DIRECTIVE	:	UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 02-86
TO	:	ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM	:	BARBARA ANN FARMER Acting Administrator forRegional Management
SUBJECT	:	Transmittal of Audit Report of the Inspector General:  Financing the Unemployment Insurance Program has Shifted from a System Based on Individual Employer's Responsibility Towards a Socialized System (Audit Report Number 03-3-203-03-315)

1. Purpose. To transmit a copy of the above-mentioned report.

2. References. Section 3303(a)(1) of the Federal Unemployment Tax Act.

3. Background. The Office of the Inspector General (OIG) conducted an audit to determine the effectiveness of experience rating in financing the unemployment insurance system. The audit showed that the degree of experience rating in 9 of the 12 States audited has declined since 1970 causing a shift from indivual employer's responsibility towards a socialized system. It suggests that the lack of a Federal standard on an acceptable degree of experience rating and inadequate accounting for socialized costs have resulted in this decline. The report recommends that the Secretary of Labor "account for" the degree of experience rating in the States and develop and publish an experience rating index.

4. Response. Within the Department of Labor, it has been agreed that an ongoing Employment and Training/Office of the Inspector General task force will address as a priority assignment the subject of experience rating, from a policy and management perspective. Conclusions and recommendations of the task force will go to the principals: the Assistant Secretary for Employment and Training, the Inspector General, and to the Secretary for his decision on a course of action. Members of the task force have not yet been identified.

5. Action Required. The report is being transmitted for your information.

6. Inquiries. Direct questions to the appropriate regional office.