This is the accessible text file for GAO report number GAO-06-696T 
entitled 'Unemployment Insurance: Enhancing Program Performance by 
Focusing on Improper Payments and Reemployment Services' which was 
released on May 4, 2006.

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office:

GAO:

Testimony before the Subcommittee on Human Resources, Committee on Ways 
and Means, House of Representatives:

Unemployment Insurance:

Enhancing Program Performance by Focusing on Improper Payments and 
Reemployment Services:

Statement of Sigurd R. Nilsen: 
Director:
Education, Workforce, and Income Security Issues:

GAO-06-696T:

GAO Highlights: 

Highlights of GAO-06-696T, a testimony before the Subcommittee on Human 
Resources, Committee on Ways and Means, House of Representatives.

Why GAO Did This Study: 

Unemployment Insurance (UI) has been a key component in ensuring the 
financial security of Americaís workforce for over 70 years. In fiscal 
year 2004, UI covered about 129 million wage and salary workers and 
paid about $41 billion in benefits to nearly 9 million workers who lost 
their jobs. The Department of Labor (Labor) and states have a shared 
responsibility to enhance UI program performance by ensuring that only 
eligible individuals receive benefits while on the UI rolls and 
fostering reemployment. Laborís Office of Inspector General and others 
have found that aspects of UI may be vulnerable to fraud and improper 
payments, and despite the size and scope of UI, there has been little 
national information to fully assess statesí efforts to foster 
reemployment. This testimony draws upon results of several GAO reports 
on (1) Laborís efforts to identify, estimate, and prevent improper 
benefit payments and (2) federal and state efforts to help speed UI 
claimantsí return to work. 

We are not making new recommendations at this time. Labor generally 
agreed with the UI findings in our referenced reports, but took issue 
with our  recommendation that the Secretary work with states to 
consider collecting more comprehensive information on UI claimantsí 
services and outcomes. We continue to believe this information is 
needed.

What GAO Found: 

Labor estimates that about $3.4 billion in UI benefits was overpaid 
nationwide in calendar year 2004, but is taking actions to help states 
improve their ability to detect and prevent overpayments. According to 
Laborís Benefit Accuracy Measurement program, in 2004 claimants were 
responsible for a majority of the overpayments. Claimants may fail to 
report their work as required, or may use Social Security numbers that 
did not exist or belonged to other individuals to fraudulently obtain 
UI benefits, resulting in overpayments. Actions by state agencies and 
employers may also contribute to overpayments. Labor has introduced a 
number of initiatives to help states improve their ability to detect 
and prevent overpayments, including new computer matches with federal 
databases, a new core performance measure intended to provide states 
with added incentives for detecting and preventing overpayments, and 
additional funding for statesí overpayment detection efforts. Laborís 
budget request for fiscal year 2007 includes funding to continue some 
of these efforts.

In our review of statesí efforts to help UI claimants quickly return to 
work, we found that states most often made use of federal UI program 
requirements to help connect claimants with reemployment. All federally 
approved state UI programs must include able-to-work and available-for-
work requirements that claimants must meet in order to receive 
benefits. In many states, these requirements also serve to link 
claimants to reemployment opportunities and services. In addition, 
states provide targeted reemployment services to particular groups of 
UI claimants, most often through federally required claimant profiling. 
However, despite statesí efforts to design systems that link UI 
claimants to reemployment services, few data are available to gauge 
whether or not their efforts are having the intended result. Labor has 
some initiatives that may begin to shed light on claimant outcomes, but 
they fall short of providing a comprehensive understanding of services 
and outcomes for UI claimants. Laborís fiscal year 2007 budget request 
does not include funding for additional evaluations on federally 
required efforts to target reemployment services.

Figure: Responsibility for UI Overpayments(Calendar Year 2004) 

[See PDF for Image]

Source: Labor.

[End of figure]

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-696T].

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Sigurd Nilsen at (202) 
512-7215or nilsens@gao.gov.

[End of section]

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to assist you in your deliberations on 
Unemployment Insurance (UI) program performance issues as they relate 
to the Department of Labor's (Labor) $2.7 billion fiscal year 2007 
budget request for the UI program. My testimony will focus primarily on 
the results of our past work in UI benefit overpayment and reemployment 
services. The UI program has been a key component in ensuring the 
financial security of America's workforce for over 70 years. The UI 
program is a federal-state partnership designed to partially replace 
lost earnings of individuals who become unemployed through no fault of 
their own and, which in turn, helps to stabilize the economy in times 
of economic downturn. In fiscal year 2004, the UI program covered about 
129 million wage and salary workers and paid about $41 billion in 
benefits to nearly 9 million workers who had lost their jobs. Labor and 
states have a shared responsibility to enhance UI program performance 
by ensuring that only eligible individuals receive benefits while on 
the UI rolls and to foster reemployment. However, Labor's Office of 
Inspector General (OIG) and others have found that numerous aspects of 
the UI program may be vulnerable to fraud and to improper payments to 
claimants, and, despite the size and scope of this program, there has 
been little information at the national level to fully assess states' 
efforts to foster reemployment.

Today, I will draw upon results of recent reports we have completed 
that provide information on UI program performance issues. In 
particular, I will discuss in relation to Labor's budget request (1) 
Labor's efforts to identify, estimate, and prevent improper benefit 
payments, and (2) what is being done at the state and federal levels to 
help speed UI claimants' return to work. To address the first question, 
we drew upon two of our recent studies. In the first study, we reviewed 
Labor guidance, data, and reports and interviewed Labor officials and 
groups involved in unemployment insurance.[Footnote 1] In the second 
study, which reviewed states' efforts to estimate improper payments on 
state-administered federal programs, including UI, Food Stamps, 
Medicaid, and other programs, we primarily conducted surveys of state 
officials, interviewed federal and state officials, and reviewed 
performance and accountability reports and our prior reports.[Footnote 
2] To address the second question, we drew upon the results of another 
of our previous study, where we had conducted telephone interviews with 
UI and workforce development officials in 50 states; sent a follow-up 
questionnaire to gather information on the strategies states use to 
collect data on UI claimants who receive reemployment services; 
interviewed state and local program officials during site visits in 
Georgia, Maryland, Michigan, and Washington; and interviewed Labor 
officials and other experts in the area of UI and reemployment 
services.[Footnote 3]

In summary, Labor estimates that about $3.4 billion in UI benefits was 
overpaid nationwide in calendar year 2004, but is taking actions to 
help states improve their ability to detect and prevent overpayments. 
Labor attributes a majority of overpayments to improper actions taken 
by claimants, although states and employers can also contribute to 
overpayments. Labor has introduced a number of initiatives to help 
states improve their ability to detect and prevent overpayments, 
including new computer matches with federal databases, a new core 
performance measure intended to provide states with added incentives 
for detecting and preventing overpayments, and additional funding for 
states' overpayment detection efforts. Labor's budget request for 
fiscal year 2007 includes funding to continue some of these efforts. As 
annual overpayments reach the billions, it will be important for 
federal and state stakeholders to take the necessary action to address 
the overpayment issue. Avoiding improper payments may do more to 
enhance program performance in the long term than detecting and 
collecting overpayments after they have occurred. To help UI claimants 
return to work quickly, states most often make use of federal UI 
program requirements to connect claimants with available services at 
various points in their claims. In addition, states provide targeted 
reemployment services to particular groups of UI claimants. The federal 
requirement of claimant profiling is typically the primary mechanism 
for targeting reemployment services to specific claimants. However, 
despite states' efforts to design systems that link UI claimants to 
reemployment services, few data are available to gauge the extent to 
which their efforts are having the intended result. Labor's current and 
planned initiatives may help fill the information gap, but they fall 
short of providing a comprehensive understanding of services and 
outcomes for UI claimants.

Background:

The UI program was established by Title III of the Social Security Act 
in 1935 and is a key component in ensuring the financial security of 
America's workforce. The program serves two primary objectives: (1) to 
temporarily replace a portion of earnings for workers who become 
unemployed through no fault of their own and (2) to help stabilize the 
economy during recessions by providing an infusion of consumer dollars 
into the economy. UI is made up of 53 state-administered programs that 
are subject to broad federal guidelines and oversight. In fiscal year 
2004, these programs covered about 129 million wage and salary workers 
and paid benefits totaling $41.3 billion to about 8.8 million workers.

Federal law provides minimum guidelines for state programs and 
authorizes grants to states for program administration. States design 
their own programs, within the guidelines of federal law, and determine 
key elements of these programs, including who is eligible to receive 
state UI benefits, how much they receive, and the amount of taxes that 
employers must pay to help provide these benefits.[Footnote 4] State 
unemployment tax revenues are held in trust by the federal government 
and are used by the states to pay for regular weekly UI benefits, which 
typically can be received for up to 26 weeks.

To receive UI benefits, an unemployed worker must file a claim and 
satisfy the eligibility requirements of the state in which the worker's 
wages were paid. Generally, states require that workers must have a 
minimum amount of wages and employment over a defined base period, 
typically about a year before becoming unemployed, and have not already 
exhausted the maximum amount of benefits or benefit weeks to which they 
would be entitled because of other recent unemployment. In addition 
workers must have become unemployed for reasons other than quitting a 
job or being fired for work-related misconduct, and be able and 
available to work. In order to demonstrate that they are able to work 
and available for work and are still unemployed, claimants must submit 
a certification of continuing eligibility--by mail, telephone, or 
Internet, depending on the state--throughout the benefit period. This 
practice is usually done weekly or biweekly. States may continue to 
monitor claimant eligibility through an eligibility review program, in 
which certain claimants are periodically contacted to review their 
eligibility for benefits, work search activities, and reemployment 
needs.

UI Performance Measurement:

Labor has the responsibility under Title III of the Social Security Act 
for ensuring that states operate effective and efficient UI programs. 
Various provisions of federal law require that certain UI activities be 
performed promptly and accurately. Section 303(a)(1) of the Social 
Security Act requires, as a condition of a state's receiving UI 
administrative grants, "such methods of administration . . . as are 
found by the Secretary of Labor to be reasonably calculated to insure 
full payment of unemployment compensation when due." Labor uses various 
administrative data to provide information on the functioning of all UI 
program activities. Labor divides the measures into two categories: 
core measures, which entail oversight on key performance areas 
representative of the UI program, and management information measures, 
which facilitate the analysis of performance and to assist in planning 
corrective activities when necessary.

One of Labor's performance measurement efforts is the Benefit Accuracy 
Measurement (BAM) program, which is designed to determine the accuracy 
of paid and denied claims in the UI program. It does this by 
reconstructing the UI claims process from samples of weekly payments 
and denied claims using data verified by trained investigators. For 
claims that were overpaid, underpaid, or improperly denied, the BAM 
program determines the cause of and the party responsible for the 
error, the point in the UI claims process at which the error was 
detected, and actions taken by the agency and employers prior to the 
error. For erroneously paid claims, the BAM program determines the 
amount of benefits the claimants should have received, which becomes 
the basis for subsequent recovery efforts. BAM provides two rates of 
improper payments. The first, the Annual Report Overpayment Rate, 
includes estimates of nearly every divergence from what state law and 
policy dictate the payment should have been. The second rate, the 
Operational Overpayment Rate, includes only recoverable overpayments 
states are most likely to detect through ordinary overpayment detection 
and recovery procedures. Operational overpayments are the most likely 
to be detected and established for eventual recovery and return to the 
UI Trust Fund.

Reemployment Services:

Since UI was established, there have been two major changes in the 
nation's workforce development system that have directly affected 
states' UI programs. Specifically, in November 1993, Congress enacted 
legislation amending the Social Security Act to require that each state 
establish a Worker Profiling and Reemployment Services (WPRS) system 
and implement a process typically referred to as claimant profiling. 
The claimant profiling process uses a statistical model or 
characteristics screen to identify claimants who are likely to exhaust 
their UI benefits before finding work. Claimants identified through 
this process are then referred to reemployment services while they are 
still early in their claim. For profiled claimants, participation in 
designated reemployment services becomes an additional requirement for 
continuing eligibility for UI benefits. The second major change was the 
enactment of the Workforce Investment Act of 1998, which requires 
states and localities to bring together about 17 federally funded 
employment and training services into a single system--the one-stop 
system. State UI programs are mandatory partners in the one-stop 
system. Another mandatory partner is the federal Employment Service, 
established by the Wagner-Peyser Act in 1933 to link job seekers with 
job opportunities. The Employment Service (ES) has historically been 
collocated with state UI offices to facilitate UI claimants' access to 
federally funded labor exchanges, job search assistance, job referral, 
placement assistance, assessment, counseling, and testing.

Labor's 2007 Budget Request:

For UI, Labor's fiscal year 2007 budget includes a request for $2.7 
billion. This amount is about $101 million higher than the fiscal year 
2006 enacted level. This request, according to Labor's budget overview, 
funds projected workloads and includes several UI program increases. 
First, Labor is proposing a $30 million increase in fiscal year 2007 
for the amount available to states to conduct reemployment and 
eligibility reviews. Labor notes that the reviews--which entail in- 
person interviews with claimants at one-stop centers--can reduce 
overpayments as well as speed reemployment. Second, Labor is proposing 
a $10 million UI program increase to prevent and detect fraudulent 
claims due to identify theft. Labor proposes to use the new funding for 
staff to investigate and reconcile potential identity theft identified 
through data cross-matching.

More than $3.4 Billion in Overpayments Estimated in 2004, but Labor is 
Taking Some Actions to Enhance Program Integrity:

Labor estimates that about $3.4 billion in UI benefits was overpaid 
nationwide in calendar year 2004, but is taking actions to help states 
improve their ability to detect and prevent overpayments. According to 
Labor's Benefit Accuracy Measurement program, in 2004 (the most recent 
year for which we could obtain specific data) claimants were 
responsible for a majority of the overpayments. Claimants may fail to 
report their work as required, or may use Social Security numbers (SSN) 
that did not exist or that belonged to other individuals to 
fraudulently obtain UI benefits, resulting in overpayments. State 
agencies may also contribute to overpayments if they fail to properly 
record eligibility information. In addition, employers may contribute 
to UI overpayments if they fail to report required information to 
states in a timely manner. Labor has introduced a number of initiatives 
to help states improve their ability to detect and prevent 
overpayments, including new computer matches with federal databases, a 
new core performance measure intended to provide states with added 
incentives for detecting and preventing overpayments, and additional 
funding for states' overpayment detection efforts. Labor's budget 
request for fiscal year 2007 includes funding to continue some of these 
efforts.

The Majority of Overpayments Are Attributable to Claimants:

Of the $3.4 billion in overpayments identified nationwide by the BAM 
program in calendar year 2004,[Footnote 5] almost $2 billion (58 
percent) was attributable to UI claimants alone, while state agency 
errors and employers were responsible for overpayments by others (see 
fig. 1). With respect to claimants, overpayments may occur because 
individuals work while receiving benefits, fail to register with 
employment services (as required in most states), fail to look for a 
new job, or misrepresent their identity. In calendar year 2004, the 
most common cause of overpayments was unreported or erroneously 
reported earnings and income, accounting for almost 28 percent of 
overpayments in that year. The second-leading cause of overpayments-- 
constituting 21 percent of all overpayments--was payments to 
individuals who are not entitled to UI benefits because of the 
circumstances under which they became unemployed (separation issues). 
Other sources of overpayments were attributable to individuals who 
failed to look for work (16 percent) and individuals who did not 
register for employment services (10 percent). Federal and state 
officials have reported that some types of overpayments are more 
difficult to detect than others. For example, in a prior report, some 
officials told us that it could be difficult for states to accurately 
determine, in a cost-effective manner, if a claimant was actively 
searching for work (an eligibility requirement in some states).

Figure 1: Responsibility for UI Overpayments (Calendar Year 2004):

[See PDF for image] 

Source: Labor. 

Note: Percentages do not add to 100 percent because of rounding.

[End of figure]

Other sources of overpayments include state agency errors and 
inaccurate or untimely information provided by employers. Labor's BAM 
program shows that state agency errors, such as failing to properly 
record important eligibility information such as wages, accounted for 
about 15 percent of all estimated overpayments in 2004. Employers 
accounted for about 6 percent of the total estimated overpayments in 
2004. Employers and their agents do not always comply in a timely 
manner with state requests for information needed to determine a 
claimant's eligibility for benefits. For example, one Labor OIG audit 
found that $17 million in overpayments occurred in four states because 
employers did not respond to the states' request for wage information. 
Our work suggests that employers may resist requests to fill out 
paperwork from states because they view the process as time-consuming 
and cumbersome. In addition, because employers are unlikely to 
experience an immediate increase in the UI taxes they pay to the state 
as a direct result of overpayments, they do not see the benefit in 
complying with states' requests for wage data in a timely manner.

Our prior work and work by Labor's OIG also shows that some UI 
overpayments result from identity-related violations. For example, our 
prior work shows that in 2001, Labor identified about $1.4 million in 
UI overpayments resulting from Social Security violations. [Footnote 6] 
Labor determined these overpayments to be the result of fraud. More 
recently, in its fiscal year 2007 budget justification, Labor estimated 
that approximately $313 million in overpayments results from identity 
theft each year. Labor's OIG has documented identity theft schemes as a 
major management challenge. For example, in its semiannual report to 
Congress, the OIG reported on a case in which individuals used more 
than 200 stolen identities to file 222 UI claims and obtain more than 
$693,000 in UI benefits from February 2001 through February 
2005.[Footnote 7]

Labor is Taking Actions to Help States Detect and Prevent Overpayments:

Labor has introduced several initiatives to help states improve their 
ability to detect and prevent overpayments in the UI program. First, 
Labor has initiated a pilot using the National Directory of New Hires 
(NDNH) to further assist in identifying and preventing improper 
payments, including overpayments. The NDNH is a database, maintained by 
the Department of Health and Human Services' Office of Child Support 
Enforcement, that contains information on all newly hired employees, 
quarterly wage reports for all employees, and UI claims nationwide. The 
NDNH enhances states' ability to detect unreported work violations by 
UI claimants working in other states or for certain employers that 
operate in multiple states. In addition, the NDNH can help improve the 
accuracy of Labor's error estimates. Information from the NDNH cross- 
match can be readily integrated into Labor's BAM program by cross- 
matching the SSNs of the claimants against the NDNH. In fiscal year 
2005, three states (Texas, Utah, and Virginia) participated in the 
pilot. According to Labor, initial results of the pilot show that 
overpayment detections increased 114 percent in Texas, 41 percent in 
Utah, and 73 percent in Virginia. The Texas Workforce Commission also 
reported that using the national cross-match in combination with the 
existing statewide cross-match helped detect 50 percent more cases of 
potential fraud in one quarter than it would have detected otherwise. 
In addition, on the basis of its NDNH pilot results, Labor reported in 
its fiscal year 2005 performance and accountability report that a 
substantial amount of additional overpayments could be detected using 
the database. Labor reported that it is moving ahead with full 
implementation of the NDNH cross-match with 5 states (Connecticut, 
Texas, Utah, Virginia, and Washington), and expects 29 states to use 
the NDNH by the end of fiscal year 2006.

In addition to its NDNH pilot, Labor is also pursuing the use of other 
data sources to improve UI program integrity. In particular, Labor 
continues to promote states' data sharing with other agencies, such as 
the Social Security Administration (SSA), to identify and prevent 
overpayments. According to Labor's fiscal year 2005 performance and 
accountability report, the department has funded states to exchange 
data with SSA on a real-time basis, giving states the ability to verify 
claimants' identity and prevent most overpayments due to fraudulent or 
mistaken use of SSNs. Labor's fiscal year 2007 budget request includes 
$10 million in funding to detect and prevent fraudulent UI benefit 
claims that use personal information stolen from workers. Labor 
estimates that the requested funds could generate savings of at least 
$77 million to the UI Trust Fund by preventing erroneous payments 
caused by the use of stolen identities.

Along with efforts to enhance states' use of data sharing to detect and 
prevent overpayments, Labor has taken other steps to enhance UI program 
integrity, including the development of a new core performance measure 
for overpayment detection at the state level. More specifically, Labor 
has announced that states will be given an additional incentive to 
prevent and detect overpayments by implementing core measures in 
states' performance budget plans based on the level of overpayments the 
states have detected. While Labor has established overpayment detection 
as one of its core measures, it has not yet specified the level of 
performance that states will be required to meet under this measure. In 
addition, Labor's fiscal year 2006 budget request contained a 
legislative proposal designed to give states the means to obtain 
funding for program integrity activities, including additional staff to 
enhance recoveries and prevent overpayments. Moreover, to reduce 
overpayments, Labor awarded Reemployment and Eligibility Assessments 
grants to 21 states during fiscal year 2005. The grants have been used 
to conduct in-person claimant interviews to assess claimants' continued 
eligibility for benefits and to ensure that individuals understand that 
they must stop claiming benefits upon their return to work.[Footnote 8] 
Labor's fiscal year 2007 budget request includes $30 million in 
additional funding to continue this effort. Labor estimates that these 
funds could be used to conduct an additional 539,000 interviews and 
could save the UI Trust Fund as much as $151 million by reducing the 
average duration of UI benefits for claimants who are interviewed.

In addition to the initiatives contained in its budget request, Labor 
plans to submit a legislative proposal in the near future that includes 
several initiatives to further help states detect and recover 
overpayments.[Footnote 9] Among other things, this proposal may include 
suggestions to allow the Department of the Treasury to garnish federal 
income tax refunds to recover UI overpayments as a means of improving 
overpayment recoveries. The proposal may also allow states to use a 
small percentage of recovered overpayments to fund their benefit 
payment control and program integrity activities as an incentive to 
focus their efforts on those activities. In addition, the proposal may 
seek to provide employers with a stronger incentive to inform the state 
when inappropriate UI claims are made. More specifically, the proposal 
could require states to charge employers a higher UI tax rate when 
claimants are overpaid, if it is determined that the overpayment was 
the employer's fault (such as when an employer fails to provide wage 
information to the state in a timely manner). Such additional charges 
could lead to an increase in the UI tax rate for affected employers.

States Make Use of Federal Requirements to Help Speed Reemployment of 
UI Claimants, but Knowing More about Outcomes Could Enhance Program 
Performance:

In our review of states' efforts to help UI claimants quickly return to 
work, we found that states most often make use of federal UI program 
requirements to help connect claimants with reemployment services at 
various points in their claims, usually beginning at the time their 
initial claim is filed. All federally approved state UI programs must 
include able-to-work and available-for-work requirements that claimants 
must meet in order to receive benefits. In many states, these 
requirements also serve to link claimants to reemployment opportunities 
and services. In addition, states provide targeted reemployment 
services to particular groups of UI claimants. The federal requirement 
of claimant profiling is typically the primary mechanism for targeting 
reemployment services to specific claimants. Despite states' efforts to 
design systems that link UI claimants to reemployment services, few 
data are available to gauge the extent to which their efforts are 
having the intended result. Moreover, Labor's fiscal year 2007 budget 
request does not include funding specifically designated for conducting 
evaluations of federally required efforts to target reemployment 
services.

States Use Compliance with Work Requirements and Target Services to 
Particular Groups of Claimants to Help Speed Reemployment:

Although all UI claimants can access the range of reemployment services 
through the one-stop system at any time, UI program requirements often 
provide the context for states' efforts to link claimants to 
reemployment services. Specifically, all federally approved state UI 
programs require that claimants be able and available to work. To meet 
these conditions, 44 states require that UI claimants register with the 
state's labor exchange--that is, job-matching services provided through 
the Wagner-Peyser-funded Employment Service--in order to be eligible 
for UI benefits. In addition, 49 states impose a work search 
requirement as a condition for continuing UI eligibility, and claimants 
must document that they are meeting their state's work search 
requirement in a number of ways. Most commonly, claimants are required 
to keep a log of work search activities that may be subject to review, 
or they must certify that they are able and available to work through 
the process of filing for a continuing claim.

These work registration and work search requirements often serve to 
link claimants to reemployment services. The process of registering for 
work with the state's labor exchange, for example, may bring claimants 
into an Employment Service office or one-stop center where reemployment 
services are delivered.

Some states also use their processes for monitoring compliance with the 
work search requirement to direct claimants to reemployment services. 
Officials in 39 of the 49 states that require claimants to actively 
seek employment told us that telephone or in-person interviews with 
claimants may be used to monitor compliance with this requirement. In 
over two-thirds of these states, officials told us that some 
information on job search strategies or reemployment services is 
provided during the interview.

States also engage some claimants in reemployment services directly 
through programs that identify certain groups for more targeted 
assistance. States primarily target reemployment services to claimants 
identified through federally required claimant-profiling systems--a 
process that uses a statistical model or characteristics screen to 
identify claimants who are most likely to exhaust their UI benefits 
before finding work. While claimants identified and referred to 
services through profiling can access the services available to all job 
seekers through the one-stop system, participation in the services they 
are referred to--most often orientation and assessment services--is 
mandatory for profiled claimants. In addition, many officials told us 
that the services profiled claimants received depended on their 
individual needs following an assessment, the development of an 
individual plan, or the guidance of staff at a one-stop center. While 
failure to report to required reemployment services can result in 
benefits being denied, states vary in the conditions that prompt 
denying benefits.

Maryland, for example, targets reemployment services to profiled 
claimants through its Early Intervention program. This program, which 
began in 1994, offers an interactive, 2-day workshop, addressing self- 
assessment, job search resources, resume writing and interviewing 
skills, and other community resources available to job seekers. 
Profiled claimants selected for the workshop who fail to attend are 
given one opportunity to reschedule; after that, their failure to 
participate is reported to the UI program and their benefits may be 
suspended. When claimants complete the workshop, they are registered 
with the Maryland Job Service, they receive an individual employment 
plan, and the workshop facilitator may refer them to additional 
services. Officials told us that although they currently do not have 
data to show the impact of this program, they have received very 
positive feedback about the quality and effectiveness of the workshops.

Some states have developed additional methods to target reemployment 
services to particular groups of UI claimants. For example, one-stop 
staff in Washington have the ability to identify various subgroups of 
claimants using a tracking device called the Claimant Progress Tool. 
Officials told us that one-stop staff typically use this tool to 
identify claimants who are about 100 days into their claim, and then 
contact them for targeted job search assistance and job referrals. This 
process was developed to help the state achieve a goal of reducing the 
portion of its UI benefits that unemployed workers claim. Georgia's 
state-funded Claimant Assistance Program identifies claimants who are 
seen to be ready for employment and requires them to participate in the 
same services required of profiled claimants. This program is designed 
to help the state achieve its goal of generating savings for the UI 
Trust Fund.

During fiscal years 2001 through 2005, states often made use of Labor's 
Reemployment Services Grants--totaling $35 million per year--to fund 
some of the targeted services. Officials in the majority of the states 
we interviewed told us their states had used the Reemployment Services 
Grant funds to hire staff to provide reemployment services to UI 
claimants. For example, Maryland state officials said they used their 
funds to hire staff for the Early Intervention program, enabling them 
to run more workshops in areas that needed them and to make further 
improvements in the program. Some states also used these grants to 
direct reemployment services to claimants beyond those who have been 
profiled and to support other enhancements in the provision of 
reemployment services to claimants. For example, Washington state 
officials told us they used funds from these grants to support the 
development of the Claimant Progress Tool. Beginning in fiscal year 
2005, Labor began shifting its focus away from these grants that funded 
direct reemployment services for UI claimants toward the Reemployment 
and Eligibility Assessment Grants. These new grants focus states' 
efforts on providing face-to-face eligibility interviews with claimants 
as a way to ensure compliance with work search requirements. As part of 
these interviews, eligibility workers may refer claimants to 
reemployment services funded by Employment Services, the Workforce 
Investment Act (WIA), or the Trade Adjustment Assistance (TAA) program.

Little Information Exists to Assess whether States' Efforts Are 
Achieving the Intended Outcomes:

Despite states' efforts to design systems that link UI claimants to 
reemployment services, little is known about the extent to which 
claimants receive reemployment services or about the outcomes they 
achieve. Although states must meet a number of federal reporting 
requirements for their UI and employment and training programs, 
including reporting on the outcomes of profiled claimants, none of 
these reports provide a complete picture of the services received or 
the outcomes obtained by UI claimants. Labor only recently began to 
require that states provide information on the reemployment outcomes of 
UI claimants, and the ongoing evaluations of claimant profiling are 
limited.

States must track and report annually on several performance measures 
considered key indicators of UI program performance, but these measures 
largely focus on benefit and tax accuracy, quality, and timeliness. In 
addition, states must also report to Labor on their claimant-profiling 
process, but information in these reports represent only a portion of 
all UI claimants the state has served, a proportion that can vary from 
place to place and from month to month depending on available resources.

UI claimants may access other federally funded reemployment assistance 
through the Wagner-Peyser Employment Service, WIA Adult or Dislocated 
Worker programs, and, if they are laid off because of trade, the Trade 
Adjustment Assistance program. To monitor the performance of these 
programs, Labor requires states to meet a number of reporting 
requirements, but these reports are submitted on a program-by-program 
basis, and none provide a complete picture of the services received or 
the outcomes obtained by all UI claimants.

Having data that show the degree to which reemployment services are 
reaching UI claimants is key to good program management and provides a 
first step toward understanding the impact of these programs. However, 
knowing how many claimants may be accessing reemployment services and 
the type of outcomes they may be achieving has proven difficult for 
state and local officials. We found that only 14 states go beyond the 
federal reporting requirements to routinely track the extent to which 
UI claimants receive services from the broad array of federally funded 
programs that are designed to assist them, and only 6 states routinely 
monitor outcomes for UI claimants who receive reemployment services. 
States most often told us that tracking claimant services across 
multiple programs was made difficult by the fact that reemployment 
services and UI claimant data were maintained in separate data systems-
-systems that were either incompatible or difficult to link.

Labor has some initiatives that may begin to shed light on claimant 
outcomes, but these efforts may not go far enough. Labor recently 
modified its UI performance measures to require states to track a 
reemployment rate for their UI claimants--defined as the percentage of 
UI claimants who are reemployed within the quarter following their 
first UI payment. This change will help focus efforts on speeding 
reemployment and will improve the understanding of how many UI 
claimants are quickly reemployed nationwide, but it will not allow for 
an assessment of the outcomes of claimants who access reemployment 
services compared to those who do not. Furthermore, states must meet 
federal requirements to target reemployment services using the claimant-
profiling process, but little is known about the effectiveness of their 
efforts. Labor funded an evaluation of the claimant profiling system in 
8 states beginning in 1996, including an assessment of UI benefit 
duration, employment, and earnings. The current evaluation of the 
profiling process focuses exclusively on how well the models are able 
to predict whether a claimant will exhaust UI benefits, not on whether 
the process results in shorter benefit duration or better employment 
outcomes for claimants. Budget authority to conduct the current 
evaluation expires at the end of fiscal year 2006, and no additional 
funds have been requested in the fiscal year 2007 budget specifically 
to conduct further evaluations on profiling.

Labor is also developing a system to consolidate performance reporting 
for Labor's Employment and Training Administration (ETA) programs. This 
system--ETA's Management Information and Longitudinal Evaluation 
(EMILE) system--would consolidate reporting across a range of Labor 
programs including WIA, Employment Service, and TAA. Current plans do 
not include incorporating UI reporting into EMILE. Last year, we 
recommended that Labor work with states to explore the feasibility of 
collecting more comprehensive information on UI claimants' services and 
outcomes. Although Labor generally agreed with our findings, Labor 
commented that current and planned data collection efforts would 
provide sufficient information to policy makers. While Labor's new 
initiatives, in combination with current reporting requirements, will 
provide valuable information on the reemployment activities of some UI 
claimants, these efforts will not allow for a comprehensive, nationwide 
understanding of claimants' participation in the broad range of 
reemployment services designed to assist them. Furthermore, these 
efforts will not move states in the direction of having the data they 
need to better manage their systems.

Concluding Observations:

UI's size and importance make it critical that the program is 
performing at a peak level. With annual overpayments reaching the 
billions, it will be important for federal and state stakeholders to 
take the necessary action to address this issue. Labor's current 
initiatives and its proposed action contained in the fiscal year 2007 
budget request could help, but work remains. In the long run, program 
performance can be enhanced by avoiding improper payments rather than 
trying to detect and collect them. Labor's initiatives to help states 
detect and prevent overpayments represent a positive step toward 
improving UI program integrity. In particular, Labor's initiative to 
promote states' use of the NDNH database and its continued effort to 
encourage states' use of SSA's data for verifying the identity of 
claimants appear promising. However, to maximize the effectiveness of 
these initiatives, it is important for as many states as possible to 
participate. In addition, while Labor's development of a new core 
performance measure on payment accuracy has the potential to facilitate 
states' focus on detecting and preventing overpayments, it is premature 
to evaluate the effectiveness of this effort. Moreover, although Labor 
continues to fund grants for states to conduct in-person reemployment 
and eligibility assessments, more time is needed to fully assess how 
effective these initiatives will ultimately be. Finally, while Labor's 
June 2005 legislative proposal to charge employers for UI payments to 
ineligible individuals could result in UI tax rate increases for those 
employers, such a change merits further consideration.

To help claimants get the reemployment services they need, states have 
often designed their processes to make use of federal UI program 
requirements in linking claimants with services. However, knowing 
whether their efforts are actually resulting in better employment 
outcomes and reduced UI benefit payments has proven difficult for 
federal, state, and local officials. Findings from evaluations are 
limited, and most states lack much of this information, arguably 
critical for good program management--often because data reside in 
separate systems that cannot be easily linked. In the new environment 
created under the Workforce Investment Act, where claimants may be 
served by a range of programs that go beyond UI and ES, it becomes 
increasingly important to find new ways to link program data across a 
broader range of programs. Doing so is an essential step in 
understanding what's working and what's not. Labor's current and 
planned initiatives may help fill the information gap, but they fall 
short of providing a comprehensive understanding of services and 
outcomes for UI claimants.

Mr. Chairman, this completes my prepared statement. I would be happy to 
respond to any questions you or other members of the subcommittee may 
have at this time.

GAO Contacts and Staff Acknowledgments:

For information regarding this testimony, please contact Sigurd R. 
Nilsen, Director, Education, Workforce, and Income Security Issues, at 
(202) 512-7215. Individuals who made key contributions to this 
testimony include Dianne Blank, Jeremy Cox, Brett Fallavollita, Michael 
Hartnett, Margaret A. Holmes, and Carla Lewis. 

(130576):

[End of section]

Related GAO Products:

Improper Payments: Federal and State Coordination Needed to Report 
National Improper Payment Estimates on Federal Programs. GAO-06-347. 
Washington, D.C.: April 14, 2006.

Financial Management: Challenges Continue in Meeting Requirements of 
the Improper Payments Information Act. GAO-06-581T. Washington, D.C.: 
April 5, 2006.

Unemployment Insurance: Factors Associated with Benefit Receipt. GAO- 
06-341. Washington, D.C.: March 7, 2006.

Trade Adjustment Assistance: Most Workers in Five Layoffs Received 
Services, but Better Outreach Needed on New Benefits. GAO-06-43. 
Washington, D.C.: January 31, 2006.

Workforce Investment Act: Labor and States Have Taken Actions to 
Improve Data Quality, but Additional Steps Are Needed. GAO-06-82. 
Washington, D.C.: November 14, 2005.

Unemployment Insurance: Better Data Needed to Assess Reemployment 
Services to Claimants. GAO-05-413. Washington, D.C.: June 24, 2005.

Unemployment Insurance: Information on Benefit Receipt. GAO-05-291. 
Washington, D.C.: March 17, 2005.

Trade Adjustment Assistance: Reforms Have Accelerated Training 
Enrollment, but Implementation Challenges Remain. GAO-04-1012. 
Washington, D.C.: September 22, 2004.

Workforce Investment Act: States and Local Areas Have Developed 
Strategies to Assess Performance, but Labor Could Do More to Help. GAO- 
04-657. Washington, D.C.: June 1, 2004.

Financial Management: Fiscal Year 2003 Performance and Accountability 
Reports Provide Limited Information on Governmentwide Improper 
Payments. GAO-04-631T. Washington, D.C.: April 15, 2004.

Workforce Training: Almost Half of States Fund Employment Placement and 
Training through Employer Taxes and Most Coordinate with Federally 
Funded Programs. GAO-04-282. Washington, D.C.: February 13, 2004.

Workforce Investment Act: One-Stop Centers Implemented Strategies to 
Strengthen Services and Partnerships, but More Research and Information 
Sharing Is Needed. GAO-03-725. Washington D.C.: June 18, 2003.

Multiple Employment and Training Programs: Funding and Performance 
Measures for Major Programs. GAO-03-589. Washington, D.C.: April 18, 
2003.

Unemployment Insurance: Increased Focus on Program Integrity Could 
Reduce Billions in Overpayments, GAO-02-697 Washington, D.C.: July 12, 
2002.

Unemployment Insurance: Role as Safety Net for Low-Wage Workers Is 
Limited. GAO-01-181. Washington, D.C.: December 29, 2000.

FOOTNOTES

[1] GAO, Unemployment Insurance: Increased Focus on Program Integrity 
Could Reduce Billions in Overpayments, GAO-02-697 (Washington, D.C.: 
July 12, 2002).

[2] GAO, Improper Payments: Federal and State Coordination Needed to 
Report National Improper Payment Estimates on Federal Programs, GAO-06-
347 (Washington, D.C.: Apr. 14, 2006).

[3] GAO, Unemployment Insurance: Better Data Needed to Assess 
Reemployment Services to Claimants, GAO-05-413 (Washington, D.C.: June 
24, 2005).

[4] In accordance with federal law, all state UI systems are experience 
rated so that employers' contribution rates vary on the basis of their 
experience with unemployment. In practice, this typically means that an 
employer who lays off many workers that claim unemployment insurance 
benefits will pay more in taxes than an employer that lays off fewer 
workers.

[5] Of this amount, Labor officials told us that the states could have 
potentially detected and recovered $1.8 billion, or about 53 percent of 
the total overpayments it estimated occurred, using current procedures. 

[6] GAO, Unemployment Insurance: Increased Focus on Program Integrity 
Could Reduce Billions in Overpayments, GAO-02-697 (Washington, D.C.: 
July 12, 2002).

[7] Department of Labor, Office of Inspector General, Semiannual Report 
to the Congress, April 1, 2005--September 30, 2005, Vol. 54. 

[8] These interviews would also promote use of reemployment services 
available in One-Stop Career Centers to assist claimants to become 
reemployed more quickly.

[9] According to Labor, this proposal will be similar to the 2005 
legislative proposal (the Unemployment Compensation Program Integrity 
Act of 2005).

GAO's Mission:

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony:

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts 
newly released reports, testimony, and correspondence on its Web site. 
To have GAO e-mail you a list of newly posted products every afternoon, 
go to www.gao.gov and select "Subscribe to Updates."

Order by Mail or Phone:

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to:

U.S. Government Accountability Office 441 G Street NW, Room LM 
Washington, D.C. 20548:

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 
512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov 
Automated answering system: (800) 424-5454 or (202) 512-7470:

Congressional Relations:

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S. 
Government Accountability Office, 441 G Street NW, Room 7125 
Washington, D.C. 20548:

Public Affairs:

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548: