Causes of the Problem and Attempts Backlog and Future SSA's strategy for choosing 1983 as its reconciliation starting point was SSA expects that the unreconciled workload for the next 2 years will be similar to that in the 1978-83 period. Thus, the workload that SSA hopes to eliminate will be replaced by a similar workload; consequently, SSA will have made little progress in reducing the backlog. We previously reported that SSA "estimates that it may take as many as 2,500 work-years to correct the discrepancies for the years 1978-83 alone. Additional errors have likely occurred in 1984 and 1985 and will continue to occur unless SSA identifies and corrects the cause of the differences. SSA has budgeted a total of only 860 work-years in fiscal years 1986-88 to begin efforts to reconcile about 1 million of the 3.5 million employer reports and will have to budget additional work-years in the future if the reconciliation is to be completed."6 Tolerances Affect Low- SSA has adopted tolerances for the missing and discrepant reports for ❝Stable Leadership and Better Management Needed (GAO/HRD-87-39). Causes of the Problem and Attempts SSA has studied the effect of applying the $1,785 tolerance amount to employers' reports it receives by comparing W-3 amounts with W-2 amounts. SSA found that quarters of coverage, which affect eligibility, could be lost through the application of a $1,785 tolerance. SSA also examined the relationship between W-3 errors and W-2 errors to assess the maximum effect on individuals. If a discrepancy of $1,785 involved only one individual's earnings, the effect on monthly benefits would be about $9 less a month for an individual earning less than $12,000 a year and about $3 less a month for an individual earning more than $12,000 a year. Of sampled W-3s that did not match the W-2 totals, SSA found that Further, SSA indicated that the employers' earnings reports most affected by tolerances are likely to represent earnings for low-earning individuals, such as household or migrant workers. The application of dollar tolerances proportionately affects the benefits of the lowest paid individuals to a greater degree than other individuals. SSA Has No Plans for SSA has not decided how to address employers who cannot or will not respond to SSA's request for information about earnings reports. Some employees may never receive the proper credit for their earnings because of (1) employers' not retaining earnings records, (2) employer dissolution, or (3) the inability of SSA or IRS or both to locate the employer. During its study of 1,424 employers with 1980 or 1981 or both unreconciled earnings reports and 7,984 employers with 1983 unreconciled earnings reports, SSA did not receive a response from 62 percent of the 1,424 and from 45 percent of the 7,984. Similarly, SSA did not receive responses from 48.6 percent of the 204,558 employers with unreconciled 1983 reports and from 58.7 percent of the 83,703 employers with unreconciled 1978 reports. As the backlogged reports become older, it is more likely that employers will not be able to respond because the records are no longer available. SSA's study of 1,424 sampled employers asked how long employee records were retained. Of the 244 employers (17 percent) responding to this question, 150 (61 percent) said they retain their records 7 years or less. IRS requires employers to keep employment tax records for at least Causes of the Problem and Attempts Table 4.3: Years Employers Retained 4 years after the date the tax becomes due or is paid, whichever is later. This suggests that employers' records of employees' earnings from the earliest years of annual wage reporting may not be available even if SSA is successful in locating and contacting the employers. The responses of the 244 employers are summarized in table 4.3. aBased on their responses, these employers may not be retaining their employment records as long as IRS requires. Total does not add due to rounding. SSA has no plans to alert affected employers to the need to save employ- In addition, SSA has no enforcement authority; however, the law provides IRS with enforcement authority. Therefore, SSA must either depend on the employer to voluntarily provide the data or depend on IRS to enforce employer reporting requirements. If the employer chooses not to respond, SSA has no direct leverage to require a response, and some employers have refused to cooperate. Chapter 5 Conclusions, Matters for Consideration of the Conclusions For the great majority of workers, the dual reporting system—which requires employers to report employees' earnings to SSA and IRS—has resulted in employee earnings being properly credited to their Social Security accounts. Differences in amounts employers report to each agency, however, have not been quickly resolved, resulting in backlogs of unreconciled cases. For the years 1978-84, SSA credited $58.5 billion less in earnings than employers reported to IRS. Although the number of workers affected is not known, we estimate that this backlog of unreconciled differences could affect about 9.7 million workers. To some of these workers who are already beneficiaries, the uncredited earnings mean they are receiving less in benefits than they are entitled to. SSA is responsible for ensuring that beneficiaries receive proper credit for their earnings. Although SSA agreed to rely on IRS to resolve differences in earnings reported by employers, SSA was slow to respond when subsequent events showed that IRS could not completely fulfill that responsibility. Among the causes were (1) SSA's insistence for some time that IRS comply with the original agreement and, alone, resolve all differences; (2) SSA's organizational structure, which diffuses responsibility for program-related matters and lacked a financial management focal point and perspective; and (3) more recently, the pressures of accomplishing an overall agency staff reduction. Because SSA and IRS have different missions, it is natural that they will have different perspectives and priorities concerning work that they do for each other. We can understand that from IRS's perspective, reconciling all employers' earnings reports would not be a high priority when resources are limited and there are other more urgent demands. Nevertheless, we are concerned that there are several million individuals and beneficiaries who have paid their Social Security taxes but who do not have the assurance that their earnings have been credited. The government has a responsibility to do the best it can to ensure these individuals get what they are entitled to. Thus far, it has not. Although certain aspects of crediting earnings are currently a responsibility shared by IRS and SSA, we believe that safeguarding the interests of current and future beneficiaries is primarily SSA's responsibility. Nevertheless, IRS should reassess its decision to further delay providing SSA the data it needs to correct certain self-employed individuals' earnings records-some of whom have been receiving less in benefits than they are entitled to. SSA needs to do a better job of exercising leadership and initiating management initiatives to resolve current backlogs of unreconciled earnings reports. A focal point, such as the newly appointed chief financial Conclusions, Matters for Consideration of the officer, is needed to work closely with the program directors and IRS. More needs to be done to determine (1) the best way to resolve current backlogs in the most efficient manner and (2) the resources that will be required. Criteria for deciding not to resolve certain cases need to be reevaluated considering the potential impact on low-income individuals. Affected employers who might discard earnings records over 4 years old need to be contacted. The need for additional authority to require employers to cooperate in resolving differences must be examined. The requirement that employers report to both agencies at different times and in different formats may present a formidable challenge that could always result in a considerable workload to resolve differences. One obvious way to eliminate such workloads would be to have employers report to just one agency. However, we believe such an action would be premature because the dual reporting process serves an important internal control function. It provides the government with a mechanism to check on the accuracy of earnings reporting and thereby serves the best interests of beneficiaries, those still working, and the government. Thus the costs and benefits of this control cannot be adequately determined until the causes of earnings differences are better understood and decisions on how to better prevent and reduce their occurrence can be considered. Other alternatives to help ensure the accuracy of earnings reporting, such as providing individuals with annual statements of their earnings, as recorded by SSA, could also be explored. The current backlog of unreconciled reports dates back to 1978, and differences will continue to occur each year. We believe that firm action is needed to reconcile the current workload and minimize future occurrences. Based on past experience, it may be unlikely that SSA and IRS, without any additional incentives, will be able to agree to a joint approach that will result in a timely reconciliation best serving the interests of all affected individuals and beneficiaries. We believe that the heads of both agencies should be required to develop and present, as soon as possible, a plan of action for key congressional committees that have oversight and resource responsibilities for these agencies. This plan should stipulate the framework for joint agency resolution of unreconciled employers' reports, including specifying when the current workload will be completed, the additional resources required, and what will not get done with the resources currently allocated. Finally, SSA must decide how and when it will comply with the legal requirement to certify the earnings in its records. A legislative change that would enable Social Security's trust funds to retain tax revenues it |