Social Security Administration:

Management Oversight Needed to Ensure Accurate Treatment of State and Local Government Employees

GAO-10-938: Published: Sep 29, 2010. Publicly Released: Oct 4, 2010.

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In 2007, 73 percent of state and local government employees were covered by Social Security. Unlike the private sector where most employees are covered by Social Security, federal law generally permits each public employer to decide which employees to cover. The Social Security Administration (SSA) is responsible for facilitating Social Security coverage for these employers through agreements with states. SSA is also responsible for maintaining accurate earnings records, while IRS is responsible for ensuring Social Security taxes are paid. Because of the need to ensure Social Security coverage is administered accurately, GAO was asked to review (1) how SSA works with states to approve Social Security coverage and ensure accurate coverage of public employees, and (2) how IRS identifies incorrect Social Security taxes for public employees. GAO reviewed procedures of federal agencies and selected states; surveyed all state administrators; and reviewed IRS case files.

Although SSA approves Social Security coverage on behalf of state and local government employers, it faces challenges in ensuring accurate reporting of Social Security earnings. SSA works with states to establish and amend Social Security coverage agreements, but public employers do not always know that SSA's approval is required. For example, a small fire district in one state reported Social Security wages for more than a decade without approved coverage to do so, not realizing a coverage agreement between SSA and the state was required. While state administrators are responsible for managing the approved coverage agreements for public employers, SSA's guidance does not specify how states should go about fulfilling this responsibility, leading to variation in the extent to which states meet their responsibility. SSA lacks basic data on which public employers have approved coverage and relies on public employers to comply with coverage agreements voluntarily. SSA officials told us that the agency does not use existing information, such as lessons learned from prior coverage errors, to assess the risks that these errors pose to the accuracy of public employer wage reporting. IRS conducts compliance checks and examinations of public employers; however, examining Social Security coverage for employees is challenging due to limited data and the difficulties of determining whether employees are covered. To obtain needed data, one IRS field office sent its examiners to the SSA regional office to make copies of Social Security coverage agreements. Some other IRS field offices do not have copies of all their respective agreements. IRS tracks the results of its examinations to identify the number of public employers that need tax adjustments; however, IRS does not track whether the tax adjustments relate to Social Security coverage agreement errors even though this information is available during examinations. SSA could benefit from such information so that it could help public employers identify and correct errors. As a result, IRS's and SSA's ability to fully understand problems related to Social Security coverage is limited. GAO recommends that SSA work with IRS, state administrators, and public employers to improve management oversight and monitoring of public employer reporting of Social Security wages and that SSA clarify its guidance on state administrator responsibilities. GAO also recommends that IRS track errors found through compliance efforts and share results with SSA to the extent permitted by law. SSA and IRS reviewed the report and agreed with the recommendations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In FY12, SSA reported that it would work to develop monitoring efforts with IRS, state administrators, and public employers to ensure Social Security earnings are accurately reported for public employers. In 2014, SSA pointed to IRS efforts' action and its collaboration with IRS to implement this recommendation. IRS developed an assessment document designed to identify states with potential coverage problems. IRS has continued to use its assessment document to identify risk factors and target public employers with those risk factors for reviews. While SSA has not followed our suggestion to improve data collected on public employers, IRS efforts to identify and target public employers at risk greatly improves oversight of Social Security benefits for public employees as our recommendation intended. IRS has used its assessment document in collaboration with SSA and states to analyze coverage of public employers, and consequently has already found numerous public employers with identified risk factors and coverage errors. As a result of these efforts, IRS, in conjunction with SSA and states, has been resolving Social Security coverage errors and improving compliance of state and local government employers.

    Recommendation: To improve SSA's management oversight of retirement benefits for public employees, the Commissioner of Social Security, in consultation with IRS, state administrators, and public employers, should develop procedures for monitoring the accuracy of Social Security earnings records. This could include (1) improving data collected on public employers, (2) identifying risk factors using existing SSA information and IRS audit findings, and (3) targeting public employers with those risk factors for follow-up reviews on an ongoing basis

    Agency Affected: Social Security Administration

  2. Status: Closed - Implemented

    Comments: SSA reported that on March 14, 2011, it modified its policy guidance in POMS SL 10001.130 to clarify state responsibilities governing their oversight of public employers and set clear expectations for the steps state administrators should take in implementing their responsibilities.

    Recommendation: To improve the states' administration of public employer wage reporting, we recommend that the Commissioner of Social Security, in consultation with the National Conference of State Social Security Administrators, should modify SSA's policy guidance to clarify state responsibilities governing their oversight of public employers and set clear expectations for the steps state administrators should take in implementing these responsibilities.

    Agency Affected: Social Security Administration

  3. Status: Closed - Implemented

    Comments: In 2010, IRS reported that it began identifying and tracking Social Security coverage errors for state and local government employees and would ensure that information applicable to these errors is shared with SSA to the extent allowable by the Internal Revenue Code. In 2011, IRS produced and shared a report with SSA about compliance results from FY07 to FY09. In 2013, IRS officials explained that they were improving the process for tracking coverage errors. For example, IRS revised certain forms and procedures on the types of errors it finds through compliance efforts. Further, IRS continues to actively work with SSA to identify state and local government employers with possible coverage errors by using an IRS assessment document. By 2014, IRS demonstrated a routine practice of sharing results of errors with SSA to the extent allowable by the Internal Revenue Code. For example, in 2014, IRS produced and shared a report with SSA about results from its FY13 compliance efforts.

    Recommendation: To improve the process for identifying and correcting errors, the Commissioner of Internal Revenue should track errors found through its compliance efforts on Social Security and Medicare taxes and share results with SSA, to the extent permitted by federal law.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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