Arizona's Audit Process for New Hire Reporting

When New Hire Reporting began in October 1997, many States decided to
contract out all or part of their operations. One reason was that
private companies already had the software and technical expertise to
get a program up and running quickly. The responsibility for oversight,
however, remained with the State agency that hired the private vendor. A
carefully crafted request for proposal (RFP) often included a clause
requiring a high degree of accuracy for the manual data entry of those
new hire reports arriving by paper, including faxed or mailed reports.

Arizona contracted with Policy Studies, Inc. (PSI) in 1998 for new hire
reporting. Now in its second year with PSI, Arizona is presently paying
\$.38 per record with no distinction made between reports received
electronically and those received on paper that must be manually
entered. Arizona does not pay for duplicate records.

**First year implementation**

Arizona\'s contract with PSI calls for an accuracy rate of 99.8%;
Arizona checks for accuracy (of those reports entered manually) by
performing monthly audits, according to Catherine Chislock, Project
Manager. Any errors picked up during an audit are corrected and returned
to PSI for review. The contract called for financial penalties for
failure to achieve an accuracy rate of 99.8%, but Arizona declined to
assess any penalties during the first year because both the State and
the vendor were occupied with getting the program implemented, including
working out just how the audit would be performed.

**Audit methodology issues**

### The original methodology used stated that a new hire report found to have any error was considered to be an incorrect report. During the first year, PSI requested a review of the methodology for determining what constitutes an error. Arizona asked PSI to offer proposals to change the methodology, and after much discussion, the State and the vendor came to an agreement on a new methodology. Arizona was concerned most of all that an error would prevent the matching of a new hire \"hit.\" As a result, the State and vendor came up with a two-tiered formula that, in essence, considers some data more important than other data in a new hire report.

### 

### New methodology

### The new methodology states that a new hire report will be considered incorrect if an error is found in any of these data elements:

### The first three characters of the employee\'s first name

-   The first five characters of the employee\'s last name

-   Employee\'s Social Security number

-   Employer\'s Federal Employer Identification Number (FEIN)

As a quality control measure, PSI \"double keys\" the FEIN. A data entry
operator enters the FEIN and all other new hire data, and a second
operator enters the same FEIN to access and verify the new hire
information.

Other data was less heavily weighted. A data entry operator could make
up to five errors (with each character error counting as 20%) before the
entire report would be considered incorrect. The data considered less
critical includes:

-   Employer\'s name

-   Employer\'s address

-   Employee\'s address

-   The fourth and succeeding characters in the employee\'s first name

-   The sixth and succeeding characters in the employee\'s last name

-   Employee\'s middle name/initial

Arizona and PSI agreed on the methodology and an amendment was made to
the contract in August 1999.

**How an audit is conducted**

Audits in the Arizona New Hire Reporting Program take a considerable
amount of time. The person performing the audit pulls the hard copy
report of about 380 manually entered new hire reports and checks them
against the new hire data on Arizona\'s computer system. The 380 number
is arrived at using a formula that assumes a 95% confidence level with a
(+) or (-) variance of 5%, meaning that Arizona expects that at least
95% of the manually entered new hire reports will be correct. The
process takes about 60 hours. Arizona corrects any errors and then
returns the incorrectly entered reports to PSI to be used for training
purposes.

**Financial penalties**

Arizona\'s contract with PSI calls for financial penalties of \$1,000 in
a month in which the vendor fails to achieve the 99.8% accuracy rate
using the new methodology for determining accuracy. Arizona has been
averaging 102,600 new hire reports per month, so a penalty would
represent about 2.5% of PSI\'s monthly revenue for this project.

Catherine Chislock, Project Manager of Arizona\'s New Hire Reporting
Program, praised the good working relationship that the State has with
PSI. For further information on this audit process, please contact her
at (602) 274-1482, ext. 4977 or e-mail <cchislock@de.state.az.us>