing UI eligibility, and claimants must document that
they are meeting their state's work search requirement in a number of
ways. Most commonly, claimants are required to keep a log of work search
activities that may be subject to review, or they must certify that they
are able and available to work through the process of filing for a
continuing claim.

These work registration and work search requirements often serve to link
claimants to reemployment services. The process of registering for work
with the state's labor exchange, for example, may bring claimants into an
Employment Service office or one-stop center where reemployment services
are delivered.

Some states also use their processes for monitoring compliance with the
work search requirement to direct claimants to reemployment services.
Officials in 39 of the 49 states that require claimants to actively seek
employment told us that telephone or in-person interviews with claimants
may be used to monitor compliance with this requirement. In over
two-thirds of these states, officials told us that some information on job
search strategies or reemployment services is provided during the
interview.

States also engage some claimants in reemployment services directly
through programs that identify certain groups for more targeted
assistance. States primarily target reemployment services to claimants
identified through federally required claimant-profiling systems-a process
that uses a statistical model or characteristics screen to identify
claimants who are most likely to exhaust their UI benefits before finding
work. While claimants identified and referred to services through
profiling can access the services available to all job seekers through the
one-stop system, participation in the services they are referred to-most
often orientation and assessment services-is mandatory for profiled
claimants. In addition, many officials told us that the services profiled
claimants received depended on their individual needs following an
assessment, the development of an individual plan, or the guidance of
staff at a one-stop center. While failure to report to required
reemployment services can result in benefits being denied, states vary in
the conditions that prompt denying benefits.

Maryland, for example, targets reemployment services to profiled claimants
through its Early Intervention program. This program, which began in 1994,
offers an interactive, 2-day workshop, addressing self-assessment, job
search resources, resume writing and interviewing skills, and other
community resources available to job seekers. Profiled claimants selected
for the workshop who fail to attend are given one opportunity to
reschedule; after that, their failure to participate is reported to the UI
program and their benefits may be suspended. When claimants complete the
workshop, they are registered with the Maryland Job Service, they receive
an individual employment plan, and the workshop facilitator may refer them
to additional services. Officials told us that although they currently do
not have data to show the impact of this program, they have received very
positive feedback about the quality and effectiveness of the workshops.

Some states have developed additional methods to target reemployment
services to particular groups of UI claimants. For example, one-stop staff
in Washington have the ability to identify various subgroups of claimants
using a tracking device called the Claimant Progress Tool. Officials told
us that one-stop staff typically use this tool to identify claimants who
are about 100 days into their claim, and then contact them for targeted
job search assistance and job referrals. This process was developed to
help the state achieve a goal of reducing the portion of its UI benefits
that unemployed workers claim. Georgia's state-funded Claimant Assistance
Program identifies claimants who are seen to be ready for employment and
requires them to participate in the same services required of profiled
claimants. This program is designed to help the state achieve its goal of
generating savings for the UI Trust Fund.

During fiscal years 2001 through 2005, states often made use of Labor's
Reemployment Services Grants-totaling $35 million per year-to fund some of
the targeted services. Officials in the majority of the states we
interviewed told us their states had used the Reemployment Services Grant
funds to hire staff to provide reemployment services to UI claimants. For
example, Maryland state officials said they used their funds to hire staff
for the Early Intervention program, enabling them to run more workshops in
areas that needed them and to make further improvements in the program.
Some states also used these grants to direct reemployment services to
claimants beyond those who have been profiled and to support other
enhancements in the provision of reemployment services to claimants. For
example, Washington state officials told us they used funds from these
grants to support the development of the Claimant Progress Tool. Beginning
in fiscal year 2005, Labor began shifting its focus away from these grants
that funded direct reemployment services for UI claimants toward the
Reemployment and Eligibility Assessment Grants. These new grants focus
states' efforts on providing face-to-face eligibility interviews with
claimants as a way to ensure compliance with work search requirements. As
part of these interviews, eligibility workers may refer claimants to
reemployment services funded by Employment Services, the Workforce
Investment Act (WIA), or the Trade Adjustment Assistance (TAA) program.

Little Information Exists to Assess whether States' Efforts Are Achieving the
Intended Outcomes

Despite states' efforts to design systems that link UI claimants to
reemployment services, little is known about the extent to which claimants
receive reemployment services or about the outcomes they achieve. Although
states must meet a number of federal reporting requirements for their UI
and employment and training programs, including reporting on the outcomes
of profiled claimants, none of these reports provide a complete picture of
the services received or the outcomes obtained by UI claimants. Labor only
recently began to require that states provide information on the
reemployment outcomes of UI claimants, and the ongoing evaluations of
claimant profiling are limited.

States must track and report annually on several performance measures
considered key indicators of UI program performance, but these measures
largely focus on benefit and tax accuracy, quality, and timeliness. In
addition, states must also report to Labor on their claimant-profiling
process, but information in these reports represent only a portion of all
UI claimants the state has served, a proportion that can vary from place
to place and from month to month depending on available resources.

UI claimants may access other federally funded reemployment assistance
through the Wagner-Peyser Employment Service, WIA Adult or Dislocated
Worker programs, and, if they are laid off because of trade, the Trade
Adjustment Assistance program. To monitor the performance of these
programs, Labor requires states to meet a number of reporting
requirements, but these reports are submitted on a program-by-program
basis, and none provide a complete picture of the services received or the
outcomes obtained by all UI claimants.

Having data that show the degree to which reemployment services are
reaching UI claimants is key to good program management and provides a
first step toward understanding the impact of these programs. However,
knowing how many claimants may be accessing reemployment services and the
type of outcomes they may be achieving has proven difficult for state and
local officials. We found that only 14 states go beyond the federal
reporting requirements to routinely track the extent to which UI claimants
receive services from the broad array of federally funded programs that
are designed to assist them, and only 6 states routinely monitor outcomes
for UI claimants who receive reemployment services. States most often told
us that tracking claimant services across multiple programs was made
difficult by the fact that reemployment services and UI claimant data were
maintained in separate data systems-systems that were either incompatible
or difficult to link.

Labor has some initiatives that may begin to shed light on claimant
outcomes, but these efforts may not go far enough. Labor recently modified
its UI performance measures to require states to track a reemployment rate
for their UI claimants-defined as the percentage of UI claimants who are
reemployed within the quarter following their first UI payment. This
change will help focus efforts on speeding reemployment and will improve
the understanding of how many UI claimants are quickly reemployed
nationwide, but it will not allow for an assessment of the outcomes of
claimants who access reemployment services compared to those who do not.
Furthermore, states must meet federal requirements to target reemployment
services using the claimant-profiling process, but little is known about
the effectiveness of their efforts. Labor funded an evaluation of the
claimant profiling system in 8 states beginning in 1996, including an
assessment of UI benefit duration, employment, and earnings. The current
evaluation of the profiling process focuses exclusively on how well the
models are able to predict whether a claimant will exhaust UI benefits,
not on whether the process results in shorter benefit duration or better
employment outcomes for claimants. Budget authority to conduct the current
evaluation expires at the end of fiscal year 2006, and no additional funds
have been requested in the fiscal year 2007 budget specifically to conduct
further evaluations on profiling.

Labor is also developing a system to consolidate performance reporting for
Labor's Employment and Training Administration (ETA) programs. This
system-ETA's Management Information and Longitudinal Evaluation (EMILE)
system-would consolidate reporting across a range of Labor programs
including WIA, Employment Service, and TAA. Current plans do not include
incorporating UI reporting into EMILE. Last year, we recommended that
Labor work with states to explore the feasibility of collecting more
comprehensive information on UI claimants' services and outcomes. Although
Labor generally agreed with our findings, Labor commented that current and
planned data collection efforts would provide sufficient information to
policy makers. While Labor's new initiatives, in combination with current
reporting requirements, will provide valuable information on the
reemployment activities of some UI claimants, these efforts will not allow
for a comprehensive, nationwide understanding of claimants' participation
in the broad range of reemployment services designed to assist them.
Furthermore, these efforts will not move states in the direction of having
the data they need to better manage their systems.

                            Concluding Observations

UI's size and importance make it critical that the program is performing
at a peak level. With annual overpayments reaching the billions, it will
be important for federal and state stakeholders to take the necessary
action to address this issue. Labor's current initiatives and its proposed
action contained in the fiscal year 2007 budget request could help, but
work remains. In the long run, program performance can be enhanced by
avoiding improper payments rather than trying to detect and collect them.
Labor's initiatives to help states detect and prevent overpayments
represent a positive step toward improving UI program integrity. In
particular, Labor's initiative to promote states' use of the NDNH database
and its continued effort to encourage states' use of SSA's data for
verifying the identity of claimants appear promising. However, to maximize
the effectiveness of these initiatives, it is important for as many states
as possible to participate. In addition, while Labor's development of a
new core performance measure on payment accuracy has the potential to
facilitate states' focus on detecting and preventing overpayments, it is
premature to evaluate the effectiveness of this effort. Moreover, although
Labor continues to fund grants for states to conduct in-person
reemployment and eligibility assessments, more time is needed to fully
assess how effective these initiatives will ultimately be. Finally, while
Labor's June 2005 legislative proposal to charge employers for UI payments
to ineligible individuals could result in UI tax rate increases for those
employers, such a change merits further consideration.

To help claimants get the reemployment services they need, states have
often designed their processes to make use of federal UI program
requirements in linking claimants with services. However, knowing whether
their efforts are actually resulting in better employment outcomes and
reduced UI benefit payments has proven difficult for federal, state, and
local officials. Findings from evaluations are limited, and most states
lack much of this information, arguably critical for good program
management-often because data reside in separate systems that cannot be
easily linked. In the new environment created under the Workforce
Investment Act, where claimants may be served by a range of programs that
go beyond UI and ES, it becomes increasingly important to find new ways to
link program data across a broader range of programs. Doing so is an
essential step in understanding what's working and what's not. Labor's
current and planned initiatives may help fill the information gap, but
they fall short of providing a comprehensive understanding of services and
outcomes for UI claimants.

Mr. Chairman, this completes my prepared statement. I would be happy to
respond to any questions you or other members of the subcommittee may have
at this time.

                     GAO Contacts and Staff Acknowledgments

For information regarding this testimony, please contact Sigurd R. Nilsen,
Director, Education, Workforce, and Income Security Issues, at (202) 512-
7215. Individuals who made key contributions to this testimony include
Dianne Blank, Jeremy Cox, Brett Fallavollita, Michael Hartnett, Margaret
A. Holmes, and Carla Lewis.

Related GAO Products

Improper Payments: Federal and State Coordination Needed to Report
National Improper Payment Estimates on Federal Programs. GAO-06-347 .
Washington, D.C.: April 14, 2006.

Financial Management: Challenges Continue in Meeting Requirements of the
Improper Payments Information Act. GAO-06-581T . Washington, D.C.: April
5, 2006.

Unemployment Insurance: Factors Associated with Benefit Receipt.
GAO-06-341 . Washington, D.C.: March 7, 2006.

Trade Adjustment Assistance: Most Workers in Five Layoffs Received
Services, but Better Outreach Needed on New Benefits. GAO-06-43 .
Washington, D.C.: January 31, 2006.

Workforce Investment Act: Labor and States Have Taken Actions to Improve
Data Quality, but Additional Steps Are Needed. GAO-06-82 . Washington,
D.C.: November 14, 2005.

Unemployment Insurance: Better Data Needed to Assess Reemployment Services
to Claimants. GAO-05-413 . Washington, D.C.: June 24, 2005.

Unemployment Insurance: Information on Benefit Receipt. GAO-05-291 .
Washington, D.C.: March 17, 2005.

Trade Adjustment Assistance: Reforms Have Accelerated Training Enrollment,
but Implementation Challenges Remain. GAO-04-1012 . Washington, D.C.:
September 22, 2004.

Workforce Investment Act: States and Local Areas Have Developed Strategies
to Assess Performance, but Labor Could Do More to Help. GAO-04-657 .
Washington, D.C.: June 1, 2004.

Financial Management: Fiscal Year 2003 Performance and Accountability
Reports Provide Limited Information on Governmentwide Improper Payments.
GAO-04-631T . Washington, D.C.: April 15, 2004.

Workforce Training: Almost Half of States Fund Employment Placement and
Training through Employer Taxes and Most Coordinate with Federally Funded
Programs. GAO-04-282 . Washington, D.C.: February 13, 2004.

Workforce Investment Act: One-Stop Centers Implemented Strategies to
Strengthen Services and Partnerships, but More Research and Information
Sharing Is Needed. GAO-03-725 . Washington D.C.: June 18, 2003.

Multiple Employment and Training Programs: Funding and Performance
Measures for Major Programs. GAO-03-589 . Washington, D.C.: April 18,
2003.

Unemployment Insurance: Increased Focus on Program Integrity Could Reduce
Billions in Overpayments, GAO-02-697 Washington, D.C.: July 12, 2002.

Unemployment Insurance: Role as Safety Net for Low-Wage Workers Is
Limited. GAO-01-181 . Washington, D.C.: December 29, 2000.

(130576)

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www.gao.gov/cgi-bin/getrpt? GAO-06-696T .

To view the full product, including the scope

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Highlights of GAO-06-696T , a testimony before the Subcommittee on Human
Resources, Committee on Ways and Means, House of Representatives

May 4, 2006

UNEMPLOYMENT INSURANCE

Enhancing Program Performance by Focusing on Improper Payments and
Reemployment Services

Unemployment Insurance (UI) has been a key component in ensuring the
financial security of America's workforce for over 70 years. In fiscal
year 2004, UI covered about 129 million wage and salary workers and paid
about $41 billion in benefits to nearly 9 million workers who lost their
jobs. The Department of Labor (Labor) and states have a shared
responsibility to enhance UI program performance by ensuring that only
eligible individuals receive benefits while on the UI rolls and fostering
reemployment. Labor's Office of Inspector General and others have found
that aspects of UI may be vulnerable to fraud and improper payments, and
despite the size and scope of UI, there has been little national
information to fully assess states' efforts to foster reemployment. This
testimony draws upon results of several GAO reports on (1) Labor's efforts
to identify, estimate, and prevent improper benefit payments and (2)
federal and state efforts to help speed UI claimants' return to work.

We are not making new recommendations at this time. Labor generally agreed
with the UI findings in our referenced reports, but took issue with our
recommendation that the Secretary work with states to consider collecting
more comprehensive information on UI claimants' services and outcomes. We
continue to believe this information is needed.

Labor estimates that about $3.4 billion in UI benefits was overpaid
nationwide in calendar year 2004, but is taking actions to help states
improve their ability to detect and prevent overpayments. According to
Labor's Benefit Accuracy Measurement program, in 2004 claimants were
responsible for a majority of the overpayments. Claimants may fail to
report their work as required, or may use Social Security numbers that did
not exist or belonged to other individuals to fraudulently obtain UI
benefits, resulting in overpayments. Actions by state agencies and
employers may also contribute to overpayments. Labor has introduced a
number of initiatives to help states improve their ability to detect and
prevent overpayments, including new computer matches with federal
databases, a new core performance measure intended to provide states with
added incentives for detecting and preventing overpayments, and additional
funding for states' overpayment detection efforts. Labor's budget request
for fiscal year 2007 includes funding to continue some of these efforts.

In our review of states' efforts to help UI claimants quickly return to
work, we found that states most often made use of federal UI program
requirements to help connect claimants with reemployment. All federally
approved state UI programs must include able-to-work and
available-for-work requirements that claimants must meet in order to
receive benefits. In many states, these requirements also serve to link
claimants to reemployment opportunities and services. In addition, states
provide targeted reemployment services to particular groups of UI
claimants, most often through federally required claimant profiling.
However, despite states' efforts to design systems that link UI claimants
to reemployment services, few data are available to gauge whether or not
their efforts are having the intended result. Labor has some initiatives
that may begin to shed light on claimant outcomes, but they fall short of
providing a comprehensive understanding of services and outcomes for UI
claimants. Labor's fiscal year 2007 budget request does not include
funding for additional evaluations on federally required efforts to target
reemployment services.

Responsibility for UI Overpayments (Calendar Year 2004)
*** End of document. ***