Section A - UIPL 33-99

Introduction

Overview

Introduction.One of the responsibilities of the UI program is the recovery of overpaid benefits. While overpayment establishments have increased significantly in the last ten years, overpayment recovery has failed to reach the level achieved in 1960 when, nationally, 71 percent of the overpayment dollars established were recovered. Economic conditions as well as legislative and judicial decisions⁽¹⁾ have resulted in establishing benefit overpayments that are difficult to collect.

SESAs are encouraged to take advantage of techniques and practices in use by other collection organizations to enhance and strengthen their recovery programs.

Purpose of TAG. In addition to communicating USDOL guidelines, this TAG is intended to be a reference tool for overpayment recovery activities.

In this section The following topics will be discussed in this section.

Topic	Page
Improving the Program	2
Legal Basis for Overpayment Recovery	4
Overpayment Prevention	6
Overpayment Establishment	8
Overpayment Recovery	10
BPC Funding	13
Summary of Guidelines	16

Improving the Program

Introduction

UI program responsibilities include:

Preventing improper payment of UI benefits.
Deterring claimants from obtaining benefits through willful misrepresentation.
Detecting improper payments.
Recovering overpaid benefits as quickly and efficiently as possible.
Prosecuting claimants who receive benefits by fraud.

Recovery programs must be enhanced and strengthened The recovery of overpaid UI benefits is a responsibility that must be given the same emphasis as fraud detection and overpayment establishment. Overpayment establishments are increasing while recovery struggles with manual and/or partially automated processes. It is important to recover established overpayments to protect the UI trust fund and to maintain the integrity of the UI system.

Achieving improvement Most recovery programs have been in place for a number of years. To achieve improvement:

Review policies, procedures, rules, and job descriptions to ensure they are still valid and provide a competitive, cost-effective program.
Develop performance benchmarks to ensure improvement efforts are moving forward.
Establish a best practices team to:
1. Compare the SESA's recovery program to collection programs conducted by other agencies and private sector businesses.
2. Explore potential for developing ideas and techniques in use by other organizations.
3. Test improvements and compare results to benchmarks.
Share the results with other SESA organizations through the ITSC UI Web Site and/or other communication devices.

Legal Basis for Overpayment Recovery

Introduction. The recovery of overpaid UI benefits is based on, and controlled by, individual state laws. To operate an effective recovery program, the SESA must have statutory authority that allows maximum use of all available recovery methods and tools.

Legal basis for prevention, detection, and recovery. The legal basis for prevention, detection, and recovery of UI benefit overpayments emanates from provisions of the Social Security Act and the Internal Revenue Code.

Section 303(a)(1) of the Social Security Act requires that a state's law include provisions for:

"Such methods of administration...as are found by the Secretary to be reasonably calculated to insure full payment of unemployment compensation when due."

Section 303(a)(5) of the Social Security Act requires that a state's law include provisions for:

"Expenditure of all money withdrawn from an unemployment fund of such State, in the payment of unemployment compensation..."

Section 3306(h) of the Internal Revenue Code defines "compensation"e; as:

"e;...cash benefits payable to individuals with respect to their unemployment."e;

Section 3304(a)(4) of the Internal Revenue Code contains a substantially similar provision.

Interpretation of Federal law requirements. The Secretary of Labor has interpreted Federal law provisions⁽²⁾ to require that a state's law include provisions for such methods of administration as are, within reason, calculated:

To detect benefits paid through error by the agency or through willful misrepresentation or error by the claimant or others.
To deter claimants from obtaining benefits through willful misrepresentation.
To recover benefits overpaid under certain circumstances.

Impact of unrecovered overpayments. All states have statutory provisions for the recovery of overpaid UI benefits; however, these provisions vary greatly. Unrecovered overpayments drain state UI trust funds of millions of dollars in potential interest revenue.

This table contains selected national data for fraud and non-fraud overpayments as reflected on the 1997 USDOL ETA 227 report (Overpayment Detection/Recovery). ⁽³⁾

Category Dollars

Collectible Overpayments $1.1 billion

Doubtful Recovery $2.4 billion

Written off as Uncollectible $118.3 million

Overpayment Prevention

Introduction. Overpayment prevention should be one of the primary objectives of the UI program. A proactive approach to prevention is critical to ensure that the integrity of the UI fund is protected. A proactive approach means that staff should anticipate causes of improper payments and devote appropriate resources to develop ways to prevent overpayments.

A greater need for effective recovery efforts is created by a lack of overpayment prevention. SESAs using information from reports such as New Hire may not need to put as much emphasis on recovery as these overpayments are generally for smaller amounts which are more easily recovered.

Importance of prevention. The BPC Technical Assistance Guide, released in June 1994, stressed the importance of prevention.

"Many states concentrate their BPC efforts on detecting overpayments after they have occurred, rather than preventing them from occurring in the first place. A SESA can, however, study the causes of overpayments by analyzing historical data (reports) and pooling the knowledge and experience of UI staff. The SESA can then identify the earliest point a claim can be influenced so that overpayments do not occur."

Benefits of an effective prevention program. An effective prevention program can reduce:

The potential for fraud and/or agency errors that result in overpaid UI benefits.
Expenditure of valuable resources to recover overpaid UI benefits.

Current prevention activities. Prevention activities⁽⁴⁾ that stress the consequences of providing inaccurate or false information include:

The claimant handbook.
Benefit rights interviews.
Check stubs and check endorsements.
Messages inserted with checks and claim forms.
Posters and handouts.
Automated voice response systems.
New hire reporting requirements.
Employer handbooks and seminars.

Opportunities for improvement. Most SESAs currently have Web Sites that could be enhanced to include the consequences of fraudulent activities. In addition, SESAs should actively seek new ways to prevent the overpayment of benefits and share their successes on the ITSC UI Web Site.

Guidelines. It is recommended that SESAs:

Study the various types of and reasons for overpayments and then take appropriate action to eliminate or control the problem.
Periodically evaluate increases or declines in overpayment establishments to measure the effectiveness of the agency's prevention methods and techniques.

Overpayment Establishment

Introduction. Overpayment establishments have more than tripled from $174.6 million in 1984 to $556.4 million in 1997. Overall, SESAs established over $4 billion in fraud and non-fraud overpayments between 1984 and 1997.

Establishment and recovery as a percentage of benefits paid. When calculated as a percentage of benefits paid, overpayment recovery increased from 0.63 percent in 1984 to 1.24 percent in 1996. This graph reflects establishment and recovery as a percentage of benefits paid from 1984 through 1996.

Analysis: Overpayment establishments increased from 1.31 percent in 1984 to 2.31 percent in 1996. Some of the reasons for the increase could be related to:

Re-engineering efforts that have changed the way services are delivered.

Reductions in funding and/or budget constraints affecting prevention activities.
Automation of overpayment establishment processes.

ETA 227 statistical data. This table reflects statistical data reported by SESAs on ETA 227 reports for calendar year 1997.

Category Dollars

Overpayments established $556.4 million

Dollars recovered $274.7 million

Collectible overpayments (year end) $1.1 billion

Written off as uncollectible $118.3 million

Analysis:

The full amount of overpaid benefits is not known, as statistics are not available on potential overpayments that were not pursued due to lack of staffing and/or funding.

A comparison of collectible overpayments to dollars recovered during 1997 reflects the emphasis on automating overpayment establishment processes without automating overpayment recovery activities.

A comparison between dollars written off and dollars recovered appears to support a conclusion that there may be a weakness in overpayment recovery programs.

Overpayment Recovery

Introduction.Data obtained from reports and reviews conducted by USDOL Regional Office staff during the last few years indicates that some SESAs are still experiencing problems with recovery.

Desired level of achievement. A desired level of achievement of fifty-five percent recovery of overpaid UI benefits was established to measure SESA performance. Data reported by the SESAs on the ETA 227 report are used to calculate the percentage of achievement attained.

Statistics can be interpreted differently. When recovery is calculated as a percentage of:

Overpayment establishments, recovery has declined.
Benefits paid,⁽⁵⁾ recovery has increased from 1.02 percent in 1985 to 2.87 percent in 1997.

Overall decline in recovery since 1960. This table reflects recovery as a percentage of overpayment establishments.

Year Total Recovery

1960 71.1%

1977 44.0%

1985 53.5%

1995 47.7%

1997 49.4%

Recovery concerns. In 1978, concerns were expressed about unrecovered overpayments approaching $75 million dollars a year in state programs.

Statistics reported in 1997 should also be a cause for concern. Overpayments totaling:

$118.3 million dollars were written off as uncollectible.
$2.4 billion dollars, potentially to be written off as uncollectible, are currently in the Allowance for Doubtful Accounts category.

Recovery calculations. When recovery is calculated as a percentage of overpayment establishments, recovery has declined. Comparing dollars recovered in 1985 to dollars recovered in 1997 indicates that productivity has improved.

1985	1997
$129.0 million	$274.7 million

Reasons for decline in recovery. A study conducted between 1995 and 1998⁽⁶⁾ concluded that factors identified in 1975 and 1978 that contributed to concerns about overpayment recovery are applicable today. Recovery is not as effective as it could be due to:

Reductions in funding.

Lack of statutes to support an aggressive, proactive recovery program.

Reliance on passive recovery methods, i.e., offset of benefits and state tax returns.

Lack of automation.

Performance measures
The USDOL has recognized the need for measures that more accurately reflect the level of recovery performance. As a result, the USDOL initiated a project to identify performance measures that would meet oversight needs for both the SESAs and the USDOL.

The BPC Performance Measurement Pilot, initiated in 1996, involves a study of alternative performance measures for the overpayment program. The new alternatives are the USDOL's effort to:

Address weaknesses in the current performance measures.

Provide a mechanism for continuous improvement.

Encourage SESAs to establish cost benefit measures for BPC activities.

BPC Funding

Introduction A 1975 study identified concerns about the decline in overpayment recovery during a prior five-year period. The reason for the decline was determined to be budgetary restrictions that resulted in a decrease in collection efforts.

Comparison of BPC funding statistics This table compares 1977 and 1997 BPC funding statistics.

BPC Funding	1977 ⁽⁷⁾	1997 ⁽⁸⁾	Percentage of Change
BPC annual positions	2,275	2,065.6	-9%
Cost per position	$16,625	$48,938	+193%
Total cost for the program	$37.8 million	$102.8 million	+172%
Recovery (Cash and Offset)	$59.6 million	$274.7 million	+361%

Analysis: While BPC positions have declined by 209.4 and the average cost per position has increased, the comparison between cost dollars and recovery dollars clearly reflects that productivity has improved since 1977.

Dollars recovered to BPC funding This table compares dollars recovered to BPC funding statistics.

Dollars recovered per . . . 1977 1997 Percentage of Change

Position $26,198 $132,974 +408%

Cost of position $3,585 $5,613 +57%

Dollar of total cost $1.58 $2.67 +69%

Analysis: There has been a distinct improvement in dollars recovered as compared to dollars spent. Some of the factors that may have had an effect on this improvement are:
Supplemental funding by SESAs.

Automation of overpayment establishment processes.

Concentration of efforts on overpayments with greater potential for recovery.

Expansion of offset programs.

Budget To ensure recovery programs are adequately funded, SESAs should capture data to measure the cost of recovery. SESAs are also encouraged to augment recovery program funding by shifting the cost of recovery to the debtor.

Cost of recovery
The most productive recovery methods.

The most cost-effective recovery methods.

Guidelines It is recommended that SESAs:
Capture data on the cost of recovery programs.

Compare results to those achieved by other collection organizations in the public and private sector.

Consider shifting the cost of recovery to the debtor to augment funding.

Summary of Guidelines

Introduction. Program management guidelines are provided for SESA consideration to enhance the recovery of overpaid UI benefits.

Overpayment prevention. It is recommended that SESAs:

Study the various types of and reasons for overpayments and then take appropriate action to eliminate or control the problem.
Periodically evaluate increases or declines in overpayment establishments to measure the effectiveness of the agency's prevention methods and techniques.

BPC funding. It is recommended that SESAs:

Capture data on the cost of recovery programs.
Compare results to those achieved by other collection organizations in the public and private sector.
Consider shifting the cost of recovery to the debtor to augment funding.

Footnotes:

1. One of the judicial actions that contributed to the increase in benefit overpayments was the JAVA decision that allows claimants to collect benefits pending appeal decisions.

2. For additional information, see Attachment A, Criteria for Review.

3. The 1997 ETA 227 report contains a compilation of statistical data for fifty SESAs.

4. Additional information on prevention activities is contained in the BPC Technical Assistance Guide.

5. Benefits paid in 1997 by fifty-one SESAs totaled $19,374,957,312.

6. UI Overpayment Recovery Project, Report of Analysis (Methods, Techniques, and Automation).

7. Statistics for 1977 - 1978 Employment and Training Handbook No. 375, Resource Handbook on Overpayment Recovery.

8. Statistics for 1997 - ETA 227 data and the BPC and Internal Security Report.

Category	Dollars
Collectible Overpayments	$1.1 billion
Doubtful Recovery	$2.4 billion
Written off as Uncollectible	$118.3 million

Category	Dollars
Overpayments established	$556.4 million
Dollars recovered	$274.7 million
Collectible overpayments (year end)	$1.1 billion
Written off as uncollectible	$118.3 million

Year	Total Recovery
1960	71.1%
1977	44.0%
1985	53.5%
1995	47.7%
1997	49.4%

Introduction	A 1975 study identified concerns about the decline in overpayment recovery during a prior five-year period. The reason for the decline was determined to be budgetary restrictions that resulted in a decrease in collection efforts.
Comparison of BPC funding statistics	This table compares 1977 and 1997 BPC funding statistics.

Dollars recovered per . . .	1977	1997	Percentage of Change
Position	$26,198	$132,974	+408%
Cost of position	$3,585	$5,613	+57%
Dollar of total cost	$1.58	$2.67	+69%

Budget	To ensure recovery programs are adequately funded, SESAs should capture data to measure the cost of recovery. SESAs are also encouraged to augment recovery program funding by shifting the cost of recovery to the debtor.
Cost of recovery	The most productive recovery methods. The most cost-effective recovery methods.
Guidelines	It is recommended that SESAs: Capture data on the cost of recovery programs. Compare results to those achieved by other collection organizations in the public and private sector. Consider shifting the cost of recovery to the debtor to augment funding.