Comments From the Department of Health and Human Services COMMENTS OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES General Comments The Social Security Administration (SSA) is acutely concerned about the growing number of unreconciled wage reports and the effects of these unreconciled wage data on individual earnings records and the trust funds. We concur with the thrust of the report that more must be done to resolve the annual wage reporting (AWR) problem. SSA has already initiated efforts to explore the causes of the problems in the reconciliation process and to negotiate needed changes with the Internal Revenue Service (IRS). Also, the Commissioner has directed the new Chief Financial Officer to be the focal point for the Agency's efforts to address these issues. His work has already begun. SSA will look into all issues raised in this report, develop a plan of action and report back to the General Accounting Office (GAO). We anticipate a 3-month time frame to complete our analysis, identify the necessary corrective action, and negotiate agreement with IRS. We are confident that these problems can be resolved. However, it is important to realize that the remedy does not rest with SSA alone. Responsibility for establishing an effective process for the reporting and recording of accurate wage data is shared statutorily with IRS, and both agencies benefit from the process. We believe that this GAO report will serve as a positive stimulus towards interagency cooperation and resolution of these problems. Effectiveness of AWR as an Internal Control GAO describes the current AWR system as a "...formidable challenge that will always result in a considerable workload of differences" and asserts that the dual reporting process is useful as an internal control to assure accurate wage reporting. We do not believe that the process should be viewed in that context. We are not aware of any internal control or accuracy issues that caused the need for the split in responsibility in 1978. In the instant case, we do not believe that the split responsibility adds to the accuracy of the data or facilitates the effectiveness, or potential effectiveness, of the process. In this case, due to the split in responsibility for the process, the matching of SSA and IRS data is not done as an internal control but rather as a means of making sense of different numbers over different times. Any internal control benefits are surely secondary and are not, and were not, the reasons behind the change to AWR. To reduce the tax reporting burden of the Nation's employers, Comments From the Department of Health 2 consolidated report. Thus, instead of requiring each employer to file five reports per year for each employee, the new law permitted employers to report pertinent data for each employee only once a year. Reporting of quarterly aggregate wage data on Form 941 (Employer's Quarterly Federal Tax Return) is still required. AWR became effective beginning with wage reports for tax year 1978 for private and Federal employees in the United States. The new law authorized SSA and IRS to enter into a cooperative agreement to implement the provisions of the law. By law, employers are required to submit wage and tax data for each employee to SSA by February 28 of the following year to satisfy the reporting requirements of both agencies. By agreement, SSA's responsibilities include: (1) balancing all Forms W-2 (Wage and Tax Statement) with Form W-3 (Transmittal of Income and Tax Statements); (2) funding for, and annually providing IRS with, a microfilm facsimile of all paper and magnetic media returns and documents received; and (3) providing IRS with magnetic tape files of all wage and tax data received. SSA also provides IRS with weekly updates of validated Social Security number and name data. By agreement, IRS is primarily responsible for the reconciliation of data reported annually to SSA and the aggregate wage data reported quarterly to IRS on form 941. This includes the responsibility for funding and associated costs. Who stood to benefit by the new system, and have these benefits been realized? Employers obviously benefited by reduced reporting requirements. However, there appears to be considerable confusion on the part of employers as to who gets the report, what to report, and when. SSA is faced with significant processing difficulties due to employer reporting errors and delinquent filers. IRS has benefited by increased tax enforcement capability through the information provided to it by SSA. Under AWR, SSA converts wage data (plus pension data) and tax data to an electronic media format and provides it to IRS. This greatly enhances IRS' ability to identify and collect taxes due. The switch to AWR has done little to enhance SSA's ability to maintain accurate earnings records. To the contrary, the job has become more complicated. Large backlogs of unreconciled wage data were not part of SSA's experience prior to AWR. As the GAO report acknowledges, SSA has no real enforcement power over employers who fail to report, or who report inaccurately. Penalty authority remains with IRS. SSA has incurred significant delays in posting wage data due to AWR. Most wage data are now sent to SSA the first quarter of the year following the close of the tax year (some reporting does, however, occur throughout that second year) rather than throughout the tax year as was the case under the quarterly system. The change to AWR increased the volume of paper SSA had to process. This was due, in part, to the fact that annual wage reports permit only 3 employee items to be reported by page, as compared to 44 items Comments From the Department of Health 3 Now on p. 4. Now on p. 24. Now on p. 26. to each page in the former quarterly process. SSA has also been Retention of Monies in Trust Funds We believe that the statements in the Executive Summary (top of On pages 22 and 23, GAO concludes that records of wages Comments From the Department of Health Now on pp. 25-26. oversimplification of the SSA statement quoted on pages 21-22 While we agree in principle that SSA should return to using Το |