United States General Accounting Office

GAO Report to the Honorable

Patricia Schroeder, House of

Representatives

August 1996 UNEMPLOYMENT

INSURANCE

Millions in Benefits

Overpaid to Military

Reservists

G O A

years

1921 - 1996

GAO/HEHS-96-101

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-258100 

August 5, 1996

The Honorable Patricia Schroeder

House of Representatives

Dear Ms. Schroeder:

The Congress established the national Unemployment Insurance (UI)

system in the 1930s to provide partial income assistance to many

temporarily unemployed workers with substantial work histories. Today,

UI is the major federal program providing assistance to the unemployed.

Many workers covered by the UI system are also among the 1.1 million

personnel currently participating in the national Reserve forces.1

 The

Reserve augments the active military services, providing trained troops for

active duty in time of war or national emergency or at such other times as

national security requires.

Most UI claimants are required to report the income they receive while in

the Reserve so that state UI programs can reduce their benefits

accordingly. You were concerned that some claimants may not be

complying with this requirement. Because noncompliance can result in UI

benefit overpayments and may contribute to a weakening of the fiscal

integrity of the UI system, you requested that we determine the following:

• How much Reserve income is not reported by UI claimants, and what are

the implications in terms of federal and state UI trust fund losses?

• Why do UI claimants not report Reserve income?

• What administrative or legislative options are available to prevent future

losses?

• How will these options affect Reserve force retention, if at all?

To estimate the amount of nonreported Reserve income, benefit

overpayments, and losses to federal and state UI trust funds, we matched

fiscal year 1994 UI claimant data from seven selected states with Reserve

1

The Reserve has seven components across all the major military services and the Coast Guard: the

Army National Guard, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National Guard, Air

Force Reserve, and the Coast Guard Reserve. Reservists receive income for participation in monthly

weekend Reserve drills, week-long annual training duty, and the deployment of Reserve units in the

event of a national crisis or domestic emergency.

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force payroll and personnel data.2 To identify explanations for the

nonreporting of Reserve income and possible options to enhance

reporting, we interviewed UI Service officials from the Department of

Labor’s Employment and Training Administration (ETA) to obtain

information on the operation and structure of the federal-state UI system.

We also held discussions with state UI program officials to obtain

information on claimant eligibility procedures and their treatment of

claimants with income from the Reserve. In addition, we met with

Department of Defense officials representing numerous Reserve

operations, Department of Transportation officials representing the Coast

Guard Reserve, and officials from the state National Guard Bureaus to

obtain their views on Reserve personnel compliance with UI program

requirements and the potential impact of reporting enhancement options

on Reserve force retention. We conducted our audit work between August

1994 and May 1996 in accordance with generally accepted government

auditing standards. For additional information on our methodology, see

appendix I.

Results in Brief Our analysis of benefit and Reserve data from seven states shows that

some Reserve personnel are receiving improper benefit payments from

state UI programs. In the seven states included in our analysis, we estimate

that UI claimants who were active participants in the Reserve failed to

report over $7 million in Reserve income in fiscal year 1994. This led to UI

benefit overpayments of approximately $3.6 million, of which federal trust

fund losses were about $1.2 million. We expect that the federal and state

trust fund losses from all UI programs are much greater, because the seven

states we reviewed account for only 27 percent of all reservists.

Program officials from the seven states we visited and Labor identified

several reasons why some claimants who are reservists did not comply

with program reporting requirements. First, many UI claimants

participating in the Reserve may be unaware of their reporting duties. For

example, some UI claimants may believe that Reserve participation is a

civic duty rather than employment covered by the UI program. In addition,

many UI programs do not inform UI applicants or claimants about their

reporting requirements. Federal and state UI program officials told us that

in most states, program procedures, application forms, and informational

2

The seven states were California, Colorado, Florida, Georgia, Massachusetts, Pennsylvania, and

Texas. We selected these states based on their average state unemployment rate during fiscal year

1994, the percentage of the nation’s total Reserve personnel based in each state, their geographic

balance, and their previous experience with matching the benefit and payroll records of state UI

program claimants with income from Reserve force participation. We did not independently verify the

data provided to us by the states or by federal agencies. (See app. I.)

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materials either do not inquire specifically about Reserve income or do not

inform claimants about these requirements.

State programs we visited also do not affirmatively attempt to discover

that a claimant has nonreported Reserve income. Because reporting

Reserve income will often reduce their weekly UI benefit amounts,

knowledgeable claimants may be reluctant to volunteer this information.

However, those few states that have attempted to systematically detect

overpayments of UI benefits to reservists have had difficulty verifying

claimant reports of Reserve income because they cannot obtain automated

Reserve payroll data from Defense. This requires them to resort to more

labor-intensive manual audits. Our own matching effort suggests that this

inability to effectively obtain automated data may be related to possible

deficiencies in Defense’s payroll information system.

Among the options identified by Labor and state UI officials for improving

the reporting of Reserve income are better informing program claimants of

their reporting responsibilities and improving state UI program access to

Reserve personnel and payroll data. Most Reserve officials we interviewed

did not believe that increased efforts to identify nonreported income

would affect service retention rates.

Background The UI system is a federal-state partnership. Within overall federal

guidelines, states operate their own UI programs, levy and collect their

own payroll tax, and determine the level and duration of benefits and the

conditions for benefit eligibility. However, the federal government,

through the UI Service, a part of ETA, is responsible for maintaining the

fiscal integrity of the system, including the individual state UI program

trust funds. The UI Service provides information, guidance, and technical

assistance to programs in the 50 states, the District of Columbia, Puerto

Rico, and the Virgin Islands. ETA officials reported that the UI Service also

monitors state methods for implementing administrative procedures,

comments on revised state procedures and revisions to the states’

Handbook of Operating Procedures, and reviews one-third of the states’

programs annually for compliance with program requirements for the

payment of benefits to exservice personnel and other federal employees.

The UI system includes several programs that cover most public and

private sector workers. The regular UI program provides for up to 26

weeks of benefits to qualifying unemployed private sector and state and

local government employees. Under this program, each state maintains an

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account in the U.S. Treasury, which is funded by state payroll taxes on

most private sector employers and by payments from state and local

government and some nonprofit employers reimbursing the fund for

benefits paid to former employees. The Unemployment Compensation for

Federal Employees (UCFE) program is completely federally financed and

provides benefits to qualifying unemployed civilian federal employees. The

Unemployment Compensation for Ex-Servicemen (UCX) program is also

completely federally financed and provides benefits to service members

after their discharge from active duty as well as Reserve and National

Guard personnel who have been on active duty for 90 days of continuous

service before their release from active duty. The UCFE and UCX programs

are administered by the states under agreements with the Secretary of

Labor.3

Eligible claimants may receive benefits from any one or a combination of

these funds on the basis of the nature of the claimant’s prior employment.

Most states reduce or offset the weekly benefit amounts paid to a claimant

by a percentage of any income earned by the claimant during that week of

program-covered unemployment. The type and amount of income used to

offset benefits varies by state but typically consists of wages from

part-time employment, including income received from a claimant’s active

participation in the Reserve. In 1994, 48 states,4

 the District of Columbia,

Puerto Rico, and the Virgin Islands offset UI benefits by a portion of the

income claimants received from Reserve service.

Under current state UI laws, only private employers—because they pay a

tax on some fraction of each employee’s wages—are required to regularly

report wage information on their employees to states. In addition, states

can impose financial penalties on private employers who fail to comply

with wage-reporting requirements. Unlike private employers, however,

because federal, state, and local government and some nonprofit

employers are not assessed a payroll tax but rather reimburse state UI

programs for any benefits disbursed to their former employees, they are

3

In addition, claimants may be eligible for extended UI benefits under the Federal/State Extended

Unemployment Compensation program—commonly called the extended benefits (EB) program. EB

was enacted by the Congress in 1970 to provide for a permanent extended benefits program. This

program provides 13 weeks of additional benefits to UI claimants following the exhaustion of the 26

weeks of regular UI benefits. States pay EB at the same rate as the weekly benefit amount received by

claimants under state law. However, EB is financed equally by federal funds and state tax revenues.

4

Oregon and Maine are the only states that exempt Reserve pay from their UI offset provision in all

instances. In May 1995, Colorado exempted Reserve pay for weekend drill and annual training

participation from its UI program offset requirements, leaving offset coverage only in cases of

participation during a national emergency.

Page 4 GAO/HEHS-96-101 UI Overpayments
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not required to report employee wage information to the states and other

jurisdictions that operate UI programs.

Personnel and payroll data for the Reserve forces are maintained at six

different locations. Each of the four military services (Army, Air Force,

Naval Reserve, and Marine Corps) collects and processes personnel and

payroll information from their respective active and Reserve units at one

of the four centers operated by the Defense Finance and Accounting

Service (DFAS) throughout the nation; the Coast Guard maintains its data at

the Department of Transportation’s United States Coast Guard (USCG) Pay

and Personnel Center. Although the DFAS centers and the USCG Pay and

Personnel Center are responsible for collecting and maintaining current

data, aggregate historical payroll and personnel information for all

services is maintained by a central repository at the Defense Manpower

Data Center (DMDC) in Seaside, California.

Some of our previous audits have repeatedly identified problems

associated with Defense’s military pay systems. In particular, we have

cited the payroll systems operated by the DFAS centers as inaccurate,

unreliable, and duplicative, resulting in a waste of federal resources and an

impairment of Defense operations.5

 For example, we found that the DFAS

payroll system for active duty Army military personnel did not accurately

summarize and report payroll information. Thus, DFAS has been unable to

ensure that it reports accurate information to the Army, much less to the

Internal Revenue Service (IRS) and other federal and state agencies. Part of

the problem may stem from each service maintaining a unique and

independent payroll system.

As a result of our earlier findings and recommendations in reports citing

weaknesses in Defense’s financial management systems, DFAS has been

tasked with integrating the individual services’ personnel and payroll

systems into one standardized system. However, the Military Pay

Directorate at DFAS stated that the Marine Corps is the only service that

has made any progress toward this goal and that this integration effort will

take several years to implement. Furthermore, this effort may still not

include the standardization of all the payroll and personnel systems once it

is completed.

5

See Financial Management: Defense’s System for Army Military Payroll Is Unreliable

(GAO/AIMD-93-32, Sept. 30, 1993) and Financial Management: Financial Control and System

Weaknesses Continue to Waste DOD Resources and Undermine Operations

(GAO/T-AIMD/NSIAD-94-154, Apr. 12, 1994).

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Nonreporting of

Reserve Income

Results in Large UI

Benefit Overpayments

Our analysis of Reserve payroll and UI benefit data for seven states that

account for 27 percent of all Reserve personnel shows that UI claimants

who have been active participants in the Reserve did not report over

$7 million in fiscal year 1994 program-covered Reserve income.6

 This

nonreporting resulted in estimated UI benefit overpayments of $3.6 million

to over 11,500 Reserve personnel during fiscal year 1994.7

 Thirty-two

percent or $1.2 million were federal trust fund losses primarily from the

UCX program.8 According to Labor officials, this suggests that exservice

personnel who were active in the Reserve accounted for a

disproportionate amount of nonreported income detected compared with

reservists separated from private or other public employers.

Although we did not examine programs in the remaining states, the

District of Columbia, Puerto Rico, and the Virgin Islands, there are several

reasons to expect that the total federal trust fund losses are much higher

than $1.2 million. First, these remaining programs cover about 73 percent

of the nation’s reservists. Most of these programs treat Reserve income

under their laws and program procedures in a manner similar to the seven

states we reviewed. In addition, we used an extremely conservative

method for estimating the nonreporting of Reserve income and associated

overpayments in the seven states. For example, we excluded from our

analysis all reservists who reported any earnings. Thus, we did not

estimate the nonreported income and benefit overpayments generated by

claimants in the Reserve who may have declared income to their UI

program from some source but who did not report all or part of their

Reserve income (that is, declared income from their annual training period

but not their weekend drills). For more information on our methodology,

see appendix I.

Although the amount of nonreported income and associated trust fund

losses may be small in comparison with the billions of dollars in total

6

Among the seven states we examined, the average amount of nonreported income per claimant varied

from $273 in Texas to $959 in California.

7

California had the largest average benefit overpayment per claimant, $543. Although a larger portion

of total overpayments went to members of the Army Reserve, probably because the Army comprises

64 percent of all reservists, the average overpayment among all reservists did not vary significantly

across services.

8

Although we calculated the amount of nonreported income and the associated benefit overpayments

for all members of the Naval, Marine, and Coast Guard Reserves in the seven states, neither DMDC nor

DFAS was able to provide us with accurate data for the Army and Air Force Reserve components.

After a delay of 8 months, we developed a methodology for obtaining data on a sample of cases to

complete our analysis. Thus, the estimates for the Air Force Reserve and National Guard and the Army

Reserve and National Guard are based on a statistical sample. (See app. I.)

Page 6 GAO/HEHS-96-101 UI Overpayments
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annual program benefits,9 the existence of overpayments is enough to

raise concerns about the effectiveness of the fiscal control exercised over

the UI system. According to state and federal program officials we

interviewed, the integrity of the UI system is adversely affected whenever

claimants are improperly paid benefits, either through oversight or fraud.

These unnecessary payments erode the UI system’s ability to provide

benefits to those workers who are unemployed through no fault of their

own. They contribute, if only marginally, to higher state employer payroll

taxes and federal outlays and possibly lower claimant benefit levels than

would otherwise prevail.

Why Claimants Do

Not Always Report

Reserve Income

State officials cited various reasons why claimants may not be reporting

their Reserve income while receiving UI benefits. According to state

officials, the claimants may not understand the reporting responsibilities,

are not specifically informed of these responsibilities, and may have

incentives not to report all Reserve income—incentives that are amplified

by the states’ limited ability to detect nonreporting.

Many UI Claimants May Be

Unaware of Requirements

to Report Reserve Income

Many claimants may be unaware or have misconceptions about their UI

program’s income-reporting requirements. Some federal and state UI

program officials told us that many claimants believe that Reserve

participation does not affect their ability to seek work or to fill their

“regular hours of duty”—a key condition for UI benefit eligibility. Thus,

they may believe that Reserve participation does not constitute

employment with reportable income.10 For most claimants, income from

Reserve service is often earned part-time on weekends, rather than

through full-time employment Monday through Friday. Thus, reservists

may also believe that the small amount of earnings from Reserve

participation they receive relative to their primary employment earnings

may not be regarded as reportable income. State program officials also

believe that some participants view their Reserve service as an instance of

civic duty and patriotism rather than employment; thus, they do not

consider compensation received from Reserve participation to be

reportable income. DFAS officials noted that they could help notify Reserve

personnel of their income-reporting responsibilities regarding state UI

9

In 1994, the UI system paid over $25 billion in benefits and received over $26 billion in state and

federal unemployment tax revenues.

10In most states, to maintain eligibility, UI claimants must be able to do and be available for full-time

work, registered with the state’s job service, and actively seeking work.

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benefits by informing them of their duties in a note on their leave and

earnings statements.

UI Claimants Not

Specifically Asked to

Report Reserve Income

Most UI programs throughout the nation require prospective claimants to

report all expected earnings—including Reserve income—received during

the benefit period as well as all earnings received during the base period.11

However, state program claims processors in the states included in our

review told us that they do not specifically ask claimants whether they are

receiving Reserve income and most do not inform claimants of the

Reserve income-reporting requirement in writing. Federal and state

program officials we interviewed believe that procedures in these seven UI

programs were typical of the procedures and materials used in UI

programs generally, with most programs not providing explicit

information to claimants about their reporting responsibilities regarding

Reserve income.

None of the UI application forms in the seven states inquired about

applicants’ receipt of Reserve income. For example, although the

application forms for five of the seven states contained questions relating

to military service, none included a question regarding Reserve income.

California and Georgia forms asked if the prospective claimant had served

in the Armed Forces during the past 18 months. Florida and Texas forms

asked if the prospective claimant was in the military service.

Massachusetts asked if the prospective claimant was a veteran and about

active duty. Colorado and Pennsylvania forms did not contain any

questions regarding military service.

Though all seven states provided illustrations in their UI program

brochures and handbooks of the type of earnings claimants must report,

only two states—Colorado and Massachusetts—provided any material that

explicitly mentioned that claimants must report Reserve income. In

addition, the UI handbook, a key source of program information provided

to all prospective claimants by the UI offices in all the states we reviewed,

generally did not elaborate on the types of income that need to be

reported. Only the Massachusetts handbook specifically addressed

Reserve pay, stating that this income must be reported. To maintain

continuation of their benefits, state UI offices routinely ask claimants to

recertify their unemployment status and to report any income they receive

during their benefit period. None of the recertification forms for the seven

11The base period is typically the year before the year in which the initial benefit claim is made. Income

earned during a claimant’s base period determines a claimant’s weekly benefit amount.

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states we visited specifically asks claimants whether they are receiving

Reserve income.

Some state UI officials explained that they do not believe the application

forms are a reason for reservists not reporting income. They said that

these application forms have been streamlined over the years and that

they believe the current questions on active military service are sufficient

to remind an applicant to report Reserve pay. However, most of them also

agreed that their handbooks could be more specific in instructing the

applicants to report Reserve income. ETA officials believed that including

questions on the application forms that only refer to military service is not

sufficient to identify Reserve income. In particular, they were concerned

that state UI workers may incorrectly assume that claimants include

information on Reserve income when they answer the written application

questions regarding active military duty and not pursue this issue further

when initially screening prospective claimants. ETA officials were also

concerned that because Reserve income is not derived from active military

duty, applicants may knowingly or unknowingly evade disclosure of

Reserve income when answering the questions on military service.

ETA officials regarded the application procedures and guidance used in the

seven states we visited as typical of most states and thought that most

programs’ procedures should be more specific to elicit information about

Reserve income. They believed that more states should list Reserve pay

specifically as a type of income that needs to be reported at the time of

application and that this income should be listed in the UI handbook

provided to prospective claimants.

Incentives Not to Report

Reserve Income Amplified

by the States’ Limited

Ability to Detect

Nonreporting

In most states, income earned by UI claimants above a minimum level,

including wages from Reserve service, offsets or reduces their weekly UI

benefit amounts. Because claimants will receive reduced UI benefits by

reporting Reserve income, there is an incentive not to report this income.

For example, a claimant who is eligible to receive the maximum weekly

benefit amount of $250 under the Florida UI program and who also

receives $100 in weekend Reserve drill pay would see his or her weekly UI

benefit reduced by $66 and receive $184 for that week.12 In addition, in

Florida as in most states, a claimant participating for a full week of annual

Reserve training would be completely ineligible for UI benefits during that

week.

12The Florida program’s offset provision is triggered when earnings exceed $34 per week, specifying a

dollar-for-dollar benefit reduction for earnings above that level.

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Further, claimants appear to face little risk of detection if they do not

report Reserve income. Despite state penalties for fraud, including

reduction or loss of benefits,13 state UI officials believed that in many

states claimants face little risk of detection if they do not report Reserve

income. To enforce such penalties, state UI programs must match reported

claimant income with Reserve earnings. However, unlike private

employers who must routinely report quarterly wage and employment

information on all employees when they remit their payroll taxes, federal

employers such as the Reserve have no such requirements because they

reimburse states for UI benefits paid as they occur. Thus, although UI

programs have on-line access to private sector employee wage data to

verify benefit levels and duration, they have no comparable access to

federal wage records. Without ongoing access to federal wage data for all

reservists, states must conduct periodic matches14 of UI claimant data with

Reserve personnel and payroll information to detect the nonreporting of

income.15

State Program Matching Efforts

Constrained by Limited Access

to Reserve Payroll Data

In our discussions with state UI program officials we found that states face

several obstacles to conducting effective matching operations. These

obstacles include UI programs’ lack of awareness of the availability of

automated Reserve personnel records, difficulties in obtaining Reserve

payroll records from the DFAS centers, and limited assistance from Labor.

DFAS’ inability to provide payroll information may actually reflect

deficiencies in its automated payroll data system.

Few states have attempted to detect the nonreporting of Reserve income

in any systematic manner. Our discussions with federal and state UI

program officials identified only three state programs—Colorado,

Pennsylvania, and Texas—that have conducted such efforts in recent

13State UI laws provide for penalties against claimants who fraudulently or otherwise fail to report all

covered income earned. For example, in many states, once it is determined that claimants have been

overpaid benefits as a result of their nonreporting of income, the state can withhold a portion or all of

any future benefits owed the claimants until the overpayments have been repaid. In other states,

claimants found to be reporting only a part of their earnings may lose their current benefits and

become ineligible for future benefit claims for some time. See table II.2.

14A state program would typically match its UI claimant list with the roster of active Reserve personnel

for the same time period. For all claimants who are also identified as active reservists, the state

program would then review payroll data on those claimants for the period in which benefits and

Reserve participation overlap. For Reserve income that was not reported, the state UI program could

then recalculate the weekly benefit amount and associated overpayment. (See app. I.)

15Although it was outside the scope of this report, the nonreporting of claimant income appears to be a

broader problem involving all UI claimants who were former federal civilian and military employees,

rather than just those participating in the Reserve. Officials from many of the state programs we

visited reported general difficulties in monitoring reported income from claimants who were former

federal employees.

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years and no program that has attempted to detect nonreported Reserve

income on a routine basis.

Two of the state programs that matched UI program and Reserve personnel

and payroll data indicated that they were unaware of the availability of

automated information from DMDC that could have expedited their effort.

Without this information, these states resorted to slower, manual matches

of information. Pennsylvania and Colorado—unaware that automated

Reserve personnel rosters were available from DMDC—requested printed

personnel rosters. State program analysts then manually matched Reserve

personnel rosters with state UI claimant files—a time-consuming and

labor-intensive procedure. (See app. II.)

State officials also told us of their difficulties in obtaining payroll records

from DFAS. For example, Colorado requested automated payroll records

for all reservists from DFAS but never received them. The state then asked

the individual DFAS centers responsible for Army and Air Force payment

data for Reserve files; eventually the state received printed leave and

earnings statements, which necessitated a manual file match. The Texas

state UI program experienced similar difficulties.16

States’ experiences in working with DFAS in the past are similar to our own

efforts to obtain Reserve payroll information to match fiscal year 1994

state UI claimant data with Reserve personnel and payroll records for

seven states.17 Although the centers for the Coast Guard and the Marines

Corps provided us with complete Reserve wage data within 1 month, we

experienced great difficulty obtaining comparable data for the other

Reserve services. It took almost 5 months before we received limited data

on Naval Reserve personnel; the Cleveland DFAS center was unable to

provide the actual wages for the Naval Reserve personnel. The center

provided us with the dates worked and the military pay grade for each

reservist. Because actual wages earned were not provided by the

Cleveland DFAS center, we had to reconstruct the amount of wages, using

pay charts that showed monthly wages by pay grade, to determine the

amount of wages that reservists earned on a specific date. Despite three

attempts over 8 months, DFAS was never able to provide us with automated

wage information for the Army and Air Force—about 70 percent of total

16Pennsylvania did not attempt to obtain files from the DFAS centers. (See app. II.)

17The DFAS centers provided payroll information for the Air Force, Army, Naval Reserve, and the

Marine Corps. We received Coast Guard Reserve wage data from the USCG Pay and Personnel Center

in Topeka, Kansas, that maintains payroll and personnel information for the Department of

Transportation. The Coast Guard Reserve accounts for about 1 percent of all Reserve personnel.

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Reserve personnel. The Denver and Indianapolis DFAS centers together

were unable to create for us a data tape linking the amount of wages

earned by Army and Air Force reservists to any of the specific dates we

requested. For this reason, we ultimately had to rely on data that the DFAS

centers’ staff manually extracted from printed and microfiche payroll

records. The Military Pay Directorate at DFAS stated that the lack of an

integrated personnel and payroll system contributed to its difficulties in

providing us accurate and timely wage data for the time periods and

individual reservists we identified.18

According to DFAS officials, we did not receive payroll data for the Army

and Air Force Reserve personnel requested because they were no longer

available. Officials said that the centers typically maintain the payroll

information we requested for about 400 days, after which time it is

downloaded onto microfiche. Although we had requested our information

well within the period during which the information was accessible, by the

time DFAS said it was prepared to provide the data to us, officials stated

that Reserve data files had already been downloaded. We ultimately

obtained payroll data for a sample of matches, which DFAS center

personnel constructed from microfiche and printed records.

Labor has generally not facilitated the matching of Reserve and UI data and

does not assist states in obtaining payroll data from the DFAS centers or

DMDC. ETA officials told us that they have not received requests from states

to assist in matching Reserve income and UI benefit data and they have

concentrated on providing assistance in other areas, such as compliance

with federal requirements regarding the payment of UCFE claims. However,

they acknowledged that this is an important area and one where they

could provide additional assistance to the state programs.

Although the three states conducting matches were ultimately able to

detect nonreported Reserve income and UI benefit overpayments, the

difficulties they encountered in doing so led to their decision to

discontinue these efforts.19 Although none of the officials we talked to in

these states had plans to continue matching, they said they would likely

18Although DMDC provided us with automated lists of Reserve personnel, the agency only maintains

aggregate monthly payroll data. Because UI benefits are generally paid on a weekly or biweekly basis,

we had to ask DFAS to provide us with comparable Reserve wage information.

19Colorado also discontinued its manual matching effort because in May 1995 the state legislature

exempted from the UI definition of reportable wages income earned from weekend Reserve drill and

annual training exercises. However, officials remarked that the matching effort was extremely

labor-intensive and if they had initially realized the level of difficulty involved they would have

reconsidered the project for that reason alone.

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reconsider their decision if either better guidance and assistance from

Labor or increased responsiveness from DFAS was forthcoming.

Reducing

Nonreporting of

Reserve Income

Could Prevent Future

Losses

State and federal UI program officials and Defense officials suggested

several options to reduce the nonreporting of Reserve income, which

could prevent future trust fund losses. These options focus on more

effective ways to inform claimants about their reporting responsibilities

and proposals to improve the detection of nonreported income. Most

federal and state program officials believe that these options could be

implemented administratively.

Defense, Labor, and state UI officials suggested several ways to improve

claimant awareness of their responsibility to report Reserve-related

income. For example, DFAS officials suggested that their agency could help

notify Reserve personnel of their income-reporting responsibilities

administratively by informing them of their duties in a note on their leave

and earnings statements. Labor and state UI officials mentioned that

programs could improve claimants’ awareness of their reporting

responsibilities by revising their application forms and handbooks to

specify clearly their programs’ treatment of Reserve pay.

State UI program officials generally agree that acquiring access to Reserve

personnel and payroll data could facilitate the detection of nonreported

Reserve income, although they identified a variety of suggestions on the

best way to obtain such access. For example, some officials suggested that

states obtain automated records of Reserve personnel and payroll data

annually from DFAS to enable matching on a regular basis. Other officials

believe that such regular data access is unnecessary as long as the

appropriate Defense agencies—DMDC and DFAS—respond quickly when the

states request wage information. The most frequent alternative suggested

by federal and state officials is to require Defense to report Reserve

payroll and personnel data to states on a quarterly basis, as private sector

employers are required to do, to permit verification of claimant income on

a regular basis. Officials agree that this change could be implemented as

an administrative action; no legislative change would be needed.

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Some Labor officials believe that providing states with wage records

should be a requirement for all federal employers.20 They believe that the

nonreporting of program-covered income by federal employees generally

is a far greater and more serious problem than nonreporting by reservists

alone. Thus, state access to federal wage and personnel information could

significantly reduce the amount of nonreported income and the associated

benefit overpayments by claimants separated from any federal employer.

Reducing

Nonreporting of

Reserve Income Is

Not Expected to

Affect Personnel

Retention Levels

Almost all the Department of Defense officials we interviewed, including

those representing the various Reserve components, do not believe that

the reporting of Reserve wage income for UI benefit computation purposes

would have a detrimental effect on their ability to recruit and retain

effective Reserve forces. However, they also prefer that states exempt

Reserve income from any UI offset requirements. Despite the revenue loss

to state UI programs, they believe that reservists should not be penalized

through the reduction of UI benefits paid for an otherwise legitimate claim,

because reservists are performing an important national public service.

They note that although most states have not exempted Reserve income in

calculating UI benefits, some states have; Colorado, for instance, has

exempted Reserve weekend drill and annual training income from state UI

program offset provisions.

Conclusions and

Recommendations

The nonreporting of Reserve income results in the annual loss of millions

of dollars in state and federal UI benefit overpayments. Some nonreporting

is attributed to claimants being unaware of their reporting responsibilities.

To better inform claimants of their reporting responsibilities, we

recommend that the Secretary of Defense direct the four DFAS centers to

notify all reservists of their income-reporting responsibilities with respect

to state UI benefits in a message included on their leave and earnings

statement.

We also recommend that the Secretary of Transportation direct the USCG

Pay and Personnel Center to notify all reservists of their income-reporting

responsibilities with respect to state UI benefits in a message on their leave

and earnings statement.

20As part of Labor’s efforts to improve UCFE claims processing, ETA contracted with the Information

Technology Support Center, a public-private consortium, to explore the feasibility of providing states

with on-line access to federal wage data. Under the project, states will be able to electronically request

claimant payroll information. The U.S. Postal Service, one of the participants, has projected a potential

annual cost savings of about $1 million from the effort. Most of the savings accrue from freeing up

resources now allocated to respond to the large number of state program requests for wage and

employment verification.

Page 14 GAO/HEHS-96-101 UI Overpayments
B-258100 

ETA, in meeting its oversight responsibility for the financial integrity of the

UI system and in providing guidance and technical assistance to the state UI

programs to enhance their operations, can also help to improve

compliance with state income-reporting requirements. In particular, we

recommend that the Secretary of Labor direct ETA’s UI Service to provide

assistance and encourage state UI programs to review the administrative

forms or procedures used to gather information about a prospective or

continuing claimants’ wages, making revisions as necessary to clearly

identify to claimants the types of Reserve income they must report for the

offset of benefits.

To reduce income nonreporting and the associated benefit overpayments

effectively, states also need better and more timely access to Reserve

payroll and personnel data. Obtaining such data could help detect

nonreported Reserve income. In addition, Transportation, Defense, and

state UI program officials believe that providing states with Reserve data

would have little or no impact on service retention rates.

We recognize that to be successful in this effort Defense agencies must be

able to provide accurate payroll and personnel information in a timely

fashion. For this reason, we recommend that the Secretary of Defense

direct the DMDC and the four DFAS centers to develop a process for giving

states Reserve personnel and payroll data in a timely, economical, and

efficient manner. In doing so, they should coordinate with Labor’s UI

Service to identify states’ needs.

In addition, we recommend that the Secretary of Transportation direct the

USCG Pay and Personnel Center to develop a process for giving states Coast

Guard Reserve personnel and payroll data in a timely, economical, and

efficient manner. In doing so, it should coordinate with Defense’s DMDC

and with Labor’s UI Service to identify states’ needs.

Agency Comments

and Our Evaluation

We obtained comments on our draft report from the Departments of

Labor, Defense, and Transportation. Labor and Defense provided written

comments, which appear in appendixes III and IV.

Labor generally agreed with the information provided in the report and

noted that it was already taking steps to implement our recommendation

to assist states in their review of procedures identifying prospective or

continuing claimant’s wages. The Assistant Secretary of Labor also

provided technical comments that have been incorporated into the

Page 15 GAO/HEHS-96-101 UI Overpayments
B-258100 

background section of this report. The Department of Labor did question

how improper benefit payments could contribute to higher state employer

payroll taxes and possibly lower claimant benefit levels. Although we

stated that such effects would be quite marginal, to the extent that

overpayments were reduced, state legislatures could choose to use those

savings to incrementally raise claimant benefit levels or reduce employer

taxes.

The Department of Defense also generally concurred with the findings and

agreed to take actions to implement our recommendations and provided

methodologies and completion dates for accomplishing these actions.

Department of Transportation officials representing the Coast Guard did

not take issue with the overall findings of the report. The Transportation

Program Manager for the USCG Pay and Personnel System and other

officials agreed that some steps could be taken to assist states in detecting

overpayments to reservists. They stressed, however, that actions taken in

response to the recommendations should be cost-effective. This concern is

addressed in our recommendation to the Secretary of Transportation to

direct the USCG Pay and Personnel Center to develop a process for giving

states Coast Guard Reserve personnel and payroll data in a timely,

economical, and efficient manner. Transportation’s suggested approach

could address the concerns raised by our recommendations.

Transportation officials also indicated that on the basis of the data

presented in the draft of our report, it could be inferred that no UI

reporting concerns were identified for about 95 percent of all reservists.

Officials suggested that the report could explicitly mention the

cooperation of the vast majority of reservists with the UI program. One

Transportation official also stated that the report does not offer a basis of

comparison for the unfamiliar reader to evaluate and understand the

relative significance of the issues identified. For example, he stated that

the data presented indicate that the UI overpayments of $3.6 million

identified in our sample were spread over about 275,000 reservists in the

seven states we reviewed. As a result, the average overpayment per

reservist is about $13 per year. A similar calculation for the federal share

of UI overpayments results in an average share of about $4.25 per reservist

per year. He stated that these calculations are not to trivialize the

significance of the overpayments, but rather to provide perspective that

could be useful in identifying appropriate remedial actions.

Page 16 GAO/HEHS-96-101 UI Overpayments
B-258100 

Regarding reservists’ compliance with UI program reporting

responsibilities, we focused only on those reservists receiving UI benefits

who did not report any Reserve income. We did not analyze those

reservists receiving UI benefits who only partially reported Reserve income

nor those in full compliance with income-reporting requirements.

Consequently, although it is likely that most reservists are in compliance,

our data do not permit us to say that no UI reporting concerns would be

identified for the remaining reservists.

Finally, we believe our findings of $7 million in nonreported income and

$3.6 million in overpayments represent absolute amounts and actually

understate the loss because the seven states account for only 27 percent of

all reservists. Also, we do not believe that the average overpayment per

reservist is a meaningful statistic for assessing the significance of the

problem. The existence of overpayments is enough to raise concern about

the effectiveness of the fiscal control exercised over the UI program.

Failure to rectify the problem erodes the integrity of the UI program and it

is important that action be taken to correct the problem.

We are sending copies of this report to the Secretaries of Labor,

Transportation, and Defense and UI program directors in California,

Colorado, Florida, Georgia, Massachusetts, Pennsylvania, and Texas.

Major contributors to this report are listed in appendix V. If you have any

questions concerning this report, I can be reached at (202) 512-7014.

Sincerely yours,

Carlotta C. Joyner

Director, Education and

 Employment Issues

Page 17 GAO/HEHS-96-101 UI Overpayments
Contents

Letter 1

Appendix I 

Methodology for

Matching State UI

Claimant Data With

Reserve Payroll Data

20

Overpayment Calculation Method 22

Some Matches Excluded From Analyses 23

Appendix II 

Summary of Case

Studies of State UI

Programs

25

States Generally Reduce UI Benefits by a Portion of Reserve

Income

25

Explanations for the Nonreporting of Reserve Income 26

States Use Matching to Ensure Program’s Fiscal Integrity 29

States Encountered Difficulties in Matching UI Benefit Data With

Reserve Personnel and Payroll Records

30

Summary of States’ Matching Efforts 31

Appendix III 

Comments From the

Department of Labor

33

Appendix IV 

Comments From the

Department of

Defense

34

Appendix V 

GAO Contacts and

Staff

Acknowledgments

36

Tables Table I.1: Number of UI Claimants Who Concurrently Received

Reserve Income, by Reserve Component at Each Payroll Center,

Fiscal Year 1994

21

Page 18 GAO/HEHS-96-101 UI Overpayments
Contents

Table I.2: Nonreported Income and Overpayments for UI Reserve

Personnel in the Seven States, Fiscal Year 1994

23

Table II.1: State Program Variations in the Treatment of Reserve

Income and in Benefit Calculations, as of January 1995

26

Table II.2: State UI Program Penalties for Fraud and

Nonreporting of Program-Covered Income

28

Abbreviations

EB extended benefits

ETA Employment and Training Administration

DFAS Defense Finance and Accounting Service

DMDC Defense Manpower Data Center

IRS Internal Revenue Service

UCFE Unemployment Compensation for Federal Employees

UCX Unemployment Compensation for Ex-Servicemen

UI Unemployment Insurance

USCG United States Coast Guard

Page 19 GAO/HEHS-96-101 UI Overpayments
Appendix I 

Methodology for Matching State UI Claimant

Data With Reserve Payroll Data

We matched fiscal year 1994 UI claimant data from seven selected states

with Reserve force payroll and personnel data to estimate the amount of

nonreported Reserve income and benefit overpayments and associated

losses to the federal and state UI trust funds. Although we did not

independently verify the accuracy of the data provided to us by DMDC, the

DFAS centers, the USCG Pay and Personnel Center, or the seven state UI

programs, we believe that this does not affect our results. The data

sources we used were the only ones available, and state UI programs

would rely on these data sources to calculate any benefit overpayments.

We obtained data on all persons who received some UI benefit payment

(regular, UCX, or UCFE) between October 1, 1993, and September 30, 1994,21

from seven state UI programs—California, Colorado, Florida, Georgia,

Massachusetts, Pennsylvania, and Texas.22 We judgmentally selected these

states using a variety of characteristics including

• a high unemployment rate during fiscal year 1994 (California),

• a large number of reservists (Georgia, Texas, Pennsylvania, Florida, and

California),

• previous experience with matching UI claimants and Reserve force data

(Colorado, Pennsylvania, and Texas),23 and

• geographic balance.

We requested most of the states’ UI claimant tape files before our site visits

to these states. To assist them in their preparation of these tapes, we held

discussions with state officials and provided them a structured protocol

listing the types of data and the magnetic tape format they would need to

provide us. The tapes we received contained the names of UI claimants,

their social security numbers, and other information related to the benefits

paid.

We created tapes containing only the social security number extracted

from the original state data tapes. Consistent with the requirements of the

21Texas only provided data on claims initiated during fiscal year 1994, excluding information on

claimants who were receiving benefits during fiscal year 1994 but who initiated their claim during

fiscal year 1993. Thus the Texas file is a proportionately smaller file than the other states we reviewed.

22See app. II for a detailed discussion of the characteristics of each of the seven state programs and the

interviews we had with state UI program officials.

23We chose states—Colorado, Pennsylvania, and Texas—with past experience in matching UI claimant

data with Reserve payroll information because we believed that they could provide a greater

understanding of the problems of matching such data and of the options available to address them. We

chose states with generally higher numbers of reservists and higher unemployment rates during fiscal

year 1994 because we believed that these factors might increase the likelihood that we would detect

the nonreporting of Reserve income.

Page 20 GAO/HEHS-96-101 UI Overpayments
Appendix I 

Methodology for Matching State UI Claimant

Data With Reserve Payroll Data

Computer Matching and Privacy Protection Act of 1988,24 we sent the

tapes to and worked with officials from DMDC in Seaside, California, to

match the seven state data tapes of UI claimants with Defense’s Reserve

personnel and payroll records.25 DMDC agreed to match these tapes (with

our on-site supervision) with Reserve personnel employment data to

identify UI claimants who were in the Reserve. Before the visit, we worked

with DMDC technicians to coordinate tape format between DMDC and the

seven state programs. We developed a computer program that would

identify those persons who received UI benefits for the same period as they

received Reserve pay but who did not declare such income for benefit

offset.

Once matches were identified, DMDC segregated the data and placed the

information on tapes according to the military service branch in which

reservists were employed. Because DMDC does not maintain payment data

on the dates of service for when payments are earned, to facilitate our

match, it sent the tapes to the particular payroll centers responsible for the

payroll of these personnel’s respective service branch. In total, we

requested payroll information on the number of personnel in each Reserve

component from the payroll centers listed in table I.1.

Table I.1: Number of UI Claimants Who

Concurrently Received Reserve

Income, by Reserve Component at

Each Payroll Center, Fiscal Year 1994 Reserve component

Claimants matched

to Reserve payroll

data Payroll center

Army National Guard and

Army Reserve

7,459 Indianapolis DFAS

center

Air National Guard and

Air Force Reserve

2,002 Denver DFAS center

Naval Reserve 1,569 Cleveland DFAS center

Marine Corps Reserve 416 Kansas City DFAS

center, Missouri

Coast Guard Reserve 83 USCG Pay and

Personnel Center,

Topeka, Kansas

Total 11,529

24The Computer Matching and Privacy Protection Act of 1988 (5 U.S.C. 552 (a)) authorizes agencies to

disclose records to GAO. The act also imposes safeguards on the federal government’s use of

computer records pertaining to individuals’ income, employment, and other personal matters. As a

third party, GAO cannot compare various sets of data and release the results of such comparisons for

purposes of enforcement actions against individuals.

25The National Guard office of each respective state also maintains current personnel records for the

Reserve components in that state but does not collect payroll information.

Page 21 GAO/HEHS-96-101 UI Overpayments
Appendix I 

Methodology for Matching State UI Claimant

Data With Reserve Payroll Data

Most of the state UI programs were able to provide us with the tapes within

a month and DMDC was able to perform the matches within a few weeks

after our request. In helping us match fiscal year 1994 state UI claimant

data with Reserve personnel and payroll for seven states, only the USCG

Pay and Personnel Center and the Kansas City DFAS center were able to

provide complete automated information for the Coast Guard and the

Marine Corps components, respectively.26 However, it took almost 5

months for the Cleveland DFAS center to respond to our request for fiscal

year 1994 Naval Reserve personnel payroll data. Then, the DFAS center was

unable to provide the actual wages for the Naval Reserve personnel and

instead provided pay scales that we had to convert to wage amounts.

Despite three attempts over an 8-month period, the Denver and

Indianapolis DFAS centers representing the Air Force and Army Reserve

components were never able to provide us with accurate and complete

payroll information on personnel matched. Thus, to complete our

assignment we developed an alternative methodology relying on a sample

of these Reserve components and based on data that DFAS center staff

manually extracted from printed and microfiche payroll records.

To estimate the amount of nonreported income and benefit overpayments

to UI claimants in the Army and Air Force Reserve components, we

selected a random sample of matched personnel—UI claimants from each

of the seven states who also were employed by the Army or Air Force

Reserve during the same period of time. We then provided the social

security numbers and dates of wages received for each of these reservists

to the DFAS centers that manually reconstructed, by searching microfiche,

the corresponding payroll information.

Overpayment

Calculation Method

We appended the associated DFAS or USCG centers’ payroll data to each

matched UI claimant (a particular Reserve member identified as receiving

both UI benefits and Reserve income for a certain time period). We then

applied the appropriate state UI program offset provision to calculate the

amount of nonreported program-covered income and, using the claimant’s

eligible weekly benefit amount, we estimated the magnitude of the

overpayment. Through this process, we estimated the cumulative amount

of nonreported Reserve income and UI benefit overpayments for fiscal year

1994.

From our analyses, we estimated that the seven states we reviewed made

millions of dollars in UI overpayments to UI claimants who were active

26These two components represent only 5 percent of the Reserve force.

Page 22 GAO/HEHS-96-101 UI Overpayments
Appendix I 

Methodology for Matching State UI Claimant

Data With Reserve Payroll Data

Reserve participants. Table I.2 shows the breakdown of nonreported

income and overpayments by branch of service.

Table I.2: Nonreported Income and

Overpayments for UI Reserve

Personnel in the Seven States, Fiscal

Year 1994

Reserve

component

Nonreported

reserve income

Overpayments

(total UI

benefits)

Federal loss

(UCFE, UCX,

and EB)a State loss (UI)b

Army National

Guard and Army

Reserve $4,291,282 $2,181,163 $750,426 $1,430,737

Naval Reserve 903,521 494,108 138,570 355,538

Marine Corps

Reserve 142,005 61,722 14,771 46,951

Air National

Guard and Air

Force Reserve 1,610,025 871,317 259,233 612,084

Coast Guard

Reserve 62,245 34,773 4,700 30,073

Total $7,009,078 $3,643,083 $1,167,700 $2,475,383

Note: Because the overpayment amount and nonreported income for the Army and Air Force

were estimated from samples, these amounts and the associated estimates of federal and state

loss are subject to sampling error. The sampling errors, calculated at the 95-percent confidence

level, range from ± 16.7 percent for federal losses due to Army overpayments to ± 5.2 percent for

federal losses due to Air Force overpayments.

aWe included extended benefits (EB) overpayments for three states (California, Georgia, and

Massachusetts) that provided extended benefits during fiscal year 1994. We recognize that a

portion—less than $73,000—should be attributed to state losses but the data did not permit us to

apportion these funds exactly.

bWe included in the state fund losses joint UI/UCX and UI/UCFE overpayments of which a portion

should be attributed to the federal losses.

Some Matches

Excluded From

Analyses

Although we did not examine programs for the remaining states, the

District of Columbia, Puerto Rico, and the U.S. territories, there are

several reasons to expect that the total federal trust fund losses are much

higher than $1.2 million. First, these remaining programs cover 73 percent

of the nation’s reservists. Most of these programs treat Reserve income

under their laws and program procedures in a manner similar to the seven

states we reviewed.27

27We have little reason to believe that reservists’ behavior regarding the reporting of income is

systematically different in these remaining programs compared with the seven states we reviewed. In

addition, although 1994 state unemployment rates—a primary factor influencing the total number of

program claimants and thus the pool of possible claimants with nonreported income—tend to be

higher in the seven states we reviewed, they are fairly high in many of the other UI programs as well.

Page 23 GAO/HEHS-96-101 UI Overpayments
Appendix I 

Methodology for Matching State UI Claimant

Data With Reserve Payroll Data

In addition, we used an extremely conservative method for estimating the

nonreporting of Reserve income and associated overpayments in our

seven states. In calculating the amounts of nonreported earnings and UI

overpayments, we excluded from our analysis all Reserve claimants who

reported any earnings. About one-third of the reservists receiving UI during

fiscal year 1994 reported some earnings. However, we were unable to

determine if these earnings were Reserve pay or other types of income

because state UI program data files do not include the source of income

listed on the application form. Thus, we did not estimate the nonreported

income and associated benefit overpayments generated by claimants in

the Reserve who may have declared income to their UI program from some

source but who did not report all or part of their Reserve income (that is,

declared income from their annual training period but not their weekend

drills).

Page 24 GAO/HEHS-96-101 UI Overpayments
Appendix II 

Summary of Case Studies of State UI

Programs

To identify explanations for the nonreporting of Reserve income and

possible options to enhance reporting, we spoke with UI officials from

seven states: California, Colorado, Florida, Georgia, Massachusetts,

Pennsylvania, and Texas.28 These officials include UI program directors

and administrators, benefit payment and quality control unit staff,29

application clerks and reviewers, and computer staff who conduct

matches of UI program information with claimant income and other data.

In addition, state officials provided us with copies of their programs’

benefit applications and continued claims forms as well as handbooks and

other publications used to explain program eligibility and benefit payment

requirements.

States Generally

Reduce UI Benefits by

a Portion of Reserve

Income

Reservists receive pay for several types of activities, including monthly

weekend drill sessions and a 2-week annual training session. In addition,

reservists can be activated for indefinite periods of time during a

designated national crisis or domestic emergency.

States offset UI weekly benefit amounts by certain types of income earned,

including Reserve wages earned during the period of benefit receipt. Of

the UI programs in the 50 states, the District of Columbia, the Virgin

Islands, and Puerto Rico, only Oregon and Maine completely exclude all

Reserve wages from benefit computation.30 State program requirements,

including those of the seven states we visited, vary in the type of Reserve

pay claimants must report and in the formula used to offset this income

against weekly benefit payments (see table II.1). Although all seven states

we visited offset weekly benefit amounts by a claimant’s earnings for the

2-week annual training session, only five states offset benefits for income

earned from the monthly weekend drill sessions. For instance, although

California requires that claimants report all income received from Reserve

participation, the claimant’s benefit amount is not offset by income from

monthly weekend sessions, according to state officials.

28We judgmentally selected these states according to a combination of criteria, including a state’s

average unemployment rate, its percentage of total Reserve personnel, and its previous matching

experiences. For a discussion of our methodology, see app. I.

29Among the responsibilities of benefit payment and quality control staff are claimant enrollment and

eligibility determination, benefit certification, and the detection of benefit overpayments.

30In May 1995, Colorado exempted Reserve pay for weekend drill and annual training participation

from its UI program offset requirements.

Page 25 GAO/HEHS-96-101 UI Overpayments
Appendix II 

Summary of Case Studies of State UI

Programs

Table II.1: State Program Variations in

the Treatment of Reserve Income and

in Benefit Calculations, as of

January 1995 State

Type of Reserve pay

included for offset

calculationa

Earnings allowed

before UI benefit

offset calculationb

Maximum weekly

benefit amountc

California Annual training,

national crisis, and

domestic emergency

$25 up to $100, then

25% of wages over

$100

$230

Colorado Alld 1/4 of the weekly

benefit amount

$267

Florida All $34 flat amount $250

Georgia Annual training,

national crisis, and

domestic emergency

$30 flat amount $195

Massachusetts All 1/3 of the weekly

benefit amount

$336

Pennsylvania All 40% of the weekly

benefit amount

$340

Texas All 25% of the weekly

benefit amount

$252

aReserve income includes pay for (1) monthly weekend drills, (2) annual training, and (3) national

crisis or domestic emergency deployments.

bThe amount of income from employment earned while receiving benefits that a claimant can earn

before benefit offset is calculated.

cAs of January 1995; these figures do not include any dependent allowance benefits.

dColorado excluded weekend Reserve drill and annual training pay from its UI program offset

provision beginning in May 1995.

States also allow claimants to earn a certain amount of income from

part-time employment before reducing their UI benefits, disregarding

certain amounts of part-time income in their offsetting of benefits. The

exact amount varies by state; California, for example, disregards $25 of the

first $100 per week of income earned and excludes 25 percent of earnings

above $100 per week. Thus, a California UI claimant who received weekly

part-time earnings of $150 would have $38 disregarded from any offset to

his or her UI benefits (that is, $25 of the first $100, plus 25 percent, or

$12.50—rounded to $13—of the remaining $50, or a total disregard of $38);

thus his or her benefits would be reduced by $112 ($150-$38).

Explanations for the

Nonreporting of

Reserve Income

Officials from all seven state UI programs and the Department of Labor

told us that the nonreporting of claimant income from Reserve

participation was a serious problem, even though they did not know the

magnitude of the total dollars involved. These officials believe that they

Page 26 GAO/HEHS-96-101 UI Overpayments
Appendix II 

Summary of Case Studies of State UI

Programs

are responsible for preventing improper payments of UI benefits to

claimants who are ineligible for such benefits or to claimants whose

benefits should be reduced because of nonreported earnings. Accordingly,

they believe that the integrity of the UI program is adversely affected when

claimants receive improper benefits. These officials view their efforts to

detect such overpayments as a means to deter future program abuses.

State UI officials identified several explanations for the nonreporting of

Reserve income and subsequent benefit overpayment. First, many

claimants may not understand their responsibility to report Reserve

income. Second, state efforts to inform claimants about UI program

income-reporting requirements may be inadequate. Third, claimants may

have incentives not to report all Reserve income.

State officials also acknowledged that many UI programs could take

additional steps to ensure that claimants are aware of program

requirements regarding Reserve earnings. Most recognize that they have

an opportunity to inform claimants of reporting responsibilities during the

initial benefit application and the weekly or biweekly claim recertification.

When applying for benefits, most applicants are required by states to

report all expected earnings, including Reserve wages, to be received

during the benefit period. However, during the application interview, state

program officials generally do not ask claimants whether they are

receiving income from Reserve participation. Also, because such wages

are not included in any determination of an initial weekly benefit amount,

applicants may leave UI interviews believing that they do not have to

report Reserve income during subsequent periods for which they will be

receiving weekly benefits. Nevertheless, only two states—Colorado and

Massachusetts—explicitly asked that Reserve income be reported.31 In the

remaining states we visited, no mention was made on the application form,

recertification notice, handbook, or any of the other information or

guidance given to the claimant of the requirement or need to report

Reserve income.

UI program officials also noted the financial incentives for claimants not to

report any Reserve income, because such reporting will reduce weekly UI

benefits in most UI programs. In cases where UI claimants deliberately fail

to comply with state reporting requirements, states may invoke fraud

statutes that allow them to attach financial penalties to money owed them.

31In Colorado, a handbook prepared for UCX claimants cited Reserve pay as income to be reported to

the UI office at the time of application or when such pay is earned while the claimant is receiving

benefits. In the informational brochure distributed to applicants, Massachusetts lists Reserve drill pay

as income that must be reported.

Page 27 GAO/HEHS-96-101 UI Overpayments
Appendix II 

Summary of Case Studies of State UI

Programs

(See table II.2.) Once states determine that claimants have been overpaid

as a result of their nonreporting of income, most states can withhold a

portion or all of any future benefits owed the claimants until the

overpayments have been paid back. Besides reclaiming overpayments

from future benefits, one state—California—attaches a 30-percent penalty

to fraudulent overpayments, and claimants are expected to pay this

penalty in cash. Another state—Texas—discontinues benefit payments to

claimants for the remainder of the benefit period and can disqualify

claimants for benefits for up to 52 weeks after discovering that an

overpayment has been made due to fraud.

Table II.2: State UI Program Penalties

for Fraud and Nonreporting of

Program-Covered Income State

Nonfraud penalty for

failure to report income

Fraud penalty for failure to report

income

California 25% deducted from

weekly benefit payments

until overpayment repaid

100% deducted from weekly benefit

payments until repaid plus 30% of

overpayment amount as a penalty to be

paid in cash

Colorado 100% deducted from

remaining weekly benefit

payments until

overpayment repaid

100% deducted from remaining weekly

benefit payments until repaid plus a 50%

penalty of overpayments; in addition,

forfeiture of 4 weeks of benefits for every

week of overpayment

Florida 100% deducted from

remaining weekly benefit

payments until

overpayment repaid

100% deducted from remaining weekly

benefit payments plus a 52-week

disqualification from future benefits

Georgia 50% deducted from

remaining weekly benefit

payments until

overpayment repaid

100% deducted from remaining weekly

benefits until repaid plus a 10% penalty;

forfeiture of up to 52 weeks of future

benefits

Massachusetts 50% deducted from

remaining weekly benefit

payments until

overpayment repaid

Total overpayments repaid plus 12%

annual interest charge on overpayment

amount

Pennsylvania 30% deducted from

remaining weekly benefit

payments until

overpayment repaid

100% deducted from remaining weekly

benefit payments until repaid; a lien can

be attached

Texas 100% deducted from

remaining benefit

payments until

overpayment repaid

Remainder of benefit period forfeited;

disqualified from benefits for 52-week

period

Despite penalties for nonreporting of income, state UI program officials

and Labor officials reported that enforcement was difficult because

Reserve wage and employment information is not readily available to

Page 28 GAO/HEHS-96-101 UI Overpayments
Appendix II 

Summary of Case Studies of State UI

Programs

states for use in verifying claimants’ earnings. Unlike private employers,

who must routinely report quarterly wage and employment information for

all employees (thus permitting states to determine whether claimants are

accurately reporting their employment status and wages for UI benefit

calculation), federal employers, including the Department of Defense and

other civilian federal employers, are not required to do so. Without this

information, states are unable to identify income being received from a

federal employer when claimants apply for or receive UI benefits.

States Use Matching

to Ensure Program’s

Fiscal Integrity

In an effort to reduce overpayments and identify program fraud and abuse,

all seven states we visited matched UI program data with other sources of

claimant earnings information. For example, they all conducted computer

matches of UI claimant files with state wage record files submitted by

private employers. In addition, several states, including Florida, Texas,

and Pennsylvania, conduct targeted matches to certain claimant groups.

For example, Texas matches UI program data with private sector wage

information on longshore workers and employees who work for large

manufacturers who periodically initiate large layoffs. States also conduct

quality assurance reviews to validate the continued eligibility of UI

claimants generally.32 However, according to state quality assurance

officials, such reviews are unable to identify the nonreporting of Reserve

income unless claimants have already listed this type of employment on

their initial applications or continued claims processing forms.

State program officials told us that matches are an essential internal

control mechanism for maintaining the financial integrity of their

programs. Although most of the state officials we interviewed said that

they have not conducted explicit cost-benefit analyses of their matching

efforts, they viewed these efforts as an effective tool to deter future

program abuse. However, UI officials from California reported that the

revenue recovered from overpayments identified by their automated

matches was greater than the cost of detecting and recovering these

overpayments. Most program officials from other states told us that the

costs of conducting automated matches themselves were fairly small,

though the costs of actually recovering overpayments were much higher.

32During a quality assurance review, a state typically selects a sample of claims from UI, UCX, and

UCFE programs for an extensive review, including an interview with the claimant or a questionnaire

that is sent to all of the employers listed on the claimant’s application forms.

Page 29 GAO/HEHS-96-101 UI Overpayments
Appendix II 

Summary of Case Studies of State UI

Programs

States Encountered

Difficulties in

Matching UI Benefit

Data With Reserve

Personnel and Payroll

Records

Three of the seven states we visited—Colorado, Pennsylvania, and

Texas—have conducted matches to identify the nonreporting of Reserve

income received by UI claimants. Each of the states had initiated the

matches after receiving reports of UI claimants not reporting their Reserve

income. However, the UI programs’ lack of awareness of the availability of

automated Reserve personnel records, difficulties in obtaining Reserve

payroll records from DFAS, and limited assistance from Labor hampered

the progress of each match. By June 1995, all three states had discontinued

their matching efforts before they were completed.

Two of the state programs we visited that matched UI program and

Reserve personnel and payroll data indicated that they were unaware of

the availability of automated information from DMDC that could have

expedited their efforts. Although Colorado and Pennsylvania both

determined that DMDC had records of Reserve personnel, neither state was

aware it could obtain this information in automated form, which would

have expedited the matching process considerably. For example, after

obtaining printed Reserve personnel listings containing over 13,000 names,

Colorado employed about six full-time staff to match those names with its

UI claimants list. The manual matching continued for more than a year

before the state closed the project.

The Texas state UI program, after some delay, received automated

personnel lists from DFAS through the state’s National Guard unit.

However, because it did not believe that the state of Texas had authority

to request such information, DFAS would not release the payroll

information on Reserve personnel that the UI program needed for

matching. Because of the lack of payroll information, Texas corresponded

with the individual reservists receiving UI benefits and requested their

voluntary reporting of Reserve income. In many cases, Texas sent several

requests before claimants provided the appropriate wage information and

because the Texas UI program was unable to verify the information, the

accuracy of responses and the results of the match were questionable.33

State officials told us that they have also received little assistance from

Labor’s ETA with their efforts to identify nonreported Reserve income.

Texas officials did report that ETA regional officials successfully interceded

with the Texas state National Guard in obtaining automated Reserve

personnel records. However, while ETA hired a contractor to develop a

technical assistance guide to help state benefit payment control units

33Officials reported that some claimants might be hesitant to respond because claimants believed that

they could be liable for UI benefit overpayments.

Page 30 GAO/HEHS-96-101 UI Overpayments
Appendix II 

Summary of Case Studies of State UI

Programs

develop matching techniques, the contractor provided an inadequate

description of how these units could identify the nonreported Reserve

income. ETA officials, on the other hand, claim that they have not generally

received any requests from states asking for their assistance in conducting

matches; the agency has concentrated on providing assistance in other

areas, such as compliance with federal requirements regarding the

payment of UCFE claims. Officials from Pennsylvania and Texas have

reported that they would not initiate future matches without access to

automated Reserve personnel and payroll records and assistance from

Labor.34

Because each state discontinued its matching efforts before completion,

the amount of detected nonreported Reserve income and associated

benefit overpayments was very incomplete. Nevertheless, each state

identified overpayments. For example, state officials reported that

Colorado identified over $280,000 in benefit overpayments on the basis of

about 200 cases with nonreported Reserve income; Pennsylvania projected

about $96,000 in overpayments for 339 cases; and Texas detected $124,000

for 416 cases. The Texas and Pennsylvania overpayment totals were

derived from information self-reported by claimants, which likely

understated benefit overpayments.

Summary of States’

Matching Efforts

Colorado Started in August 1993, Colorado’s matching effort initially included all

Reserve components and was later narrowed to the Army and Air Force

National Guard. Unaware of DMDC’s automated records, Colorado asked

DMDC for a printed roster of Reserve personnel and conducted a manual

match of the Reserve personnel roster with state UI records. DFAS failed to

provide Colorado with payroll records on matched personnel, requiring

data requests to the individual DFAS centers. The state manually matched

each UI case file against the Reserve payroll record, a time-consuming,

labor-intensive effort. Colorado identified overpayment cases and initiated

recovery actions. The state stopped its matching effort in May 1995 after

passing legislation to eliminate inclusion of Reserve income in the offset of

UI benefits.

34In May 1995, Colorado’s legislature exempted Reserve weekend drill and annual training income from

offset considerations, thereby eliminating the need for the state to identify this type of nonreported

income.

Page 31 GAO/HEHS-96-101 UI Overpayments
Appendix II 

Summary of Case Studies of State UI

Programs

Pennsylvania Initiated in May 1994, Pennsylvania’s matching effort included all Reserve

components. The state learned about the matching procedure from

Colorado officials. Like Colorado, it requested a printed roster of Reserve

personnel from DMDC instead of automated files. Pennsylvania conducted a

time-consuming manual match of the Reserve personnel roster to state UI

records. It did not attempt to obtain payroll records from DFAS. As of

May 1995, only one of its eight regional offices had completed its

time-consuming investigations and the state suspended the initiative in

June 1995.

Texas Initiated in February 1990, Texas’ matching effort included the Air Force

and Army National Guard. Texas asked the state National Guard to

coordinate personnel information collection from DMDC, which did so.

Labor’s ETA facilitated procurement of automated Reserve personnel

records for the state’s Air Force and Army National Guard. Texas

conducted automated matches of its UI claimant files with Reserve

personnel records. DFAS was unwilling to provide Texas with automated or

printed payroll records for matched files. Consequently, Texas relied on

personal UI claimant responses for the verification of Reserve income. It

has not compiled complete results and has no plans to do so or to conduct

future matches.

Although all state program officials identified better monitoring and

matching of claimants’ earnings as a solution, such efforts have been

seriously hindered, they told us, by a lack of automated payroll and

personnel information on reservists who receive UI benefits.

Page 32 GAO/HEHS-96-101 UI Overpayments
Appendix III 

Comments From the Department of Labor

Page 33 GAO/HEHS-96-101 UI Overpayments
Appendix IV 

Comments From the Department of Defense

Page 34 GAO/HEHS-96-101 UI Overpayments
Appendix IV 

Comments From the Department of Defense

Page 35 GAO/HEHS-96-101 UI Overpayments
Appendix V 

GAO Contacts and Staff Acknowledgments

GAO Contacts Charles A. Jeszeck, Assistant Director, (202) 512-7036

Christine M. McGagh, Evaluator-in-Charge, (617) 565-7547

C. Robert DeRoy, Assistant Director (Data Analysis and Evaluation

Support), (202) 512-6859

Acknowledgments In addition to those named above, the following individuals made

important contributions to this report: J. William Hansbury, Steven R.

Machlin, Lori Rectanus, and Carol L. Patey.

(205275) Page 36 GAO/HEHS-96-101 UI Overpayments
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