DEPARTMENT OF LABOR
CFDA 17.225 UNEMPLOYMENT INSURANCE (UI) PROGRAM
I. PROGRAM OBJECTIVES
The Regular Compensation, Unemployment Compensation for Federal
Employees (UCFE), and Unemployment Compensation for Ex-Servicemembers
(UCX) programs provide Unemployment Compensation (UC) to unemployed
workers for periods of involuntary unemployment and help stabilize
the economy by maintaining the spending power of workers while they
are between jobs. During periods of high unemployment, the Extended
Benefits (EB) program pays UC for an additional (or extended) period
of time to eligible unemployed workers who have exhausted their
entitlement to Regular Compensation.
States must ensure full payment of UC "when due," and must deny
payments when not due (42 USC section 503(a)(1)).
II. PROGRAM PROCEDURES
The structure of a Federal-State Unemployment Insurance (UI) program
partnership is provided for by Titles III, IX and XII of the Social
Security Act of 1935 (SSA) (42 USC section 501 et seq.)
and the Federal Unemployment Tax Act (FUTA) (26 USC section 3301
et seq.). Initially, the UI program consisted solely of
the Regular Compensation program. Since its inception, however,
the program was expanded to include the payment of UC, or monetary
benefits, to other eligible groups. UC coverage was extended to
Federal civilian employees in 1954 by the UCFE program (Public Law
83-767), and to ex-members of the Armed Forces in 1958 by the UCX
program (5 USC sections 8501-8525; Public Law 85-848). The Federal-State
Extended Unemployment Compensation Act (EUCA) of 1970 provided for
an EB program (26 USC section 7805; 20 CFR part 615).
The structure of the Federal-State UI Program partnership is based
upon Federal law; however, it is implemented primarily through State
law. Unless otherwise noted, responsibilities of the U.S. Department
of Labor (DOL) include: (1) collection of Federal unemployment taxes
(Internal Revenue Service); (2) allocating available administrative
funds among States; (3) administering (U.S. Department of the Treasury)
and monitoring activities of the Unemployment Trust Fund (UTF);
(4) establishing program performance measures; (5) monitoring State
performance; (6) ensuring conformity and substantial compliance
of State law and operations with Federal law; and, (7) setting broad
overall policy for program administration. State UI program operations
are conducted by the State Employment Security Agency (SESA; the
generic name for the agency which has responsibility for the State's
Employment Security function). State responsibilities include: (1)
establishing specific, detailed policy and operating procedures
which comply with the requirements of Federal laws and regulations;
(2) determining the State UI tax structure; (3) collecting State
UI contributions from employers (commonly called "unemployment taxes");
(4) determining claimant eligibility and disqualification provisions;
(5) making payment of UC benefits to claimants; (6) managing the
program's revenue and benefit administrative functions; and, (7)
administering the programs in accordance with established policies
and procedures. The administrative procedures governing operation
of the Federal-State partnership are found in 20 CFR part 601.
Almost 97 percent of all employees are covered by UC programs,
which collectively consist of: (1) the Regular Compensation Program;
(2) the EB Program; and, (3) UCFE and UCX. Each program has its
own eligibility and benefit provisions.
Note: Informal references are frequently made to eligibility for
"weeks" of UC. The auditor is cautioned eligibility is actually
for AMOUNTS of UC, which is inaccurately referred to as receipt
of UC for a given number of weeks.
Program Funding
UC payments to claimants are funded by State UI taxes on covered
employers, and reimbursements from Federal entities, certain State
governments, political subdivisions and instrumentalities of the
States, and qualified non-profit organizations. While "experience-rated"
UI taxes on employers are the primary source of revenue, some employers
make direct reimbursements to the State for UC payments made on
their behalf. State governments, political subdivisions and instrumentalities
of the States, and qualified non-profit organizations may reimburse
the State for UC benefits paid by the SESA; however, they may elect
to be contributory employers (i.e., remit State UI taxes) in lieu
of reimbursing the State. Also, States are reimbursed from the UTF
for UCFE and UCX paid by the SESA on behalf of various Federal entities.
Program administration is funded by a Federal UI tax on covered
employers (see below). The employment covered by State UI taxes
and Federal UI taxes may not be identical.
State UI taxes and reimbursements are used almost exclusively for
the payment of Regular Compensation to eligible claimants. All UI
taxes and reimbursements remitted by employers to the States are
deposited in State accounts in the UTF. SESAs periodically draw
funds from their UTF accounts for the purpose of making UC payments.
FUTA imposes a Federal tax on covered employers. FUTA revenues
are collected by the IRS and deposited into the general fund of
the U.S. Treasury, which by statute are appropriated to the UTF.
FUTA revenues are used primarily to finance Federal and SESA administrative
expenses, the Federal share of EB, and advances to States whose
UTF account balances are low or exhausted. DOL allocates administrative
grant funds to the States based on forecasted workload and costs
and adjusted for increases or decreases in workload during the current
year.
Currently, the FUTA tax on covered employment (generally employment
subject to a State UI tax) is 6.2 percent of the first $7000 of
covered employee wages. Employers, however, receive two credits
against the FUTA tax. One credit is equal to the amount of State
UI tax paid by the employer; the employer receives this credit when
the State UI law, and its application, conforms and substantially
complies with FUTA requirements. A second credit is awarded only
to employers in States which have a federally-approved experience-rated
State UI tax system. All States currently meet the Federal criteria
for both credits to be applicable to the State's employers. The
two credits combined cannot exceed 5.4 percent of taxable employee
wages.
Synopsis of Regular Compensation Program
The Regular Compensation program provides UI coverage of most wage
and salary workers in each State, the District of Columbia, Puerto
Rico, and the Virgin Islands. Except for provisions necessary to
comply with Federal law, the provisions of State UI laws vary greatly,
including their qualifying requirements and methods used to compute
UC amounts.
The period during which a claimant may receive UC is referred to
as the "benefit year." A benefit year lasts one year from the effective
date of the claim. The total Regular UC that a claimant may receive
in a benefit year is computed by the SESA in a dollar amount. A
claimant may draw UC against the total UC allowable for the benefit
year during periods of unemployment that occur during the benefit
year. Under State UI laws, the total (maximum) UC a claimant is
entitled to varies within certain limits according to the worker's
wages in the base period (see Eligibility). Reduced benefits may
be paid for weeks of partial unemployment. In some States, the weekly
UC benefit payment is augmented by a dependent's allowance.
The entitlement to UC (both Regular Compensation and EB) is frequently
and imprecisely expressed in lay terms as receipt of UC for a fixed
number of weeks.
Synopsis of Extended Benefits Program
An interval of high unemployment at a certain level will "trigger
on" a period of not less than 13 weeks during which the State will
make extended UC (or EB) payments to eligible unemployed workers
who have exhausted their entitlement to Regular Compensation (20
CFR section 615.11). With certain qualifications, EB is payable
at the same rate as the claimant's Regular Compensation amount (20
CFR section 615.6). The EB period is determined by the State in
which the original claim was established (EUCA section 202(a)(2),
20 CFR section 615.2(k)(2)). A reduction in the unemployment rate
will "trigger off" the period for the payment of EB.
A claimant may receive EB equal to the lesser of the following
amounts: (a) one-half the total amount of Regular Compensation,
including dependent's allowances, (b) 13 times the weekly amount
of Regular Compensation, or (c) 39 times the weekly amount of Regular
Compensation reduced by the amount of Regular Compensation paid
to the claimant (EUCA, section 202(a)(2), 20 CFR section 615.7(b)).
However, the qualifying and benefit provisions of the EB program
change if the unemployment rate assumes a benchmark level established
in EUCA. While EB are payable under the terms and conditions of
State law, FUTA requires that State UI law conform to certain provisions
of EUCA (26 USC section 3304(a)(11)).
States are reimbursed with Federal funds for one-half the cost
of EB paid to claimants by the SESAs, with the following exceptions:
(1) EB paid to former UCFE and UCX claimants are 100 percent reimbursable
from Federal funds; and, (2) EB paid to former employees of the
State government, and political subdivisions and instrumentalities
of the State, are not reimbursable from Federal funds. Reimbursements
will be prorated for claimants who had employment in both the private
and public sectors during their "base periods." The first week of
EB is reimbursable to the State only if the State requires the first
week in an individual's benefit year be an unpaid "waiting week"
(EUCA, section 204; 20 CFR section 615.14). The auditor should refer
to 20 CFR section 615.14 for a complete explanation of when EB is
not reimbursed to the State.
Employer Experience Rating
States annually compute an "experience-rating" for contributing,
or tax-remitting, employers. The experience-rating is the dominant
factor in the computation of an employer's State UI tax rate. While
methods of computation differ, the key factor in most methodologies
is the amount of UC paid by the SESA within a time period specified
by State UI law, to claimants who are former employees of the employer.
Also, various methods are used by the SESAs to identify which one
or more of the claimant's former employers will be "charged" with
the UC paid to the claimant.
Synopsis of UCFE and UCX Programs
For UCFE, the qualifying requirements, determination of UC benefit
amounts, and duration of UC are generally determined under the applicable
State law, which is generally the State in which the official duty
station was located (5 USC Chapter 85; 20 CFR part 609).
The UCX program combines elements of the applicable State law and
factors unique to the UCX program, such as "schedules of remuneration"
(20 CFR section 614.12), which must be considered by the SESA in
making its determinations of eligibility, UC benefit amounts and
duration (5 USC Chapter 85; 20 CFR part 614).
States are reimbursed from the UTF for UC paid to UCFE and UCX
claimants. On a quarterly basis, States report UCFE and UCX paid
to the DOL, which is responsible for obtaining reimbursement to
the UTF from the appropriate Federal agencies.
III. COMPLIANCE REQUIREMENTS
In developing the audit procedures to test compliance with
the requirements for a Federal program, the auditor should first
look to Part 2, Matrix of Compliance Requirements, to identify which
of the 14 types of compliance requirements described in Part 3 are
applicable and then look to Parts 3 and 4 for the details of the
requirements.
A. Activities Allowed or Unallowed
Administrative grant funds may be used only for the purposes and
in the amounts necessary for proper and efficient administration
of the UI program (SSA, section 303(a)(8)).
E. Eligibility
1. Eligibility for Individuals
a. Regular Compensation Program
Under State UI laws, a worker's benefit rights depend on the amount
of the worker's wages in covered employment in a "base period."
While most States define the base period as the first 4 of the last
5 completed calendar quarters prior to the filing of the claim,
other base periods are used. To qualify for benefits a claimant
must have worked a certain number of weeks, or have worked a certain
number of weeks or calendar quarters within the base period, or
meet some combination of wage and employment requirements. A "waiting
period" is a noncompensable period of unemployment in which the
worker was otherwise eligible for benefits. Most States require
a waiting period of one week of total or partial unemployment before
UC is payable.
To be eligible to receive UC, all States provide that a claimant
must be able and available for work (i.e., must be in the labor
force; unemployment must be caused by lack of suitable work; and
the claimant must be legally authorized to work). A claimant must
not be unemployed for such acts as leaving voluntarily without good
cause, discharge for misconduct connected with work, and refusal
of suitable work.
b. EB Program
To qualify for EB, a claimant must have exhausted Regular Compensation
(20 CFR section 615.4(a)). To be eligible for a week of EB, a claimant
must apply for and be able and available to accept suitable work,
if offered. What constitutes suitable work is dependent on a required
SESA's evaluation of the claimant's employment prospects. An EB
claimant must make a "systematic and sustained effort" to seek work
and must provide "tangible evidence" to the SESA that he or she
has done so (EUCA section 202(a)(3); 20 CFR section 615.8).
c. The UCFE and UCX Programs
For UCFE, the claimant's eligibility and benefit amount will generally
be determined in accordance with the UI law of the State of the
claimant's last duty station (20 CFR section 609.8). For UCX, a
claimant's eligibility is determined in accordance with the UI law
of the State in which the claimant files a first claim after separation
from active military service (20 CFR section 614.8).
2. Eligibility for Group of Individuals or Area of Service
Delivery - Not Applicable
3. Eligibility for Subrecipients - Not Applicable
G. Matching, Level of Effort, Earmarking
1. Matching - Shareable Compensation Program (EB)
From its UI tax revenues, the State is required to pay either zero
percent (UCFE, UCX), 50 percent (EB) or 100 percent (Regular Compensation)
of the UC paid by the SESA to eligible claimants.
The State is required to provide 50 percent of the amounts paid
to the majority of eligible EB claimants (those not covered by Federal
law or special provisions of State law) (20 CFR sections 615.2 and
615.14(a)). Those EB amounts paid by the SESA, and which are not
the responsibility of the State, are reimbursable to the State from
the UTF (20 CFR section 615.14). The first week of EB is reimbursable
to the State only if, in addition to other requirements, the State
requires the first week of an individual's benefit year to be an
"unpaid waiting week" (EUCA section 204; 20 CFR section 615.14).
The 50 percent share of EB for which the State is responsible is
prorated for those claimants whose base period includes wages from
both public and private sector employment.
2.1 Level of Effort - Maintenance of Effort
- Not Applicable
2.2 Level of Effort - Supplement not Supplant
- Not Applicable
3. Earmarking - Not Applicable
L. Reporting
1. Financial Reporting
Instructions for reporting financial and program activities are
contained in the Unemployment Insurance Reports Handbook, ET
Handbook 401. The SESA may file certain reports electronically.
a. SF-269, Financial Status Report - One SF-269 is submitted
for unemployment insurance operations, Trade, and North American
Free Trade Agreement (NAFTA) benefits. Separate SF-269s are submitted
for UI National Activities (excluding cooperative agreements), NAFTA
benefits, and Disaster Relief projects (administration and benefits).
States are to submit the report each quarter for each fiscal year
of funds until all resources on order are liquidated and a final
SF-269 submitted. The Final SF-269 is to be submitted when all financial
activity has ceased. States are to report administrative expenditures
on the accrued expenditure basis, per 29 CFR 97.41(b)(2). UI benefit
payments for DUA, Trade, and NAFTA are to be reported on the cash
basis.
b. SF-270, Request for Advance or Reimbursement - Not
Applicable.
c. SF-271, Outlay Report and Request for Reimbursement for
Construction Program - Not Applicable.
d. SF-272, Federal Cash Transaction Report - In accordance
with 29 CFR 97.41(c), SESAs are required to submit the SF-272 under
the Department of Health and Human Services' Payment Management
System. However, SESAs are exempt from submitting the SF-272A Continuation
Sheet.
e. ETA 2112, UI Financial Transaction Summary (OMB No. 1205-0154)
- A monthly summary of transactions which account for all funds
received in, passed through, or paid out of the State unemployment
fund. (Page II-1-1 of ETA Handbook No. 401)
f. ETA 581, Contribution Operations (OMB No. 1205-0178)
- Quarterly report on volume of SESA work, performance in determining
the taxable status of employers, and other information pertinent
to the overall effectiveness of the tax program. (Page II-2-1)
g. ETA 191, Financial Status of UCFE/UCX (OMB No. 1205-0162)
- Quarterly report on UCFE and UCX expenditures and the total amount
of benefits paid to claimants of specific Federal agencies. (Page
II-3-1)
h. ETA 227, Overpayment Detection and Collection Activities
(OMB No. 1205-0173) - Quarterly report on results of SESA activities
in principle detection areas of benefit payment control. (Page IV-3-1)
2. Performance Reporting - Not Applicable
3. Special Reporting - Not Applicable
N. Special Tests and Provisions
1. Employer Experience Rating
Compliance Requirement - Certain benefits accrue
to States and employers when the State has a federally-approved
experience-rated UI tax system. All States have an approved system.
For the purpose of proper administration of the system, the SESA
maintains accounts, or subsidiary ledgers, on State UI taxes received
or due from individual employers, and the UC benefits charged to
the employer.
The employer's "experience" with the unemployment of former employees
is the dominant factor in the SESA computation of the employer's
annual State UI tax rate. The computation of the employer's annual
tax rate is based on State UI law (26 USC section 3303).
Audit Objective - To verify the accuracy of the
employer's annual State UI tax rate. To determine if the tax rate
was properly applied by the State.
Suggested Audit Procedures
a. Experience rating systems are generally highly automated systems.
These systems could contain errors that are material in the aggregate,
but which are not susceptible to detection solely by sampling. Or
if detected, sampling may not be the most effective and efficient
means to quantify the extent of such errors. For this reason, the
auditor should have a thorough understanding of the operation of
these systems, and is strongly encouraged to consider the use of
computer-assisted auditing techniques (CAATs) to test these systems.
b. On a test basis, reconcile the subsidiary employer accounts
with the State's UI general ledger control accounts.
c. Trace a sample of taxes received and benefits paid to postings
to the applicable employer accounts. Verify the propriety of any
non-charging of benefits paid to an employer account.
d. Trace a sample of postings to employer accounts to documentation
of taxes received and benefits paid.
e. On a test basis, recompute employer experience-related tax rates.
2. Match with IRS 940 FUTA Tax Form
Compliance Requirement - States annually perform
a match of employer tax payments with credit claimed for these payments
on the employer's IRS 940 FUTA tax form (IRS Doc. No. 65-81, "Specifications
for a Nationwide System for Computerized Certification of State
FUTA Credits," Rev. October 1995).
Audit Objective - Determine whether the State
performed the required match and followed-up properly on the results
of the match.
Suggested Audit Procedures
a. Ascertain the State's procedures for conducting the annual match.
b. Ascertain if the match was performed by reviewing supporting
documentation.
c. Ascertain if the proper follow-up action was taken by the State
on the results of the match.
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