The Unemployment Insurance (UI) program is a federal-state partnership that has been in existence for over 70 years.  Here are the key players:

  • The Federal government – collects the Federal Unemployment Insurance Tax and funds the states costs of operating the system, and oversees state performance.
  • State governments – develop the laws and rules by which their state’s UI program operates and oversee the day-to-day administration of the program.
  • Employers – fund both the administrative and regular benefit costs of the program, but generally have been a disinterested third party, except to the extent that their state manages the program according to state law.
  • Claimants – are recipients of the UI benefits, if eligible under their state’s law.

In Fiscal Year (FY) 2012, states paid UI claimants $90.2 billion in benefits.  Of those, an estimated $10.3 billion were deemed improper (over/under), meaning that the funds were not paid according to state law; went to the wrong recipient, recipient received an incorrect amount, documentation was inadequate or the recipient returned to work and continued to claim benefits – all potential instances where fraud is possible. That’s an estimated 2.67 percent of all benefits paid.

So, what’s the problem?  Why are states issuing improper payments?  As in any case where funds are distributed, states are subject to certain requirements – an important one in the UI program is that states are required to pay claims in a timely fashion: 14-21 days from the time the claim is made.  If states don’t pay in this 14-21 day window, they fail a key performance requirement, “pay when due”.

The Department of Labor (DOL) requires states to have quality assurance programs in place to estimate the level of improper payments.  States randomly select a weekly sample of claims and then have specially trained staff compare the claim against the state’s law to determine whether the payment was properly made.  Typically, audit staff average up to eight hours per claim assessing whether the claimant was entitled to the benefit.  In these assessments, DOL has determined that states generally are able to detect and establish for collection about 50 percent of improper payments. Typically, states only collect about 50 percent of these established overpayments.

The primary reason for improper payments is that claimants continue to claim benefits after returning to work.  In FY 2012, this accounted for 28.8 percent of all improper payments – totaling an estimated $1.43 billion.

What can be done to prevent it?  It is absolutely critical that states utilize best practices and effective automated tools for prevention, detection and collection.  These include:

  • Resources – states must allocate sufficient staff and provide them with effective automated tools to follow up and ensure that claimants are eligible for benefits.
  • Identity verification and authentication – states must verify and authenticate that claimants are who they say they are.
  • State Information Data Exchange System (SIDES) – states must convince employers to participate in the recently launched national SIDES portal and provide timely information about an employee’s separation, and states must utilize the portal as a normal course of business in determining a claimant’s initial and continuing eligibility.
  • Task Forces – states must use cross-functional task forces to determine the causes of improper payments and to find effective tools to prevent, detect and collect  UI improper payments.
  • Legislation – states should put some real teeth in their laws to address improper payment efforts: reexamine their privacy laws to enable states to check claimants’ financial records for potential fraud; implement loss of wage credits for fraud; and provide innovative approaches to ensure adequate resources are dedicated to reducing improper payments.

What can employers do?

  • Ensure your state is using effective methods to detect, prevent and collect improper payments – hold them responsible, but make sure they have the authority and the resources for the task.
  • Use SIDES and respond in a timely , with adequate information, to separation  requests.
  • Respond in a timely fashion to all wage audit notices.
  • Check report of charges sent by the state and compare payroll to UI benefit charges.
  • Report new hires promptly to your states State Directory of New Hires.
  • Attend appeal hearings.
  • Report suspicious behavior (e.g., tell UI agency about former employees you know to be working).

Combating UI improper payments – and especially fraud – requires states and employers to work together.  Remember, it’s your money!

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