Employment and Training Administration
Washington, D. C. 20213






March 21, 1984




March 31, 1985











for Regional Management




Unemployment Insurance Quality Control


  1. Purpose 

    1. To announce the development of a national Unemployment Insurance Quality Control (QC) Program, and

    2. To request ideas from States on the design and structure of QC.

  2. Background. The Unemployment Insurance Service (UIS)is beginning a new effort to improve program quality and reduce errors in the payment of program benefits and the collection of UI revenues. As an outgrowth of the UI random audit program and other program integrity activities implemented by the Employment and Training Administration (ETA) in recent years, the UI QC system represents an enhancement of the existing random audit system and brings the UI system into the ranks of other programs which have introduced QC programs over the past 20 years.

    This directive outlines the score of the problems lending urgency to QC implementation, and ETA's approach for launching the effort. This is only the first communication with the States on this important matter. ETA will seek State involvement and contribution throughout the design and implementation of the QC and integrity initiatives. State advice and ideas are essential to effective design and utilization of QC results. In responding, keep in mind that random audit experience is helpful but not a prerequisite for providing ideas, and QC will encompass both benefits and revenue.

  3. Magnitude of the Problem. Calendar Year 1982 random audit results from the first 15 States revealed overpayment rates higher titan were reported under Benefit Payment Control. The annual overpayment rate from those 15 States was 12.5 percent overall. Random audit error rates show payment errors cost 10 times more than earlier reporting estimates. The revenue error rates are not yet known but ETA expects to identify and collect significant lost or owed revenues once we aevelop a QC tool for revenue. For instance, current tax delinquencies exceed $920 million. An Office of Inspector General study revealed that not promptly identifying covered new employers cost an estimated $45 million in 1982 in surveyed States. This same study concluded that failure to deposit collections promptly in correct accounts cost an estimated $25 million in these States. Also, Random Audit findings show significant errors in wage information reported by employers. Erroneous wage information may result in errors when computing employer tax rates.

    Losses from the UI Trust Fund gain addled significance in light of the fact that many State unemployment funds are insolvent. Currently 23 States are borrowing from the UI Trust Fund with a total debt of $13.3 billion.

  4. What Will QC Do? The QC initiatives will build on existing efforts to improve UI integrity and restore Trust Fund solvency. Ultimately, QC may cover the entire UI process-including benefits, revenue, and administration. This will improve current, more limited, efforts. Random audit covers only part of the benefit programs and none of the revenue-process.

    QC also aims to enhance current efforts to identify errors and correct problems through improvements in the usefulness of the data,--for instance, increasing data precision to a 95 percent confidence level from the random audit level of 80 percent confidence and increasing-sample sizes to gain more detailed and precise information.

    QC is intended first and foremost to be a tool for State managers--as random audit has been.

  5. Objectives. The QC objective is to gain long term, systemwide improvements in the UI program. The purpose of the effort is to improve and maintain UI program integrity, by reducing overpayment errors, fraudulent overpayments, and improving the identification and collection of overpayments.

    ETA also anticipates eventual increases in revenue through more accurate tax billings, selective use of audit control resources, and focus on causes of errors. Concentrating on high risk employers and special analyses of data are examples of possible methods to achieve these results.

  6. Integrity Initiatives. Based on random audit findings and other existing sources of information UIS plans a number of other initiatives separate from but logically related to the objectives of a QC effort. The purpose of these initiatives is to test procedures for detecting and preventing improper payments and to provide States with those systems which prove effective. They include: implementation where feasible of existing UI model systems, e.g., Model Crossmatch, Model Recovery, and Fictitious Employer Detection, development and testing of a precheck system before UI first payments; introduction of error prone profiling; the design and evaluation of model approaches to work test; testing of a model prosecution approach; and exploring Federal legislation regarding incentives and resources for supporting these efforts.

  7. Timetable. Initial planning for implementation has started. Our target is for first sampling of some States to begin in December 1984, with the remainder to phase in as quickly as possible. We hope to test error prone profiling and pre-check systems in four States in FY '84 with nationwide implementation to come later. All States not already funded will receive funds to implement appropriate model automated systems in FY '84.

  8. Action Required. We want any ideas, comments, opinions, or suggestions concerning the design or structure of a QC system from the State perspective and encourage States to submit them as soon as possible to Carolyn Golding, Director, Unemployment Insurance Service, Employment and Training Administration, U.S. Department of Labor, 601 D Street, N.W., Room 9314, Washington, D.C. 20213. Ideas on information items to be included ire QC, sample size, frequency of sampling, and type of case followup, are especially welcome now--the sooner tree better.

  9. Inquiries. Direct questions on the QC effort to Ms. Golding an Janet Sten on (202) 376-7972 or to Frank Haendler and James Van Erden on (202) 376-6328.