UNEMPLOYMENT 

INSURANCE 

INFORMATION 

TECHNOLOGY

States Face Challenges in 

Modernization Efforts

Statement of Valerie C. Melvin, Director 

Information Management and Technology Resources 

Issues

Testimony 

Before the Subcommittee on Human 

Resources, Committee on Ways and 

Means, House of Representatives

For Release on Delivery 

Expected at 1:15 p.m. EDT

Wednesday, September 11, 2013

GAO-13-859T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-859T, a testimony 

before the Subcommittee on Human 

Resources, Committee on Ways and Means, 

House of Representatives

September 11, 2013

UNEMPLOYMENT INSURANCE INFORMATION 

TECHNOLOGY 

States Face Challenges in Modernization Efforts

Why GAO Did This Study

The joint federal-state unemployment 

insurance program is the Department 

of Labor’s largest income maintenance 

program, and its benefits provide a 

critical source of income for millions of 

unemployed Americans. The program 

is overseen by Labor and administered 

by the states. To administer their UI 

programs, states rely heavily on IT

systems—both to collect and process 

revenue from taxes and to determine 

eligibility and administer benefits. 

However, many of these systems are 

aging and were developed using 

outdated computer programming 

languages, making them costly and 

difficult to support and incapable of 

efficiently handling increasing 

workloads. Given the importance of IT 

to state agencies’ ability to process 

and administer benefits, GAO was 

asked to provide testimony 

summarizing aspects of its September 

2012 report on UI modernization, 

including key challenges states have 

encountered in modernizing their tax 

and benefit systems. To develop this 

statement, GAO relied on its previously 

published work.

What GAO Recommends

In its prior report on states’ UI system 

modernization efforts, GAO 

recommended that the Department of 

Labor conduct an assessment of 

lessons learned and distribute the 

analysis to states through an 

information-sharing platform such as a 

website. Labor agreed with the first 

recommendation; it neither agreed nor 

disagreed with the second 

recommendation, but stated that it was

committed to sharing lessons learned.

What GAO Found

As GAO reported in September 2012, nine selected states had made varying 

degrees of progress in modernizing the information technology (IT) systems 

supporting their unemployment insurance (UI) programs. Specifically, the states’ 

modernization efforts were at various stages—three were in early phases of 

defining business needs and requirements, two were in the process of building 

systems based on identified requirements, two were in a “mixed” phase of having 

a system that was partly operational and partly in development, and two had 

systems that were completely operational. The enhancements provided by these 

systems included supporting web-based technologies with more modern 

databases and replacing outdated programming languages, among others. 

Nevertheless, while taking steps to modernize their systems, the selected states

reported encountering a number of challenges, including the following:

• Limited funding and the increasing cost of UI systems. The recent 

economic downturn resulted in smaller state budgets, limiting what could be 

spent on UI system modernization. In addition, competing demands and 

fluctuating budgets made planning for system development, which can take 

several years, more difficult.

• A lack of sufficient expertise among staff. Selected states reported that 

they had insufficient staff with expertise in UI program rules and 

requirements, the ability to maintain IT systems developed by vendors, and 

knowledge of current programming languages needed to maintain 

modernized systems.

• A need to continue to operate legacy systems while simultaneously 

implementing new systems. This required states to balance scarce 

resources between these two efforts.

In addition, a separate set of challenges arose for states participating in 

multistate consortiums, which were established to pool resources for developing 

joint systems that could be used by all member states: 

• Differences in state laws and business processes impacted the effort to 

design and develop a common system.

• States within a consortium differed on the best approach for developing and 

modernizing systems and found it difficult to reach consensus.

• Decision making by consortium leadership raised concerns about liability for 

outcomes that could negatively affect member states.

• Consortiums found it difficult to obtain a qualified leader for a multistate effort 

who was unbiased and independent. 

Both consortium and individual state officials had taken steps intended to 

mitigate challenges. GAO also noted that a comprehensive assessment of 

lessons learned could further assist states’ efforts. In addition, the states in 

GAO’s review had established certain IT management controls that can help 

successfully guide modernization efforts. These controls include establishing a 

project management office, using industry-standard project management 

guidance, and employing IT investment management standards, among others. View GAO-13-859T. For more information, 

contact Valerie C. Melvin at (202) 512-6304 or 

melvinv@gao.gov.
Page 1 GAO-13-859T

Chairman Reichert, Ranking Member Doggett, and Members of the 

Subcommittee:

Thank you for inviting me to today’s hearing to discuss information 

technology (IT) systems supporting the unemployment insurance (UI) 

program. As you know, this is the Department of Labor’s (Labor) largest 

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

of income for millions of unemployed Americans. As a federal-state 

partnership, the program is overseen by Labor, while benefits for 

individuals are dependent on state law and administered by state 

workforce agencies.

To collect and process the tax revenue that funds the program and to 

determine eligibility and administer benefits, state agencies rely heavily 

on IT systems. However, a state survey published in 2010 found many of 

these systems to be old and based on outdated programming languages, 

costly and difficult to support, and incapable of efficiently handling 

workload demands.1 Given the importance of IT to state agencies’ 

abilities to effectively process and provide timely benefits to millions of 

unemployed Americans, in September 2012 we issued a report that 

discussed states’ efforts to modernize the systems supporting their UI 

programs.2

All of the work on which this statement is based was conducted in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform our audits 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.

At your request, my testimony today summarizes aspects of 

that report, including the key challenges that states have encountered in 

their modernization efforts.

 

1

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.

2

GAO, Information Technology: Department of Labor Could Further Facilitate 

Modernization of States’ Unemployment Insurance Systems, GAO-12-957 (Washington, 

D.C.: Sept. 26, 2012).

 
Page 2 GAO-13-859T

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

1935, is administered under state law based on federal requirements.3

The federal-state structure of the program places primary responsibility 

for its administration on the states, and gives them wide latitude to 

administer the programs in a manner that best suits their needs within the 

guidelines established by federal law. Within the context of the federalstate partnership, Labor has general responsibility for overseeing the UI 

program to ensure that the program is operating effectively and efficiently. 

For example, Labor is responsible for monitoring state operations and 

procedures, providing technical assistance and training, and analyzing UI 

program data to diagnose potential problems.

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

compensation for lost earnings of eligible individuals who become 

unemployed through no fault of their own and to stabilize the economy 

during downturns. Applicants for UI benefits must have earned at least a 

certain amount in wages and/or have worked a certain number of weeks 

to be eligible. In addition, these individuals must, with limited exceptions, 

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

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

program functions. These include systems for administering benefits and 

for collecting and administering the taxes used to fund the programs.

Benefit 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.

Tax systems are used for

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

 

3

UI was initiated on a national basis as Titles III and 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, subchs. III and 

IX.

Background 

States’ Use of IT to 

Administer UI Programs
Page 3 GAO-13-859T

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

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.

However, 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. As they have aged, the systems have 

presented challenges to the efficiency of states’ existing IT environments. 

In a survey published by the National Association of State Workforce 

Agencies (NASWA) in 2010,4

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

software programming languages, such as Common Business 

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

programming languages.

states reported the following issues:

• 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 constraints imposed by the systems.

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

online access for UI data and services.

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

fact that they cannot be reprogrammed quickly enough to respond to 

changes resulting from legislative mandates. In addition, states have 

developed one or more stand-alone ancillary systems to fulfill specific 

needs, but these systems are not integrated with their legacy mainframe 

systems, decreasing efficiency. Finally, according to the states, existing 

legacy systems cannot keep up with advances in technology, such as the 

move to place more UI services online.

 

4

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.
Page 4 GAO-13-859T

In addition to providing general oversight of the UI program, the 

Department of Labor plays a role in facilitating the modernization of 

states’ UI IT systems. This role consists primarily of providing funding and 

technical support to the state agencies. In this regard, Labor distributes 

federal funds to each state for the purpose of administering its UI 

program, including funds that can be used for IT modernization.

Through supplemental budget funds, Labor has 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.

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). 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, Congress, businesses, and 

intergovernmental groups; and is the collective voice of state agencies on 

workforce policies and issues. ITSC 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. ITSC’s core services to 

states include application development, standards development, and UI 

modernization services, among others.

Our September 2012 report noted that selected states5 had made varying 

progress in modernizing the IT systems supporting their UI programs.6

 

5

These states were California, Colorado, Florida, Indiana, Minnesota, Ohio, Tennessee, 

Vermont, and Virginia.

Specifically, we found that each of the three states that were part of a 

multistate consortium were in the initial phases of planning that included 

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 “mixed” phase where part of the system was 

in development and part was in the operations and maintenance phase; 

6

GAO-12-957. 

Labor’s Role in Facilitating 

IT Modernization

States Face 

Challenges in 

Modernizing Their 

Tax and Benefit 

Systems 
Page 5 GAO-13-859T

and two were completed and in operations and maintenance. These 

efforts had, among other things, enhanced states’ UI technology to 

support web-based services with more modern databases and replaced 

outdated programming languages. They also included the development of 

auxiliary systems, such as document management systems and call 

center processing systems.

Nevertheless, while the states had made progress, we found that they 

faced a number of challenges related to their modernization efforts. In 

particular, individual states encountered the following challenges, among 

others:

• All nine states cited limited funding and/or the increasing cost of UI 

systems as a major challenge. For example, they said that the 

economic downturn had resulted in smaller state budgets, which 

limited state funds for IT modernization. Moreover, once funds were 

identified or obtained, it often took a considerable amount of time to 

complete the IT project. Officials added that developing large state or 

multistate systems may span many years, and competing demands 

on resources can delay project implementation. As a result, states 

may fund one phase of a project with the hope that funds will be 

available in the future for subsequent phases. This lack of consistent 

funding potentially hinders effective IT project planning.

• Seven of the nine states cited a lack of staff in their UI offices with the 

expertise necessary to manage IT modernization efforts:

• Several states said they lacked sufficient subject matter experts 

knowledgeable in the extensive rules and requirements of the UI 

program. Such experts are essential to helping computer 

designers and programmers understand the program’s business 

processes, supporting an effective transition to the reengineered 

process, and identifying system requirements and needs.

• States also identified challenges in operating and maintaining a 

system developed by vendors because state employees may 

have lacked the needed expertise to maintain the new system 

once the vendor staff leave.

• The states added that their staffs may implement larger-scale 

systems only once every 10 to 15 years, leading to gaps in 

required knowledge and skills, process maturity and discipline, 

and executive oversight.

• States further stressed that their staffs may have expertise in an 

outdated computer language, while modernization efforts require 

them to learn new skills and more modern programming 

languages.
Page 6 GAO-13-859T

• According to a 2011 workforce survey, over 78 percent of state 

chief information officers confirmed that state salary rates and pay 

grade structures presented a challenge in attracting and retaining 

skilled IT talent.

• According to Labor, the limited staff resources facing states have 

required that subject matter experts be pulled off projects to 

address the workload demands of daily operations.

• 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.

In addition to the challenges facing individual states, we found that states 

participating in multistate consortiums7

• Representatives from all three consortiums indicated that differences 

among states in procurement, communication, and implementation of 

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

extent to which the state’s IT is centralized could impact the effort to 

design and develop a common system. As a result, certain state 

officials told us that consortiums were not practical; one official 

questioned whether a common platform or system could be 

successfully built and made transferable among states in an 

economically viable way.

encountered a separate set of 

challenges:

• States within a consortium often had different views on the best 

approach to developing and modernizing systems. State officials said 

that using different approaches to software development is not 

practical when developing a common system, but that it was difficult 

to reach consensus on a single approach. In one case, a state 

withdrew from a consortium because it disagreed with the 

development approach being taken by the consortium.

• States had concerns about liabilities in providing services to another 

state. IT representatives from one consortium’s lead state noted that 

decisions taken by the lead state could result in blame for outcomes 

that other states were unsatisfied with, and there was a concern that 

the lead state’s decision making could put other states’ funds at risk. 

 

7

At the time of our review, three consortiums had been formed with federal funding: the 

Wyoming, Colorado, Arizona, and North Dakota (WyCAN) consortium; the Southeastern 

Consortium for Unemployment Insurance Integration (SCUBI), composed of Tennessee, 

South Carolina, North Carolina, and Georgia; and the Vermont, Maryland, and West 

Virginia technology infrastructure consortium. 
Page 7 GAO-13-859T

One state withdrew from its leadership position because of such 

concerns about liability.

• Reaching agreement on the location of system resources could also 

be a challenge. For example, one consortium encountered difficulty in 

agreeing on the location of a joint data center to support the states 

and on the resources that should be dedicated to operating and 

managing the facility, while complying with individual state 

requirements.

• All three consortium representatives we spoke to noted that obtaining 

an independent and qualified leader for a multistate modernization 

effort was challenging. State IT project managers and chief 

information officers elaborated that while each state desires to 

successfully reach a shared goal, the leader of a consortium must 

keep the interests of each state in balance and have extensive IT 

experience that goes beyond his or her own state’s technology 

environment.

Both individual states and consortium officials had developed methods to 

mitigate specific challenges and identified lessons learned. For example, 

several states

• were centralizing and standardizing their IT operations to address 

technical challenges;

• found that a standardized, statewide enterprise architecture could 

provide a more efficient way to leverage project development; and

• took steps to address consortium challenges they encountered, such 

as ensuring that each state’s IT department is involved in the project.

In our report, we noted that ITSC had been tasked with preparing an 

assessment of lessons learned from states’ modernization efforts, but at 

the time of our review, this assessment had not been completed. 

Moreover, the scope of the assessment was limited to ITSC’s 

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

A comprehensive assessment would include formal input from states and 

consortiums, the ITSC Steering Committee, and Labor. Accordingly, we 

recommended that Labor (1) perform a comprehensive analysis of 

lessons learned and (2) distribute the analysis to each state through an 

information-sharing platform or repository, such as a website. Labor 

generally agreed with the first recommendation; it did not agree or 

disagree with the second recommendation but said it was committed to 

sharing lessons learned.

In addition, the nine states in our review had established, to varying 

degrees, certain IT management controls that aligned with industry-
Page 8 GAO-13-859T

accepted program management practices. These controls included the 

following:

• establishing aspects of a project management office for centralized 

and coordinated management of projects under its domain;

• incorporating industry-standard project management processes, tools, 

and techniques into their modernization UI efforts;

• adopting independent verification and validation to verify the quality of 

the modernization projects; and

• employing IT investment management standards, such as those 

called for in our IT investment management framework.8

If effectively implemented, these controls could help successfully guide 

the states’ UI modernization efforts.

In summary, while states have taken steps to modernize the systems 

supporting their UI programs, they face a number of challenges in 

updating their aging legacy systems and moving program operations to a 

modern web-based IT environment. Many of the challenges pertain to 

inconsistent funding, a lack of sufficient staff with adequate expertise, and 

in some cases, the difficulty of effective interstate collaboration. States 

have begun to address some of these challenges, and the nine states in 

our review had established some IT management controls, which are 

essential to successful modernization efforts. In addition, the Department 

of Labor can continue to play a role in supporting and advising states in 

their efforts.

Chairman Reichert, Ranking Member Doggett, and Members of the 

Subcommittee, this concludes my statement. I would be happy to answer 

any questions at this time.

If you have any questions concerning this statement, please contact 

Valerie C. Melvin, Director, Information Management and Technology 

Resources Issues, at (202) 512-6304 or melvinv@gao.gov. Other 

individuals who made key contributions include Christie Motley, Assistant 

Director; Lee A. McCracken; and Charles E. Youman.

 

8

GAO, Information Technology Investment Management: A Framework for Assessing and 

Improving Process Maturity, Version 1.1., GAO-04-394G (Washington, D.C.: March 2004).

GAO Contact and 

Staff 

Acknowledgments 

(311502)
 

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