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Unemployment insurance: identifying payment errors.

A system for detecting payment errors in the unemployment insurance program was recently developed by the U.S. Department of Labor. This system has made it possible to identify the level of both fraud and nonfraud overpayments, as well as underpayments, in the program. Prior to the introduction of this detection system, it was not possible to determine the extent and nature of payment errors.

Currently, the detection system--known as the random audit system--is operating in 46 unemployment insurance jurisdictions. The remaining jurisdictions will be included in this program or its successor (the UI quality control program) during fiscal year 1985. At that time, the audit system will provide a basis for: (1) estimating the extent of payment errors in the nationwide unemployment insurance program; (2) indentifying the primary sources of the payment errors; (3) implementing corrective action, where appropriate; and (4) evaluating the effects of such corrective actions (or other programmatic changes) on unemployment insurance payment accuracy. This summary discusses the design and methodology of the random audit system and presents findings from the pilot tests conducted in five States--Illinois, Kansas, Lousiana, New Jersey, and Washington--over a 1-year period ending in March 1982.

Because of the large volume of weekly payments made in the unemployment insurance system, it would be prohibitively expensive (under current law and policy) to verify each claimant's eligibility to receive benefits. Thus, the random audit system relies on a small sample of payments made in each unemployment insurance jurisdiction as the basis for estimating the extent and nature of payment errors. The payments selected for investigation are taken from a specially constructed computer file of weekly statewide unemployment insurance payments in each participating jurisdiction. Each week, a probability sample of cases is selected from the file, and the results of verifying benefit eligibility for those cases are used to estimate statewide payment errors; quarterly estimates are developed for each unemployment insurance jurisdiction.

After a sample has been selected for review, a detailed and consistent procedure is followed. When cases are selected for investigation, it is assumed that claimants have been properly paid, and this opinion is changed only if documented evidence to the contrary is rpresented.

Verification of benefit eligibility includes the following procedures: (1) files related to the case are obtained and reviewed; (2) the base period wages upon which the claimant established his or her claim for benefits are verified (with employers if possible); (3) a personal interview with the claimant is conducted to verify relevant facts regarding the individual's claim for benefits; (4) the claimant's reasons for separation from previous employers are verified to determine if any disqualifying circumstances were involved; (5) attempts are made to verify if the claimant was able and available for work during the sampled week; (6) if applicable, employers listed by the claimant as work search contacts during the sampled week are contacted for verification as to whether the claimant actually applied for work; (7) as appropriate, attempts are made to determine if the claimant refused any offers of "suitable" work that would disqualify the individual from receiving benefits; (8) attempts are made to determine if the claimant accurately reported any earnings or work performed during the sampled week; and (9) depending on the circumstances of the case, other individuals may be contacted to verify any other determinants that could affect the claimant's eligibility for benefits during the sampled week.

On the basis of information acquired during the verification process, the field investigator makes a judgment as to whether the claimant met eligibility requirements for the benefits received. If an overpayment is suspected, careful review procedures are followed. First, the investigator interviews the claimant a second time in order to provide the claimant an opportunity for rebuttal of evidence acquired during the investigation. Second, a review is requested from the manager of the local unemployment insurance office in which the claim for benefits was filed. Third, the case file is reviewed by the State random audit system supervisor and, in some cases, by a Federal review team (representing the national office of the unemployment insurance service). If the State determines that the payment was in error and the claimant files for an appeal, a representative of the State random audit unit is available to present relevant evidence affecting the case. In the event of a reversal of the overpayment determination, the results recorded for the case are modified to reflect this final status of the sampled payment.

Verifications of benefit eligibility are conducted by unemployment insurance personnel from each participating jurisdiction to ensure that each sampled case is reviewed in accordance with the respective State's law and policy. Each full-time unemployment insurance investigator assigned to the random audit program normally receives no more than three cases on a weekly basis. In contrast, a full-time State unemployment insurance claims examiner assigned to a local office typically would process at least 50 times as many cases in a week. Limitations of the random audit system

Several limitations of the random audit system and its data should be noted. For example, the random audit system and its data should be noted. For example, the random audit system tends to produce "low-side" estimates of the payment errors that characterize State unemployment insurance programs. This tendency appears to result from the following: First, unemployment insurance benefits are paid with at least a 1-week lag, so that "ex post facto" efforts are required to determine if benefits have been paid in accordance with the State's employment security law and policies; the longer these investigations are delayed, the more difficult it is for claimants and others to accurately recall relevant facts, making it more difficult to document payment errors. Second, the provisions of each State's employment security laws and policies limit the extent to which a claimant's activities may be investigated to determine if a payment error occurred. Third, because of the very long time lags usually involved in detecting instances of unreported earnings in unemployment insurance-covered employment through a "postaudit," this procedure is not utilized as part of the standard random audit investigation, resulting in some understatement of overpayments that actually occur. Fourth, unreported earnings in the "cash economy" are extremely difficult to detect, even if "postaudit" procedures are utilitized. Fifth, sampled payments are considered correct ulness documented evidence to the contrary is made available; given the complexities of the employment security laws and policies that specify the eligibility criteria--especially those related to the "availability for work" and "active-search-for-work" requirements--it is likely that overpayment errors are somewhat understated simply because unrefutable documentation could not be obtained. The nature of the payment errors that cannot be detected by the random audit system is such that many would be established as fraud overpayments if they were detected; hence, the estimates provided by the random audit system of fraud overpayments are very likely to be more understated than is the case for all overpayments.

The principal findings of the random audit system pilot tests are summarized below. These results are indicative of the types of information currently being produced on a quarterly basis in the 46 unemployment insurance jurisdictions in which the random audit system is currently operating, but it should be noted that a variety of other data elements also are collected in this system.

Table 1 shows the estimated percentages of weeks paid statewide with either an overpayment or an underpayment of any amount. The total percentage of weeks paid with such errors ranged from 12.2 percent in Louisiana to 52.1 percent in New Jersey; the findings also indicate that overpayment errors tended to be much more common than underpayment errors in the five pilot test States. Underpayments, as a proportion of all dollars paid, were estimated to be 1 percent or less in each State, indicating the insignificance of underpayments.

In sharp contrast, the rates of unemployment insurance overpayments in the five States ranged from 7.3 percent in Louisiana to 24.3 percent in New Jersey; overall, double-digit overpayment rates were estimated for 3 of the 5 States. A comparison of the percentage of dollars overpaid with the percentage of weeks overpaid indicates that payment errors of small dollar amounts were relatively frequent in these States. In Washington, for example, 20 percent of the weeks paid but only 9.3 percent of the dollars paid were estimated to be overpaid. Similarly, in New Jersey, 38.2 percent of the weeks paid but only 24.3 percent of the dollars paid were estimated to be overpaid. The principal cause of these relatively frequent overpayments involving small dollar amounts was errors in the reporting or recording of base period earnings.

Because of the historical interest in and concern about fraud in the unemployment insurance program, a separate measure of fraudulent payments is provided by the random audit system; estimates for the five pilot test States indicate that "officially established" fraudulent payments constituted only a small portion of the total dollars paid in each State; fraud rates ranged from 0.2 percent in Kansas to 2.7 percent in Louisiana. As noted earlier, however, the absence of postaudits to detect unreported earnings in covered employment and the difficulty of detecting unreported earnings in the "cash economy" tend to understate the "true" magnitude of the fraud problem in the unemployment insurance program.

The random audit system also produces information on both the "types" and causes" of payment errors in the unemployment insurance program. Types of payment errors are classified on the basis of whether the error was the "responsibility" of the unemployment insurance claimant, covered employers, the State unemployment insurance agency, or a combination of the three. Causes of payment errors are classified on the basis of which aspects of employment security law or policy were violated, including: errors in the reporting or recording of earnings during the sampled week for which the payment was made; errors in the reporting or recording of base period earnings; violations of "continuing" eligibility criteria (refusals of suitable work, nonavailability for work, inactive job search); disqualifying reasons for separation from previous employers; and other factors. In the current system, statistical information is provided for specific causes of unemployment insurance payment errors only if such causes account for at least 1 percent of quarterly unemployment insurance payments.

THE NATIONAL RANDOM AUDIT is a major step forward in controlling payment errors in the unemployment insurance program. This is an essential program because it provides statistically reliable estimates of payment error rates for entire unemployment insurance jurisdictions. This permits not only identification of payment errors, but also the means through which the fundamental problems can be diagnosed and solved. Furthermore, the capability of the system to provide timely evidence on such payment errors facilitates evaluation of the effects of the various types of corrective actions that may be undertaken in individual unemployment insurance jurisdictions. The compilation of this systemwide data base should prove to be a valuable research tool.
COPYRIGHT 1984 U.S. Bureau of Labor Statistics
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1984 Gale, Cengage Learning. All rights reserved.

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Author:Burgess, Paul L.; Kingston, Jerry L.; St. Louis, Robert D.
Publication:Monthly Labor Review
Date:Dec 1, 1984
Previous Article:Working mothers reach record number in 1984.
Next Article:Earnings in electric and gas utilities.

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