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GAO's Analysis

Strengthening Oversight of Labor's Quality Appraisal Program goals for state tax collection are genState Tax Collection

Developing Guidance for
State Tax Collection

Promoting Use of
Improved Collection
Techniques

eral and could provide more meaningful measures of state performance. In addition, delays in planned development of the tax collection Quality Control Program have left Labor without a system of continuous oversight of state conformance with established laws, policies, and procedures. This program is now projected for implementation in 1992. GAO believes Labor needs to improve its Quality Appraisal Program and implement its planned Quality Control Program to ensure that state systems for collecting UI taxes are functioning effectively.

Since 1986, Labor has reduced (1) control over how states use UI administration moneys to accomplish program functions, such as making benefit payments or collecting taxes, and (2) federal reporting and administrative requirements. Further, Labor has supported legislation that would consolidate responsibility at the state level for collection and management of all UI employer taxes (moneys for both program administration and benefit payments). GAO believes Labor should be reviewing these actions to determine their impact on state UI program administration. (See ch. 2.)

Some states are establishing active collection systems that maximize use of administrative and judicial procedures for reducing losses from employer delinquency and nonreporting. Others are implementing passive collection systems that have the effect of signaling employers that tax avoidance will be tolerated. When losses occur, they can result in curtailing the entitlements of unemployed workers or impose a greater burden on those employers who are already paying their share of taxes into the UI system.

To improve this situation, Labor should develop guidelines for use by states in establishing judicial and administrative procedures to minimize UI tax delinquency and the number of nonreporters. (See ch. 3.)

During the last 10 years, Labor has sponsored pilot projects in several states to develop new UI tax collection techniques. Other states have developed successful collection techniques on their own initiative. However, these new techniques are not being implemented by most states. To

Executive Summary

Single Audit

Implementation and
Internal Control Reporting

Recommendations

Agency Comments

improve this situation, Labor needs to (1) routinely promote and disseminate information on successful collection techniques and (2) provide financial incentives and better technical support for states to implement new collection techniques.

The states GAO visited were generally receptive to improving collection performance through exchange of new collection techniques and methods employed in other states. However, because administrative costs are federally funded, the cost savings states achieve accrue to the Unemployment Trust Fund and not the states involved. Some states indicated that UI administrative funding reductions accompanying improvements can discourage states' participation in efforts to improve collection. Previous GAO recommendations to address this problem have not been implemented by Labor. (See ch. 4.)

In the absence of a Quality Control Program for tax collection and an effective Quality Appraisal Program, Labor has placed increased reliance on the results of audits performed under the Single Audit Act. Labor uses these results to determine whether state UI programs are managed effectively and material internal control weaknesses are corrected.

Effective single audits are important, over the long term, for independent testing of state management systems. They were not, however, intended to be a substitute for Labor's oversight through Quality Appraisal and Quality Control programs. Since some single audits are being performed biennially or less frequently, they may not provide timely information on operations of the state UI programs. However, effective Quality Appraisal and Quality Control programs, coupled with results of the single audits, could provide Labor with an adequate basis for assessing and reporting on the status of internal controls. (See ch. 5.)

GAO is making a number of recommendations to Labor for improving oversight and guidance to (1) determine whether states are maintaining effective UI tax collection systems and (2) implement system improvements (see pp. 22, 38, 50, and 57).

Labor agreed with many of GAO's findings and indicated that it will, or had already begun to, act on many of GAO's recommendations. Labor stated that in those instances where it did not agree with GAO discussion

or recommendations, the disagreement related to differences in perceptions about the degree and nature of federal oversight (see pp. 22, 39, 50, and 57).

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