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74–253—PDF 2011

S. HRG. 112–404 

PRESERVING INTEGRITY, PREVENTING 

OVERPAYMENTS, AND ELIMINATING FRAUD 

IN THE UNEMPLOYMENT INSURANCE SYSTEM 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JUNE 22, 2011 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

RUSSELL SULLIVAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

WITNESSES 

Oates, Jane, M.Ed., Assistant Secretary for Employment and Training, Department of Labor, Washington, DC .................................................................. 5 

Cox, Kristen, Executive Director, Utah Department of Workforce Services, 

Salt Lake City, UT ............................................................................................... 8 

Trause, Paul, Commissioner, Washington Employment Security Department, 

Olympia, WA ........................................................................................................ 10 

Cullen, Mike, managing director, On Point Technology, Inc., Oak Brook, 

IL ........................................................................................................................... 12 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 27 

Cox, Kristen: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 29 

Responses to questions from committee members ......................................... 34 

Cullen, Mike: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 42 

Responses to questions from committee members ......................................... 48 

Enzi, Hon. Michael B.: 

Prepared statement .......................................................................................... 52 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 3 

Prepared statement with attachment ............................................................. 53 

Oates, Jane, M.Ed.: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 57 

Responses to questions from committee members ......................................... 80 

Trause, Paul: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 92 

Responses to questions from committee members ......................................... 98 

(III) 

(1) 

PRESERVING INTEGRITY, PREVENTING 

OVERPAYMENTS, AND ELIMINATING FRAUD 

IN THE UNEMPLOYMENT INSURANCE SYSTEM 

WEDNESDAY, JUNE 22, 2011 

U.S. SENATE, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 10:08 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Also present: Senators Stabenow, Carper, Cardin, Hatch, and 

Burr. 

Also present: Democratic Staff: Russ Sullivan, Staff Director; 

Amber Roberts, Tax-Exempt Policy Advisor and Research Assistant; and Diedra Henry-Spires, Professional Staff. Republican Staff: 

Bryan Hickman, Special Counsel; Jim Lyons, Tax Counsel; and 

Aaron Taylor, Professional Staff Member. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

Clement Stone, the great American businessman and philanthropist, once said, ‘‘Have the courage to say ‘no.’ Have the courage 

to face the truth. Do the right thing because it is right. These are 

the magic keys to living your life with integrity.’’ 

These words provide helpful wisdom today as we face the truth 

and the challenges in our Nation’s Unemployment Insurance program. In these difficult economic times, Unemployment Insurance, 

or UI, provides a critical lifeline to millions of Americans who lost 

jobs through no fault of their own. UI ensures that families can 

still put food on the table, gas in the car, and keep roofs over their 

heads while looking for the next job. 

The beneficiaries of this program are workers. They have 

worked. They want to work, and they will work again. In a recession, Unemployment Insurance spending increases. This funding 

gives a temporary boost to the economy that helps keep both families and businesses afloat and helps stabilize our economy. 

However, the substantial job losses of this Great Recession 

stretched Unemployment Insurance programs nationwide. The 

strain has led to an increase in improper UI payments due to errors, inefficiencies, and even fraud. To do the right thing and create 

solutions this program needs, we must first understand why these 

2 

overpayments occur, and that is why we are holding today’s hearing. In 2009, the Department of Labor reported $11.4 billion in improper UI payments. Last year, that number spiked to more than 

$17 billion. With leadership from this committee, Congress passed 

legislation last year to curb abuse and waste in the unemployment 

system. This law allows the Treasury Department to recover overpayments from those who do not report their earnings. It also 

eliminated the 10-year time limit the government had to collect 

overpayments. 

The law requires employers to report the very first day new hires 

begin working. This helps determine whether workers are receiving 

improper unemployment compensation benefits. Although this legislation is helping curb these inefficiencies, we need to do more, 

clearly. The leading cause of UI overpayments is claimants who 

have returned to work, but continue to claim benefits. 

The second-largest cause is errors verifying that unemployed 

workers meet all the requirements to be eligible for UI benefits. 

The third-largest cause of overpayments is workers who fail to fulfill State requirements. These requirements can include an active 

search for work or registration with the State Unemployment 

Service. 

The UI program is too important for this money to be wasted. We 

need to work together to develop solutions to end these overpayments. This must be a combined effort. It includes beneficiaries, 

employers, States, the private sector, and the Federal Government. 

Right now everyone’s budgets are tight, families are having trouble 

making ends meet, and we clearly need to fix our Federal budget 

problems. There is not a penny to waste. 

The administration’s most recent budget includes valuable ideas 

to address many of the program’s issues. In this proposal, those 

who defraud the system will be required to pay a 15-percent penalty and return the wrongly collected funds. Employers would be 

held accountable for overpayments resulting from extremely untimely responses to inquiries about their employees’ work history. 

State governments will be encouraged to stop overpayments before they happen, not just to collect after the fact. And the Federal 

Government would have improved tools to recoup losses due to 

fraud and waste. While the administration’s proposal contains 

some good ideas, there should also be a role for the private sector, 

including data processing upgrades and other private-sector ideas 

that seem to be quite efficient. 

States and the private industry have devised systems to reduce 

overpayments and streamline the program. I also want to applaud 

Senator Coburn, who has worked in this area. I generally applaud 

my colleagues’ efforts and look forward to working with each of 

them to develop solutions. 

So, as we address these challenges, let us have courage, let us 

face the truth, and let us do right by the millions of Americans who 

are counting on us to preserve the integrity of our Unemployment 

Insurance system. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. Senator Hatch? 

3 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Thank you, Mr. Chairman. I appreciate you having today’s hearing on this very important topic. 

The CHAIRMAN. Thanks. 

Senator HATCH. Fourteen million Americans are unemployed. 

The official unemployment rate is 9.1 percent, but that actually understates how bad things really are. An article in U.S. News and 

World Report this week concludes that the unemployment rate is 

in fact closer to 16 percent if you include under-employment. The 

official numbers ignore people who have stopped looking for work 

or have not applied for a job in more than 4 weeks, or who have 

found only part-time work but who really want to work a full-time 

job. 

You might think that, after the failure of its stimulus program, 

the administration would be doing everything within its power to 

help our private businesses to create jobs, but you would be wrong. 

In fact, the administration in some cases is actually eliminating 

jobs. 

Consider what the administration just did in my State of Utah. 

The administration just announced that it is reneging on a longstanding bipartisan agreement to allow uranium mining in southern Utah and northern Arizona. By doing so, the administration is 

blocking 4,000 new jobs and $30 billion in economic activity. 

Now, think of that. A year has passed since the so-called Recovery Summer, and the economy is still on the ropes. We need all the 

jobs we can get. Yet, the administration is content to deny 4,000 

jobs in Utah, and that is just in one corner of the State. This also 

means we have to obtain our uranium overseas. 

Four thousand jobs. That is 4,000 families who would have seen 

their Great Recession come to an end. But not now. We have a 

President who says he wants to create jobs, but as I said Monday 

on the Senate floor, I have never seen a bigger disconnect between 

a President’s stated goals and his actions. 

Now, Mr. Chairman, I would like to have a copy of that floor 

statement included in the record. 

The CHAIRMAN. Without objection. 

[The statement appears in the appendix on p. 56.] 

Senator HATCH. With high unemployment and an anti-business 

administration stifling job creation, the subject of Unemployment 

Insurance is before us again. Unfortunately, addressing these 

issues is more important than ever. As unemployment remains 

high, the amount of taxpayer dollars spent on Unemployment Insurance also remains high. In 2007, before the recession, we spent 

$32 billion on Unemployment Insurance. In 2010, the figure was 

$156 billion. 

Now, here is the kicker: at a time of trillion-dollar deficits and 

with the country hurtling toward a full-blown debt crisis, the Department of Labor estimates that 11 cents of every unemployment 

dollar spent by the government is spent in error. Eleven cents. 

That means in 2010, over $17 billion was simply wasted. 

Now, we cannot afford this level of waste under any circumstances. Let us put this waste in this one program in perspective. Just last month, the CEOs of the five largest oil companies 

4 

were brought before this committee, with cameras rolling, over a 

tax subsidy for energy companies. The proposal to eliminate that subsidy would have saved $2.1 

billion per year. Many on the other side of the aisle touted that as 

a significant proposal for bringing our trillion-dollar deficits to heel. 

Yet here in this case—Unemployment Insurance programs—we 

have $17 billion in waste in 1 year alone. 

That is why, today, we are here to discuss program integrity. 

When we talk about program integrity, we mean the management 

principles the Federal Government and the State governments employ, or should employ, to ensure that those who qualify for Unemployment Insurance receive it and that those who do not qualify for 

benefits do not receive it. In short, we are here to discuss ways to 

shrink an 11-percent payment error rate that is costing taxpayers 

$17 billion every year. 

One problem is the sheer complexity of the Unemployment Insurance system. Too many in Washington are masters of bureaucracy 

with little regard for the costs involved. The administration of Unemployment Insurance programs at the Federal and State level 

cost American taxpayers over $5 billion in 2010. States need flexibility, not Washington mandates. States should be free to share 

their best practices, learn from one another, and adopt what works. 

As is often the case, the Utah way has resulted in an error rate 

much lower than the national average. I look forward to hearing 

how that was achieved and what kind of improvements Utah plans 

to make for the future. Another problem that must be addressed 

is the substantial compliance costs the Unemployment Insurance 

system places on employers who are saddled with substantial paperwork and tax planning burdens. 

For example, not every departing employee qualifies for Unemployment Insurance, but many file claims anyway because it costs 

nothing to file a claim, and they believe they have nothing to lose. 

But this puts the burden and the expense of fighting unjustified 

claims on the employer. 

Then there is the problem posed by people who qualify initially 

for Unemployment Insurance, but then cease to remain qualified 

and continue receiving a check anyway. Maybe they have stopped 

looking for work as they are required to do, or maybe they have 

returned to work after a layoff and not reported it. 

Indeed, there are many reasons why an unemployment check 

might be paid in error, and sometimes fraud is involved. But whatever the reason for an erroneous payment, given the millions of 

people in the system today and the billions of dollars being spent 

each year, we cannot tolerate an 11-percent error rate. We cannot 

continue to waste billions and billions of dollars every year. 

Once again, I want to thank you, Mr. Chairman, for holding this 

hearing. That will conclulde my remarks. 

The CHAIRMAN. Thank you, Senator. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. We are fortunate today to have witnesses who 

have firsthand knowledge of the UI system and how it works. First 

we will hear from Jane Oates, Assistant Secretary for Employment 

and Training, U.S. Department of Labor. Our second witness is Ms. 

5 

Kristen Cox, who is Executive Director of the Utah Department of 

Workforce Services in Salt Lake City. Perhaps, Senator, you may 

want to say a few words about Ms. Cox at the appropriate moment. 

Senator HATCH. I would be glad to do it. 

The CHAIRMAN. And we will also hear from Commissioner Paul 

Trause, Washington Employment Security Department of Olympia, 

WA. Finally, we will hear from Mr. Mike Cullen, managing director 

of On Point Technology in Oak Brook, IL. 

Senator Hatch may want to say a few words about Ms. Cox at 

this point. 

Senator HATCH. Why don’t I introduce Kristen Cox? 

The CHAIRMAN. All right. 

Senator HATCH. For the past 4 years, Kristen Cox has served as 

Utah’s Executive Director of Workforce Services. Now, in this capacity, Ms. Cox is responsible for overseeing the operations of 12 

divisions, which encompass Federal and State programs, including 

workforce development, public assistance, and of course Unemployment Insurance. 

Under her leadership, Utah has been at the forefront of advancing new processes and technology in order to improve program integrity for Unemployment Insurance. And, most importantly, she 

has gotten results. Utah’s improper payment rates consistently fall 

below the national average, and the State has been recognized by 

the Department of Labor as a top performer among medium-sized 

States. 

So we want to welcome you, Ms. Cox. We appreciate your willingness to be here in Washington to testify here today, and we look 

forward to hearing from all of you. Certainly I look forward to 

hearing from everybody here, but especially you. 

The CHAIRMAN. Thank you, Senator. 

We will begin with Ms. Jane Oates. 

Ms. Oates? 

STATEMENT OF JANE OATES, M.Ed., ASSISTANT SECRETARY 

FOR EMPLOYMENT AND TRAINING, DEPARTMENT OF LABOR, WASHINGTON, DC 

Ms. OATES. Thank you, Senator, very much. Good morning to you 

and to the ranking member. I do not see Senator Burr here, but 

I like him much better on our beloved other committee, and Senator Carper and Senator Cardin. Lovely to see you. 

Thanks for this opportunity to talk to you a little bit about our 

legislative proposal to improve integrity in the UI system. 

Senator Hatch, I could not agree with you more. Reducing the UI 

improper payment rate is getting our highest attention, not only at 

the Department of Labor but also with the administration. I applaud the committee. You could not have better witnesses than you 

have with the two Commissioners here. They represent real innovation in the States, and they are critical partners to us in this. 

I want to thank the committee specifically for enacting improvements to the National Directory of New Hires and the Treasury 

Offset Program in the last Congress. These two important integrity 

proposals that we had advocated for and you supported so strongly 

are already giving States new tools to improve prevention, detection, and collection of improper payments. 

6 

I would like to just take a moment to say that some States have 

gotten some early success. Michigan, New York, and Wisconsin 

have already recovered approximately $25 million, thanks to the 

TOP program. 

Louisiana and South Carolina have substantially reduced their 

employment service registration errors—in Louisiana, a 90-percent 

reduction, and in South Carolina a reduction of more than 75 percent since you enacted those new provisions. Texas has improved 

its operational procedures, reducing benefit year earnings errors by 

nearly 50 percent. 

Even though the UI program has a longstanding commitment to 

ensuring its financial integrity, unfortunately the UI improper payment rate has increased from 2009 to 2010. During the most recent 

reporting period, the improper payment rate was, as Senator Hatch 

said, 11.2 percent, of which 10.6 percent represents overpayments. 

Based on our analysis of the cause of overpayments, we know 

that approximately one-half of the overpayments is controllable. 

The four main reasons for improper payments in the UI program 

are, one, payments are made to individuals who have returned to 

work and continue to claim benefits. We can fix that. The second 

is a failure of employers or their third-party administrators to provide timely and adequate information on the reason for an individual’s separation. The third is claimants’ failure to meet the State’s 

work search requirements. The fourth is a failure to register claimants with the State’s employment service pursuant to State law. 

It is important to understand the impact that the recession has 

had on the UI improper payment rate. Entering the recession, the 

average UI claims increased by 3.2 million, or 120 percent, in only 

a 1-year period. Many State workforce agencies struggled to keep 

up with the increased workloads and were compelled to utilize integrity staff to process claims instead of focusing on improper payments. 

Today, however, States are actively working with the Department to aggressively implement strategies to bring down the UI 

improper payment rate. While States are striving to improve their 

integrity functions—and the Department has many initiatives 

under way to support States’ efforts to reduce the UI improper payment rate—additional statutory authority and resources are needed 

to enhance our collaborative efforts and to continue to improve the 

payment accuracy. 

To this end, the Department sent the draft Unemployment Compensation Program Integrity Act of 2011, or lovingly, the Integrity 

Act, to Congress on June 11. Here are some of the key provisions. 

It provides new dedicated resources by permitting States to use 

up to 5 percent of recovered overpayments and delinquent contributions for critical State integrity activities. 

It requires a penalty of at least 15 percent on outstanding fraudulent benefit overpayments, similar to the penalty employers face 

for delinquent tax payments. States may use these funds for integrity activities or for the payment of benefits. Most States have 

these provisions in their State law but allow the funds to be used 

for other purposes frequently having nothing to do with UI purposes. 

7 

Third, it requires that employers’ accounts be charged if an overpayment is the employer’s fault due to failure to respond timely or 

adequately to a State’s request for information. 

Lastly, it improves the usefulness of the National Directory of 

New Hires for overpayment detection by requiring employers to report individuals who are rehired after being separated from employment for at least 60 days. 

We believe that the Integrity Act provides a balanced approach 

with a huge benefit. Not only will UI integrity improve, it will save 

money. The Department estimates this legislative proposal would 

cut spending by $2.5 billion over 10 years and, because that would 

lead to lower taxes for employers, produce net savings to the government of $556 million over that same period. We think it is 

benefit-added. 

Before closing, I would like to mention a few of the many integrity activities we are working on with our State partners. These activities include reducing improper payments through prevention 

and early detection of eligibility problems and speeding claimants’ 

return to work by conducting Reemployment and Eligibility Assessments, REAs. 

Number two, receiving more timely and accurate separation information from employers or their representatives through the use 

of an automated State Information Data Exchange System, SIDES. 

Finally, working with States to more efficiently combine the use of 

the National Directory of New Hires and automated claimant notification processes and other claimant messaging tools to prevent 

improper payments when a claimant has returned to work. 

Again, let me thank you for this opportunity to talk to you. 

Thank you for your terrific partnership on UI, and we will certainly, after the rest of the testimony, appreciate any of your questions. 

The CHAIRMAN. Thank you very much, Ms. Oates. 

[The prepared statement of Ms. Oates appears in the appendix.] 

The CHAIRMAN. Ms. Cox, you are next. 

Ms. COX. Just a quick question. It is 5 minutes, and there is like 

a light that goes off or something? 

The CHAIRMAN. That is what happens. 

Ms. COX. So, can you do like an auditory cue? 

The CHAIRMAN. You got it. 

Ms. COX. All right. That is great. I could wax eloquent for hours. 

The CHAIRMAN. What would you prefer? One minute before the 

five? 

Ms. COX. Yes, about a minute. Just say a minute. 

The CHAIRMAN. Right. 

Senator HATCH. You can see how perspicacious we all are out 

here in Utah. 

The CHAIRMAN. Perspicacious? That is a big word. 

Ms. COX. I know. I will have to look it up. 

Senator HATCH. For you Democrats, I guess. [Laughter.] 

The CHAIRMAN. I am just as stunned that you know the word! 

[Laughter.] 

Senator HATCH. I know a few others too, and I am going to use 

them in a minute. [Laughter.] 

The CHAIRMAN. All right, Ms. Cox. 

8 

STATEMENT OF KRISTEN COX, EXECUTIVE DIRECTOR, UTAH 

DEPARTMENT OF WORKFORCE SERVICES, SALT LAKE CITY, 

UT 

Ms. COX. We have a lot to cover in a short period of time, so I 

am going to focus specifically on some best practices in Utah. Let 

me just start off with, our ultimate goal in our division with UI is 

to get people back to work. Program integrity efforts, operational 

excellence, trust fund management, all of those we want to align 

to make sure people get the right benefits in a timely manner, but 

ultimately so we can move them into the workforce. That is critical 

because it drives a lot of our efforts. But today I know it is on program integrity, so I will limit my comments to that. 

We have great return on investment with integrity efforts. For every dollar in investment, we return about $5.50. We have great 

outcomes with that. A side note: with reemployment initiatives, if 

I can reduce my duration by 1 week, I can save $20 million, so actually it is a bigger return on investment. 

We have some concerns with the legislation. I have pointed out 

a couple in my written testimony. I will just say we certainly applaud the overall intent to enhance program integrity efforts. We 

have a great track record. It is a priority for us. This bill, though, 

does not provide a lot of value added and is actually, in a couple 

of areas, more restrictive. It would tie our hands from really using 

our resources in a way that would be most beneficial for our State. 

I will leave that for the written testimony for more detail, or questions. 

Let me go through a few of our best practices. One starts with 

a very hard line around fraud in our State. The legislation talks 

about a 15-percent penalty for fraudulent overpayments; ours is 

100 percent. It is never written off. Fraud overpayments can result 

in denial of future benefits for up to 49 weeks (13 weeks for the 

first week of fraud and 6 weeks for each additional week of fraud) 

and may also include criminal prosecution and publication of the 

convictions in the press and on our website. It starts with a very 

aggressive stance on fraud. 

We probably have a higher fraud rate than other States because 

our laws around this are so regressive. We do take it very seriously. There is a lot of ambiguity on what fraud means because 

States define it very differently, and so that needs to begin with 

a hard stance on how you actually go after fraud. 

Other best practices that we use—and the Assistant Secretary 

spoke to some of those—cross-matching is huge. Ninety-five percent 

of our prevention and detection activities come from automated 

cross-matching. We right now have 12 cross-matches in place. We 

will have another 6, with a total of 18 by next year. We have had 

huge success with that. 

We automate a lot of our activities around red flags we get from 

wage data matching or New Hire Directory matches. We can automate that and send automated notices to employers about concerns 

or red flags. They can provide us with the information electronically. We can then run the rule and send a correspondence to the 

client so we can expedite detection very quickly. 

New Hire Directory, both at the State and the national level, has 

been huge for us. We love it. We will say, though, that having it 

9 

nationally is great, but, at the State level, 60 to 70 percent of our 

new hires come from our State New Hire Registry, and it is really 

important for States to actually implement and have enforcement 

around employers using that system. You can have it, but, if employers do not engage, you cannot get the data you need. So that 

is really important for us. 

We look at SIDES, which is big. We are the first State to actually 

operate SIDES, which is a way to get standard separation information, which can be a big cost, 20 percent in Utah, for overpayments. 

It has been a big success. We are actually going live on Tuesday 

with TALX, which represents 25 percent of the employers across 

the country. It has been a big advantage for us as well, so we certainly applaud the efforts around SIDES. 

We are looking also at some pilots around looking at what we 

call automatic clearinghouses from banks, so we can look at debits 

or withdrawals or trends that may suggest somebody is getting 

dual benefits or also receiving a paycheck. We are in pilot mode 

and proof of concept, working with the Department of Labor. We 

think that is going to be a very promising concept as well. 

And then finally, our worker profiling system. That tends to be 

a manual system for most States. We have made it all online, integrated it into our eligibility review system, so we can make sure 

people are compliant, looking for work, and looking at their work 

registration requirements. 

Some challenges we have: what we call the TOP program, the 

Treasury Offset Program. Again, fantastic, but they are applying it 

differently to UI as compared to food stamps. We also run the food 

stamp program, and we have some flexibility in food stamps that 

we do not have in UI, and that is making it more difficult to execute that as well as we think we could. 

The CHAIRMAN. You are doing just great. I will let you have an 

extra minute. 

Ms. COX. Is that a minute? 

The CHAIRMAN. I will let you have an extra minute. You have another minute. 

Ms. COX. But now 10 more seconds because you ate into my time. 

[Laughter.] 

The CHAIRMAN. Right. I can tell you are a good enforcement officer. [Laughter.] 

Ms. COX. In a minute, I will be very quick. 

But the most important thing for us in terms of challenges are 

around, how do you measure integrity? I would be happy to answer 

questions. I do not necessarily think that the Benefits Accuracy 

Measurement, or BAM, is the only measure you can really look at, 

and that is where the improper payment numbers are coming from 

right now. 

The current overpayment protection rate that is currently used 

for a lot of States really incentivizes to detect and establish payments later because you use that in your denominator, and that 

can really skew how States are incentivized to do early detection. 

So some of the areas around, how do you measure quality and integrity, that will drive your system. 

If the measurements are not relevant to a State, we will put 

them on a shelf and report them for compliance activities and use 

10 

our own measurements to drive our business. So to have measurement systems across the board, I know they are looking at it. I 

think the Department of Labor is going in a good direction. We do 

have some concerns around some of their proposed rules right now 

on this, but we do appreciate them trying to move with early detection in some areas like that. 

So, I am happy to answer any other questions after the testimonies. 

The CHAIRMAN. Thank you very much. 

[The prepared statement of Ms. Cox appears in the appendix.] 

The CHAIRMAN. Mr. Trause? 

STATEMENT OF PAUL TRAUSE, COMMISSIONER, WASHINGTON 

EMPLOYMENT SECURITY DEPARTMENT, OLYMPIA, WA 

Mr. TRAUSE. Thank you, Chairman Baucus, Ranking Member 

Hatch, and members of the committee. I am Paul Trause, the Commissioner of Washington’s Employment Security Department. 

Washington State has one of the healthiest trust funds in the 

Nation. This results from the commitment of our Governor, State 

legislature, businesses, and workers to support that fund. Our experience in Washington State convinces me that preserving a level 

playing field for business and ensuring appropriate benefit payments for workers is essential to the credibility and health of our 

trust fund. 

Today I would like to talk with you about three things: our efforts, first, to detect and deter fraud; second, to collect benefit overpayments and unpaid taxes; and third, but equally important, to 

prevent fraud. The vast majority of overpayments and unpaid taxes 

are due to errors and confusion, not fraud. Nevertheless, strong 

fraud detection is critical to integrity. 

Washington State’s legislature and Governor have worked to improve our laws and provide the framework required to pursue those 

employers and claimants who seek to defraud the system. We have 

established clearer definitions of employee fraud, as well as a graduated penalty structure for people who commit fraud. We have 

strengthened our laws regarding employer fraud, including establishing substantial penalties for employers who intentionally evade 

paying their tax. 

We rely heavily on technology to detect claimant fraud. We regularly cross-match UI recipients against a wide variety of databases 

to identify individuals who are ineligible, concealing wages, or not 

engaging in a legitimate job search. These matches are responsible 

for uncovering half of all the fraud-related claims. For this reason, 

we strongly support expanding the New Hire Database to include 

rehires. 

We also mine the data available to us to uncover organized 

fraud. For example, we identify instances where the same phone is 

used to file multiple claims, multiple claimants are claiming from 

a single address or post office box, or the same Social Security 

number is being used in different claims. We aggressively promote 

toll-free hotlines on our website to solicit tips. 

Our investigative efforts have been very successful, with just 

under $16 million in fraud overpayments detected in 2010, and we 

have also brought a number of prosecutions. We uncover employer 

11 

fraud primarily through audits. Again, just as with workers, the 

vast majority of employers acts responsibly. The department has a 

very active audit program to identify employers who are not paying 

their share. 

In 2006, we moved from scheduling employers randomly for audits to using database comparisons, unexplained changes in information reported to us, past audit experience, and staff knowledge, 

to schedule our audits. We also have forged close working relationships with other State taxing agencies to identify unregistered 

businesses or businesses operating underground. 

As a result of Washington’s enhanced audit program, we found 

270 percent more misclassified workers and 345 percent more unreported taxes in 2010 than in 2006. We believe actively publicizing 

successful fraud prosecutions can deter future fraud, and we work 

very closely with the news media to ensure that these cases do get 

publicized. 

But collection provides meaning to detection. We work aggressively to collect overpayments using existing databases to locate 

debtors, payment plans to encourage voluntary compliance, and 

where that fails, legal tools such as liens and garnishment to compel payment. We also have a waiver process to forgive debts where 

the claimant is not at fault and collection would be against equity 

and good conscience. We have recently created a dedicated skiptracing unit that appears to be very successful in finding debtors. 

Over the past 10 years, we have increased our recoveries by more 

than 300 percent. Each of our collectors returns over $30 for each 

dollar we spend. 

I also agree, however, that prevention is as important, if not 

more important, than detection and collection. We believe that 

there are three keys to prevention. First, we need better technology. Our benefits computer system is more than 20 years old— 

we still use COBOL—and our Internet claim system is 11 years 

old. They interface poorly with each other, lack the ability to catch 

errors in advance, and frustrate claimants, businesses, and our 

staff. We urge including technology infrastructure investment in 

the use of funds reserved for integrity efforts. 

The second is education for both employers and claimants. We 

engage in extensive outreach efforts and offer a voluntary audit review to employers so they can make sure that they are paying the 

right amount of tax. We closely review all benefit claims to identify 

common errors, and to educate claimants about what they must do. 

But again, our ability to change our systems is limited because our 

technology is so outmoded. Technology infrastructure funding is, 

for us, absolutely critical. 

The third key to preventing fraud is returning people to work 

quickly. We recognize we will never have the resources available to 

provide the optimal level of attention to each person. We are working to improve the methods we use to review claimants’ job 

searches, assess their skills within the context of their labor market, and help them better target and carry out their job search. 

From a 2009 study, we know that job seekers who use our reemployment services returned to work more quickly and at better 

wages. It is a highly effective investment, and I would like to thank 

the Department for its continued support. 

12 

In conclusion, we recognize that the integrity of our fund is critical to its solvency. We believe the efforts I described today to detect and deter fraud, to collect benefit overpayments and unpaid 

taxes, and to prevent fraud are essential to guaranteeing the 

health of our fund. 

Thank you. Of course, I am available for questions. 

The CHAIRMAN. Yes. Thank you. Thank you, Mr. Trause. 

[The prepared statement of Mr. Trause appears in the appendix.] 

The CHAIRMAN. Mr. Cullen? 

STATEMENT OF MIKE CULLEN, MANAGING DIRECTOR, 

ON POINT TECHNOLOGY, INC., OAK BROOK, IL 

Mr. CULLEN. Thank you, Chairman Baucus, Ranking Member 

Hatch, distinguished members of the committee. Thank you for 

your continued interest in this important topic and the opportunity 

to testify before you again today. 

I am Mike Cullen, managing director of On Point Technology, a 

company focused entirely on Unemployment Insurance technology 

solutions. For over 15 years, On Point solutions have enabled 17 

States to find and collect improperly paid benefits. 

Over the past year, On Point has visited nearly half the State 

workforce agencies in the country. What we have seen is a core of 

professionals dedicated to protecting the critical program, but lacking the tools required to do the job. Today, 90 percent of the Unemployment Insurance systems operate on technology created before 

the personal computer was invented. Imagine that! Investigators 

are pursuing over $17 billion in overpayments from last year alone 

using pen and paper, scissors, and glue sticks. 

It should surprise no one that such a system has produced an improper payment rate that stands as the worst ever recorded by the 

Department of Labor. To put this in perspective, since the beginning of the recession approximately $40 billion has been lost 

through improperly paid benefits. Interestingly, this $40 billion is 

roughly equivalent to the total outstanding trust fund debt owed by 

all State workforce agencies, debt that has yet to be repaid. 

We propose four specific initiatives to increase the transparency 

of the integrity problem and enhance the accountability of the program’s stakeholders, including employers, State workforce agencies, 

and the Department of Labor. 

Importantly, each of our proposals can be implemented without 

increasing budgets at either the State or Federal level. Foremost, 

we must provide professionals modern technology and productivityenhancing tools. Based upon our experience, one-time investments 

in software for State integrity programs can easily return $10 for 

each dollar invested. 

The Department of Labor has designed a sophisticated integrity 

strategy that offers a tremendous potential return on investment. 

The strategy cannot succeed unless States first increase their capacity to investigate improper payments. Installing better software 

for investigation operations will yield the greatest gains in minimizing fraud, reducing waste, and saving money. 

Second, we endorse recommendation by the State Chamber of 

Commerce and the National Employer Group that the Department 

dedicate $30 million annually from existing administrative funding 

13 

toward a competitive integrity grant process. We believe Congress 

should require the Department of Labor to report annually on the 

results of each integrity investment. In addition, we believe 10 percent of administrative dollars should be reserved for integrity activities that protect the Federal dollars from waste, fraud, and 

abuse should Congress ever adopt another extension of Federal UI 

benefits. 

Third, we urge the creation of a public/private partnership with 

the sole focus of examining and recommending tools to detect and 

stop overpayments earlier. This initiative must leverage existing 

organizations and focus on ideas which can yield an immediate impact by reducing improper payments within 6 months. Too often, 

strategic plans have been adopted that reference multi-year project 

strategies. The historical mind-set needs to change from long-term 

studies to short-term solutions. 

Finally, in concert with the U.S. Department of Labor and State 

workforce agencies, we encourage Congress to consider a long-term 

legislative solution. In this context, the proposed Unemployment 

Compensation Program Integrity Act sets forth a number of excellent ideas. In particular, we endorse the use of 5 percent of recovered overpayments to support integrity operations. Critically, these 

funds must augment existing integrity funding rather than providing States funds to divert to other uses. 

Providing a consistent self-supporting funding stream rather 

than occasional supplemental grant opportunities establishes UI 

system integrity as a true priority. This is the third Congress that 

will consider this legislation. With a $40-billion problem, the time 

to act is now. 

In closing, we must act to preserve the integrity of the UI system 

to ensure its continued viability for those in need. Fortunately, we 

are in a position to strengthen UI trust funds and to help ease tax 

burdens employers across America are facing today. Aligning funding priorities and investing in proven solutions will return precious 

dollars to the UI system to ensure it remains a vital lifeline for 

millions of American workers. 

Thank you again for the opportunity to testify. Of course, I am 

available for any questions that you might have. 

The CHAIRMAN. Thank you, Mr. Cullen. 

[The prepared statement of Mr. Cullen appears in the appendix.] 

The CHAIRMAN. Thank you, Mr. Cullen. Your first statement was 

a bit stunning. Could you repeat it, please? The one you said about, 

90 percent—if I understood it correctly—of UI work is done—— 

Mr. CULLEN. I will repeat it. 

The CHAIRMAN. Repeat the statement, please. 

Mr. CULLEN. Yes, I will. The statement I made was that today 

90 percent of the Unemployment Insurance systems operate on 

technology created before the personal computer was invented. We 

just heard from Washington that they are on old COBOL programs. Can I elaborate just a little bit? 

The CHAIRMAN. Yes, please. 

Mr. CULLEN. In July of 2010, the National Association of State 

Workforce Agencies did a study on the age of the Unemployment 

Insurance technology systems. They found that, in the benefits system, the average age is 22 years old. The oldest system out there 

14 

is 42 years old. They found tax systems where the average age was 

21 years old, and the oldest system out there was 41 years old. 

These systems are old, they are aging, and they have been stressed 

beyond belief in the current recession. 

The CHAIRMAN. I would like to ask Ms. Oates, do you agree with 

Mr. Cullen’s assessment? 

Ms. OATES. I would not argue about the—I do not know the accuracy of the facts. I am sure they are accurate; Mark, you are terrific at this. But this is the number-one problem for States. I think 

everyone would agree—— 

The CHAIRMAN. But do you think that is basically accurate, his 

first statement that he gave? Is that basically correct? 

Ms. OATES. I think it is basically correct. Yes, sir. 

The CHAIRMAN. Ms. Cox, do you think it is basically correct? 

Ms. COX. Not in my State. 

The CHAIRMAN. But other States. Maybe not Utah, but—— 

Ms. COX. I do hear there are problems, and hopefully we can talk 

about that and talk about the funding. More money is not always 

the answer. Part of it is how States design their systems, if they 

are centralized or they are still very manual. 

The CHAIRMAN. All right. I appreciate that. 

Mr. Trause, do you basically agree? 

Mr. TRAUSE. Yes, I do. 

The CHAIRMAN. All right. Do you all agree that is a problem? 

Ms. COX. It is a problem. 

The CHAIRMAN. All right. Now we have to find the solution. 

Frankly, I am a bit stunned at that statement. I am a bit surprised 

that we do not have a program—Mr. Cullen has one generally—to 

address the problem, find a solution, with dates, benchmarks, and 

targets for getting the job done. The error rate is much lower than 

our current, say, 10 percent or 11 percent, whatever it is. You said 

that half of the problem is controllable. That means about half of, 

what, $17 billion? So we have $8 billion that is controllable. 

Ms. OATES. Is controllable. Yes, sir. 

The CHAIRMAN. So my one question is, do you have benchmarks 

and data and a time frame within which to get that half that is 

controllable? If so, what are they? That is, what are the dates and 

what is the plan, in addition to the legislation that you have described? Essentially, how are you going to get that $8 billion, and 

what is a reasonable date? 

Ms. OATES. Well, we already have started, and I would be 

happy—— 

The CHAIRMAN. What is a reasonable date to get that $8 billion? 

Ms. OATES. Well, it is up to the States, Senator, so it is very difficult—— 

The CHAIRMAN. I am asking you, what is your program? 

Ms. OATES. We have an aggressive plan to reduce it with the 11 

largest States. That has already started. We have, as we said, 

begun to recapture using TOP—— 

The CHAIRMAN. If you could give us a date. Is it 1 year? Two 

years? What is a reasonable time frame? 

Ms. OATES. I think we could get close to the $8 million figure in 

2 years. 

The CHAIRMAN. Two years. 

15 

Ms. OATES. I hope that we will do it faster than that. 

The CHAIRMAN. All right. 

What about the other half that is not controllable? Why is that 

not controllable? 

Ms. OATES. Well, there are factors that are out of the ability for 

us to control. I mean, the things that are controllable, Senator, are 

things like people who continue to claim after they have been reemployed. We can put work together, and we have already started 

doing that with States. 

The pie chart that each of you got attached to my testimony, 

each of our States has gotten that same pie chart to talk about, in 

the whole world of their overpayments, what percent would be 

work search, what percent would be folks who are returning to 

work and still claiming, what are slow or inaccurate responses by 

employers? Those are the things that we think we can control. 

Work search, of course, is much more difficult because, how do 

you, in a world where we no longer do face-to-face claims, where 

we have gone to online and telephonic claims, make sure when 

someone tells us that they have searched for a job that they really 

have? 

The CHAIRMAN. I would just like to ask a bit of the different approaches here. 

Ms. OATES. Yes. 

The CHAIRMAN. As I understand it, Ms. Cox, Utah has a 100- 

percent penalty provision for fraud, whereas Washington basically 

requires the person who commits fraud to forfeit 26 weeks of benefits. I think those are different approaches. I would just like a little 

discussion of which of the two seems to work. They both work apparently, because I think both of your States have done a pretty 

good job. But if you were to recommend to other States, which of 

those two, or some combination, or a third approach they should 

pursue, what would that be? I will start with you, Ms. Cox. We do 

not have a lot of time here, but if you could, very briefly. 

Ms. COX. Sure. I think that the larger the penalty when it is 

fraud—not necessarily just an overpayment if no fault—the higher 

the better from our stance. This has also lined up with some of our 

Supreme Court decision rulings and State statute, so a lot of it is 

governed by State statute, obviously, and where the legislature 

wants to take this. But 15 percent, or 10 percent, or zero for me 

just is not stringent enough if it is true fraud, and we have to send 

a very strong and clear message, really creating a culture that does 

not tolerate that in our State. 

The CHAIRMAN. All right. Mr. Trause, do you think 26-week forfeiture works as well? 

Mr. TRAUSE. We use a graduated approach, Senator, where the 

first time a person is responsible for fraud, it is a 26-week disqualification. The second time it is 52 weeks and a 25-percent penalty. 

The third time it is 52 weeks and, I believe, a 50-percent penalty. 

The CHAIRMAN. All right. 

Mr. TRAUSE. That works very well for us. We prefer that to a 

harsher original penalty. 

The CHAIRMAN. I appreciate that. 

I probably missed it, but what is the error rate or overpayment 

rate in your two States? 

16 

Ms. COX. Our operational rate is about 5.3 and—— 

The CHAIRMAN. I am sorry. A little closer to the microphone, 

please. 

Ms. COX. Our operational rate is 5.3, and our BAM rate is 8.1 

percent. But again, if you look at your BAM rate compared to your 

Benefit Payment Control rate, our BPC detects twice as much as 

our actual BAM rate. I think that is a point of discussion. But the 

BAM rate that DOL uses may, on fraud issues, underestimate—at 

least in Utah, it underestimates what we are actually detecting. 

The CHAIRMAN. All right. 

Mr. Trause? 

Mr. TRAUSE. We are very similar. We also have our collection 

ratio, like hers, that would indicate that there are issues with the 

way the BAM rate is working for us. 

The CHAIRMAN. All right. My time has expired. 

Senator Hatch? 

Senator HATCH. I want to thank you, Mr. Chairman. 

Ms. Cox, States address UI program integrity with varying degrees of success. Some States simply do not go far enough in identifying fraud and overpayments. I am sure that in some States it is 

a question of resources, in others it is likely a question of priorities. 

Utah, it seems, has taken advantage of almost every opportunity 

to improve the program integrity in its UI system. Now, you mentioned in your testimony that Utah was the first State to implement the State Information Data Exchange System, or SIDES, program. Please tell the committee about Utah’s experience with 

SIDES and what you think of its potential to prevent benefit overpayments. 

Ms. COX. Well, ambiguity around separation issues for Utah accounted for 20 percent of our overpayments. That was largely due 

to employers submitting either inaccurate information or information that was not complete. So SIDES was developed, and the Department of Labor obviously was instrumental in this, to ensure 

that there is a standard template for submitting separation information, primarily geared for large employers, although small employers can access it as well. I think that is an opportunity to move 

forward. 

Our experience to date is about almost 100 percent of the separation information that we get from SIDES is accurate, and our rework time is down by 50 percent because we are not having to follow up with the employers and collect information. So overall, in 

terms of really utilizing that and reducing overpayments because 

of separation issues and expediting the process, it has been fantastic. It is one of those things in infrastructure and technology 

that, if we use our resources correctly, we can get a lot of bang for 

our buck. 

Senator HATCH. Thank you. 

Mr. Cullen, in your testimony you have outlined the need to improve the use of technology in the UI system. I agree with many 

of your observations. I note that Utah has taken advantage of 

many of the options that you have noted in your testimony. In your 

estimation, how many States are using outdated and inefficient 

systems both to process UI payments and to enforce program integrity requirements, and what specific differences have you observed 

17 

between those States that use outdated processes and those that 

use more advanced technology? 

Mr. CULLEN. I would say that probably a good 80 percent of the 

States are using outdated technology, even though I said 90 percent was based on technology such as COBOL, mainframe, old 

technology that has been around for years. Some States have done 

some improvements to the front end of the process to give them 

better access to the data, but I would say a good 80 percent are 

well out of date. 

The differences that we see between those that have either tried 

to improve the technology systems that they have or have not done 

anything is the use of automation to handle the large workload 

that sits out there. We go to visit a State, they talk about the increasing claims we have heard about here this morning. With the 

increasing claims is a concurrent increase in overpayments, even if 

they stay relatively the same. 

The ability of the staff to handle that large volume of work 

manually is limited by the number of resources they can throw 

against it. But when you use technology and you are able to automate some of those processes and you are able to automate them 

in line with the State’s law and regulation, you see dramatic improvement in terms of the volume of work handled, the consistency 

of the decisions that come out of it, and the accuracy of the work. 

Senator HATCH. Thank you. 

Section 4 of the Department of Labor’s proposed legislation 

would prevent States from removing charges to an employer’s UI 

account that resulted from overpayments if the overpayments were 

the result of the employer’s failure to provide accurate and timely 

information requested by the State. 

Now, it seems to me that employers have a built-in motivation 

to avoid charges to their UI accounts. That being the case, additional penalties, particularly penalties imposed at the Federal 

level, may be unnecessary. It is my understanding that in many 

States, information collection is extremely inefficient. 

I have heard of examples where some States require employers 

to provide documents within 10 calendar days after the agency 

sends a request, yet the requests are sent by regular mail, leaving 

employers with very little time once they have received the request 

to provide a timely response. Are there newer technological innovations that can streamline information submission, and would this 

not be a better way to approach the problem of untimely data? 

Mr. CULLEN. Yes, I think there are. I have to say that the integrity legislation has been sent to Congress for a number of years, 

and so some of the original provisions are still in there. The Department of Labor has worked hard on the SIDES project to resolve exactly that problem. 

Let me defend the States really quickly for just a second. I mean, 

they are under pressure to make payments in a timely fashion to 

those who are unemployed and get that money to them, and so 

they have to restrict the time period that employers do have to respond. They try to be very reasonable about it, but they do have 

timeliness gauges that they have to meet. 

SIDES is intended to address that other issue, and that is, can 

you get the information more quickly to the State so they can take 

18 

action on it, can you get it more accurately, and can you avoid the 

situation where an employer provides an incomplete or an incorrect 

response by adding edits into that automated system? So, can we 

get past the mailing dilemma? Yes. Is SIDES one of the ways on 

the separation information to get past it? It certainly is. But what 

it takes, though, is participation by all States and participation by 

employers to make it economically effective. 

Senator HATCH. Thank you, Mr. Chairman. 

Ms. COX. Senator, may I add one comment to that? 

Senator HATCH. Sure. 

Ms. COX. Right now, we started doing electronic notifications and 

really creating transparency on our customer side, and almost 75 

percent of them are opting in to electronic correspondence. We are 

doing the same now for employers so we do not have to rely on 

snail mail. We have only 1,500 employers up right now. We have 

not marketed it broadly yet because we are finishing converting all 

of our additional correspondence. But that way we can immediately 

send it. We can actually go in to see if they have read it or not so 

we are not concerned if it has been lost. That gives them much 

more lead time in meeting any requirements. 

Senator HATCH. Thank you. 

The CHAIRMAN. Thank you very much. Thank you, Senator. 

Senator Carper? 

Senator CARPER. Thank you. And to our witnesses, thanks a lot 

for joining us, and for your testimony and your responses today. Just to put this in context, $17 billion is a lot of money. The improper payments reported last year throughout the Federal Government, not including parts of the Department of Defense, not including parts of Medicare, were $125 billion, mostly overpayments. 

It is a big problem throughout our government, and certainly is 

here. 

In Medicaid, which the States and Federal Government participate in almost evenly, equally, the potential savings are significant 

not just for the Federal Government, but also for the States. 

Ms. Oates, it is nice to see you. Thanks for your work. Let me 

ask a question of the other witnesses. I think the administration 

has laid out a number of steps, additional steps, that the administration thinks should be taken. To the other three witnesses, do 

you have any comments, pro or con? Do you like what they have 

suggested? Is there anything you especially like or that you have 

concerns about that is in the administration’s proposal? 

Ms. COX. There is a lot of stuff we are already doing that this 

bill would not really have an impact on, but there is one provision 

we are concerned with—I think it is in section 3—that talks about, 

if we collect penalties from an overpayment or fraud, that we would 

put that into a sub-account around integrity efforts exclusively 

rather than be able to deposit that currently into our penalties and 

interest fund. Right now we have flexibility in our P&I fund, and 

we work with our legislature and Governor to decide at the local 

level what the local solutions need to be and how those funds 

should be directed. 

As I mentioned earlier, reemployment initiatives are really key 

for us, so we are now able to use some of those funds to get people 

back to work, to build infrastructure in those areas, to really supVerDate Nov 24 2008 21:25 May 30, 2012 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 R:\DOCS\74253.000 TIMD
19 

port economic development in our State. Penalties from fraud are 

a big contributor to our P&I fund, and to limit that and to force 

us to use it for integrity efforts when we could already pay for integrity efforts and infrastructure through our UI grant really does 

not work for us and actually penalizes us and ties our hands. 

Now, if other States want to do that, that is great, but let it be 

decided by each State how they want to use those funds. But an 

overall mandate is actually a disincentive for us. 

Senator CARPER. All right. Thank you. 

Gentlemen? 

Mr. TRAUSE. Three things very quickly, Senator. First, we 

strongly support the New Hire expansion to include re-hires. We 

think that that is extremely important. Second, we believe that, if 

you are going to restrict the 5-percent override, you will clarify that 

it can be used for basic technology infrastructure. The biggest issue 

that we face, the biggest problem that we face in detecting overpayments, really is basic computer systems. Third, we would request 

that you make sure that we continue funding reemployment services. They are the key to prevention and I think will make a tremendous difference. Thank you. 

Senator CARPER. Good. Thank you. 

Mr. Cullen? 

Mr. CULLEN. I think I stated earlier that we believe that the 5- 

percent use of recovered payments to help with integrity operations 

is the one portion of this bill that we really support, but we do believe—and I am going to have to disagree with Ms. Cox just a little 

bit—that it should be mandated in some fashion that States use 

this for integrity operations. 

I think we have seen throughout the current recession that, 

when pressure is on an agency to make payments, they will transfer staff from integrity operations to get those payments out the 

door. We can argue whether that is right or wrong, but it happens. 

I think we need to, in the future, always keep the focus and the 

priority on integrity that it deserves, and the only way to do that 

is to ensure that we are dedicating the resources to it that need 

to be. 

Senator CARPER. All right. Thank you. 

Earlier this month I chaired a subcommittee hearing with the 

Federal Financial Management Subcommittee, and we looked at a 

technology solution that is being implemented across the government—we already talked about it a little bit here today—called the 

Do Not Pay list. The idea is to use information to prevent payments to those who should not be getting them in the first place. 

The most basic information is up-to-date listing of people who 

passed away, to avoid giving payments to people who are ineligible 

because they are dead. Accessing the Social Security Administration’s death master file is what agencies do to avoid that kind of 

error. 

Mr. Cullen, if I could just come back to you for a moment and 

say, I think in your testimony you mentioned the National Directory of New Hires. You mentioned it a couple of times, and correctly indicated that making this directory as up-to-date and as 

timely and reliable as possible is paramount to preventing improper payments in the Unemployment Insurance program. I 

20 

agree. Are there any other data systems or sources that would be 

useful to the Unemployment Insurance program to start preventing 

more of these improper payments from occurring in the first place? 

Also, are there other Federal programs that would be helped by access to the National Directory of New Hires, maybe the Social Security Disability Insurance program, or others? 

Mr. CULLEN. I believe, yes, there are. I was surprised Ms. Cox 

mentioned 18 cross-matches that Utah is under way to complete. 

I think that is very impressive, that there are systems out there. 

In many cases, for unemployment it comes under ‘‘able and available for work,’’ and so we should be looking at prison crossmatches, possible hospital cross-matches, the death registry crossmatch. Anything that a State can look at that says this person who 

is drawing a benefit is not able and available for work, should be 

considered a source of information that States can use. As far as 

other agencies that can use the National Directory of New Hires, 

I apologize, it is just not my expertise, so I cannot comment on 

that. 

Senator CARPER. All right. Thanks. 

Ms. OATES. Senator, if I may. 

Senator CARPER. Yes, please. Ms. Oates? 

Ms. OATES. I just want to tell you, we are piloting, through our 

partnership fund, using bank data—and actually have been involved in some of the discussions with other agencies about the Do 

Not Pay list. We think it would be very, very helpful for our States 

to be able to cross-match incarcerations, death, and also this banking data so that, as I think Kristen said in her testimony, as they 

do in Utah, we could watch for anomalies of people making largescale deposits who are allegedly unemployed. 

Senator CARPER. All right. That is a good point. 

My time has expired. Let me just conclude by saying, as former 

State treasurer and as a recovering Governor, I am mindful of the 

fact that States really are laboratories of democracy, and we have 

centers for best practices in different States doing different things. 

It sounds like Utah is pretty good especially in this area. The NGA, 

the National Governors Association, has a Center for Best Practices 

where we can go, the States can go, to see who is really doing a 

good job at this stuff. I am pleased that Senator Hatch’s State has 

been represented here today to share with us some of the good 

work that is going on there, and we applaud very much the efforts 

of the administration in this regard. This is important work. Thank 

you. 

I would just say to our friend from Washington, if you would tell 

Governor Gregoire that a recovering Governor sends his best. 

Mr. TRAUSE. I shall do so. 

Senator CARPER. Thank you. 

The CHAIRMAN. Thank you, Senator. 

I have this BAM report, and I know it has problems. But it still 

is a bit stunning, the disparity among States, even given the problems with the BAM report. Like, some States have overpayment 

rates of 40 percent, another State has 28 percent, another State 

has 33 percent. Some States are very low, according to the BAM. 

One of the lowest States is 3 percent. Another of the lower is 2 perVerDate Nov 24 2008 21:25 May 30, 2012 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 R:\DOCS\74253.000 TIMD
21 

cent, that is Kentucky. The other one is Connecticut. Vermont is 

3.5 percent. 

It just seems to me that there has to be some effort undertaken 

to deal with the irregularities, the problems with the BAM. I think 

it is important to know what each State is doing, and that gets to 

technology and so there is some commonality here. States can still 

have their own programs, but at least we have to know what is up. 

So, what is your best advice, any of the four of you, as to how 

to make this thing quite useful? I think it is somewhat useful now. 

I mean, to see disparities between 48 percent and 3 percent, that 

is somewhat useful. So how do we make it even more useful so we 

know what we are doing, and we know where the problems are and 

where they are not? How do we make this report work? 

Ms. OATES. Senator, if I could start out. I am sure my friends 

here will have better information to put forward. But it begins with 

partnership. It begins, for us, working with the National Association of State Workforce Agencies, which is the organization that 

represents all the States and the individuals here at the table. It 

starts with setting up groups. The visual that we gave you, the pie 

chart, that was the first attempt for us to really visualize the problem for all the States. 

Our effort to bring the top 11, the biggest 11 instead of the people with the biggest problems, was to make sure that we establish 

beacons of good practice, of best practice, so that Utah, which has 

really done some remarkable work, could partner and mentor other 

States in that. We really think that the Federal Government has 

a convening role and a role to really put forward those best practices. But States talking to States is where they can really make 

the biggest improvement. 

The CHAIRMAN. All right. Ms. Cox, your thoughts on the subject? 

Ms. COX. She is right, so ditto. Give me clear instructions and 

a couple of measures of what you want me to do. I feel like I am 

chasing a few measures. BAM is one, but there is a lot of variability in BAM. There is the BAM operational rate, there is the 

over-detection payment rate, there is a new regulation that is coming out, there is my BPC measure in terms of detected and established. I feel like I am chasing a few measures. You have to look 

at all of them, really, to get a qualitative and quantitative piece. 

But if you guys are going to be looking at the BAM measure as 

the way of comparative data, I have some concerns around that. 

You are never going to keep everyone happy with the measure, I 

get that. You are never going to be perfect. But there needs to be 

clarity around maybe two, three, four measures that we all agree 

on that you guys are going to look at. 

The CHAIRMAN. What do you think they should be, those two or 

three? 

Ms. COX. I do not think it should be BAM. 

The CHAIRMAN. What should it be? 

Ms. COX. Maybe BAM operational. I think BPC measure, in 

terms of actually established collections and as it compares to appeals and adjudication, do those detections actually stand up? And 

I would have an early detection measure, a little different than the 

one they are proposing, that looks not at just fraud, but fraud and 

22 

overpayment. We do not really have any early detection measures. 

So an early detection one, perhaps operational, and maybe BPC. 

The CHAIRMAN. All right. Thank you. 

Mr. Trause? 

Mr. TRAUSE. I would agree. I think it is important to simplify. 

I think three measures are critical. BAM operational is one that I 

would like to see us focus on. 

The second that I believe is really very important is a prevention 

measure, because I agree that early detection is critical, and that 

what you want to look at is how early in the claim are you catching 

fraud. We have one that we use that we are quite comfortable with. 

The third thing I would say, though, is that part of this is on us 

as States and what use do we make of the information. I think it 

is incumbent upon us as States to look at what comes out of BAM 

and what is it in our system that we need to change to bring that 

BAM rate down. It is a process of continuous improvement. So I 

do not think—without wanting to pander too much—I do not think 

it is fair to look at the Department of Labor alone. I think part of 

it rests with us. 

The CHAIRMAN. All right. 

Mr. Cullen? 

Mr. CULLEN. I have made my pitch for technology. 

The CHAIRMAN. Right. 

Mr. CULLEN. And so I think the same thing I would focus on is 

this concept of a public/private partnership. I mean, I sat here 

writing notes about the National Governors Association Center for 

Best Practices, the 18 cross-matches that the State of Utah is 

doing, and we are going to follow up on that because those are 

ideas that we have not necessarily thought of or that we have not 

tapped into. 

So I agree that States and the U.S. DOL have responsibility for 

the administration of the program, but employers, through taxes, 

pay for it, and we should be involved as employers in that conversation too to say we have some ideas also. So I think the idea 

of a public/private partnership that gets everybody’s voice involved 

in the discussion, finds a way to get a clearinghouse for information, that addresses this particular problem, is critical. 

Mr. TRAUSE. Senator, the one thing I would add, very quickly, is 

that I believe whatever approach we adopt has to be balanced. We 

have to look at both sides of the equation. What are we doing to 

detect unregistered businesses? What are we doing to make sure 

that employers are paying their fair share, as well as making sure 

that employees are getting only appropriate benefits? 

The CHAIRMAN. I am trying to figure out how we accomplish this 

objective. The first thing that comes to my mind is to have you all 

back here a year from now and charge you, if that is the correct 

word, with finding a solution together over the next year, or 6 

months, or whatever the appropriate period of time is. You are the 

experts. I mean, we talked about State governments, Federal Government, private sector, and so forth. But clearly we have a problem here. Seventeen billion is a problem. I would like your 

thoughts right now off the top of your head on what process would 

you suggest so we are not just wasting our time talking about all 

23 

this, but we find some solutions here? Do you have an idea on process? Ms. Oates? 

Ms. OATES. I think it would be important for you to hold our feet 

to the fire, and I think that certainly NASWA and the Department 

could work collectively to give you quarterly updates so you could 

determine when you wanted to pull us in front of you again. I am 

interested in Mr. Cullen’s idea about how we engage business in 

that, and quite frankly, Senator, I do not have a clear answer to 

that. But I would love to think about how we get employers engaged at a national level. I mean, I know States are already engaging them, but I would have to come back to you on what I thought 

was a reasonable way to get that employer involvement. 

The CHAIRMAN. Does anybody else have an idea on process and 

how we get some results here? 

Ms. COX. Can I ask a question? 

The CHAIRMAN. Sure. 

Ms. COX. In your mind, what are the top two or three things you 

would want as a deliverable in a year? 

The CHAIRMAN. I would like to see definite progress in getting 

the rates down much lower than they currently are. I am interested in the bottom line. I think that probably the things you have 

talked about, the various kinds of reporting, can be improved upon. 

That is probably correct. 

I think better technology is probably part of the solution. Working with employers, that is part of it, too. But I am more concerned 

about the bottom line, and that is making sure that we do not have 

a $17-billion loss next year. I would like to get down to 

$8 billion in a reasonable period of time. Ms. Oates said getting 

down to $8 billion in a couple of years sounds reasonable. But I am 

interested in that bottom line. You are the experts to know how to 

help get to that bottom line. 

Ms. COX. Well, for me, it is so different from State to State. 

The CHAIRMAN. Right. 

Ms. COX. So I am always cognizant about that. But I would have 

a clear understanding of what we are measuring, a clear plan for 

automation and technology. I do not know if it is necessarily in new 

funds or if it is redistribution or UI administrative flexibility. Part 

of that measurement would be around reemployment. It is not an 

emphasis right now. 

For my mind, making sure people are compliant is part of program integrity with the specific targets for each State, but not a 

generic one. Not everyone is 35 percent or 50 percent, which is in 

the proposed rule, so we need a target that makes sense for each 

State, and maybe that is negotiated. We negotiate a lot of our 

measures right now with the Department of Labor at the regional 

level. We should have that same flexibility, because current direction is a one-size-fits-all approach. Some States need to be much 

more aggressive, and other States are pretty close and may need 

smaller improvements. 

The CHAIRMAN. All right. I just do not want to let this opportunity slide by, so I am going to still think about it. 

Senator Hatch? 

Senator HATCH. Well, thank you, Mr. Chairman. I am just going 

to finish with a couple of questions. 

24 

Secretary Oates, I do appreciate your willingness to be here 

today and the apparent willingness of the Department of Labor to 

address the growing problem of fraud and overpayment in the Unemployment Insurance system. 

However, I want to ask you about the status of a program Congress already authorized. Legislation we passed in 2008 allows 

States to collect Unemployment Insurance overpayments due to 

fraud under the Treasury Offset Program. Congress authorized 

States to use the offset program to intercept Federal tax refunds 

to collect overpayments. 

Now, the program is being set up by the Department of Labor, 

Treasury, and IRS, as I understand it, and you mentioned it in 

your testimony. Could you please give the committee just a little 

more information about the status of the implementation of the offset program, and tell us how much money could potentially be recovered by the States in the future? 

Ms. OATES. Well, in the 2010 tax year, as I said in my statement, 

Senator, three States were able to collect $25 million. We think 

that more States will come on for the 2011 year. Depending on 

which States those are, looking at the States this year, there were 

three rather large States. But if California and Texas were to come 

on next year, we could probably quadruple that $25 million. So I 

think we are trying to give guidance. 

It took a little bit of time to get Treasury to get the guidance out. 

They did get it out in time for the 2010 year. We are very optimistic. States are very interested in pursuing that. Probably the 

two Commissioners here would give you their read on what they 

thought they could collect, but we think $25 million in 1 year is 

very promising. 

Senator HATCH. All right. Now, as I read it, section 3 of the administration proposal seems to prevent the States from using penalties collected for fraudulent unemployment claims for anything 

other than integrity activities. 

Ms. OATES. Integrity. 

Senator HATCH. Now, currently States impose a wide variety of 

penalties for Unemployment Insurance fraud, and many of them 

greater than 15 percent. Under current law, there are no such restrictions as to how States can use these funds collected as penalties. 

Now, the funds collected under these penalties are in every respect State funds. Even if there is a Federal requirement to impose 

a penalty, should the States not be able to determine for themselves the best way to spend those funds, whether it be for integrity programs or job training programs or additional benefits or 

whatever? Then, Ms. Cox, if you would give us your opinion on it 

as well. Go ahead. 

Ms. OATES. Well, Senator, the 15 percent that we are proposing 

would not prohibit a State from charging more. So, in a State like 

Utah where they do 100 percent, there would be no prohibition on 

that. It would instead establish a floor that every State was at 

least charging a 15-percent penalty. 

In terms of the use of funds, I mean, clearly this is a discussion 

draft that we are going to have lots of discussion with the States 

and with this committee about. But these are employer funds, and 

25 

I think we at the Department had lots of rich conversations about, 

what is the responsibility of this? Should we put some parameters 

around it? We do not want to be a nanny here. 

We know that some States are doing really wonderful things. But 

we are called before you when States do silly things with this 

money, so we want to achieve a balance that says this is employer 

money, tax money that is being paid, how should it be used? If we 

need to widen the uses of those funds, we will certainly work with 

your staff on something that we are all comfortable with. But saying they can use it for everything assumes that every State will be 

as responsible as Utah has been in this, and I am not sure any of 

us feel that same comfort level. We want a little bit of protection 

for this money. 

Senator HATCH. All right. 

Ms. Cox? 

Ms. COX. The Assistant Secretary is great to work with, so I am 

confident we will have a good dialogue around this. Two points. 

One, most States, I would assume—we have it in Utah—work with 

an oversight group that we go to for ‘‘permission’’ on how to use 

the P&I fund. We also have to get permission from our legislature. 

They actually have to appropriate that, and they get feedback from 

employers. So it is not as if we are making these decisions in isolation. We go to our employer groups and say, here is where the 

funds are, and actually get approval from them before we even take 

it to the legislature. 

And, two, the idea around program integrity, I know, has become 

emphasized during the recession because so much went out from 

the Federal Government around EUC and EB funds. But it is important to recognize, I have to go in front of my State legislature 

and talk about program integrity around the State benefits for 26 

weeks. So States, even though they may be struggling in different 

areas, still have to be accountable to their State legislature faceto-face. 

Where you have to be responsible to this whole body, we are still 

going in front of our legislatures. So these issues are still important 

for us, but the legislature, in tandem with the employer community 

and the benefits community, needs to make the decisions around 

where the priorities are, where we are deficient. If we are really 

good in program integrity and I need to resource some other priorities, I need that flexibility. 

Senator HATCH. Well, thank you. 

Mr. Chairman, this has been an excellent hearing, and I really 

appreciate all four of you. Each of you has been particularly articulate, and we are very grateful to you for helping us to understand 

this a little bit better. Thank you for being here. 

The CHAIRMAN. I second that. I am still trying to figure out an 

efficient process here. 

Ms. OATES. Senator, with your permission, if we could send to 

the members of the committee and your staff, through the chair, 

our strategic plan, we would love to get your feedback on it, and 

we would love to have a real discussion with you about things that 

you think we could be tougher on and things that maybe we have 

overlooked. So, with your permission, we will send you that this 

afternoon, and we will wait for questions. 

26 

The CHAIRMAN. That is an excellent idea. In fact, I was going to 

suggest something similar to that. 

Ms. COX. Great minds. 

The CHAIRMAN. I am going to ask each of the four of you to give 

your recommendation of how we undertake the next steps to address the overall problem here. I have a hunch we may see each 

other again. 

Thank you very much. The hearing is adjourned. 

[Whereupon, at 11:25 a.m., the hearing was concluded.] 

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A P P E N D I X 

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