INFORMATION 

TECHNOLOGY

Department of Labor 

Could Further 

Facilitate 

Modernization of 

States’ Unemployment 

Insurance Systems

Report to the Acting Chairman, 

Subcommittee on Human Resources, 

Committee on Ways and Means, House 

of Representatives

September 2012

GAO-12-957

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-957, a report to the 

Acting Chairman, Subcommittee on Human 

Resources, Committee on Ways and Means, 

House of Representatives 

September 2012

INFORMATION TECHNOLOGY

Department of Labor Could Further Facilitate 

Modernization of States’ Unemployment Insurance 

Systems 

Why GAO Did This Study

Labor’s UI program is a federal-state 

partnership that provides partial 

compensation for lost earnings of 

eligible individuals who become 

unemployed through no fault of their 

own. In fiscal year 2011, about $117 

billion was spent on the UI program. To 

administer the program, states rely 

heavily on IT, including benefits and 

tax systems. However, a July 2010 

state survey noted that most of the UI 

IT systems are outdated and cannot 

efficiently handle their current 

workloads. 

GAO was asked to (1) determine 

Labor's role in facilitating UI IT

modernization efforts, (2) identify and 

describe the types of federal funding 

selected states have spent on

modernization, (3) provide the status of 

modernization for selected states, (4) 

determine key modernization 

challenges, and (5) determine what 

management controls have been 

established for IT modernization. To do 

this, GAO analyzed documentation and 

interviewed officials from a 

nongeneralizable sample of nine states 

(selected based on varying location, 

size, and modernization status); and 

reviewed Labor policies; and 

interviewed department officials. 

What GAO Recommends

GAO recommends that Labor 

(1) comprehensively analyze and 

document challenges and lessons 

learned and (2) distribute the lessons 

learned to each state to share and 

foster ideas for effective modernization 

of UI systems. Labor generally agreed 

with the first recommendation; it did not 

agree or disagree with the second 

recommendation, but said it is 

committed to sharing lessons learned.

What GAO Found

The Department of Labor (Labor) facilitates states’ efforts to modernize 

information technology (IT) systems supporting their unemployment insurance 

(UI) programs by (1) providing funds for administrating overall UI operations and 

(2) participating in groups that provide technical support to states. While the 

federal-state structure of the UI program places primary responsibility for its 

administration on the states, Labor provides potential strategies for IT 

modernization activities through supplemental budget funds. 

Federal funds for UI modernization efforts come primarily from two sources: (1) 

supplemental budget funds that are designated by Labor for state IT 

modernization efforts and (2) general UI administration funding. General 

administration funding primarily consists of State UI and Employment Service 

Operations funds (an administrative grant issued by Labor at the beginning of 

each fiscal year); Job Creation and Worker Assistance Act of 2002 funds, 

(distributed under the Reed Act, a mechanism by which the federal government 

transfers surplus UI funds to states); and American Reinvestment and Recovery 

Act funds (an economic stimulus package enacted in February 2009). However, 

federal funds can be used for multiple UI purposes, and states are not required to 

report costs for UI modernization projects. 

The status of the nine states’ UI IT modernization efforts that GAO reviewed 

range from planning to deployment. Of the nine states, three are part of a 

consortium (multiple states that develop a single common system) and are all in 

the initial planning phase; two individual state efforts are in the development 

phase; two are in a combination of different phases; and two are in operations 

and maintenance. For example, Virginia is in the development phase whereas 

Minnesota has a deployed system and is in operations and maintenance. 

States and Labor have challenges specific to (1) individual states and (2) 

consortiums’ modernization efforts. The challenges for individual states that GAO 

reviewed relate to having sufficient technical expertise and limited funding, 

among others, and challenges faced by consortiums relate to differences in state 

laws and business processes among member states. It is widely recognized that

analyzing and prioritizing challenges and then documenting lessons learned can 

help mitigate risk and track successful ideas for more effectively managing IT in 

the future. A committee was tasked to assess lessons learned from consortium 

efforts which may serve as a valuable first step toward helping the states mitigate

challenges. However, the effort is not complete and does not represent an 

independent survey of all the states’ lessons learned. As such, Labor has not yet 

comprehensively evaluated and prioritized challenges and lessons learned, 

disseminated them to each state, or facilitated an appropriate information sharing 

mechanism. Until it does, Labor may miss opportunities to help support future 

consortium and state modernization efforts. 

All nine states reviewed have established selected management controls for 

modernizing IT which, if properly implemented, could help reduce the risks of 

modernization challenges. The controls align with industry-accepted program 

management practices, such as independent verification and validation; and 

include state-specific practices, such as oversight through a Chief Information 

Officer office and consortium-specific practices, such as governance structures.

View GAO-12-957. For more information, 

contact Valerie Melvin at (202) 512-6304 or 

melvinv@gao.gov. 
Page i GAO-12-957 Unemployment Insurance Systems Modernization

Letter 1 

Background 3

Labor’s Primary Role in Facilitating IT Modernization Efforts is 

Providing Funding and Technical Support to State UI Programs 9

A Variety of Funding Sources Exist for States’ Modernization of UI 

Programs 13

Selected States Vary in Their Efforts to Modernize UI Systems 20

States and Consortiums Have Experienced Challenges with IT 

Modernization 26

The Selected States Have Established Management Controls to 

Help Guide Their IT Modernization Efforts 34

Conclusions 44

Recommendations for Executive Action 45

Agency Comments and Our Evaluation 45

Appendix I Objectives, Scope, and Methodology 48

Appendix II Comments from the Department of Labor 51

Appendix III GAO Contact and Staff Acknowledgments 54

Tables

Table 1: Reported Distributions of Federal UI Administration

Funds to the Nine Selected States 17

Table 2: Overview of the Selected States’ UI Modernization Efforts 21

Contents
Page ii GAO-12-957 Unemployment Insurance Systems Modernization

Abbreviations

CIO Chief Information Officer

COBOL Common Business Oriented Language

ETA Employment and Training Administration

IT information technology

ITIM information technology investment management

ITSC Information Technology Support Center

IV&V independent verification and validation

NASWA National Association of State Workforce Agencies

PMBOK Program Management Body of Knowledge 

PMI Project Management Institute 

SCUBI Southeastern Consortium for Unemployment Insurance

 Integration

UI unemployment insurance

WyCAN Wyoming, Colorado, Arizona and North Dakota consortium

This is a work of the U.S. government and is not subject to copyright protection in the

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-12-957 Unemployment Insurance Systems Modernization

United States Government Accountability Office 

Washington, DC 20548

September 26, 2012

The Honorable Erik Paulsen

Acting Chairman

Subcommittee on Human Resources

Committee on Ways and Means

House of Representatives

Dear Acting Chairman Paulsen:

The unemployment insurance (UI) program is our nation’s largest income 

maintenance program, with its benefits serving as a critical source of 

income for millions of unemployed Americans. The program, which is 

administered by the Department of Labor (Labor) in partnership with the 

states, has been particularly essential in the wake of the recent recession 

and slow pace of economic recovery: in fiscal year 2011, $116.8 billion 

was spent to provide temporary, partial compensation for lost earnings of 

individuals who became unemployed through no fault of their own.

As a federal-state partnership, the framework of the program is 

determined by federal law, and benefits for individuals are dependent on 

state law and administered by State Workforce Agencies.1 To administer 

the program, state agencies must, among other things, collect state 

unemployment taxes, determine eligibility and benefits amounts, and pay 

unemployment benefits. In carrying out these key responsibilities, the 

state agencies rely heavily on information technology (IT), including 

benefits and tax systems. However, a July 2010 state survey noted that 

most of the IT systems used for the UI program were old and based on 

outmoded programming languages, were costly and difficult to support, 

and could not efficiently handle workload demands.2

 

1

State Workforce Agencies administer their respective state unemployment insurance 

laws and provide employment services, training programs, employment statistics, and 

labor market information.

Given the 

2

National Association of State Workforce Agencies Center for Employment Security 

Education and Research, Information Technology Support Center, A National View of UI 

IT Systems, July 2010. The Information Technology Support Center (ITSC) is a national 

collaboration of state workforce agencies and Labor to maximize the sharing of UI IT best 

practices and to facilitate the appropriate application of IT in state UI programs. The goal 

of ITSC is to provide accurate, efficient, cost-effective, and timely service to all UI 

customers. 

 
 

Page 2 GAO-12-957 Unemployment Insurance Systems Modernization

importance of IT to state agencies’ abilities to effectively process and 

provide timely UI benefits to millions of unemployed Americans, you 

requested that we examine states’ efforts to modernize the systems 

supporting their UI programs. Our specific objectives were to (1) 

determine Labor’s role in facilitating the states’ IT modernization efforts, 

(2) identify and describe the types of federal funding selected states have 

spent on IT modernization, (3) provide the status of modernization efforts 

for the selected states, (4) determine key modernization challenges, and 

(5) determine what management controls have been established for IT 

modernization.

To accomplish our objectives, we selected and examined the IT 

modernization efforts of nine states.3

To determine Labor’s role in facilitating the modernization efforts, we 

analyzed documentation describing its responsibilities, including 

regulations, department project plans, and program guidance. We also 

interviewed Labor officials responsible for overseeing states’ UI programs 

to further clarify the department’s role. To identify and describe the types 

of federal funding selected states have spent on IT modernization, we 

analyzed states’ expenditure data, such as funding allocations and 

spending reports. Further, to determine the status of modernization efforts 

for the selected states, we reviewed the states’ modernization project 

plans and status reports, and interviewed officials responsible for UI 

technology. To determine key modernization challenges, we analyzed 

public reports and interviewed relevant officials from Labor and the nine 

states regarding issues encountered while initiating and developing the 

states’ efforts to modernize the UI systems. Based on these challenges 

reported and observed, we also reviewed state modernization 

documentation and interviewed state and Labor representatives to 

We selected the states on the basis 

of varying regional location, size, and modernization status. We also 

selected states developing individual systems, those developing 

integrated tax and benefits systems, and states involved in consortium 

efforts. While the sample was nongeneralizable, the selected states 

offered insight and perspective on their experiences in modernizing UI 

systems, including sources of funding, challenges, and established 

management controls.

 

3

The nine states selected for our study were California, Colorado, Florida, Indiana, 

Minnesota, Ohio, Tennessee, Vermont, and Virginia.
 

Page 3 GAO-12-957 Unemployment Insurance Systems Modernization

identify and assess lessons learned for the nine states selected. Finally, 

to determine what management controls have been established for IT 

modernization, we reviewed documentation from Labor and each state 

describing existing management controls and interviewed cognizant 

officials about the controls. However, we did not assess the extent to 

which the selected UI agencies implemented these management controls.

We conducted this performance audit from January 2012 through 

September 2012 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. Further details on 

our objectives, scope, and methodology are provided in appendix I.

The federal-state UI program, created in part by the Social Security Act of 

1935, is administered under state law based on federal requirements.4

The primary objectives of the program are to provide temporary, partial 

compensation for lost earnings of individuals who become unemployed 

through no fault of their own, with some exceptions, and meet certain 

other eligibility criteria, and to stabilize the economy during economic 

downturns.5

 

4

UI was initiated on a national basis as Title III and Title IX of the Social Security Act of 

1935. Pub. L. No. 74-271, 49 Stat. 620, codified as amended at 42 U.S.C. ch. 7, subch. III 

and IX. 

The program is generally financed by federal and state 

payroll taxes levied on employers. Within the guidelines of federal law, 

states administer the program and can specify who is eligible to receive 

UI benefits and how much they receive. Generally state and federal taxes 

on employers fund UI benefits and administrative costs. Within Labor, the 

Employment and Training Administration’s (ETA) Office of Unemployment 

Insurance—along with the agency’s six regional offices—oversee the 

states’ implementation and administration of their UI programs.

5

Some states allow for some workers who quit for certain work-related or personal 

reasons to be eligible for UI benefits. The American Recovery and Reinvestment Act of 

2009 authorized the Secretary of Labor to make unemployment compensation 

modernization incentive payments to a state if, among other things, the state law included 

provisions that would not disqualify an individual from UI benefits who quit employment for 

a specified compelling family reason, such as following their spouse to a new job. Pub. L. 

No. 111-5, div. B, § 2003, 123 Stat. 115, 439-443 (Feb. 17, 2009).

Background
 

Page 4 GAO-12-957 Unemployment Insurance Systems Modernization

Applicants must have earned at least a certain amount in wages and/or 

have worked a certain number of weeks over a period of time to be 

eligible for benefits. In addition, the individuals must, with limited 

exceptions, be available for and able to work, and actively search for 

work. For their part, UI agencies must identify recipients who are likely to 

exhaust their benefits and refer them to reemployment services, such as 

those available through state-run employment centers known as 

“American Job Centers.”6

Typically, eligible unemployed workers can receive UI benefits for up to 

26 weeks in most states (though individuals may be eligible for fewer 

weeks). During periods of high unemployment, the states may provide up 

to 20 additional weeks of benefits through the Extended Benefits 

program. In 2008, Congress provided for the temporary extension of 

benefits through the Emergency Unemployment Compensation program. 

In 2009, Congress temporarily authorized

At these centers, states and localities provide 

services for many federally funded employment and training programs, 

and they have the option of including additional programs, such as the 

Temporary Assistance for Needy Families program (one of the nation’s 

primary income support programs for low-income families).

7 the extension of benefits 

based on unemployment rates in each state and, has since, amended the 

rate and time frame several times, most recently in 2012.8 As of January 

2012, eligible unemployed workers could potentially receive the maximum 

99 weeks of benefits in 17 states, according to Labor data, though some 

individuals may be eligible for fewer weeks in these states. In 2012, 

through the passage of the Middle Class Tax Relief and Job Creation Act, 

Congress extended the Emergency Unemployment Compensation 

program until January 2, 2013, and also extended full federal funding of 

the Extended Benefits program until December 31, 2012.9

 

6

According to Labor officials, many of these centers are operated by contractors and are 

governed by regional boards. The states provide oversight and set performance standards 

and policies.

7

Pub. L. No. 111-5, § 2005, 123 Stat. 444.

8

The sequencing of unemployment benefits is determined by three separate programs 

and starts with the Unemployment Compensation program, providing up to 26 weeks of 

benefits. After this initial benefit, the temporarily authorized Emergency Unemployment 

Compensation program may provide up to an additional 53 weeks of benefits, though in 

2008 provided a maximum of 33 weeks. 

9

Pub. L. No. 112-96, §§ 2122-2123, 126 Stat. 156, 163-167 (Feb. 22, 2012).
 

Page 5 GAO-12-957 Unemployment Insurance Systems Modernization

Federal law sets forth broad coverage provisions for the categories of 

workers that are covered by the UI program, as well as some benefit 

provisions, the federal tax base and rate, and administrative requirements 

such as what program data will be reported. Within the framework 

established by federal law, states can determine key elements of their UI 

programs, such as eligibility/disqualification provisions, the benefit 

amount, and the amount of taxes that employers must pay.

Within the context of the federal-state partnership, Labor has general 

responsibility for overseeing the UI program to ensure that the states are 

operating the program effectively and efficiently.10 For example, Labor is 

responsible for monitoring state operations and procedures, providing 

technical assistance and training, as well as analyzing UI program data to 

diagnose potential problems. The federal-state structure of the UI 

program places primary responsibility for its administration on the states, 

and gives them wide latitude to administer their programs in a manner 

that best suits their needs within the guidelines established by federal 

law. In addition, an administrative decision made by Labor in 1986 

provided states “bottom line authority” in administering their UI programs, 

giving them greater control over their expenditures and reducing federal 

monitoring of administrative expenditures.11

To oversee the program, the Office of Unemployment Insurance within 

Labor’s ETA and ETA offices in six geographic regions are responsible 

for working with the states. The regional offices are the states’ main 

points of contact with Labor and serve as a link between the department 

and the states for providing technical assistance and clarifying program 

policies, objectives, and priorities. Moreover, the regional offices have 

primary responsibility for overseeing the fiscal and management integrity 

of the UI program. This oversight includes ensuring that states do not 

In particular, bottom-line 

authority permits states to move resources among cost categories—such 

as from benefit payment control activities to claims processing—and 

across quarters within a fiscal year. It also permits states to use UI 

administrative resources based on the state’s assessment of its particular 

needs.

 

10See 42 U.S.C. § 502(a); see also 20 C.F.R. Parts 601 (Administrative Procedure) and 

602 (Quality Control in the Federal-State Unemployment Insurance System).

1151 Fed. Reg. 18052 (May 16, 1986).

Federal and State 

Requirements for 

Unemployment Insurance
 

Page 6 GAO-12-957 Unemployment Insurance Systems Modernization

provide unemployment compensation to ineligible recipients and ensuring 

that states detect these overpayments when they do occur. 

The UI program was designed to be forward funded and self-financed by 

states, with each state’s trust fund building up reserves from employer 

taxes during periods of economic expansion in order to pay UI benefits 

during economic downturns. Because unemployment can vary 

substantially during a business cycle, it is important that states build 

sufficient trust funds to remain solvent during recessionary times. Toward 

this end, the program is financed primarily by taxes levied on 

employers,12 with each state setting tax rates and a tax base which must 

be at least equal to the federal wage base (currently set at $7,000) to 

automatically finance regular UI benefits. In addition, in accordance with 

the Federal Unemployment Tax Act, employers pay a federal tax. This tax 

is used to fund: (1) federal and state UI administration costs;13 (2) the 

federal share of extended benefits; (3) Title XII loans to state trust funds 

when they cannot pay benefits;14 (4) benefits under federal supplemental 

and emergency programs; (5) labor exchange services,15

The Unemployment Trust Fund in the U.S. Treasury consists of 53 state 

accounts, including one each for the District of Columbia, the Virgin 

employment, 

and training for veterans; and (6) some labor market information 

programs.

 

12Alaska, New Jersey, and Pennsylvania also withhold UI taxes from employee wages.

13GAO has conducted past reports on UI funding used to administer the program. See 

GAO, Unemployment Insurance Trust Funds: Long-standing State Financing Policies 

Have Increased Risk of Insolvency, GAO-10-440 (Washington, D.C.: Apr. 14, 2010); 

Human Service Programs: Demonstration Projects Could Identify Ways to Simplify 

Policies and Facilitate Technology Enhancements to Reduce Administrative Costs, 

GAO-06-942 (Washington, D.C.: Sept. 19, 2006); and Unemployment Insurance: 

Increased Focus on Program Integrity Could Reduce Billions in Overpayments, 

GAO-02-697 (Washington, D.C.: July 12, 2002). 

14Title XII of the Social Security Act, 42 U.S.C. §§ 1321 – 1324, authorizes advances or 

loans to state unemployment compensation programs. 

15Labor exchange services include job search assistance, job referral, placement 

assistance for job seekers, reemployment services to UI claimants, and recruitment 

services to employers with job openings. 

Funding Provided to 

Administer the UI Program
 

Page 7 GAO-12-957 Unemployment Insurance Systems Modernization

Islands, and Puerto Rico;

16 plus six federal accounts that are dedicated 

for special purposes.17

When the aforementioned three federal tax accounts reach prescribed 

statutory ceilings at the end of September 30 in any year, any excess 

funds are transferred to individual state accounts, in accordance with the 

Reed Act—the mechanism by which the federal government transfers 

surplus UI funds to states.

Of these six accounts, federal taxes go into the 

Employment Security Administration Account, the Extended 

Unemployment Compensation Account, and the Federal Unemployment 

Account, while state taxes go into individual state accounts.

18 Labor bases each state’s share of Reed Act 

funds on the state’s proportional share of Federal Unemployment Tax Act

taxable wages. Federal law restricts states’ use of Reed Act distributions

to covering only the cost of state benefits and, if certain conditions are 

met, for the administration of state UI and Employment Services 

programs. A state must have a specific appropriation from its legislature, 

specifying the purposes and amounts, pursuant to which the state may 

use its share of the Reed Act funds for administrative expenses.19 There 

have been eight Reed Act distributions since 1956, most recently in 

2002;20 Congress has raised the Reed Act’s statutory ceilings that trigger 

the distribution of the excess funds several times.

State agencies rely extensively on IT to carry out their UI program 

functions. Specifically, IT systems are used to administer the programs 

 

16According to Labor, funds deposited in the 53 state accounts may only be used for the 

payment of claimant benefits and refunds of sums erroneously paid, and may not be used 

for any other purpose, with limited, statutory exceptions.

17The six accounts include: the Employment Security Administration Account, the 

Extended Unemployment Compensation Account, the Federal Unemployment Account, 

the Federal Employees Compensation Account, and two accounts related to the Railroad 

Retirement Board.

18The term “Reed Act” refers to a part of the Employment Security Financing Act of 1954, 

Pub. L. No. 83-567. The provisions referred to are found in Title IX of the Social Security 

Act, 42 U.S.C. §§ 1101-1104. 

1942 U.S.C. § 1103(c)(2). 

20The 2002 Reed Act distribution was made under the Job Creation and Worker 

Assistance Act of 2002, and was not the result of a transfer due to the accounts reaching 

the statutory ceilings.

States’ Unemployment 

Insurance IT Environment
 

Page 8 GAO-12-957 Unemployment Insurance Systems Modernization

and to support related administrative needs. For example, benefits 

systems are used for:

• determining eligibility for benefits;

• recording claimant filing information, such as demographic 

information, work history, and qualifying wage credits;

• determining updates as needed, such as changes in work-seeking 

status; and

• calculating state-specific weekly and maximum benefit amounts.

In addition, tax systems are used for:

• online reporting and payment of employers’ tax and wage reports;

• calculating tax, wage, and payment adjustments, and any penalties 

and interest accrued;

• processing quarterly tax and wage amounts;

• determining and processing late payment penalties, interest, civil 

penalties, or fees; and

• adjusting previously filed tax and wage reports as a result of a tax 

audit, an amended report submitted by the employer, or an 

erroneously keyed report.

States use an appeals system to provide appellate and due process 

rights to claimants and employers. An appeals system allows any party 

(claimant or employer) who is dissatisfied with an adjudicator’s decision to 

contest that decision. 

The majority of the states’ existing systems for UI operations were 

developed in the 1970s and 1980s. Although some agencies have 

performed upgrades throughout the years, most of the state legacy 

systems have aged considerably. Accordingly, as the systems have aged, 

they have presented various challenges to the efficiency of states’ 

existing IT environments. For example, a survey conducted by the 

National Association of State Workforce Agencies (NASWA)21

• over 90 percent of the systems run on outdated hardware and 

software programming languages, such as Common Business 

in 2010 

found that states reported:

 

21National Association of State Workforce Agencies Center for Employment Security 

Education and Research, Information Technology Support Center, A National View of UI 

IT Systems, July 2010.
 

Page 9 GAO-12-957 Unemployment Insurance Systems Modernization

Oriented Language (COBOL), which is one of the oldest computer 

programming languages;22

• the systems are costly and difficult to support: the survey found, for 

example, that over two-thirds of states face growing costs for 

mainframe hardware and software support of their legacy systems;

• most states’ systems cannot efficiently handle current workload 

demands, including experiencing difficulties implementing new federal 

or state laws due to the constraints posed by the outdated inefficient 

IT systems; and

• states have realized an increasing need to transition to web-based 

online access for UI data and services.

• States also cited specific issues with legacy systems, including the 

fact that they cannot be reprogrammed quickly enough to respond to 

changes due to legislative mandates. In addition, states have

developed one or more standalone ancillary systems to fulfill specific 

needs; however, these systems are not integrated with the states’ 

legacy mainframe systems, thus decreasing efficiency. Finally, 

according to the states, the existing legacy systems cannot keep up 

with advances in technology, such as the move to place more UI 

services online.

Labor’s role in facilitating UI IT modernization efforts primarily consists of 

providing funding and technical support to the state agencies. In this 

regard, the department distributes federal funds to each state for the 

purpose of administering its UI program, including funds that can be used 

for IT modernization. (Federal sources of funding for UI IT modernization 

are discussed later in this report.)

In addition to providing funding for the individual state modernization 

efforts, Labor has also supported the establishment of state consortiums, 

in which three or four states work together to develop and share a 

common system. These efforts are intended to allow multiple states to 

pool their resources and reduce risk in the pursuit of a single common 

system that they can each use after applying state-specific programming 

and configuration settings. For example, through supplemental budget 

 

22COBOL is a business application programming language that was introduced in the 

1960s. This language is generally viewed as obsolete and there are a limited number of 

programmers that know the language, therefore it is difficult to implement new business 

processes and new service delivery models, such as online, real-time processing. 

Labor’s Primary Role 

in Facilitating IT 

Modernization Efforts 

is Providing Funding 

and Technical Support 

to State UI Programs
 

Page 10 GAO-12-957 Unemployment Insurance Systems Modernization

funds,23 in 2009 the department provided $29 million to initiate two state 

consortium modernization efforts—the Wyoming, Colorado, Arizona, and 

North Dakota (WyCAN)24

However, because states’ bottom-line authority permits them to use UI 

administrative resources as they deem appropriate, and Labor ETA 

officials stated that the department has limited control over how states 

actually spend administrative funds, Labor does not track each state’s UI 

IT modernization spending. The officials added that Labor does not track 

or monitor the progress of states’ UI IT modernization initiatives. Further, 

the department’s Administrator of the Office of Unemployment Insurance 

said that while Labor monitors supplemental funding provided to specific 

consortium projects,

consortium and the Southeastern Consortium 

for Unemployment Insurance Integration (SCUBI). Later, in 2011, Labor 

provided state UI agencies, under certain conditions, additional funding 

totaling about $192 million to modernize tax and benefit systems and to 

enhance the program integrity and technology infrastructure systems. 

This money supported the two initial consortiums (WyCAN and SCUBI) 

and a third consortium that was formed in 2011—the Vermont, Maryland, 

and West Virginia technology infrastructure consortium.

25

Beyond providing funding for individual states’ and consortiums’ efforts, 

Labor also helps to provide technical assistance to the states by 

supporting and participating in two key groups—NASWA and the 

Information Technology Support Center (ITSC):

Labor does not have sufficient technical resources 

to monitor all of the states’ modernization efforts.

• NASWA provides a forum for states to exchange information and 

ideas about how to improve program operations; serves as a liaison 

between state workforce agencies and federal government agencies, 

 

23Labor and the states refer to these as “supplemental budget requests” when they apply 

for the funding.

24When the consortium was initiated in 2009, the states involved were Arizona, Wyoming, 

Idaho, and North Dakota; however, in 2011 Idaho decided to manage its own 

modernization effort and withdrew from the consortium. At about the same time Colorado 

decided it would take part as the lead. 

25Labor provides sample grant proposals for the states to use to obtain money through 

supplemental budget funds. Labor establishes specific state requirements and designates 

what the funding is to be used for, and monitors if the states are using the funding for the 

intended purposes. 
 

Page 11 GAO-12-957 Unemployment Insurance Systems Modernization

Congress, businesses, and intergovernmental groups; and is the 

collective voice of state agencies on workforce policies and issues.26

• ITSC

In 1994 the association established the Center for Employment 

Security Education and Research to serve as its research arm. Under 

a grant from Labor, the center is conducting a study to measure 

progress and challenges in implementing the workforce and UI 

provisions of the American Recovery and Reinvestment Act of 2009, 

to highlight new and promising practices, and to provide guidance to 

ETA, the states, and local workforce investment areas. Specifically, in 

September 2010 NASWA’s Center for Employment Security 

Education and Research developed a national vision for Labor to 

improve the UI and workforce systems’ connection and integration. 

This vision included, among other things, a client-integrated service 

systems delivery plan, and it identified the need for real-time 

automated processing, technical staff developmental needs, and 

required systems upgrades to support the UI program.

27 is funded by Labor and the states to provide technical 

services, core projects, and a central capacity for exploring the latest 

technology for all states.28

• Application development—develops, distributes, and supports UI 

components and independent modules or products for high-payoff 

and cost-efficient multistate use. ITSC develops requests for 

proposals to procure the required programming and other 

technical services.

The core services that ITSC provides to the 

states include:

• Standards development—in conjunction with the states, develops 

suggested technical standards and guidelines to help states in 

 

26NASWA receives funding from workforce state agencies’ membership dues. Also, 

through the Center for Employment Security Education and Research, grant money is 

provided by Labor for specific projects or tasks. These specific projects may include those 

in which money is provided for ITSC to perform UI information technology tasks.

27Recognizing that the UI program was dependent on technology, Labor funded ITSC. It 

was created in 1994 as a partnership between Labor and the Maryland Department of 

Labor, Licensing and Regulation to support state UI IT initiatives. Labor supports the ITSC 

through grants to the Maryland agency. ITSC supports all states’ modernization efforts, 

either directly with states’ requests and funding or with funding support from Labor.

28ITSC performs three primary types of projects: (1) core projects defined and agreed on 

by the 11 voting member ITSC Steering Committee which is comprised of Labor officials, 

state UI and IT directors, State Workforce Agency Administrators, and ITSC technical 

representatives and is funded by Labor; (2) projects requested and funded by Labor; and 

(3) projects requested and funded by the states. 
 

Page 12 GAO-12-957 Unemployment Insurance Systems Modernization

developing systems that are highly configurable and can be used 

by multiple states and consortiums.

• Independent verification and validation (IV&V)29

• UI modernization services—provide best practice services for UI 

modernization initiatives.

—provides 

consultative services to help states safeguard Labor and state 

funds.

• Advisory services—provide advisory assessments of technologies 

that UI agencies may review and/or adopt.

ITSC also provides other services at the request of individual states, such 

as responding to a specific request to modernize an interactive voice 

response system to support the processing of UI benefits. In addition to 

providing funding to ITSC for state technical support, Labor facilitates 

states’ individual efforts by:

• Meeting quarterly with the ITSC Steering Committee30

• Providing potential strategies and a framework to the states on how 

the states should use the grant money through supplemental budget 

funds. For example, for one of the supplemental budget funds 

provided to support a consortium system’s effort, Labor established a 

framework on how the states should develop and administer a study 

to determine the feasibility of designing, developing, and 

implementing a core UI benefits system that could be used by multiple 

state workforce agencies. As part of this framework, Labor, for 

comprised of 

ITSC technical experts and state representatives to discuss and 

review IT challenges, issues, status, and consortium approaches. 

Within these meetings, Labor participates in providing informal 

recommendations of potential solutions to issues raised. For example, 

in a June 2012 ITSC Steering Committee meeting, Labor officials, 

including the Administrator of the Office of Unemployment Insurance 

in ETA, participated in a discussion regarding the need to document 

lessons learned from UI modernization projects.

 

29IV&V is a process conducted by a party independent of the development effort that 

provides an objective assessment of a project’s processes, products, and risks throughout 

its life cycle and helps ensure that program performance, schedule, and budget targets 

are met.

30 The ITSC Steering Committee consists of 11 voting members, including State 

Workforce Agency administrators, State Workforce Agency Unemployment Insurance 

directors, State Workforce Agency IT directors, and two representatives from the 

department’s Office of Unemployment Insurance.
 

Page 13 GAO-12-957 Unemployment Insurance Systems Modernization

example, required the consortium states to undertake an analysis of 

the various state laws, regulations, policies, procedures, and IT 

standards to determine their ability to make adjustments or changes in 

their state in order to increase commonality between the states and 

simplify the consortium’s approach to a new, common benefits and 

tax system.

• Participating in UI conferences primarily established by NASWA, 

leading discussions and forums that address IT challenges and 

issues, and helping gain an understanding of the general directions 

and progress being made by states. For example, during the October 

NASWA UI conference, the Administrator of the Office of 

Unemployment Insurance in ETA discussed, among other things, 

NASWA/ITSC supporting an integrated client registration tool, as well 

as identifying useful IT best practices. 

The states we reviewed have used various sources of federal and state 

funding to support their IT modernization efforts. There are two primary 

federal sources: (1) supplemental budget funding31 that is designated by 

Labor for specific state and consortium IT modernization efforts; and (2) 

general UI administration funding, which can be used for a variety of 

purposes, including IT modernization.32

In particular, ETA has awarded supplemental funds to the states. Among 

other purposes, these supplemental funds may provide an opportunity for 

states to implement consortium technology-based solutions to improve 

the efficiency and performance of their UI operations. Supplemental 

budget funds are offered to the states with the understanding that ETA 

cannot assure that future federal supplemental funds will be available to 

complete the projects. Thus, in applying for supplemental budget funds, 

the state in essence agrees that the projects will be completed with no 

additional federal supplemental budget funds and that it will supply any 

additional funds necessary to complete the project in a timely manner, 

such as with states’ specific monies.

 

31 According to Labor officials, supplemental budget request funding is drawn from the 

State UI and Employment Service Operations Appropriation.

32In addition, other federal sources of funding include Reed Act distributions when 

statutory caps are met and other special distributions as authorized by Congress.

A Variety of Funding 

Sources Exist for 

States’ Modernization 

of UI Programs
 

Page 14 GAO-12-957 Unemployment Insurance Systems Modernization

As previously mentioned, three consortiums have been formed with 

federal funding:

• The WyCAN consortium was formed in 2009 following an initial ETA 

grant of about $19 million for a feasibility study to develop a common 

UI benefits and tax system. In 2011, ETA provided additional funding 

of about $72 million to this consortium to develop and implement 

integrated UI benefit and tax systems.

• SCUBI was formed in 2009 and is comprised of the following states: 

Tennessee, South Carolina, North Carolina, and Georgia. This 

consortium received an initial grant from ETA of $10 million to perform 

a feasibility study to develop a common UI benefits system. 

Tennessee took the lead for the consortium, providing the project 

management and direction for the four-state modernization effort. In 

2011 the consortium completed a requirements document and 

received a second grant from ETA, in the amount of about $50 million, 

to develop and implement an integrated UI benefits system for the 

member states.

• The Vermont, Maryland, and West Virginia technology infrastructure 

consortium was formed in 2011, when ETA provided a grant of $6 

million to develop common UI tax, benefits, and appeals systems 

requirements, using products from the WyCAN and SCUBI 

consortiums as a baseline.

The second federal source of funding, the general UI administration 

funding, primarily comes from (1) the State UI and Employment Service 

Operations funds, (2) Reed Act distributions, and (3) American 

Reinvestment and Recovery Act funds. However, while states report their 

general UI administrative spending,33

 

33General administrative UI funding provides funding to the states to administer the UI 

program. These costs do not include the benefit payments provided to claimants. 

Administrative funding is given to the states to establish specific policies and operation 

methods for: (1) determining benefit entitlement, (2) paying benefits, and (3) collecting 

state UI taxes from employers.

they are not required to report 

specific costs for individual projects such as IT modernization initiatives 

and, as stated earlier, Labor does not track states’ UI IT modernization 

spending. The states have the authority to spend these funds on a 

number of administrative activities, including IT, and use a range of 

sources aside from federal funds to support their modernization efforts. 

Thus, neither Labor nor the nine selected states could provide full and 

specific information regarding what has been spent on UI IT 
 

Page 15 GAO-12-957 Unemployment Insurance Systems Modernization

modernization efforts.34

State UI and Employment Service Operations Appropriations. This 

appropriation provides federal funding through Labor to each state to 

administer its UI programs, including modernization. In this regard, a 

“base” administrative grant for each state is determined by Labor at the 

beginning of each fiscal year. In developing these administrative funding 

allocations, Labor uses a formula that is designed to provide each state 

with an amount that will equally provide services across states to 

beneficiaries and employers. This funding, at the discretion of the state, 

may be used in part for UI modernization efforts.

The following describes the categories of UI 

administrative funding that were provided to the nine states.

Reed Act distribution. In March 2002, in response to an increase in 

unemployment and the September 11, 2001, terrorist attacks, Congress 

passed the Job Creation and Worker Assistance Act of 2002. This broad 

stimulus package included a distribution to states of $8 billion from the 

unemployment tax revenue held in reserve, referred to as a Reed Act 

distribution.35 The act provided that these funds may be used to pay UI 

benefits and/or to enhance UI benefits, such as increasing weekly benefit 

payments, extending the period of time benefits are paid, or otherwise 

expanding eligibility to groups that currently do not qualify for benefits.36

Funds may also be used for the administration of UI and employment 

services programs, including American Job Centers, if appropriated by 

state law.37

 

34Actual amounts spent on specific UI modernization projects, such as tax and benefit 

systems, are difficult to fully determine. Specifically, individual UI modernization projects 

are generally not a separate budget line item, and the budget documents may not be 

detailed on the sources of the funds, such as federal UI IT administration or Reed Act 

funding. Moreover, all of the UI funds—funds for benefits as well as for administration—

are identified under the same budget category and include direct payments with 

unrestricted use and formula grants, hindering the identification of IT modernization funds. 

However, selected modernization funding and certain states do have the ability to break 

down spending amounts–including consortium money from Labor for supplemental budget 

funds and the state of California, which does track spending on individual UI IT 

modernization projects. 

In addition, Reed Act funds may be used to support states’ 

35Unlike traditional Reed Act distributions, this distribution was required regardless of the 

ceilings and did not take place at the beginning of a fiscal year.

36Pub. L. No. 107-147, § 209, 116 Stat. 22, 31-33 (Mar. 9, 2002).

37The American Job Centers—a centralized service delivery structure (one-stop career 

centers) consolidating delivery of most federally funded state and local employment and 

training assistance—was mandated by the Workforce Investment Act of 1998.
 

Page 16 GAO-12-957 Unemployment Insurance Systems Modernization

funding needs in undertaking major IT renovation and capital 

improvement projects (such as automated and centralized claims 

handling capabilities).

American Reinvestment and Recovery Act funding. This act was an 

economic stimulus package from which states received two special 

distributions of funds.38 The first special distribution was intended to 

provide unemployment compensation modernization incentive payments, 

and made a total of $7 billion available for all states. To obtain its share, 

each state was required to submit an application to Labor demonstrating 

that its unemployment compensation law contained certain benefit 

eligibility provisions.39

The second distribution was a special transfer of $500 million to the 

states’ accounts in the Unemployment Trust Fund to be used for certain 

administrative purposes. This administrative transfer was made 

regardless of whether the state qualified for a modernization incentive 

payment. States did not need to apply to receive these amounts.

The administrative transfer could only be used for several specific 

purposes:

• implementation and administration of the provisions of state law that 

qualify the state for the incentive payments;

• improved outreach to individuals who might be eligible by virtue of 

these provisions;

 

38Pub. L. No. 111-5, § 2003, 123 Stat. 439-443.

39The American Reinvestment and Recovery Act provided funding to the states for 

purposes of making unemployment compensation modernization incentive payments. The 

maximum incentive payment allowable to any state was determined by a formula. A state 

received one-third of the maximum incentive payment if the state’s laws determining 

eligibility met the requirement of using a base period that includes the most recently 

completed calendar year or provided for an alternate base period that uses a base period 

that includes the most recent calendar quarter. States could receive the remaining twothirds of their incentive payment if the state’s laws include provisions to carry out at least 

two of the following: (1) an individual shall not be denied unemployment compensation for 

seeking only part-time work, (2) an individual shall not be disqualified from unemployment 

compensation for separating from employment for compelling family reasons, (3) 

unemployment compensation to an individual who has exhausted state unemployment 

compensation but is participating in an approved training or job program, or (4) benefits 

include an allowance for dependents.
 

Page 17 GAO-12-957 Unemployment Insurance Systems Modernization

• the improvement of unemployment compensation benefit and tax 

operations, including responding to increased demand for 

unemployment compensation; and

• staff-assisted reemployment services for unemployment 

compensation claimants.

According to Labor, federal law does not require state legislatures to 

appropriate these special administrative transfers (unlike the incentive 

payments, which must be appropriated by the state legislature before 

they can be used for administrative purposes). However, a Labor UI 

official noted that nothing prohibits a state legislature from appropriating 

such money or from attaching more specific or limiting conditions to the 

use of such money.

Labor officials provided funding amounts for the selected states which 

could be used, in part, at the states’ discretion for UI modernization 

activities, as shown in table 1.40

Table 1: Reported Distributions of Federal UI Administration Funds to the Nine 

Selected States

As previously mentioned, neither Labor 

nor the selected states could fully provide detailed information regarding 

the specific sources of funding and amounts spent on individual UI IT 

modernization efforts.

State 

2011 State 

UI and 

Employment 

Services 

Operations 2002 Reed Act a

American 

Reinvestment 

and Recovery 

Act Funding - 

2009 

Modernization 

Incentive

American 

Reinvestment 

and Recovery 

Act Funding - 

2009 Special 

Distribution

California

b

$458,777,005 $936,873,766 $838,680,283 $59,905,736

Colorado $45,664,818 $142,666,574 $127,469,762 $9,104,983

Florida $105,826,544 $449,667,718 $0 $31,733,965

Indiana $43,079,673 $174,573,012 $0 $10,607,023

Minnesota $49,410,044 $163,061,573 $130,063,620 $9,290,259

Ohio $102,641,818 $343,709,635 $88,169,529 $18,893,471

 

40These funding amounts are primarily provided to support the general day-to-day state 

agency operations and are only in part available for UI IT modernization. Also, 

Unemployment Compensation Modernization Act incentive funds can be used for the 

costs of expanded benefits eligibility and for general administration purposes.
 

Page 18 GAO-12-957 Unemployment Insurance Systems Modernization

State 

2011 State 

UI and 

Employment 

Services 

Operations 2002 Reed Act a

American 

Reinvestment 

and Recovery 

Act Funding - 

2009 

Modernization 

Incentive

American 

Reinvestment 

and Recovery 

Act Funding - 

2009 Special 

Distribution

Tennessee

b

$91,496,224 $162,633,730 $141,808,031 $10,129,145

Vermont $14,218,036 $16,395,967 $13,917,898 $994,136

Virginia $47,705,615 $214,949,942 $62,817,683 $13,460,932

Source: Labor.

a

These figures only include fiscal year 2011 base funding, above-base funding (additional funds that 

are available on a quarterly basis for claims-related workloads actually processed above the base 

level), and supplemental budget funds. 

b

American Reinvestment and Recovery Act funding was used for certain administrative purposes, 

including the improvement of UI benefit and tax operations and responding to increased demand for 

benefits. 

Federal funding provides only a portion of the funding states can use for 

UI modernization. Seven out of nine states in our study have also used 

nonfederal sources of funding for UI modernization. For example, in every 

state an employer is subject to certain interest or penalty payments for 

delay or default in payment of contributions, and usually incurs penalties 

for failure or delinquency in filing required reports. States set up special 

administrative funds, made up of such interest and penalties, to meet 

special needs. In some states, the fund is capped: when it exceeds a 

specified sum, the excess is transferred to the unemployment fund or, in 

one state, to the general fund, where the state legislature designates how 

these funds are used. Officials of two states that we interviewed told us 

that they use the penalty and interest funds collected from employers for 

selected UI modernization efforts.

The selected states also identified other sources of nonfederal funds that 

are being used to modernize UI systems. These included (1) California’s 

special acquisition method, (2) Ohio’s employers’ surcharge, and (3) 

Tennessee’s in-kind staff resources:

• California is developing its UI tax system modernization project 

through a special agreement with an IT vendor. Specifically, state 
 

Page 19 GAO-12-957 Unemployment Insurance Systems Modernization

officials said a vendor that has a commercial-off-the-shelf system41

• Ohio implemented an employer surcharge to provide funds for the 

administration of the UI program, as well as to pay UI benefits. In 

addition, it used this funding to, in part, develop and deploy a 

modernized UI benefits system.

has agreed to modify this system, thus adapting it to the needs of 

California and providing the state with a new UI tax system. This 

project is to be benefit funded—that is, funded based on additional 

revenues that will be obtained from the increased efficiencies and 

effectiveness of the newly implemented tax system. As part of this 

agreement, the vendor is to provide the initial funding for hardware, 

software, and configuring the system, and is to be paid based on the

state’s additional revenues generated by the newly developed state 

system. The state-vendor agreement is to contain a maximum vendor 

payment cap of $46 million, and the vendor is not to receive full 

compensation if sufficient revenue levels are not met.

• The Tennessee Department of Finance and Administration 

established a dedicated IT work unit to support efforts in developing 

and implementing IT. According to Tennessee state technology 

managers, the creation of this unit was intended to help deliver large 

IT projects on time and on budget across departments. These 

managers noted that the cost of providing the unit services will not be 

charged to the UI systems modernization efforts or to the departments 

receiving services and will expand the availability of technology 

expertise to work across state units.

• As such, state funding sources, as well as federally provided UI 

administrative funds and specific consortium supplemental budget 

funds, can be used by states to modernize their UI IT systems.

 

41A commercial-off-the-shelf system is software that has been defined by a market-driven 

need, is commercially available, requires limited additional development, and has been 

demonstrated as fit for use by a broad variety of commercial users.
 

Page 20 GAO-12-957 Unemployment Insurance Systems Modernization

The nine states in our study were in varying phases42 of modernizing their 

UI systems. Of the nine states we reviewed, each of the three states that 

were part of a consortium were in the initial phases of planning that 

includes defining business needs and requirements; two individual states 

were in the development phase, that is, building the system based on 

requirements; two were in a combination of development and operations 

and maintenance (also called a “mixed” phase, meaning a portion of the 

system is completed and in the operations and maintenance phase but 

other portions are still in the development phase); and two were 

completed and in operations and maintenance. These modernization 

efforts have, for example, enhanced states’ UI technology to support webbased services with more modern relational databases43

 

42The phases of modernizing a system can be sequential or overlapping and performed in 

an incremental manner, completing components of the overall system in iterations, or 

stages. The phases include (1) initiation, which identifies a business need that requires a 

technological solution; (2) concept, when the IT governance organization approves the 

business needs statement; (3) planning, which begins when the project has been formally 

approved and funded; (4) requirements analysis, during which the business requirements 

are validated and further analyzed and decomposed into functional and nonfunctional 

requirements; (5) design, which develops detailed specifications that emphasize the 

physical solution to the end user’s IT needs; (6) development, in which the system 

developer takes the detailed design information and transforms it into machine executable 

form; (7) test, to determine whether the business product developed or acquired is ready 

for implementation; (8) implementation, in which the business product is moved from 

development status to production status; and (9) operations and maintenance, in which 

the certified and accredited business product operates in a full-scale production 

environment.

and replaced 

outdated programming languages, such as COBOL. These efforts also 

included the development of auxiliary systems, such as document 

management systems and call center processing systems, that allow 

claimants who have been denied benefits the ability to file an appeal 

using a phone-based system.

43A relational data base is a system comprised of multiple files which can be linked to 

each other. Specifically, current data base management systems are based on the 

relational model, which generally involves data bases full of numerous, relatively short 

records that are frequently updated. The records often can be sorted in many different 

ways; they do not have to follow any inherent sequence. Relational data base systems 

arrange these records in tables that allow great flexibility in sorting and provide quick 

access to make updates to specific records. See GAO, Information Technology: Critical 

Factors Underlying Successful Major Acquisitions, GAO-12-7 (Washington, D.C.: Oct. 21, 

2011) and Earth Observing System: NASA’s EOSDIS Development Approach Is Risky,

GAO/IMTEC-92-24 (Washington, D.C.: Feb. 25, 1992).

Selected States Vary 

in Their Efforts to 

Modernize UI Systems
 

Page 21 GAO-12-957 Unemployment Insurance Systems Modernization

The following table provides an overview of the states’ modernization 

initiatives—specifically, the systems that are being developed and their 

status.

Table 2: Overview of the Selected States’ UI Modernization Efforts

State Modernization initiatives Status a

California Separate tax and benefits Tax and benefits: mixed.

Colorado

(WyCAN 

consortium)

Integrated tax, benefits, and 

appeals

Tax, benefits, and appeals: 

defined business needs and 

requirements; planning to initiate 

design.

Florida Integrated tax, benefits, and 

appeals

Tax: implemented; benefits and 

appeals: development.

Indiana Integrated tax, benefits, and 

appeals

Tax, benefits, and appeals: mixed. 

Minnesota Integrated tax, benefits, and 

appeals

Tax, benefits, and appeals: 

operations and maintenance.

Ohio Separate tax; Integrated 

benefits and appeals

Tax, benefits, and appeals: 

operations and maintenance.

Tennessee

(SCUBI consortium)

Integrated benefits and 

appeals 

Benefits and appeals: planning 

and defining business needs and 

requirements.

Vermont

(Vermont-MarylandWest Virginia 

consortium)

Integrated tax, benefits, and 

appeals

Tax, benefits, and appeals: 

planning and defining business 

needs and requirements.

Virginia Integrated tax, benefits, and 

appeals

Tax: testing; benefits and appeals: 

development. 

Source: GAO analysis of state documents.

a

The states’ efforts included enhancing or redesigning existing tax and benefits systems, and may 

have been designed as an integrated or standalone system. 

California 

The California UI modernization project was initiated in 2003 to begin 

modernizing the state’s tax and benefits systems. Both systems are 

currently in a mixed state of development and implementation, with full 

implementation scheduled for 2014. According to the Deputy Director, 

Employment Development Department, the total cost budgeted for the 

modernization is $192.7 million—approximately $68.7 million for the tax 

system and $124 million for the benefits system. The project included 

upgrading to a modern programming language and converting from a 

legacy database to a database that would allow the state to use web-
 

Page 22 GAO-12-957 Unemployment Insurance Systems Modernization

based programs. In this regard, the state completed a database 

modernization project in November 2011 that replaced the outdated 

database management system which supported multiple programs, 

including UI and disability programs. As a part of its benefits system 

modernization effort, the state modernized its (1) electronic benefit 

payment system and (2) continued claim web certification system. The 

electronic benefit payment project converted the payment of UI benefits 

from paper check to a debit card or direct deposit in an attempt to 

eliminate the delays associated with processing and mailing checks. 

According to a state UI official, the continued claim web certification 

project enabled UI customers to use a web-based system to certify for 

benefits, eliminating the need to certify by paper. Specifically, they noted 

that the system authenticates the customer’s identity through an identity 

management component to help ensure customers are eligible for 

benefits, and allows customers to enter their claim information on the 

form in English or Spanish. According to California Employment 

Development Department officials, these functions have increased the 

security of benefit payments and eliminated the need for paper 

certification.

Colorado

According to IT state officials, Colorado’s existing systems are over 20 

years old, operating inefficiently, and difficult to modify. To modernize its 

systems, Colorado joined the WyCAN consortium in 2011 and is taking a 

lead role in managing the consortium modernization efforts. The 

consortium is in the planning phase of developing a common integrated 

tax and benefits system to support the UI program. Specifically, according 

to the program manager, WyCAN has performed a gap analysis to 

identify differences in requirements among states, which was completed 

in March 2012, and the consortium’s system requirements were 

completed in April 2012. A request for proposals was released in June 

2012 and the program manager said that once these IT services are 

procured the states will initiate the system design phase. A request for 

proposals was released in June 2012. The consortium’s goal is to 

develop open source software code44

 

44The term “open source software code” means software for which the source code is 

open and available: open means the source code for the software can be read (seen) and 

written (modified) and there are no restrictions on how the software is used or by whom; 

and available means the source code can be acquired either free of charge or for a 

nominal fee.

that would provide a tax and 
 

Page 23 GAO-12-957 Unemployment Insurance Systems Modernization

benefits system that could be potentially exported to other states. 

According to the program manager, the Colorado WyCAN Team, the 

consortium has spent $347,796 to complete a feasibility study of an 

integrated tax and benefits system.

Florida 

Florida is in the development phase for its integrated tax, benefits, and 

appeals system. The modernization effort initially began as a separate tax 

system in 2006, and this individual system was completed in 2008. The 

effort for the benefits and appeals system and the effort to integrate it with 

the tax system began in 2010. This modernization effort includes 

increased automated system interfaces using web-based architecture and 

new business requirements. Florida engaged a contractor to help the 

state reengineer the UI benefits process for the modernization effort, and 

has dedicated subject matter experts to support the system 

modernization redesign. In 2010, the state issued a request for proposals 

to modernize the UI benefits system. A vendor was selected and, 

according to IT officials, as of June 2012 the state was about halfway 

through the 3- to 4-year project. Specifically, according to the Director, 

Florida Department of Economic Opportunity, the state plans to validate 

the requirements and test and implement the system, with deployment 

scheduled for September 2013 at a cost of approximately $57.8 million.

Indiana

Indiana’s integrated tax and benefits systems modernization effort began 

in 2002, when it received funds under the Reed Act. In late 2005 Indiana 

awarded a $24 million contract to upgrade its system to replace a 1980s 

legacy system. According to state IT officials, the modernization project is 

using a phased approach in which system functions are to be 

implemented in separate releases. Functions and capabilities that have 

been released include:

• web-based employer self-service and document scanning capabilities, 

including online payments and debit cards for benefit distribution;

• automated fact finding for employers, spreadsheet submission of 

layoffs for large-scale employers, and business intelligence reporting 

tools; and

• automated claims processing and additional features, such as a new 

user identification, passwords, a job search function, and the 

capability for online filing of federal emergency unemployment 

compensation and state benefits.
 

Page 24 GAO-12-957 Unemployment Insurance Systems Modernization

Despite these new capabilities, Indiana is still operating its legacy UI 

system, and on a daily basis performs updates to both the legacy and 

modernized UI systems. According to state UI officials, the next release is 

scheduled to be implemented in late 2012, at which time the state should 

be able to shut down most parts of the legacy system. Further, the 

officials stated that, after the next two releases are deployed in 2013, 

Indiana will have implemented all of the capabilities needed to retire the 

legacy system. Indiana has a total budget of approximately $40 million for 

its modernization effort.

Minnesota 

Minnesota began its modernization project in 2001 and fully deployed an 

integrated tax, benefits, and appeals system in 2007. The system is 

currently in operations and maintenance. According to the Director, 

Unemployment Insurance Division, the state spent approximately $50 

million on its modernization efforts. At the same time that Minnesota 

modernized its UI IT system, it also modernized its business model to 

improve program efficiency and quality. As a result, according to state 

technology officials in charge of IT modernization, 100 percent of UI 

benefit appeals are filed online or over a voice-activated phone system, 

which speeds claims processing. The system that Minnesota developed 

is now being modified for use in Massachusetts, New Mexico, and 

Florida.

Ohio

Ohio began planning for the modernization of its benefits system in the 

early 1990s and deployed the new system in 2004. In addition, the state 

began planning for the modernization of its tax system in early 2000 and 

deployed it in March 2011. Completion of each of these modernization 

efforts took approximately 10 years from planning to deployment. Ohio 

reported that it spent approximately $85.6 million to modernize the tax 

system and approximately $88 million for the benefits system. One 

important example of modernization included implementing a web-based 

unemployment compensation benefit system that offers self-service 

capabilities to employers and claimants. This application supports

increased customer online use, with many of the online claims being 

processed without any staff intervention.
 

Page 25 GAO-12-957 Unemployment Insurance Systems Modernization

Tennessee

Tennessee, the lead state of the SCUBI consortium, began its 

modernization effort in 2009. The effort is intended to replace its legacy

benefits systems built in the 1970s and 1980s and run on mainframe 

systems using outdated COBOL language. According to state IT officials, 

these systems were never intended to function in today’s environment 

with the current claims processing volume. Tennessee is planning to 

issue a request for proposals in October 2012 and expects full 

deployment of its modernized system by May 2015. The modernization 

effort is currently in the requirements development phase and, as part of 

the SCUBI consortium, has a budget of $56 million for the modernization 

effort. The effort is intended to provide a common core system for the 

benefits and appeals process of the UI program.45

Vermont

Specific state 

members are to adapt the core system to their unique state functions.

Vermont is the lead state of the Vermont–Maryland–West Virginia 

consortium; it is collectively updating those states’ benefits, tax, and 

appeals systems, which date from the 1980s. The consortium effort was 

initiated in 2011 and is currently in the planning phase. The consortium 

released a request for proposals in February 2012 and is negotiating a 

contract with the selected vendor. According to state IT officials, the 

vendor is expected to be developing requirements during 2013. These 

requirements are to ensure design consistency and allow for variations 

between the three states’ laws and their required functionality as a result 

of their variations.

Virginia 

Virginia is operating a legacy system and, during discussions with us, 

state business and IT managers said that the system is at risk and that 

the state needs to move forward with modernization to avoid system 

problems. Specifically, the officials said that there have been many 

 

45Consortium officials said SCUBI is intended to develop an integrated benefit and 

appeals system and does not include modernization of the tax system. While the SCUBI 

states plan to have their respective tax systems interface with the modernized benefit and 

appeals system, a Tennessee UI state official said that its state does not have plans to 

modernize the tax system. 
 

Page 26 GAO-12-957 Unemployment Insurance Systems Modernization

unanticipated changes to the business environment (such as legislative 

changes) and, as a result, Virginia has had to patch the legacy system. 

Virginia initiated its UI modernization effort in 2008 with the intent of 

developing an integrated tax and benefits system and is implementing the 

project incrementally in four stages,46 scheduled to be fully deployed in 

2013. The first stage was the development of an imaging and workflow 

system that was completed in 2011 and replaced an older document 

management solution, as well as microfilm, with a more modern 

technology platform; the tax system is in the second stage and is in 

testing; and the benefits and appeals system is planned for the third stage 

and is currently in development. Virginia has a total budgeted amount of 

about $58.5 million for its modernization effort. The new system is also 

expected to provide the state with more efficient processing, less 

dependence on manual processes, and greater flexibility in responding to 

legislative mandates.

The selected states and Labor have experienced challenges related to 

both individual states’ and consortiums’ efforts towards modernizing the 

UI systems. The challenges for individual states relate to limited funding 

and the increasing cost of UI systems, among others. The consortiums 

pointed to difficulties that derive from the differences in state laws and 

business processes among member states, as well as a lack of sufficient 

skills in leading a multistate modernization effort. State officials and ITSC 

have recognized the importance of understanding challenges to identify 

lessons learned and approaches to address selected issues and mitigate 

potential risks.

While the nine states included in our study are taking various steps to 

modernize systems supporting their UI programs, they have also 

experienced challenges to doing so:

• Funding streams are declining or inconsistent. All nine of the states, 

as well as Labor and ITSC, said that limited funding and/or the 

increasing cost of UI systems is a major challenge. In addition, the 

current economic environment has resulted in smaller state budgets, 

 

46The four stages and scheduled deployment dates are: (1) imaging and workflow, 

October 2011; (2) tax, May 2013; (3) benefits and appeals, August 2013; and (4) final 

system acceptance, September 2013.

States and 

Consortiums Have 

Experienced 

Challenges with IT 

Modernization

States Have Been 

Challenged With UI 

Modernization
 

Page 27 GAO-12-957 Unemployment Insurance Systems Modernization

which has further limited state funds for IT modernization. Moreover, 

once funds are identified or obtained there is often a considerable 

amount of time between identifying the funds and when the IT project 

is completed. Specifically, state IT officials said that the development 

of large state or multistate systems may span many years, and that 

states’ priorities and competing demands on resources can delay 

project implementation. As such, states often have to fund one phase 

of a project with the hope that funds will be available in the future 

when they are ready to move to the next project phase. The states 

also noted that the lack of a steady stream of funding potentially 

hinders effective IT project planning. For example, when Labor first 

provided consortium funding in 2009, department officials said that it 

was uncertain if there would be additional money available to 

complete the implementation of these projects. While Labor was able 

to provide additional grant funds for implementation to the first two 

consortiums in 2011, state officials said that there is still uncertainty if 

the modernization funding will be sufficient to implement and operate 

over the life cycle of a project, including the initial planning, design, 

development, and operation of their UI systems.

• Ensuring staff have necessary technical and project management 

expertise to manage modernization efforts is difficult. Further, seven 

of the nine states cited as a challenge the lack of workers in their UI 

offices with the necessary expertise to manage IT modernization 

efforts. For example,

• Several states said that they had insufficient subject matter 

experts that are knowledgeable of the extensive rules and 

requirements of the UI program. However, such experts are 

essential to helping computer designers and programmers 

understand the program’s business process, supporting an 

effective transition to the re-engineered process, and identifying 

systems requirements and needs.

• States also said that if they had a system developed by vendors 

they would have been challenged with operating and maintaining 

the modernized system because the state staff may not have the 

needed expertise to maintain the new system once the vendor 

staff leave.

• The states said they may have staff that implement larger scale 

systems only once every 10 to 15 years and, as a result, a large 

amount of time usually passes between modernization efforts. 

This causes voids in required knowledge and skills, process 

maturity and discipline, and executive oversight.

• Because the states’ staff typically has expertise in an outdated 

computer language, such as COBOL, they now must learn new 
 

Page 28 GAO-12-957 Unemployment Insurance Systems Modernization

skills and modern languages in order to support the modernized 

systems.

• In 2011, a workforce survey found that over 78 percent of state 

CIOs confirmed that state salary rates and pay grade structures 

presented a challenge in attracting and retaining skilled IT talent. 

In this regard, the top five skills and disciplines presenting the 

greatest challenge were security, project management, 

architecture, application and mobile application development and 

support, and analysis and design.47

• According to Labor, the limited staff resources facing states 

requires that subject matter experts48

• States have limited staff resources to operate both legacy and 

modernized systems. Six of the nine states noted that continuing to 

operate their legacy systems while simultaneously implementing new 

UI systems required them to balance scarce staff resources between 

the two major efforts. They explained that legacy systems must be 

maintained for a period of time while operations are established on 

the new UI systems. Thus, the states must continue to staff the 

operations and maintenance of the legacy systems while also 

providing staff to assume management of the modernized systems. 

For example,

be pulled off projects to 

address the workload demands of daily operations. 

• One state’s COBOL language programmers were being trained in 

a modern language for 6 months but had to be pulled out of the 

training to meet pressing needs on other projects, thus preventing 

the state from establishing technical expertise required for 

modernization.

• An official from another state said that data had to be transferred 

between and maintained on both the legacy and new systems, 

which was time-consuming and could potentially introduce 

processing errors.

• According to officials of another state, programmers will have to 

split their time between maintaining the legacy system and 

 

47The National Association of State Chief Information Officers, State IT Workforce: Under 

Pressure (January 2011). This survey refers to all state IT modernization and not 

specifically to UI IT modernization.

48Subject matter experts are experts in the processes being automated. For example, a 

team member representing financial customers must be fully familiar with the needs of 

those customers. 
 

Page 29 GAO-12-957 Unemployment Insurance Systems Modernization

supporting the development effort, which they said could 

potentially delay the development efforts.

• Another state noted that modernization planning efforts took 

longer because the IT staff had to maintain the existing system, 

code new federally mandated changes to the legacy system, and 

create the plans for the modernization project, all using the same 

finite resources. According to this IT official, this type of situation 

leads to increased risk as legacy resources become less readily 

available in the marketplace, driving up the costs for hardware and 

software support services.

• There are a limited number of vendors to develop UI IT systems. 

Officials in four of the nine states we reviewed, as well as the ITSC, 

noted that the limited number of state modernization systems that 

have been developed over the last decade, and the declining amounts 

of funding, has resulted in there being only a small number of vendors 

that have the knowledge and experience to build UI IT systems. 

According to an ITSC official, only a limited number of vendors have 

successfully implemented UI modernized systems on time and within 

budget with major functionality delivered. Further, one state UI official 

noted that, understanding the intricacies of the UI program and the 

number of legislative changes that impact IT systems programming to 

accommodate the changes require vendors to invest extensive time 

and resources. Consequently, the vendors often distribute their 

knowledgeable staff among several different states’ modernization 

efforts simultaneously, resulting in system development delays. In 

addition, three of the nine states said there is significant competition 

for IT staff from the private sector. For example, three states are using 

the same vendor and, according to the states’ IT managers, their 

individual schedules for modernization have been impacted by the 

limited vendor resources being divided among the multiple states. 

One IT project manager told us his state is experiencing project 

delays because its vendor has diverted resources to address issues 

with another state’s project.

• There are restrictions on certain funding that is available. Four states 

said the restrictions tied to federal funding created a hindrance to 

accepting those funds. For example, one state chose to not accept 

federal funds for its IT modernization efforts because the funds came 

with the requirement to increase UI benefits, which the state opposed. 

Other federal restrictions include a prohibition on the commingling of 

funds, such as using the federal funds for other projects. One official 

said this impaired his state’s ability to leverage funds and projects and 

potentially could hinder a state’s ability to, for example, consolidate its 

computer operations into one facility because this would involve using 
 

Page 30 GAO-12-957 Unemployment Insurance Systems Modernization

for other projects those resources designated for UI. Another state 

said the short time frame in which to apply for federal supplemental 

budget funds is not adequate to sufficiently explore the funding 

conditions. Labor officials agreed with this challenge, further 

commenting that the amount of funding available is not known until 

the end of each fiscal year. 

States participating in consortiums have unique multistate structures with 

different organizational oversight mechanisms. As such, the states in our 

study said they have encountered a separate set of challenges as they 

develop common requirements and share technology platforms:

• State law and business processes among consortium member 

states may differ. Representatives for all three consortiums 

indicated that differences in state laws, business processes, and 

aversion to risk pose challenges to modernizing their UI systems. 

Specifically, differences among states can be found in the areas of 

procurement, communication, and implementation of best 

practices; in the involvement of each state’s IT office; and in how 

centralized the state’s IT is. Designing and developing a common 

system that will work for all states is impacted because each 

state’s requirements and processes may differ. For example, 

because of these differences and the need to modify a UI 

technology framework, state officials told us that they see a 

consortium as not practical; another state official questioned 

whether a common platform for a system can be successfully built 

and made transferable between states in an economically viable 

manner.

• Software development approaches may differ. There are multiple 

approaches to developing and modernizing systems, and states 

within a consortium have often had different opinions on the best 

approach. State officials said that having different software

development approaches is not practical when developing a 

common system, and that it is difficult to reach consensus on an 

overall approach that satisfies all the states in the consortium. A 

state in one consortium effort had a preference for one type of 

system development approach and withdrew from the consortium 

to develop its own UI project because it did not agree with the 

development approach the consortium was taking. Specifically, 

instead of contracting out for systems development, the state 

preferred developing the system in house with its own state staff 

and resources, and further noted that joining the consortium would 

have required a “waterfall” project development method, such as 

Consortiums Had Unique 

Challenges with 

Modernization
 

Page 31 GAO-12-957 Unemployment Insurance Systems Modernization

defining all requirements initially before designing the system 

instead of taking an agile approach and incrementally defining and 

changing system requirements during segmented development, 

which is the approach that state preferred to use.

• Potential liabilities that exist in providing services to another state 

cause concerns. IT representatives from one consortium’s lead 

state noted that taking leadership and managerial direction of a 

multistate consortium effort created concerns because officials 

from one state were taking responsibility for another state’s 

management duties in modernizing its systems to support the UI 

program. The official explained that if the lead state makes a 

decision that affects other states and the outcome is not desirable, 

blame may be placed on the lead state. In addition, there is a 

possibility that the lead state’s decision making could place other 

states’ funds at risk. In one case, a state withdrew from its 

leadership position due to concerns about liability, and it allowed 

another state to take this role and assume the responsibilities.

• Location of system resources causes concern. IT managers in 

one of the three consortiums pointed to difficulties identifying 

where the joint data center that would support the multiple states 

should be located, and that there were challenges with reaching 

agreement on the resources that should be designated to operate 

and manage the facility while complying with individual state 

requirements. For example, according to a UI state official, one 

state required the data center to be in-state.49

• Independent qualified leadership may be insufficient. All three 

consortium representatives noted that obtaining an independent and 

qualified leader for a multistate modernization effort was challenging. 

The state IT project managers and CIOs elaborated that, while each 

state desires to successfully reach a shared goal, doing so requires 

strong leadership and commitment that crosses independent and 

diverse cultures in multiple states. The leadership of the consortium 

In July 2012, 

according to consortium officials, the state’s UI program received 

an exception and was allowed the flexibility to choose the hosting 

location outside of its state. Without exceptions such as these, 

state-specific requirements that data centers be in-state potentially 

could inhibit the number of states willing to participate within the 

consortium efforts.

 

49According to a consortium official, the state required a data center to be located within 

its own state to help support businesses within that particular state.
 

Page 32 GAO-12-957 Unemployment Insurance Systems Modernization

must keep the interests of each state in balance. The leader of a 

consortium needs to have extensive IT experience, that goes beyond 

his or her own state’s technology environment, to effectively 

understand and support other states in the joint effort. Moreover, the 

consortium’s leader has to mitigate the appearance of partiality, which 

may be difficult given the priorities and demands within his or her own 

state. This was a significant challenge for one consortium, and to 

address the challenge the lead state decided to recruit a senior 

program manager from outside the member states to provide 

independent leadership and the appearance of being unbiased.

As mentioned previously, Labor’s role, in partnership with the states, is to 

ensure that the UI program is operating effectively and efficiently. In its 

role to facilitate states’ UI modernization efforts Labor participates in a 

variety of activities and, in part through ITSC, stays up to date with the 

states’ technological initiatives, strategies, approaches, and challenges. 

Thus, it is uniquely positioned to help ensure effective and efficient 

technology modernization by identifying and disseminating lessons 

learned from the states’ efforts. We have recognized the importance of 

analyzing and prioritizing challenges and then documenting lessons 

learned from major efforts such as the UI projects, in order to help 

mitigate risks and track successful ideas for more effectively managing IT 

and improving cost effectiveness that can be utilized in the future.50

Lessons learned is a principal component of an organizational culture 

committed to continuous improvement. Sharing such information serves 

to communicate acquired knowledge more effectively and to ensure that 

beneficial information is factored into planning, work processes, and 

activities. According to the Office of Management and Budget, lessons 

learned can be based on positive experiences or on negative experiences 

that result in undesirable outcomes. Documenting lessons learned can 

provide a powerful method of sharing successful ideas for improving work 

processes and increasing cost effectiveness by aligning these practices in 

future modernization efforts.51

 

50GAO, Federal Chief Information Officers: Opportunities Exist to Improve Role in 

Information Technology Management, 

Such an assessment of states’ challenges 

GAO-11-634 (Washington, D.C.: September 2011); 

GAO, NASA: Better Mechanisms Needed for Sharing Lessons Learned, GAO-02-195 

(Washington, D.C.: Jan. 30, 2002).

51OMB, Circular A-130, Transmittal Memorandum No. 4, “Management of Federal 

Information Resources, 8. b (1)” (Washington, D.C.: Nov. 28, 2000).

Analysis of Challenges and 

Documenting Lessons 

Learned May Facilitate 

Improvements
 

Page 33 GAO-12-957 Unemployment Insurance Systems Modernization

and documentation of lessons learned would be consistent with Labor’s 

role.

Both individual state and consortium officials have developed methods to 

mitigate specific challenges and have identified lessons learned. For 

example, several states:

• are centralizing and standardizing their IT operations to address 

technical challenges, which may allow a state to focus and leverage 

its IT funding, staff, and projects on UI IT modernization;

• have found that a standardized, statewide enterprise architecture may 

provide a more efficient way to leverage project development; and

• have taken steps to address consortium challenges they have 

encountered, such as requesting that the consortiums have an IT 

representative from each state to ensure that each state’s IT 

department is involved in the project from the beginning.

ITSC’s Steering Committee tasked the ITSC to prepare a lessons learned 

assessment, but the effort has not been completed and, while it may 

provide valuable information and a basis to build on lessons learned, it is 

limited to ITSC’s observations and may not be a comprehensive 

assessment.52 Specifically, in September 201153 ISTC’s Steering 

Committee tasked ITSC with documenting lessons learned, observations, 

and successful practices of the consortiums. ITSC officials stated that 

they plan to prepare a draft document that contains states’ status and 

potential systems development approaches by the end of September 

2012.54

 

52Labor is an active participant and is involved in the committee’s decision process, 

although the assignment of tasks is done in a collaborative manner by all members of the 

Steering Committee. 

They stated that this document will incorporate lessons learned 

based on ITSC observations; however, it is limited to ITSC’s scope of 

observations and has not been formally reviewed by the states or Labor. 

53Specifically, the ITSC Steering Committee’s task order for “UI IT Modernization 

Consortium Building and Best Practices” called for ITSC to work closely with states 

interested in building a UI IT modernization project, with particular emphasis on 

consortium forming. ITSC is also expected to assist states in understanding the positive 

and negative aspects of consortiums, lessons learned to date, and how to formalize the 

consortium for the project in terms of interstate agreements.

54Labor noted in its comments on our report, that ITSC is expected to finalize its report on 

lessons learned by September 28, 2012. ITSC noted in its technical comments that it 

would release its report by October 30, 2012.
 

Page 34 GAO-12-957 Unemployment Insurance Systems Modernization

Furthermore, during our review, ITSC officials told us the date when the 

report will be finalized and provided to the states had not been 

determined. Subsequently, in commenting on our draft report, ITSC 

officials said that the report is “evolutionary” and constantly changing over 

time. They added that the work had been used to brief UI executives and 

leaders of 26 states.

While this effort may be a good first step toward identifying challenges 

and lessons learned, it does not represent a complete, independent 

survey of all the states’ challenges and lessons learned. A 

comprehensive assessment would include formal input from states and 

consortiums, the ITSC Steering Committee, and Labor. Until Labor 

undertakes a more comprehensive approach that clearly identifies critical 

challenges and lessons learned, it may not be positioned to help states 

mitigate future challenges and facilitate the effectiveness and efficiency of 

states’ modernization efforts going forward.

If such actions to address challenges are analyzed, prioritized, and 

documented into lessons learned and then widely disseminated, they 

could assist in mitigating future challenges as states proceed with their UI 

program modernization efforts. Further, steps to develop an informationsharing platform for lessons learned could provide additional benefits. 

Until Labor comprehensively analyzes and prioritizes challenges, and 

documents lessons learned on these federally funded state UI 

modernization efforts, it may miss opportunities to help support future 

consortium and state modernization efforts, potentially hindering effective 

administration of the UI program.

As we have previously reported, an organization’s ability to effectively 

modernize its IT environment greatly depends on the extent to which it 

has established and implemented IT management controls.55

 

55

These 

controls include, among others, recognized program management 

practices and effective oversight. All of the selected states have 

established management controls for modernizing the IT systems that 

support their UI programs. These controls align with industry-accepted 

program management practices and, if effectively implemented, could 

help successfully guide modernization efforts.

GAO-11-762. 

The Selected States 

Have Established 

Management Controls 

to Help Guide Their 

IT Modernization 

Efforts
 

Page 35 GAO-12-957 Unemployment Insurance Systems Modernization

Project Management Office Provides Leadership and Direction

A project management office is an organizational body assigned various 

responsibilities related to the centralized and coordinated management of 

those projects under its domain. The responsibilities of the office can 

range from providing project management support functions to being 

responsible for the direct management of a project. This office may be 

delegated the authority to act as a key decision maker during the 

beginning of each project, to make recommendations, or to terminate 

projects or take other actions as required to keep business objectives 

consistent. In addition, it may be involved in the selection, management, 

and deployment of project resources. Our work and other best practice 

research have shown that having a dedicated project leader that applies 

effective management principles and practices improves the likelihood of 

delivering expected modernization projects on time and within budget.56

All nine states in our study had established key aspects of project 

management offices, and three of these states’ IT project managers said 

that this office was a major factor in helping their UI modernization 

projects. Among these states that have established a project 

management office:

In other words, the quality of IT systems is largely governed by the quality 

of project management processes and can help ensure that management 

controls are being enforced.

• Colorado hired a project management office director with IT 

certifications and a diverse background with, according to state 

officials, extensive experience as a project management office 

director. The officials stressed that having an experienced director to 

lead the management office is key to successfully implementing UI 

modernization projects.

• Florida uses the project management office as a key part of its UI 

modernization project. It is responsible for day-to-day project 

oversight, providing overall guidance and direction to the contractor, 

coordinating project resources, budgets, and contract management, 

 

56GAO, Homeland Security: Progress Continues, but Challenges Remain on Department’s 

Management of Information Technology, GAO-06-598T (Washington, D.C.; March 2006). 

See also Software Engineering Institute/Carnegie Mellon, CMMI for Development, Version 

1.3, CMU/SEI-2010-TR-033 (Hanscomb AFB, Massachusetts, November 2010); Institute 

of Electrical and Electronics Engineers (IEEE), Systems and Software Engineering – 

Software Life Cycle Processes, IEEE Std. 12207-2008, (Piscataway, N.J., January 2008).
 

Page 36 GAO-12-957 Unemployment Insurance Systems Modernization

and monitoring project management areas including scope, risk, 

quality, and change control. Officials from this state indicated that 

having the project management office play such a large role in day-today activities may assist Florida in successful completion of its UI 

modernization project. Officials explained that the office’s involvement 

in a wide range of tasks helps ensure that critical factors that need to 

be considered will be brought to management’s attention in a timely 

manner and, as such, could help implement the project effectively.

• Minnesota had a statewide project management office that was in 

effect at the time the UI modernization project was initiated. This office 

required project registration and status reports, and the UI program 

included a project management consultant from that office on its 

steering committee. State officials indicated that this integrated effort 

added additional oversight to the UI project.

Program Management Body of Knowledge Provides Project 

Management Standards

Effective project management is a critical element of any modernization 

effort. One set of standards for managing a project includes the Program 

Management Body of Knowledge (PMBOK).57 For example, the project 

management standards include processes, tools, and techniques used to 

manage a project toward a successful outcome. PMBOK has 

interrelationships to other project management disciplines such as 

program management and portfolio management. The IT industry has 

adopted the project management standards as an accepted best practice, 

and if properly implemented and integrated into an organization’s 

environment, these management controls could help reduce risks 

associated with modernization projects by providing effective and efficient 

process improvements.58

Based on our discussions with state IT administrators and managers and 

our assessment of their guidance, states we reviewed have incorporated 

project management standards into their UI modernization efforts. While 

all of the states use selected project management standards, seven of the 

 

57PMBOK was developed by the Project Management Institute (PMI), which is an 

organization that provides guidelines, rules, and characteristics for project management.

58Strategies for Implementing Capability Maturity Model Integration (CMMI) Project 

Management Process Category, Natural SPI, An SEI Transition Partner, 2004. Also see 

GAO, Information Technology: Critical Factors Underlying Successful Major Acquisitions, 

GAO-12-7 (Washington, D.C.: Oct. 21, 2011). 
 

Page 37 GAO-12-957 Unemployment Insurance Systems Modernization

nine states noted that project management was a key contributor to their 

states’ UI modernization projects. For example:

• California derived its own project management methodology, called 

the California Project Management Methodology. This methodology 

provides a framework for the IT project life cycle, from planning and 

initiation to maintenance and operations. According to state officials, 

this framework provides consistent project information and, as a 

result, helps key policy makers with greater visibility concerning the 

status of IT modernization projects, such as UI modernization, 

potentially allowing them to provide informed direction and guidance 

to IT project managers.

• Colorado has also created its own guidance, the Colorado Project 

Management Commonality Program, in alignment with project 

management standards. This program provides guidelines indicating 

when projects’ status and information should be elevated for the 

Executive Governance Committee’s review. State IT officials noted 

that these guidelines assist with the oversight of potentially risky 

projects, like UI modernization, and could help ensure successful 

completion.

• Project management standards were also incorporated into Florida’s 

project management documents and, according to the state’s IT 

officials, may have helped ensure the quality of its project 

management. Specifically, for the state’s UI modernization project, 

PMBOK guidance defined project scope and helped ensure that only 

work within this scope was performed. In addition, the guidance 

required having key project management personnel certified, such as 

IT project leaders, providing training that could help ensure more 

experienced and skilled leadership. Moreover, Florida used project 

management standards to manage the modernization’s costs, cost 

reporting, and metrics; and budgeting controls were established for 

the state’s systems modernization efforts.

• Indiana’s IT management officials noted that its state’s main source of 

guidance for project management was in part derived from selected 

standards from PMBOK that, according to the officials, may help 

mitigate challenges and foster better control of the project. Indiana 

officials said that it holds weekly meetings with the commissioner of 

the workforce agency, the commissioner of the office of IT, and the 

agency director of IT to help manage the UI project.

• According to the Director, Minnesota Department of Employment and 

Economic Development, Minnesota’s UI program applied PMI 

standards in the management of its modernization project. The 

statewide project management office required project management 

disciplines to be applied to state projects. These project management 
 

Page 38 GAO-12-957 Unemployment Insurance Systems Modernization

disciplines continue to be applied and the statewide project office 

works in partnership with a recently established centralized state IT 

agency. This centralized IT agency also provides guidance IT security 

controls and enterprise architecture.

• Ohio has established a program management organization that 

follows project management standards to help ensure successful 

implementation of its modernization initiatives, such as UI 

modernization. Ohio officials noted that the state uses the PMBOK 

backbone to help drive UI modernization activities for planning and 

introducing change into the workplace. Change control (for both 

documents and source code) was key in helping to get interim 

deliverables from the vendor as milestones were reached.

• Tennessee has a PMBOK-based methodology that is required for IT 

projects, including UI modernization. For example, its Office of

Information Resources requires an annual system project plan from 

each agency for the 3 upcoming fiscal years, and projects are 

required to have a detailed funding plan, providing a baseline for a 

project’s status and progress to be tracked and managed. Also, 

Tennessee officials noted that project management controls are 

essential in overseeing modernization projects, including a structured 

change management practice, and this has been adopted by the state 

to capture legacy UI system changes, related legislative action, and 

policy changes.

Independent Verification and Validation Provides Effective Project 

Evaluation 

IV&V means that an independent entity evaluates the work generated by 

the team that is designing a project. Verification is the process of ensuring 

the accuracy of a project based on written specifications and 

requirements. Validation is the process of evaluating software during the 

development process to determine whether it satisfies specified 

requirements and meets users’ needs.59

 

59Capability Maturity Model Integration (CMMI V1.1) and CMMI for Development (CMMI V 

1.2).

The IV&V contractor will often 

monitor and evaluate every aspect of the project from inception to 

completion so that problems can be corrected before they escalate to 

large-scale issues. We and others have recognized that, if properly 

performed, IV&V is a best business practice that is invaluable in providing 

management reasonable assurance that a planned system will meet user 
 

Page 39 GAO-12-957 Unemployment Insurance Systems Modernization

needs.60

• Florida has an IV&V contractor that provides services for its UI 

modernization project such as verifying that the system is developed 

in accordance with validated requirements and design specifications, 

validating that the system performs its functions satisfactorily, 

monitoring project management processes, and providing feedback 

on any deficiencies noted.

For three of the states in our review, IT officials said IV&V played 

a vital role in verifying the quality of their UI modernization project. Among 

these:

• Indiana also has an IV&V contractor that provides guidance to its UI 

modernization project. State officials noted that the IV&V process 

helps them measure and assess the project’s progress, allowing the 

state’s management to better provide redirection in a timely manner.

• Virginia holds monthly meetings with its internal agency oversight 

committee to discuss project progress. State officials also periodically 

meet with the project’s IV&V vendor to report on the UI modernization 

project’s scope, schedule, and budget. State officials said that the 

presence of both the IV&V contractor and the vendor help ensure that 

system requirements will be met. These officials further elaborated 

that the IV&V process helps identify potential issues in scheduling and 

may reduce project problems as the system is developed and 

implemented.

IT Investment Management Helps Guide Investment Decisions

IT investment management is a process for linking investment decisions 

to an organization’s strategic objectives and business plans that focuses 

on selecting, controlling, and evaluating investments in a manner that 

minimizes risks while maximizing the return on investment.61

 

60GAO, DOD Business Transformation: Lack of an Integrated Strategy Puts the Army’s 

Asset Visibility System Investments at Risk, 

Consistent 

with this, our IT Investment Management (ITIM) framework consists of 

five progressive stages of maturity for any given agency relative to 

selecting, controlling, and evaluating its investment management 

GAO-07-860 (Washington, D.C.: July 27, 

2007). According to the Institute of Electrical and Electronics Engineers, verification and 

validation processes for projects can be used to determine whether the software satisfies 

intended user needs and helps ensure the systems conform to the requirements.

61GAO-04-394G; GAO/AIMD-10.1.13; GAO, Executive Guide: Improving Mission 

Performance Through Strategic Information Management and Technology, 

GAO/AIMD-94-115 (Washington, D.C.: May 1994); and OMB, Evaluating Information 

Technology Investments, A Practical Guide (Washington, D.C.: November 1995).
 

Page 40 GAO-12-957 Unemployment Insurance Systems Modernization

capabilities.62 These maturity stages are cumulative; that is, in order to 

attain a higher stage of maturity, the agency must have institutionalized 

all of the requirements for the previous stage before moving on to the 

next one. The framework can be used both to assess the maturity of an 

agency’s investment management processes and as a tool for 

organizational improvement. For each maturity stage, the ITIM describes 

a set of critical processes that must be in place for the agency to achieve 

that stage. We have used the framework in many of our evaluations, and 

a number of agencies have adopted it.63

One of the nine states within our review—Virginia—has adopted our ITIM 

standards for implementing selected modernization projects and has 

incorporated the standards into its UI system development guidance. The 

state’s UI modernization efforts follow certain procedures for selecting, 

controlling, and evaluating projects. This provides a mechanism for the 

state to help ensure that critical tasks and elements that were considered 

as the UI modernization project were selected and developed, and that 

critical points throughout the process were brought to management’s 

attention when approvals were needed to continue or redirect the project. 

Other states have also followed selected aspects of the ITIM standards to 

monitor their UI modernization projects and to help ensure appropriate 

approvals and reviews at critical points in the systems development 

process were obtained.

Earned Value Management Is a Process to Measure Project 

Performance

Earned value management helps project managers to measure project 

performance. It is a systematic project management process used to find 

variances in projects based on the comparison of work performed and 

work planned. Earned value management is used to support cost and 

schedule control and can be very useful in project forecasting. The project 

baseline is an essential component of earned value management and 

 

62GAO, Information Technology Investment Management: A Framework for Assessing 

and Improving Process Maturity, GAO-04-394G (Washington, D.C.: March 2004).

63See, for example, GAO, Information Technology: HUD Needs to Better Define 

Commitments and Disclose Risks for Modernization Projects in Future Expenditure Plans,

GAO-11-72 (Washington, D.C.: Nov. 23, 2010) . 
 

Page 41 GAO-12-957 Unemployment Insurance Systems Modernization

serves as a reference point for all related activities. Earned value 

management provides quantitative data for project decision making.64

One of the three consortiums—WyCAN-said it intends to use earned 

value management as one of the tracking measures as it develops the UI 

system. If adequately implemented, earned value management can assist 

the program managers in accurately forecasting scope, schedule, and 

cost and in identifying any potential problems and risks.

Information Technology Infrastructure Library Provides Guidance 

for Using IT as a Business Tool

The Information Technology Infrastructure Library provides guidance to 

organizations on how to use IT as a tool to facilitate business change, 

transformation, and growth. The five core guides of the library map the 

service life cycle, beginning with the identification of customer needs, 

through the design and implementation of the service into operation and, 

finally, to the monitoring and improvement phase. According to the IT 

Service Management Forum,65

Two of the nine states in our review had considered using the five core 

guides as a best practice and these states reported using the standards 

to help identify potential problems in their UI modernization efforts, such 

as limitations on resources and appropriately defining customer needs. 

For example, Colorado had adopted the standards to aid with the 

development of their UI modernization project to help define customer 

needs and associated systems requirements, and the resources required 

to implement these requirements.

adopting the core guides can offer users a 

range of benefits that include: increased user and customer satisfaction 

with IT services, improved service availability, financial savings from 

reduced rework, improved resource management and usage, and 

improved decision making, among other benefits.

 

64GAO, Information Technology: Agencies Need to Improve the Accuracy and Reliability 

of Investment Information, GAO-06-250 (Washington, D.C.: Jan. 12, 2006).

65The IT Service Management Forum, An Introductory Overview of ITIL V3, Best Practice 

Management, 2007.
 

Page 42 GAO-12-957 Unemployment Insurance Systems Modernization

Governance Structures Provide Oversight

All the states in our review noted that oversight was important and have 

some form of governance. For example, states have formed committees 

to guide modernization efforts, created oversight programs aimed at 

modernization, and used their CIO offices to lead their efforts:

• California created an IT oversight agency which approves all IT 

projects over $1 million and receives monthly and quarterly reports on 

projects. A feasibility study report is prepared to approve a 

development project, and a special project report is required when a 

project is rebaselined. California has used this control for its UI 

modernization projects.

• Colorado uses a tiered system for IT projects, which is referred to as 

its executive governance committee. For the UI IT modernization 

project, Colorado is implementing a project health index that provides 

a numeric rank to the project status. This is intended to provide 

information on the status of the project to the executive governance 

committee so that it is informed of the project’s health, and is intended 

to help ensure the project is aligned with its planned strategic 

direction. In addition, Colorado’s technology office is required to report 

on an annual basis to a state legislature oversight committee to 

discuss the status of the UI modernization project.

• Florida has monthly meetings with CIOs from other state agencies to 

identify any issues related to the IT modernization project and UI 

program that need to be resolved or discussed. In addition, Florida 

has implemented an executive steering committee which has the 

responsibilities of providing direction and support to the management 

team; assessing the IT modernization project’s alignment with the 

strategic goals of the department; reviewing and approving any 

changes to the project’s scope, schedule, and costs; reviewing, 

approving, and determining whether to proceed with any major project 

deliverables; and recommending suspension or termination of the 

project if the primary objectives cannot be achieved. In addition to the 

executive steering committee, a technical steering committee exists 

and includes a small group of subject matter experts. The technical 

steering committee provides technical guidance and advice to the 

project team.

• Tennessee uses a Fiscal Review Committee, which reviews contracts 

over $250,000 for which the state is required to present contract and 

funding information. According to state officials, the committee has 

authority to review state funding and risk management. In addition, 

Tennessee established a governance committee at the Department of 

Finance and Administration called the Information Technology 
 

Page 43 GAO-12-957 Unemployment Insurance Systems Modernization

Assessment and Budget Committee, which meets monthly to review 

the status of projects, including the UI modernization project and new 

project requests. Further, the state has an Information Systems 

Council that is made up of state legislators as well as commissioners, 

the state comptroller, employee representatives, and others who meet 

quarterly to review major state IT projects’ status and costs, as well as 

any issues that need management direction. Finally, Tennessee’s CIO 

reviews requests for proposals and approves major IT procurements.

• Virginia has an office that provides management controls and an 

overall model for project management for projects such as UI 

modernization. It has defined criteria for major projects, such as those 

that have a budget over $1 million, are mission critical, or are 

multiagency projects. In addition, Virginia’s project management office 

provides checks and balances on the project to ensure accuracy and 

protect the state’s financial and operational interests.

• As part of the IT governance process in Vermont, the state CIO office 

provides direction and oversight to IT projects such as the UI 

modernization project. According to a state official, the state requires 

the CIO to review and approve any IT projects estimated to cost over 

$500,000. In addition, the CIO office is responsible for overseeing 

contracts and any significant changes (over $100,000) to 

procurements.

In addition, the three consortiums—SCUBI; Maryland, Vermont, and West 

Virginia; and WyCAN— have established governance structures that are 

specific to their consortiums, in order to help review and oversee 

multistate decisions affecting the modernization efforts:

• SCUBI’s state officials have established a steering committee to 

oversee states’ efforts to determine the feasibility of designing, 

developing, and implementing a core UI benefit system. SCUBI’s 

project steering committee is responsible for the overall management 

of the business of the consortium and project. It also has a project 

management office which is responsible for the day-to-day 

management of the project. Each participating state will provide both 

program and technical staff to work as a project team and to provide 

project management resources for the office. The UI project is 

supported by the IT staff of the consortium states, the executive 

management of the member states, NASWA, and Labor.

• The Vermont, Maryland, and West Virginia Consortium have 

established three committees that aid in the oversight of the 

consortium: the Project Steering Committee, the Consortium Project 

Team, and the Contractor Project Team. The Project Steering 

Committee is comprised of the UI directors from each consortium 
 

Page 44 GAO-12-957 Unemployment Insurance Systems Modernization

state. This committee has authority to approve the project scope, 

project schedule, project assumptions, project constraints, project 

risks, the project communication plan, and the technical plan and 

approach. The Consortium Project Team, consisting of subject matter 

experts and technical staff from each state, execute the work of the 

consortium based on guidance from the Project Steering Committee. 

The Contractor Project Team aids the consortium by conducting a 

review of the current benefit and tax operations in each state, 

developing business and functional requirement documents, and 

helping the consortium identify an approach to developing new 

systems.

• The WyCAN consortium, led by Colorado, is planning to develop a 

common, integrated and combined UI benefits and tax IT system. To 

do this, the consortium states have established multiple governance 

structures to help regulate the interaction of the states within the 

consortium. One of the governance structures includes the executive 

committee and is comprised of eight members in each consortium 

state that meet at least once quarterly. The head of the UI program 

and the state CIOs are included in the executive committee and 

provide leadership and approval of the consortium efforts.

In recognition of the states’ need to modernize their UI systems, Labor 

has provided funding and technical assistance. Yet, the status of states’ 

efforts varies, ranging from the planning and requirements phase to the 

implementation and operation of modernized solutions. In undertaking 

these major efforts, the nine states we reviewed have encountered a 

variety of challenges in managing their modernization projects, resulting 

from factors such as the need to provide sufficient staff to operate both 

legacy and modernized systems, and differences in state law and 

business processes among consortium member states. Labor has tasked 

ITSC to assess lessons learned, observations, and successful practices 

of consortium efforts, which is a valuable first step toward helping the 

states overcome challenges as they move forward in modernizing UI 

systems. However, this effort is not complete and does not represent an 

independent survey of all the states’ lessons learned. As such, Labor has 

not clearly identified challenges and lessons learned, disseminated them 

to each state, or facilitated an appropriate information sharing 

mechanism. This can hinder states’ ability to draw upon each others’ 

experiences to mitigate future challenges and facilitate success going 

forward to improve the effectiveness and efficiency of modernization 

efforts. The states we reviewed have identified numerous management 

controls to aid their modernization efforts which, if implemented 

successfully, can also help to mitigate challenges.

Conclusions
 

Page 45 GAO-12-957 Unemployment Insurance Systems Modernization

To further facilitate state and consortium modernization efforts, we 

recommend that the Secretary of Labor direct the Administrator of the 

Office of Unemployment Insurance to take the following two actions:

• Perform a comprehensive analysis of lessons learned and identify 

specific areas that would help mitigate current state challenges and 

provide guidance for future consortiums and individual state efforts. 

This assessment should include an evaluation of ITSC’s lessons 

learned and observations identified, as well as input from individual 

states, consortium representatives, and the ITSC Steering Committee. 

Lessons learned and best practices identified could include practices 

for mitigating issues associated with inconsistent and insufficient 

funding streams, helping ensure staff have the necessary technical 

and project management expertise to manage modernization 

technology resources, and sufficient staff to operate both legacy and 

modernized systems while developing and implementing new 

systems; and consortium-specific challenges, including practices for 

addressing concerns about differences in state requirements and 

business processes among consortium member states, mitigating 

potential liabilities and concerns that lead states face in providing 

services to and oversight of another states’ modernization efforts, and 

identifying independent qualified leadership for consortium efforts.

• Distribute the analysis of lessons learned to each state to share and 

foster ideas and facilitate the efficient and effective modernization of 

UI systems through an information-sharing platform or repository, 

such as a website, so that state agencies can contribute ideas and 

case studies of best practices and lessons learned on a continuing 

basis, and so that states’ input can be solicited for each major phase 

of system development.

Labor’s Assistant Secretary for Employment and Training Administration 

provided written comments on a draft of this report, which are reprinted in 

appendix II. In its comments, the department generally agreed with our 

recommendation to perform a comprehensive analysis of lessons learned 

and identify specific areas that would help mitigate current state 

challenges and provide guidance for future consortiums and individual 

state efforts. In this regard, the department said it agreed with the need 

for an ongoing process of continuous learning that would involve 

collecting and analyzing lessons learned and best practices and offering 

technical assistance to states. To accomplish this, the department 

believed it would be more prudent to evaluate the report on state lessons 

learned that ITSC is expected to finalize by September 28, 2012, to avoid 

conducting a possibly duplicative analysis. We noted in our report that 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 46 GAO-12-957 Unemployment Insurance Systems Modernization

ITSC’s assessment of lessons learned provides a valuable first step 

toward helping the states overcome challenges as they move forward in 

the modernization of UI systems. As such, we recommended that the 

department’s assessment include an evaluation of ITSC’s lessons 

learned and observations identified and use this information as a good 

first step. Labor’s assessment, as we noted, should also include input 

from all individual states, consortium representatives, and the ITSC 

Steering Committee. 

Labor neither agreed nor disagreed with our second recommendation, 

which called for it to distribute the analysis of lessons learned to each 

state to share and foster ideas and facilitate the efficient and effective 

modernization of UI systems through an information-sharing platform or 

repository, such as a website. Nonetheless, the department noted that it 

is committed to working actively to support knowledge sharing among the 

states related to UI IT modernization best practices and lessons learned 

through ITSC’s website, department guidance, webinar presentations, 

participation in conferences with states, and the department’s recently 

established UI Community of Practice website. Labor acknowledged its 

commitment to identify lessons learned and the need to reevaluate them 

on an ongoing basis. The department also recognized the importance of 

maintaining a repository of best practices and lessons learned to provide 

a forum for the states to provide ideas and feedback on a continuing 

basis for each major phase of systems’ development. 

Labor also provided clarifying information in its technical comments, 

which we incorporated as appropriate. In these comments, the 

department sought to clarify our discussion of funding sources, such as 

the Reed Act distribution. Specifically, Labor noted that the Reed Act 

distribution funds are not solely available for UI IT modernization efforts. 

As we noted in our report, federal funds can be used for multiple UI 

purposes, and states have the authority to spend these funds on a 

number of administrative activities, including IT, as well as other activities, 

such as capital improvement projects and payment of benefits. In 

response to Labor’s technical comments, we revised the wording to make 

clearer the sources of funding for IT modernization efforts.

Beyond the aforementioned comments, we requested technical 

comments through email from ITSC and the nine states included in our 

study. In response, the Director of ITSC and five state officials— 

California’s Deputy Director of the Employment Development 

Department, Colorado’s Program Manager of the Colorado Department of 

Labor and Employment, Minnesota’s Director of the Unemployment 
 

Page 47 GAO-12-957 Unemployment Insurance Systems Modernization

Insurance Division, Tennessee’s Information Technology Administrator of 

the Tennessee Department of Labor and Workforce Development, and 

Virginia’s Project Manager of the Virginia Employment Commission—

provided comments on relevant facts discussed in the report message. 

We have incorporated these comments where appropriate.

We are sending copies of this report to the Secretary of Labor, 

appropriate congressional committees, and other interested parties. In 

addition, the report is available at no charge on the GAO website at 

http://www.gao.gov. 

If you or your staff have questions about this report, please contact me at 

(202) 512-6304 or melvinv@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report are listed in appendix III.

Sincerely yours,

Valerie C. Melvin

Director, Information Management

and Technology Resources Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 48 GAO-12-957 Unemployment Insurance Systems Modernization

Our objectives were to (1) determine the Department of Labor’s (Labor) 

role in facilitating the modernization efforts, (2) identify and describe the 

types of federal funding selected states have spent on IT modernization, 

(3) provide the status of modernization efforts for the selected states, (4) 

determine key modernization challenges, and (5) evaluate what 

management controls have been established for IT modernization.

To address each objective, we conducted in-depth interviews with 

management and IT staff in nine state unemployment insurance (UI) 

offices—California, Colorado, Florida, Indiana, Minnesota, Ohio, 

Tennessee, Vermont, and Virginia. We selected the states on the basis of 

varying regional location, size, and modernization status. Specifically, our 

selection of nine states represents each of the six Labor regions, at least 

one small, medium, and large state, and each of the major phases of 

systems modernization, including planning and requirements, 

development, testing and operations and maintenance. We also selected 

states developing individual systems, those developing integrated tax and 

benefits systems, and states involved in consortium efforts.1

To determine Labor’s role in facilitating the modernization efforts, we

collected and analyzed documentation describing Labor’s responsibilities, 

including regulations, department project plans, and program guidance. 

We interviewed relevant Labor program officials to identify and discuss 

Labor’s role and efforts in supporting state UI modernization efforts, 

including facilitating state UI agencies in mitigating their modernization 

challenges. We also interviewed relevant officials from the selected state 

UI agencies as well as from the NASWA’s ITSC to obtain their views on 

Labor’s role and efforts to assist states in the modernization of their UI 

systems.

While our 

sample is nongeneralizable, these states offered insight and perspective 

on their experiences in modernizing UI systems, including sources of 

funding, challenges, and established management controls. In addition, 

we interviewed Labor officials, evaluated state audit entities’ reports, and 

spoke to stakeholders involved in modernization of states’ UI systems, 

such as officials from the National Association of State Workforce 

Agencies’ (NASWA) Information Technology Support Center (ITSC).

 

1

We selected the three lead consortium states as part of our review, obtaining 

representation of all consortium efforts. 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 49 GAO-12-957 Unemployment Insurance Systems Modernization

To identify and describe the types of federal funding selected states have 

spent on IT modernization, we obtained and analyzed selected states’ IT 

modernization expenditure data such as funding allocations, project 

reports, and spending reports. We also reviewed documentation on 

federal funding sources that can be used for state UI modernization, such 

as the State Unemployment Insurance and Employment Service 

Operations appropriation, Reed Act distributions, and the American 

Reinvestment and Recovery Act, as well as Labor’s documentation on 

funding for UI modernization, including supplemental budget funds for 

state UI modernization efforts. In addition, we reviewed documentation 

discussing nonfederal funding sources that are used for state UI 

modernization. To supplement this information, we interviewed officials 

from Labor, the selected UI states, and stakeholders such as the 

NASWA’s ITSC, to identify the type of federal and other funds spent on UI 

modernization efforts. In addition, we summarized the information 

collected from the state UI agencies on the types of federal funds and 

obtained clarification and confirmation from the states on the accuracy of 

this information.

To provide the status of modernization efforts for the selected states, we 

collected and reviewed the selected states’ documentation of their 

modernization planning and development efforts, such as IT strategic 

plans, project plans, status reports, and descriptions of current systems 

development artifacts. We also held discussions with officials from the 

selected UI agencies, including officials involved in planning and 

developing the UI systems, regarding the status of and plans for state UI 

modernization efforts.

To determine key modernization challenges, we analyzed public and 

internal reports on state UI modernization efforts and lessons learned. We 

also interviewed relevant Labor, UI state, and NASWA’s ITSC officials to 

identify modernization challenges and to discuss lessons learned and 

means for addressing the challenges. We also summarized the 

information collected from the state UI agencies on their modernization 

challenges and obtained clarification and confirmation from the states on 

this information.

To evaluate what management controls have been established for IT 

modernization, we interviewed Labor and selected UI states’ officials to 

identify and discuss the management controls used by the selected state 

UI agencies. To supplement this information, we also met with 

representatives from the NASWA’s ITSC who were involved in assisting 

states in their modernization efforts, to discuss management controls 
Appendix I: Objectives, Scope, and 

Methodology

Page 50 GAO-12-957 Unemployment Insurance Systems Modernization

used to support state UI consortiums’ modernization efforts. We also 

reviewed the documentation describing the selected states’ UI 

management controls and compared these controls to best practices and 

industry standards, such as those identified by the Project Management 

Institute. We did not, however, assess the extent to which the selected UI 

agencies implemented the management controls or the effectiveness of 

these controls in modernizing state UI systems.

We conducted this performance audit from January 2012 through 

September 2012 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.
Appendix II: Comments from the Department 

of Labor

Page 51 GAO-12-957 Unemployment Insurance Systems Modernization

Appendix II: Comments from the Department 

of Labor
Appendix II: Comments from the Department 

of Labor

Page 52 GAO-12-957 Unemployment Insurance Systems Modernization
Appendix II: Comments from the Department 

of Labor

Page 53 GAO-12-957 Unemployment Insurance Systems Modernization
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 54 GAO-12-957 Unemployment Insurance Systems Modernization

Valerie C. Melvin, (202) 512-6304 or melvinv@gao.gov

In addition to the contact named above, Christie Motley (Assistant 

Director), Michael Alexander, Neil Doherty, Rebecca Eyler, Christopher 

Nemr, Teresa M. Neven, Monica Perez-Nelson, and Charles Youman 

made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments

(310981)
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