Information Technology: Department of Labor Could Further Facilitate Modernization of States' Unemployment Insurance Systems
Published: 2012-09-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Labors UI program is a federal-state partnership that provides partial compensation for lost earnings of eligible individuals who become unemployed through no fault of their own. In fiscal year 2011, about $117 billion was spent on the UI program. To administer the program, states rely heavily on IT, including benefits and tax systems. However, a July 2010 state survey noted that most of the UI IT systems are outdated and cannot efficiently handle their current workloads.
GAO was asked to (1) determine Labor's role in facilitating UI IT modernization efforts, (2) identify and describe the types of federal funding selected states have spent on modernization, (3) provide the status of modernization for selected states, (4) determine key modernization challenges, and (5) determine what management controls have been established for IT modernization. To do this, GAO analyzed documentation and interviewed officials from a nongeneralizable sample of nine states (selected based on varying location, size, and modernization status); and reviewed Labor policies; and interviewed department officials.
section_title: What GAO Found
paragraphs: The Department of Labor (Labor) facilitates states efforts to modernize information technology (IT) systems supporting their unemployment insurance (UI) programs by (1) providing funds for administrating overall UI operations and (2) participating in groups that provide technical support to states. While the federal-state structure of the UI program places primary responsibility for its administration on the states, Labor provides potential strategies for IT modernization activities through supplemental budget funds.
Federal funds for UI modernization efforts come primarily from two sources: (1) supplemental budget funds that are designated by Labor for state IT modernization efforts and (2) general UI administration funding. General administration funding primarily consists of State UI and Employment Service Operations funds (an administrative grant issued by Labor at the beginning of each fiscal year); Job Creation and Worker Assistance Act of 2002 funds, (distributed under the Reed Act, a mechanism by which the federal government transfers surplus UI funds to states); and American Reinvestment and Recovery Act funds (an economic stimulus package enacted in February 2009). However, federal funds can be used for multiple UI purposes, and states are not required to report costs for UI modernization projects.
The status of the nine states UI IT modernization efforts that GAO reviewed range from planning to deployment. Of the nine states, three are part of a consortium (multiple states that develop a single common system) and are all in the initial planning phase; two individual state efforts are in the development phase; two are in a combination of different phases; and two are in operations and maintenance. For example, Virginia is in the development phase whereas Minnesota has a deployed system and is in operations and maintenance.
States and Labor have challenges specific to (1) individual states and (2) consortiums modernization efforts. The challenges for individual states that GAO reviewed relate to having sufficient technical expertise and limited funding, among others, and challenges faced by consortiums relate to differences in state laws and business processes among member states. It is widely recognized that analyzing and prioritizing challenges and then documenting lessons learned can help mitigate risk and track successful ideas for more effectively managing IT in the future. A committee was tasked to assess lessons learned from consortium efforts which may serve as a valuable first step toward helping the states mitigate challenges. However, the effort is not complete and does not represent an independent survey of all the states lessons learned. As such, Labor has not yet comprehensively evaluated and prioritized challenges and lessons learned, disseminated them to each state, or facilitated an appropriate information sharing mechanism. Until it does, Labor may miss opportunities to help support future consortium and state modernization efforts.
All nine states reviewed have established selected management controls for modernizing IT which, if properly implemented, could help reduce the risks of modernization challenges. The controls align with industry-accepted program management practices, such as independent verification and validation; and include state-specific practices, such as oversight through a Chief Information Officer office and consortium-specific practices, such as governance structures.
section_title: What GAO Recommends
paragraphs: GAO recommends that Labor (1) comprehensively analyze and document challenges and lessons learned and (2) distribute the lessons learned to each state to share and foster ideas for effective modernization of UI systems. Labor generally agreed with the first recommendation; it did not agree or disagree with the second recommendation, but said it is committed to sharing lessons learned.

section_title: Letter
paragraphs: The unemployment insurance (UI) program is our nation’s largest income  maintenance program, with its benefits serving as a critical source of  income for millions of unemployed Americans. The program, which is  administered by the Department of Labor (Labor) in partnership with the  states, has been particularly essential in the wake of the recent recession  and slow pace of economic recovery: in fiscal year 2011, $116.8 billion  was spent to provide temporary, partial compensation for lost earnings of  individuals who became unemployed through no fault of their own.
As a federal-state partnership, the framework of the program is  determined by federal law, and benefits for individuals are dependent on  state law and administered by State Workforce Agencies. To administer  the program, state agencies must, among other things, collect state  unemployment taxes, determine eligibility and benefits amounts, and pay  unemployment benefits. In carrying out these key responsibilities, the  state agencies rely heavily on information technology (IT), including  benefits and tax systems. However, a July 2010 state survey noted that  most of the IT systems used for the UI program were old and based on  outmoded programming languages, were costly and difficult to support,  and could not efficiently handle workload demands. Given the  importance of IT to state agencies’ abilities to effectively process and  provide timely UI benefits to millions of unemployed Americans, you  requested that we examine states’ efforts to modernize the systems  supporting their UI programs. Our specific objectives were to (1)  determine Labor’s role in facilitating the states’ IT modernization efforts,  (2) identify and describe the types of federal funding selected states have  spent on IT modernization, (3) provide the status of modernization efforts  for the selected states, (4) determine key modernization challenges, and  (5) determine what management controls have been established for IT  modernization.
To accomplish our objectives, we selected and examined the IT  modernization efforts of nine states. We selected the states on the basis  of varying regional location, size, and modernization status. We also  selected states developing individual systems, those developing  integrated tax and benefits systems, and states involved in consortium  efforts. While the sample was nongeneralizable, the selected states  offered insight and perspective on their experiences in modernizing UI  systems, including sources of funding, challenges, and established  management controls.
To determine Labor’s role in facilitating the modernization efforts, we  analyzed documentation describing its responsibilities, including  regulations, department project plans, and program guidance. We also  interviewed Labor officials responsible for overseeing states’ UI programs  to further clarify the department’s role. To identify and describe the types  of federal funding selected states have spent on IT modernization, we  analyzed states’ expenditure data, such as funding allocations and  spending reports. Further, to determine the status of modernization efforts  for the selected states, we reviewed the states’ modernization project  plans and status reports, and interviewed officials responsible for UI  technology. To determine key modernization challenges, we analyzed  public reports and interviewed relevant officials from Labor and the nine  states regarding issues encountered while initiating and developing the  states’ efforts to modernize the UI systems. Based on these challenges  reported and observed, we also reviewed state modernization  documentation and interviewed state and Labor representatives to  identify and assess lessons learned for the nine states selected. Finally,  to determine what management controls have been established for IT  modernization, we reviewed documentation from Labor and each state  describing existing management controls and interviewed cognizant  officials about the controls. However, we did not assess the extent to  which the selected UI agencies implemented these management controls.
We conducted this performance audit from January 2012 through  September 2012 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. Further details on  our objectives, scope, and methodology are provided in appendix I.
subsections: section_title: Background
paragraphs: The federal-state UI program, created in part by the Social Security Act of  1935, is administered under state law based on federal requirements.  The primary objectives of the program are to provide temporary, partial  compensation for lost earnings of individuals who become unemployed  through no fault of their own, with some exceptions, and meet certain  other eligibility criteria, and to stabilize the economy during economic  downturns.payroll taxes levied on employers. Within the guidelines of federal law,  states administer the program and can specify who is eligible to receive  UI benefits and how much they receive. Generally state and federal taxes  on employers fund UI benefits and administrative costs. Within Labor, the  Employment and Training Administration’s (ETA) Office of Unemployment  Insurance—along with the agency’s six regional offices—oversee the  states’ implementation and administration of their UI programs.
The program is generally financed by federal and state  Applicants must have earned at least a certain amount in wages and/or  have worked a certain number of weeks over a period of time to be  eligible for benefits. In addition, the individuals must, with limited  exceptions, be available for and able to work, and actively search for  work. For their part, UI agencies must identify recipients who are likely to  exhaust their benefits and refer them to reemployment services, such as  those available through state-run employment centers known as  “American Job Centers.” At these centers, states and localities provide  services for many federally funded employment and training programs,  and they have the option of including additional programs, such as the  Temporary Assistance for Needy Families program (one of the nation’s  primary income support programs for low-income families).
Typically, eligible unemployed workers can receive UI benefits for up to  26 weeks in most states (though individuals may be eligible for fewer  weeks). During periods of high unemployment, the states may provide up  to 20 additional weeks of benefits through the Extended Benefits  program. In 2008, Congress provided for the temporary extension of  benefits through the Emergency Unemployment Compensation program.  In 2009, Congress temporarily authorized based on unemployment rates in each state and, has since, amended the  rate and time frame several times, most recently in 2012. As of January  2012, eligible unemployed workers could potentially receive the maximum  99 weeks of benefits in 17 states, according to Labor data, though some  individuals may be eligible for fewer weeks in these states. In 2012,  through the passage of the Middle Class Tax Relief and Job Creation Act,  Congress extended the Emergency Unemployment Compensation  program until January 2, 2013, and also extended full federal funding of  the Extended Benefits program until December 31, 2012.
Pub. L. No. 111-5, § 2005, 123 Stat. 444.
subsections: section_title: Federal and State Requirements for Unemployment Insurance
paragraphs: Federal law sets forth broad coverage provisions for the categories of  workers that are covered by the UI program, as well as some benefit  provisions, the federal tax base and rate, and administrative requirements  such as what program data will be reported. Within the framework  established by federal law, states can determine key elements of their UI  programs, such as eligibility/disqualification provisions, the benefit  amount, and the amount of taxes that employers must pay.
Within the context of the federal-state partnership, Labor has general  responsibility for overseeing the UI program to ensure that the states are  operating the program effectively and efficiently. For example, Labor is  responsible for monitoring state operations and procedures, providing  technical assistance and training, as well as analyzing UI program data to  diagnose potential problems. The federal-state structure of the UI  program places primary responsibility for its administration on the states,  and gives them wide latitude to administer their programs in a manner  that best suits their needs within the guidelines established by federal  law. In addition, an administrative decision made by Labor in 1986  provided states “bottom line authority” in administering their UI programs,  giving them greater control over their expenditures and reducing federal  monitoring of administrative expenditures. In particular, bottom-line  authority permits states to move resources among cost categories—such  as from benefit payment control activities to claims processing—and  across quarters within a fiscal year. It also permits states to use UI  administrative resources based on the state’s assessment of its particular  needs.
To oversee the program, the Office of Unemployment Insurance within  Labor’s ETA and ETA offices in six geographic regions are responsible  for working with the states. The regional offices are the states’ main  points of contact with Labor and serve as a link between the department  and the states for providing technical assistance and clarifying program  policies, objectives, and priorities. Moreover, the regional offices have  primary responsibility for overseeing the fiscal and management integrity  of the UI program. This oversight includes ensuring that states do not  provide unemployment compensation to ineligible recipients and ensuring  that states detect these overpayments when they do occur.
section_title: Funding Provided to Administer the UI Program
paragraphs: The UI program was designed to be forward funded and self-financed by  states, with each state’s trust fund building up reserves from employer  taxes during periods of economic expansion in order to pay UI benefits  during economic downturns. Because unemployment can vary  substantially during a business cycle, it is important that states build  sufficient trust funds to remain solvent during recessionary times. Toward  this end, the program is financed primarily by taxes levied on  employers, with each state setting tax rates and a tax base which must  be at least equal to the federal wage base (currently set at $7,000) to  automatically finance regular UI benefits. In addition, in accordance with  the Federal Unemployment Tax Act, employers pay a federal tax. This tax  is used to fund: (1) federal and state UI administration costs; (2) the  federal share of extended benefits; (3) Title XII loans to state trust funds  when they cannot pay benefits; (4) benefits under federal supplemental  and emergency programs; (5) labor exchange services, employment,  and training for veterans; and (6) some labor market information  programs.
The Unemployment Trust Fund in the U.S. Treasury consists of 53 state  accounts, including one each for the District of Columbia, the Virgin  Islands, and Puerto Rico; plus six federal accounts that are dedicated  for special purposes. Of these six accounts, federal taxes go into the  Employment Security Administration Account, the Extended  Unemployment Compensation Account, and the Federal Unemployment  Account, while state taxes go into individual state accounts.
When the aforementioned three federal tax accounts reach prescribed  statutory ceilings at the end of September 30 in any year, any excess  funds are transferred to individual state accounts, in accordance with the  Reed Act—the mechanism by which the federal government transfers  surplus UI funds to states. Labor bases each state’s share of Reed Act  funds on the state’s proportional share of Federal Unemployment Tax Act  taxable wages. Federal law restricts states’ use of Reed Act distributions  to covering only the cost of state benefits and, if certain conditions are  met, for the administration of state UI and Employment Services  programs. A state must have a specific appropriation from its legislature,  specifying the purposes and amounts, pursuant to which the state may  use its share of the Reed Act funds for administrative expenses. There  have been eight Reed Act distributions since 1956, most recently in  2002; Congress has raised the Reed Act’s statutory ceilings that trigger  the distribution of the excess funds several times.
section_title: States’ Unemployment Insurance IT Environment
paragraphs: State agencies rely extensively on IT to carry out their UI program  functions. Specifically, IT systems are used to administer the programs  and to support related administrative needs. For example, benefits  systems are used for: determining eligibility for benefits; recording claimant filing information, such as demographic  information, work history, and qualifying wage credits; determining updates as needed, such as changes in work-seeking  status; and  calculating state-specific weekly and maximum benefit amounts.
In addition, tax systems are used for: online reporting and payment of employers’ tax and wage reports; calculating tax, wage, and payment adjustments, and any penalties  and interest accrued; processing quarterly tax and wage amounts; determining and processing late payment penalties, interest, civil  penalties, or fees; and adjusting previously filed tax and wage reports as a result of a tax  audit, an amended report submitted by the employer, or an  erroneously keyed report.
States use an appeals system to provide appellate and due process  rights to claimants and employers. An appeals system allows any party  (claimant or employer) who is dissatisfied with an adjudicator’s decision to  contest that decision.
The majority of the states’ existing systems for UI operations were  developed in the 1970s and 1980s. Although some agencies have  performed upgrades throughout the years, most of the state legacy  systems have aged considerably. Accordingly, as the systems have aged,  they have presented various challenges to the efficiency of states’  existing IT environments. For example, a survey conducted by the  National Association of State Workforce Agencies (NASWA)found that states reported: over 90 percent of the systems run on outdated hardware and  software programming languages, such as Common Business  Oriented Language (COBOL), which is one of the oldest computer  programming languages;  the systems are costly and difficult to support: the survey found, for  example, that over two-thirds of states face growing costs for  mainframe hardware and software support of their legacy systems; most states’ systems cannot efficiently handle current workload  demands, including experiencing difficulties implementing new federal  or state laws due to the constraints posed by the outdated inefficient  IT systems; and  states have realized an increasing need to transition to web-based  online access for UI data and services.
States also cited specific issues with legacy systems, including the  fact that they cannot be reprogrammed quickly enough to respond to  changes due to legislative mandates. In addition, states have  developed one or more standalone ancillary systems to fulfill specific  needs; however, these systems are not integrated with the states’  legacy mainframe systems, thus decreasing efficiency. Finally,  according to the states, the existing legacy systems cannot keep up  with advances in technology, such as the move to place more UI  services online.
section_title: Labor’s Primary Role in Facilitating IT Modernization Efforts is Providing Funding and Technical Support to State UI Programs
paragraphs: Labor’s role in facilitating UI IT modernization efforts primarily consists of  providing funding and technical support to the state agencies. In this  regard, the department distributes federal funds to each state for the  purpose of administering its UI program, including funds that can be used  for IT modernization. (Federal sources of funding for UI IT modernization  are discussed later in this report.)
In addition to providing funding for the individual state modernization  efforts, Labor has also supported the establishment of state consortiums,  in which three or four states work together to develop and share a  common system. These efforts are intended to allow multiple states to  pool their resources and reduce risk in the pursuit of a single common  system that they can each use after applying state-specific programming  and configuration settings. For example, through supplemental budget  funds, in 2009 the department provided $29 million to initiate two state  consortium modernization efforts—the Wyoming, Colorado, Arizona, and  North Dakota (WyCAN) consortium and the Southeastern Consortium  for Unemployment Insurance Integration (SCUBI). Later, in 2011, Labor  provided state UI agencies, under certain conditions, additional funding  totaling about $192 million to modernize tax and benefit systems and to  enhance the program integrity and technology infrastructure systems.  This money supported the two initial consortiums (WyCAN and SCUBI)  and a third consortium that was formed in 2011—the Vermont, Maryland,  and West Virginia technology infrastructure consortium.
However, because states’ bottom-line authority permits them to use UI  administrative resources as they deem appropriate, and Labor ETA  officials stated that the department has limited control over how states  actually spend administrative funds, Labor does not track each state’s UI  IT modernization spending. The officials added that Labor does not track  or monitor the progress of states’ UI IT modernization initiatives. Further,  the department’s Administrator of the Office of Unemployment Insurance  said that while Labor monitors supplemental funding provided to specific  consortium projects, to monitor all of the states’ modernization efforts.
Labor provides sample grant proposals for the states to use to obtain money through  supplemental budget funds. Labor establishes specific state requirements and designates  what the funding is to be used for, and monitors if the states are using the funding for the  intended purposes.
Recognizing that the UI program was dependent on technology, Labor funded ITSC. It  was created in 1994 as a partnership between Labor and the Maryland Department of  Labor, Licensing and Regulation to support state UI IT initiatives. Labor supports the ITSC  through grants to the Maryland agency. ITSC supports all states’ modernization efforts,  either directly with states’ requests and funding or with funding support from Labor. developing systems that are highly configurable and can be used  by multiple states and consortiums.  Independent verification and validation (IV&V)—provides  consultative services to help states safeguard Labor and state  funds.
UI modernization services—provide best practice services for UI  modernization initiatives.
Advisory services—provide advisory assessments of technologies  that UI agencies may review and/or adopt.
ITSC also provides other services at the request of individual states, such  as responding to a specific request to modernize an interactive voice  response system to support the processing of UI benefits. In addition to  providing funding to ITSC for state technical support, Labor facilitates  states’ individual efforts by:
Meeting quarterly with the ITSC Steering CommitteeITSC technical experts and state representatives to discuss and  review IT challenges, issues, status, and consortium approaches.  Within these meetings, Labor participates in providing informal  recommendations of potential solutions to issues raised. For example,  in a June 2012 ITSC Steering Committee meeting, Labor officials,  including the Administrator of the Office of Unemployment Insurance  in ETA, participated in a discussion regarding the need to document  lessons learned from UI modernization projects.
Providing potential strategies and a framework to the states on how  the states should use the grant money through supplemental budget  funds. For example, for one of the supplemental budget funds  provided to support a consortium system’s effort, Labor established a  framework on how the states should develop and administer a study  to determine the feasibility of designing, developing, and  implementing a core UI benefits system that could be used by multiple  state workforce agencies. As part of this framework, Labor, for  example, required the consortium states to undertake an analysis of  the various state laws, regulations, policies, procedures, and IT  standards to determine their ability to make adjustments or changes in  their state in order to increase commonality between the states and  simplify the consortium’s approach to a new, common benefits and  tax system.
Participating in UI conferences primarily established by NASWA,  leading discussions and forums that address IT challenges and  issues, and helping gain an understanding of the general directions  and progress being made by states. For example, during the October  NASWA UI conference, the Administrator of the Office of  Unemployment Insurance in ETA discussed, among other things,  NASWA/ITSC supporting an integrated client registration tool, as well  as identifying useful IT best practices.
section_title: A Variety of Funding Sources Exist for States’ Modernization of UI Programs
paragraphs: The states we reviewed have used various sources of federal and state  funding to support their IT modernization efforts. There are two primary  federal sources: (1) supplemental budget funding that is designated by  Labor for specific state and consortium IT modernization efforts; and (2)  general UI administration funding, which can be used for a variety of  purposes, including IT modernization.
In particular, ETA has awarded supplemental funds to the states. Among  other purposes, these supplemental funds may provide an opportunity for  states to implement consortium technology-based solutions to improve  the efficiency and performance of their UI operations. Supplemental  budget funds are offered to the states with the understanding that ETA  cannot assure that future federal supplemental funds will be available to  complete the projects. Thus, in applying for supplemental budget funds,  the state in essence agrees that the projects will be completed with no  additional federal supplemental budget funds and that it will supply any  additional funds necessary to complete the project in a timely manner,  such as with states’ specific monies.
As previously mentioned, three consortiums have been formed with  federal funding:
The WyCAN consortium was formed in 2009 following an initial ETA  grant of about $19 million for a feasibility study to develop a common  UI benefits and tax system. In 2011, ETA provided additional funding  of about $72 million to this consortium to develop and implement  integrated UI benefit and tax systems.
SCUBI was formed in 2009 and is comprised of the following states:  Tennessee, South Carolina, North Carolina, and Georgia. This  consortium received an initial grant from ETA of $10 million to perform  a feasibility study to develop a common UI benefits system.  Tennessee took the lead for the consortium, providing the project  management and direction for the four-state modernization effort. In  2011 the consortium completed a requirements document and  received a second grant from ETA, in the amount of about $50 million,  to develop and implement an integrated UI benefits system for the  member states.
The Vermont, Maryland, and West Virginia technology infrastructure  consortium was formed in 2011, when ETA provided a grant of $6  million to develop common UI tax, benefits, and appeals systems  requirements, using products from the WyCAN and SCUBI  consortiums as a baseline.
The second federal source of funding, the general UI administration  funding, primarily comes from (1) the State UI and Employment Service  Operations funds, (2) Reed Act distributions, and (3) American  Reinvestment and Recovery Act funds. However, while states report their  general UI administrative spending, they are not required to report  specific costs for individual projects such as IT modernization initiatives  and, as stated earlier, Labor does not track states’ UI IT modernization  spending. The states have the authority to spend these funds on a  number of administrative activities, including IT, and use a range of  sources aside from federal funds to support their modernization efforts.  Thus, neither Labor nor the nine selected states could provide full and  specific information regarding what has been spent on UI IT  modernization efforts.administrative funding that were provided to the nine states.
The following describes the categories of UI  State UI and Employment Service Operations Appropriations. This  appropriation provides federal funding through Labor to each state to  administer its UI programs, including modernization. In this regard, a  “base” administrative grant for each state is determined by Labor at the  beginning of each fiscal year. In developing these administrative funding  allocations, Labor uses a formula that is designed to provide each state  with an amount that will equally provide services across states to  beneficiaries and employers. This funding, at the discretion of the state,  may be used in part for UI modernization efforts.
Reed Act distribution. In March 2002, in response to an increase in  unemployment and the September 11, 2001, terrorist attacks, Congress  passed the Job Creation and Worker Assistance Act of 2002. This broad  stimulus package included a distribution to states of $8 billion from the  unemployment tax revenue held in reserve, referred to as a Reed Act  distribution. The act provided that these funds may be used to pay UI  benefits and/or to enhance UI benefits, such as increasing weekly benefit  payments, extending the period of time benefits are paid, or otherwise  expanding eligibility to groups that currently do not qualify for benefits.  Funds may also be used for the administration of UI and employment  services programs, including American Job Centers, if appropriated by  state law. In addition, Reed Act funds may be used to support states’  funding needs in undertaking major IT renovation and capital  improvement projects (such as automated and centralized claims  handling capabilities).
American Reinvestment and Recovery Act funding. This act was an  economic stimulus package from which states received two special  distributions of funds. The first special distribution was intended to  provide unemployment compensation modernization incentive payments,  and made a total of $7 billion available for all states. To obtain its share,  each state was required to submit an application to Labor demonstrating  that its unemployment compensation law contained certain benefit  eligibility provisions.
The second distribution was a special transfer of $500 million to the  states’ accounts in the Unemployment Trust Fund to be used for certain  administrative purposes. This administrative transfer was made  regardless of whether the state qualified for a modernization incentive  payment. States did not need to apply to receive these amounts.
The administrative transfer could only be used for several specific  purposes:  implementation and administration of the provisions of state law that  qualify the state for the incentive payments;  improved outreach to individuals who might be eligible by virtue of  these provisions;  the improvement of unemployment compensation benefit and tax  operations, including responding to increased demand for  unemployment compensation; and  staff-assisted reemployment services for unemployment  compensation claimants.
According to Labor, federal law does not require state legislatures to  appropriate these special administrative transfers (unlike the incentive  payments, which must be appropriated by the state legislature before  they can be used for administrative purposes). However, a Labor UI  official noted that nothing prohibits a state legislature from appropriating  such money or from attaching more specific or limiting conditions to the  use of such money.
Labor officials provided funding amounts for the selected states which  could be used, in part, at the states’ discretion for UI modernization  activities, as shown in table 1. As previously mentioned, neither Labor  nor the selected states could fully provide detailed information regarding  the specific sources of funding and amounts spent on individual UI IT  modernization efforts.
Federal funding provides only a portion of the funding states can use for  UI modernization. Seven out of nine states in our study have also used  nonfederal sources of funding for UI modernization. For example, in every  state an employer is subject to certain interest or penalty payments for  delay or default in payment of contributions, and usually incurs penalties  for failure or delinquency in filing required reports. States set up special  administrative funds, made up of such interest and penalties, to meet  special needs. In some states, the fund is capped: when it exceeds a  specified sum, the excess is transferred to the unemployment fund or, in  one state, to the general fund, where the state legislature designates how  these funds are used. Officials of two states that we interviewed told us  that they use the penalty and interest funds collected from employers for  selected UI modernization efforts.
The selected states also identified other sources of nonfederal funds that  are being used to modernize UI systems. These included (1) California’s  special acquisition method, (2) Ohio’s employers’ surcharge, and (3)  Tennessee’s in-kind staff resources:
California is developing its UI tax system modernization project  through a special agreement with an IT vendor. Specifically, state  officials said a vendor that has a commercial-off-the-shelf systemhas agreed to modify this system, thus adapting it to the needs of  California and providing the state with a new UI tax system. This  project is to be benefit funded—that is, funded based on additional  revenues that will be obtained from the increased efficiencies and  effectiveness of the newly implemented tax system. As part of this  agreement, the vendor is to provide the initial funding for hardware,  software, and configuring the system, and is to be paid based on the  state’s additional revenues generated by the newly developed state  system. The state-vendor agreement is to contain a maximum vendor  payment cap of $46 million, and the vendor is not to receive full  compensation if sufficient revenue levels are not met.
Ohio implemented an employer surcharge to provide funds for the  administration of the UI program, as well as to pay UI benefits. In  addition, it used this funding to, in part, develop and deploy a  modernized UI benefits system.
The Tennessee Department of Finance and Administration  established a dedicated IT work unit to support efforts in developing  and implementing IT. According to Tennessee state technology  managers, the creation of this unit was intended to help deliver large  IT projects on time and on budget across departments. These  managers noted that the cost of providing the unit services will not be  charged to the UI systems modernization efforts or to the departments  receiving services and will expand the availability of technology  expertise to work across state units.
As such, state funding sources, as well as federally provided UI  administrative funds and specific consortium supplemental budget  funds, can be used by states to modernize their UI IT systems.
section_title: Selected States Vary in Their Efforts to Modernize UI Systems
paragraphs: The nine states in our study were in varying phases of modernizing their  UI systems. Of the nine states we reviewed, each of the three states that  were part of a consortium were in the initial phases of planning that  includes defining business needs and requirements; two individual states  were in the development phase, that is, building the system based on  requirements; two were in a combination of development and operations  and maintenance (also called a “mixed” phase, meaning a portion of the  system is completed and in the operations and maintenance phase but  other portions are still in the development phase); and two were  completed and in operations and maintenance. These modernization  efforts have, for example, enhanced states’ UI technology to support web- based services with more modern relational databases and replaced  outdated programming languages, such as COBOL. These efforts also  included the development of auxiliary systems, such as document  management systems and call center processing systems, that allow  claimants who have been denied benefits the ability to file an appeal  using a phone-based system.
The following table provides an overview of the states’ modernization  initiatives—specifically, the systems that are being developed and their  status.
The California UI modernization project was initiated in 2003 to begin  modernizing the state’s tax and benefits systems. Both systems are  currently in a mixed state of development and implementation, with full  implementation scheduled for 2014. According to the Deputy Director,  Employment Development Department, the total cost budgeted for the  modernization is $192.7 million—approximately $68.7 million for the tax  system and $124 million for the benefits system. The project included  upgrading to a modern programming language and converting from a  legacy database to a database that would allow the state to use web- based programs. In this regard, the state completed a database  modernization project in November 2011 that replaced the outdated  database management system which supported multiple programs,  including UI and disability programs. As a part of its benefits system  modernization effort, the state modernized its (1) electronic benefit  payment system and (2) continued claim web certification system. The  electronic benefit payment project converted the payment of UI benefits  from paper check to a debit card or direct deposit in an attempt to  eliminate the delays associated with processing and mailing checks.  According to a state UI official, the continued claim web certification  project enabled UI customers to use a web-based system to certify for  benefits, eliminating the need to certify by paper. Specifically, they noted  that the system authenticates the customer’s identity through an identity  management component to help ensure customers are eligible for  benefits, and allows customers to enter their claim information on the  form in English or Spanish. According to California Employment  Development Department officials, these functions have increased the  security of benefit payments and eliminated the need for paper  certification.
According to IT state officials, Colorado’s existing systems are over 20  years old, operating inefficiently, and difficult to modify. To modernize its  systems, Colorado joined the WyCAN consortium in 2011 and is taking a  lead role in managing the consortium modernization efforts. The  consortium is in the planning phase of developing a common integrated  tax and benefits system to support the UI program. Specifically, according  to the program manager, WyCAN has performed a gap analysis to  identify differences in requirements among states, which was completed  in March 2012, and the consortium’s system requirements were  completed in April 2012. A request for proposals was released in June  2012 and the program manager said that once these IT services are  procured the states will initiate the system design phase. A request for  proposals was released in June 2012. The consortium’s goal is to  develop open source software code that would provide a tax and  benefits system that could be potentially exported to other states.  According to the program manager, the Colorado WyCAN Team, the  consortium has spent $347,796 to complete a feasibility study of an  integrated tax and benefits system.
Florida is in the development phase for its integrated tax, benefits, and  appeals system. The modernization effort initially began as a separate tax  system in 2006, and this individual system was completed in 2008. The  effort for the benefits and appeals system and the effort to integrate it with  the tax system began in 2010. This modernization effort includes  increased automated system interfaces using web-based architecture and  new business requirements. Florida engaged a contractor to help the  state reengineer the UI benefits process for the modernization effort, and  has dedicated subject matter experts to support the system  modernization redesign. In 2010, the state issued a request for proposals  to modernize the UI benefits system. A vendor was selected and,  according to IT officials, as of June 2012 the state was about halfway  through the 3- to 4-year project. Specifically, according to the Director,  Florida Department of Economic Opportunity, the state plans to validate  the requirements and test and implement the system, with deployment  scheduled for September 2013 at a cost of approximately $57.8 million.
Indiana’s integrated tax and benefits systems modernization effort began  in 2002, when it received funds under the Reed Act. In late 2005 Indiana  awarded a $24 million contract to upgrade its system to replace a 1980s  legacy system. According to state IT officials, the modernization project is  using a phased approach in which system functions are to be  implemented in separate releases. Functions and capabilities that have  been released include: web-based employer self-service and document scanning capabilities,  including online payments and debit cards for benefit distribution; automated fact finding for employers, spreadsheet submission of  layoffs for large-scale employers, and business intelligence reporting  tools; and automated claims processing and additional features, such as a new  user identification, passwords, a job search function, and the  capability for online filing of federal emergency unemployment  compensation and state benefits.
Despite these new capabilities, Indiana is still operating its legacy UI  system, and on a daily basis performs updates to both the legacy and  modernized UI systems. According to state UI officials, the next release is  scheduled to be implemented in late 2012, at which time the state should  be able to shut down most parts of the legacy system. Further, the  officials stated that, after the next two releases are deployed in 2013,  Indiana will have implemented all of the capabilities needed to retire the  legacy system. Indiana has a total budget of approximately $40 million for  its modernization effort.
Minnesota began its modernization project in 2001 and fully deployed an  integrated tax, benefits, and appeals system in 2007. The system is  currently in operations and maintenance. According to the Director,  Unemployment Insurance Division, the state spent approximately $50  million on its modernization efforts. At the same time that Minnesota  modernized its UI IT system, it also modernized its business model to  improve program efficiency and quality. As a result, according to state  technology officials in charge of IT modernization, 100 percent of UI  benefit appeals are filed online or over a voice-activated phone system,  which speeds claims processing. The system that Minnesota developed  is now being modified for use in Massachusetts, New Mexico, and  Florida.
Ohio began planning for the modernization of its benefits system in the  early 1990s and deployed the new system in 2004. In addition, the state  began planning for the modernization of its tax system in early 2000 and  deployed it in March 2011. Completion of each of these modernization  efforts took approximately 10 years from planning to deployment. Ohio  reported that it spent approximately $85.6 million to modernize the tax  system and approximately $88 million for the benefits system. One  important example of modernization included implementing a web-based  unemployment compensation benefit system that offers self-service  capabilities to employers and claimants. This application supports  increased customer online use, with many of the online claims being  processed without any staff intervention.
Tennessee, the lead state of the SCUBI consortium, began its  modernization effort in 2009. The effort is intended to replace its legacy  benefits systems built in the 1970s and 1980s and run on mainframe  systems using outdated COBOL language. According to state IT officials,  these systems were never intended to function in today’s environment  with the current claims processing volume. Tennessee is planning to  issue a request for proposals in October 2012 and expects full  deployment of its modernized system by May 2015. The modernization  effort is currently in the requirements development phase and, as part of  the SCUBI consortium, has a budget of $56 million for the modernization  effort. The effort is intended to provide a common core system for the  benefits and appeals process of the UI program. Specific state  members are to adapt the core system to their unique state functions.
Vermont is the lead state of the Vermont–Maryland–West Virginia  consortium; it is collectively updating those states’ benefits, tax, and  appeals systems, which date from the 1980s. The consortium effort was  initiated in 2011 and is currently in the planning phase. The consortium  released a request for proposals in February 2012 and is negotiating a  contract with the selected vendor. According to state IT officials, the  vendor is expected to be developing requirements during 2013. These  requirements are to ensure design consistency and allow for variations  between the three states’ laws and their required functionality as a result  of their variations.
Virginia is operating a legacy system and, during discussions with us,  state business and IT managers said that the system is at risk and that  the state needs to move forward with modernization to avoid system  problems. Specifically, the officials said that there have been many  unanticipated changes to the business environment (such as legislative  changes) and, as a result, Virginia has had to patch the legacy system.  Virginia initiated its UI modernization effort in 2008 with the intent of  developing an integrated tax and benefits system and is implementing the  project incrementally in four stages, scheduled to be fully deployed in  2013. The first stage was the development of an imaging and workflow  system that was completed in 2011 and replaced an older document  management solution, as well as microfilm, with a more modern  technology platform; the tax system is in the second stage and is in  testing; and the benefits and appeals system is planned for the third stage  and is currently in development. Virginia has a total budgeted amount of  about $58.5 million for its modernization effort. The new system is also  expected to provide the state with more efficient processing, less  dependence on manual processes, and greater flexibility in responding to  legislative mandates.
section_title: States and Consortiums Have Experienced Challenges with IT Modernization
paragraphs: The selected states and Labor have experienced challenges related to  both individual states’ and consortiums’ efforts towards modernizing the  UI systems. The challenges for individual states relate to limited funding  and the increasing cost of UI systems, among others. The consortiums  pointed to difficulties that derive from the differences in state laws and  business processes among member states, as well as a lack of sufficient  skills in leading a multistate modernization effort. State officials and ITSC  have recognized the importance of understanding challenges to identify  lessons learned and approaches to address selected issues and mitigate  potential risks.
subsections: section_title: States Have Been Challenged With UI Modernization
paragraphs: While the nine states included in our study are taking various steps to  modernize systems supporting their UI programs, they have also  experienced challenges to doing so:
Funding streams are declining or inconsistent. All nine of the states,  as well as Labor and ITSC, said that limited funding and/or the  increasing cost of UI systems is a major challenge. In addition, the  current economic environment has resulted in smaller state budgets,  which has further limited state funds for IT modernization. Moreover,  once funds are identified or obtained there is often a considerable  amount of time between identifying the funds and when the IT project  is completed. Specifically, state IT officials said that the development  of large state or multistate systems may span many years, and that  states’ priorities and competing demands on resources can delay  project implementation. As such, states often have to fund one phase  of a project with the hope that funds will be available in the future  when they are ready to move to the next project phase. The states  also noted that the lack of a steady stream of funding potentially  hinders effective IT project planning. For example, when Labor first  provided consortium funding in 2009, department officials said that it  was uncertain if there would be additional money available to  complete the implementation of these projects. While Labor was able  to provide additional grant funds for implementation to the first two  consortiums in 2011, state officials said that there is still uncertainty if  the modernization funding will be sufficient to implement and operate  over the life cycle of a project, including the initial planning, design,  development, and operation of their UI systems.
Ensuring staff have necessary technical and project management  expertise to manage modernization efforts is difficult. Further, seven  of the nine states cited as a challenge the lack of workers in their UI  offices with the necessary expertise to manage IT modernization  efforts. For example,
Several states said that they had insufficient subject matter  experts that are knowledgeable of the extensive rules and  requirements of the UI program. However, such experts are  essential to helping computer designers and programmers  understand the program’s business process, supporting an  effective transition to the re-engineered process, and identifying  systems requirements and needs.
States also said that if they had a system developed by vendors  they would have been challenged with operating and maintaining  the modernized system because the state staff may not have the  needed expertise to maintain the new system once the vendor  staff leave.
The states said they may have staff that implement larger scale  systems only once every 10 to 15 years and, as a result, a large  amount of time usually passes between modernization efforts.  This causes voids in required knowledge and skills, process  maturity and discipline, and executive oversight.
Because the states’ staff typically has expertise in an outdated  computer language, such as COBOL, they now must learn new  skills and modern languages in order to support the modernized  systems.  In 2011, a workforce survey found that over 78 percent of state  CIOs confirmed that state salary rates and pay grade structures  presented a challenge in attracting and retaining skilled IT talent.  In this regard, the top five skills and disciplines presenting the  greatest challenge were security, project management,  architecture, application and mobile application development and  support, and analysis and design.
According to Labor, the limited staff resources facing states  requires that subject matter experts address the workload demands of daily operations.
Subject matter experts are experts in the processes being automated. For example, a  team member representing financial customers must be fully familiar with the needs of  those customers. supporting the development effort, which they said could  potentially delay the development efforts.
Another state noted that modernization planning efforts took  longer because the IT staff had to maintain the existing system,  code new federally mandated changes to the legacy system, and  create the plans for the modernization project, all using the same  finite resources. According to this IT official, this type of situation  leads to increased risk as legacy resources become less readily  available in the marketplace, driving up the costs for hardware and  software support services.
There are a limited number of vendors to develop UI IT systems.
Officials in four of the nine states we reviewed, as well as the ITSC,  noted that the limited number of state modernization systems that  have been developed over the last decade, and the declining amounts  of funding, has resulted in there being only a small number of vendors  that have the knowledge and experience to build UI IT systems.  According to an ITSC official, only a limited number of vendors have  successfully implemented UI modernized systems on time and within  budget with major functionality delivered. Further, one state UI official  noted that, understanding the intricacies of the UI program and the  number of legislative changes that impact IT systems programming to  accommodate the changes require vendors to invest extensive time  and resources. Consequently, the vendors often distribute their  knowledgeable staff among several different states’ modernization  efforts simultaneously, resulting in system development delays. In  addition, three of the nine states said there is significant competition  for IT staff from the private sector. For example, three states are using  the same vendor and, according to the states’ IT managers, their  individual schedules for modernization have been impacted by the  limited vendor resources being divided among the multiple states.  One IT project manager told us his state is experiencing project  delays because its vendor has diverted resources to address issues  with another state’s project.
There are restrictions on certain funding that is available. Four states  said the restrictions tied to federal funding created a hindrance to  accepting those funds. For example, one state chose to not accept  federal funds for its IT modernization efforts because the funds came  with the requirement to increase UI benefits, which the state opposed.  Other federal restrictions include a prohibition on the commingling of  funds, such as using the federal funds for other projects. One official  said this impaired his state’s ability to leverage funds and projects and  potentially could hinder a state’s ability to, for example, consolidate its  computer operations into one facility because this would involve using  for other projects those resources designated for UI. Another state  said the short time frame in which to apply for federal supplemental  budget funds is not adequate to sufficiently explore the funding  conditions. Labor officials agreed with this challenge, further  commenting that the amount of funding available is not known until  the end of each fiscal year.
section_title: Consortiums Had Unique Challenges with Modernization
paragraphs: States participating in consortiums have unique multistate structures with  different organizational oversight mechanisms. As such, the states in our  study said they have encountered a separate set of challenges as they  develop common requirements and share technology platforms:
State law and business processes among consortium member  states may differ. Representatives for all three consortiums  indicated that differences in state laws, business processes, and  aversion to risk pose challenges to modernizing their UI systems.  Specifically, differences among states can be found in the areas of  procurement, communication, and implementation of best  practices; in the involvement of each state’s IT office; and in how  centralized the state’s IT is. Designing and developing a common  system that will work for all states is impacted because each  state’s requirements and processes may differ. For example,  because of these differences and the need to modify a UI  technology framework, state officials told us that they see a  consortium as not practical; another state official questioned  whether a common platform for a system can be successfully built  and made transferable between states in an economically viable  manner.
Software development approaches may differ. There are multiple  approaches to developing and modernizing systems, and states  within a consortium have often had different opinions on the best  approach. State officials said that having different software  development approaches is not practical when developing a  common system, and that it is difficult to reach consensus on an  overall approach that satisfies all the states in the consortium. A  state in one consortium effort had a preference for one type of  system development approach and withdrew from the consortium  to develop its own UI project because it did not agree with the  development approach the consortium was taking. Specifically,  instead of contracting out for systems development, the state  preferred developing the system in house with its own state staff  and resources, and further noted that joining the consortium would  have required a “waterfall” project development method, such as  defining all requirements initially before designing the system  instead of taking an agile approach and incrementally defining and  changing system requirements during segmented development,  which is the approach that state preferred to use.
Potential liabilities that exist in providing services to another state  cause concerns. IT representatives from one consortium’s lead  state noted that taking leadership and managerial direction of a  multistate consortium effort created concerns because officials  from one state were taking responsibility for another state’s  management duties in modernizing its systems to support the UI  program. The official explained that if the lead state makes a  decision that affects other states and the outcome is not desirable,  blame may be placed on the lead state. In addition, there is a  possibility that the lead state’s decision making could place other  states’ funds at risk. In one case, a state withdrew from its  leadership position due to concerns about liability, and it allowed  another state to take this role and assume the responsibilities.
Location of system resources causes concern. IT managers in  one of the three consortiums pointed to difficulties identifying  where the joint data center that would support the multiple states  should be located, and that there were challenges with reaching  agreement on the resources that should be designated to operate  and manage the facility while complying with individual state  requirements. For example, according to a UI state official, one  state required the data center to be in-state. In July 2012,  according to consortium officials, the state’s UI program received  an exception and was allowed the flexibility to choose the hosting  location outside of its state. Without exceptions such as these,  state-specific requirements that data centers be in-state potentially  could inhibit the number of states willing to participate within the  consortium efforts.
Independent qualified leadership may be insufficient. All three  consortium representatives noted that obtaining an independent and  qualified leader for a multistate modernization effort was challenging.  The state IT project managers and CIOs elaborated that, while each  state desires to successfully reach a shared goal, doing so requires  strong leadership and commitment that crosses independent and  diverse cultures in multiple states. The leadership of the consortium  must keep the interests of each state in balance. The leader of a  consortium needs to have extensive IT experience, that goes beyond  his or her own state’s technology environment, to effectively  understand and support other states in the joint effort. Moreover, the  consortium’s leader has to mitigate the appearance of partiality, which  may be difficult given the priorities and demands within his or her own  state. This was a significant challenge for one consortium, and to  address the challenge the lead state decided to recruit a senior  program manager from outside the member states to provide  independent leadership and the appearance of being unbiased.
section_title: Analysis of Challenges and Documenting Lessons Learned May Facilitate Improvements
paragraphs: As mentioned previously, Labor’s role, in partnership with the states, is to  ensure that the UI program is operating effectively and efficiently. In its  role to facilitate states’ UI modernization efforts Labor participates in a  variety of activities and, in part through ITSC, stays up to date with the  states’ technological initiatives, strategies, approaches, and challenges.  Thus, it is uniquely positioned to help ensure effective and efficient  technology modernization by identifying and disseminating lessons  learned from the states’ efforts. We have recognized the importance of  analyzing and prioritizing challenges and then documenting lessons  learned from major efforts such as the UI projects, in order to help  mitigate risks and track successful ideas for more effectively managing IT  and improving cost effectiveness that can be utilized in the future.
Lessons learned is a principal component of an organizational culture  committed to continuous improvement. Sharing such information serves  to communicate acquired knowledge more effectively and to ensure that  beneficial information is factored into planning, work processes, and  activities. According to the Office of Management and Budget, lessons  learned can be based on positive experiences or on negative experiences  that result in undesirable outcomes. Documenting lessons learned can  provide a powerful method of sharing successful ideas for improving work  processes and increasing cost effectiveness by aligning these practices in  future modernization efforts. Such an assessment of states’ challenges and documentation of lessons learned would be consistent with Labor’s  role.
Both individual state and consortium officials have developed methods to  mitigate specific challenges and have identified lessons learned. For  example, several states: are centralizing and standardizing their IT operations to address  technical challenges, which may allow a state to focus and leverage  its IT funding, staff, and projects on UI IT modernization; have found that a standardized, statewide enterprise architecture may  provide a more efficient way to leverage project development; and have taken steps to address consortium challenges they have  encountered, such as requesting that the consortiums have an IT  representative from each state to ensure that each state’s IT  department is involved in the project from the beginning.
ITSC’s Steering Committee tasked the ITSC to prepare a lessons learned  assessment, but the effort has not been completed and, while it may  provide valuable information and a basis to build on lessons learned, it is  limited to ITSC’s observations and may not be a comprehensive  assessment. Specifically, in September 2011 ISTC’s Steering  Committee tasked ITSC with documenting lessons learned, observations,  and successful practices of the consortiums. ITSC officials stated that  they plan to prepare a draft document that contains states’ status and  potential systems development approaches by the end of September  2012. They stated that this document will incorporate lessons learned  based on ITSC observations; however, it is limited to ITSC’s scope of  observations and has not been formally reviewed by the states or Labor.
Furthermore, during our review, ITSC officials told us the date when the  report will be finalized and provided to the states had not been  determined. Subsequently, in commenting on our draft report, ITSC  officials said that the report is “evolutionary” and constantly changing over  time. They added that the work had been used to brief UI executives and  leaders of 26 states.
While this effort may be a good first step toward identifying challenges  and lessons learned, it does not represent a complete, independent  survey of all the states’ challenges and lessons learned. A  comprehensive assessment would include formal input from states and  consortiums, the ITSC Steering Committee, and Labor. Until Labor  undertakes a more comprehensive approach that clearly identifies critical  challenges and lessons learned, it may not be positioned to help states  mitigate future challenges and facilitate the effectiveness and efficiency of  states’ modernization efforts going forward.
If such actions to address challenges are analyzed, prioritized, and  documented into lessons learned and then widely disseminated, they  could assist in mitigating future challenges as states proceed with their UI  program modernization efforts. Further, steps to develop an information- sharing platform for lessons learned could provide additional benefits.  Until Labor comprehensively analyzes and prioritizes challenges, and  documents lessons learned on these federally funded state UI  modernization efforts, it may miss opportunities to help support future  consortium and state modernization efforts, potentially hindering effective  administration of the UI program.
section_title: The Selected States Have Established Management Controls to Help Guide Their IT Modernization Efforts
paragraphs: As we have previously reported, an organization’s ability to effectively  modernize its IT environment greatly depends on the extent to which it  has established and implemented IT management controls. These  controls include, among others, recognized program management  practices and effective oversight. All of the selected states have  established management controls for modernizing the IT systems that  support their UI programs. These controls align with industry-accepted  program management practices and, if effectively implemented, could  help successfully guide modernization efforts.
A project management office is an organizational body assigned various  responsibilities related to the centralized and coordinated management of  those projects under its domain. The responsibilities of the office can  range from providing project management support functions to being  responsible for the direct management of a project. This office may be  delegated the authority to act as a key decision maker during the  beginning of each project, to make recommendations, or to terminate  projects or take other actions as required to keep business objectives  consistent. In addition, it may be involved in the selection, management,  and deployment of project resources. Our work and other best practice  research have shown that having a dedicated project leader that applies  effective management principles and practices improves the likelihood of  delivering expected modernization projects on time and within budget.  In other words, the quality of IT systems is largely governed by the quality  of project management processes and can help ensure that management  controls are being enforced.
All nine states in our study had established key aspects of project  management offices, and three of these states’ IT project managers said  that this office was a major factor in helping their UI modernization  projects. Among these states that have established a project  management office:
Colorado hired a project management office director with IT  certifications and a diverse background with, according to state  officials, extensive experience as a project management office  director. The officials stressed that having an experienced director to  lead the management office is key to successfully implementing UI  modernization projects.
Florida uses the project management office as a key part of its UI  modernization project. It is responsible for day-to-day project  oversight, providing overall guidance and direction to the contractor,  coordinating project resources, budgets, and contract management,  and monitoring project management areas including scope, risk,  quality, and change control. Officials from this state indicated that  having the project management office play such a large role in day-to- day activities may assist Florida in successful completion of its UI  modernization project. Officials explained that the office’s involvement  in a wide range of tasks helps ensure that critical factors that need to  be considered will be brought to management’s attention in a timely  manner and, as such, could help implement the project effectively.
Minnesota had a statewide project management office that was in  effect at the time the UI modernization project was initiated. This office  required project registration and status reports, and the UI program  included a project management consultant from that office on its  steering committee. State officials indicated that this integrated effort  added additional oversight to the UI project.
Effective project management is a critical element of any modernization  effort. One set of standards for managing a project includes the Program  Management Body of Knowledge (PMBOK). For example, the project  management standards include processes, tools, and techniques used to  manage a project toward a successful outcome. PMBOK has  interrelationships to other project management disciplines such as  program management and portfolio management. The IT industry has  adopted the project management standards as an accepted best practice,  and if properly implemented and integrated into an organization’s  environment, these management controls could help reduce risks  associated with modernization projects by providing effective and efficient  process improvements.
Based on our discussions with state IT administrators and managers and  our assessment of their guidance, states we reviewed have incorporated  project management standards into their UI modernization efforts. While  all of the states use selected project management standards, seven of the  nine states noted that project management was a key contributor to their  states’ UI modernization projects. For example:
California derived its own project management methodology, called  the California Project Management Methodology. This methodology  provides a framework for the IT project life cycle, from planning and  initiation to maintenance and operations. According to state officials,  this framework provides consistent project information and, as a  result, helps key policy makers with greater visibility concerning the  status of IT modernization projects, such as UI modernization,  potentially allowing them to provide informed direction and guidance  to IT project managers.
Colorado has also created its own guidance, the Colorado Project  Management Commonality Program, in alignment with project  management standards. This program provides guidelines indicating  when projects’ status and information should be elevated for the  Executive Governance Committee’s review. State IT officials noted  that these guidelines assist with the oversight of potentially risky  projects, like UI modernization, and could help ensure successful  completion.
Project management standards were also incorporated into Florida’s  project management documents and, according to the state’s IT  officials, may have helped ensure the quality of its project  management. Specifically, for the state’s UI modernization project,  PMBOK guidance defined project scope and helped ensure that only  work within this scope was performed. In addition, the guidance  required having key project management personnel certified, such as  IT project leaders, providing training that could help ensure more  experienced and skilled leadership. Moreover, Florida used project  management standards to manage the modernization’s costs, cost  reporting, and metrics; and budgeting controls were established for  the state’s systems modernization efforts.  Indiana’s IT management officials noted that its state’s main source of  guidance for project management was in part derived from selected  standards from PMBOK that, according to the officials, may help  mitigate challenges and foster better control of the project. Indiana  officials said that it holds weekly meetings with the commissioner of  the workforce agency, the commissioner of the office of IT, and the  agency director of IT to help manage the UI project.
According to the Director, Minnesota Department of Employment and  Economic Development, Minnesota’s UI program applied PMI  standards in the management of its modernization project. The  statewide project management office required project management  disciplines to be applied to state projects. These project management  disciplines continue to be applied and the statewide project office  works in partnership with a recently established centralized state IT  agency. This centralized IT agency also provides guidance IT security  controls and enterprise architecture.
Ohio has established a program management organization that  follows project management standards to help ensure successful  implementation of its modernization initiatives, such as UI  modernization. Ohio officials noted that the state uses the PMBOK  backbone to help drive UI modernization activities for planning and  introducing change into the workplace. Change control (for both  documents and source code) was key in helping to get interim  deliverables from the vendor as milestones were reached.
Tennessee has a PMBOK-based methodology that is required for IT  projects, including UI modernization. For example, its Office of  Information Resources requires an annual system project plan from  each agency for the 3 upcoming fiscal years, and projects are  required to have a detailed funding plan, providing a baseline for a  project’s status and progress to be tracked and managed. Also,  Tennessee officials noted that project management controls are  essential in overseeing modernization projects, including a structured  change management practice, and this has been adopted by the state  to capture legacy UI system changes, related legislative action, and  policy changes.
IV&V means that an independent entity evaluates the work generated by  the team that is designing a project. Verification is the process of ensuring  the accuracy of a project based on written specifications and  requirements. Validation is the process of evaluating software during the  development process to determine whether it satisfies specified  requirements and meets users’ needs. The IV&V contractor will often  monitor and evaluate every aspect of the project from inception to  completion so that problems can be corrected before they escalate to  large-scale issues. We and others have recognized that, if properly  performed, IV&V is a best business practice that is invaluable in providing  management reasonable assurance that a planned system will meet user  needs. For three of the states in our review, IT officials said IV&V played  a vital role in verifying the quality of their UI modernization project. Among  these:
Florida has an IV&V contractor that provides services for its UI  modernization project such as verifying that the system is developed  in accordance with validated requirements and design specifications,  validating that the system performs its functions satisfactorily,  monitoring project management processes, and providing feedback  on any deficiencies noted.  Indiana also has an IV&V contractor that provides guidance to its UI  modernization project. State officials noted that the IV&V process  helps them measure and assess the project’s progress, allowing the  state’s management to better provide redirection in a timely manner.
Virginia holds monthly meetings with its internal agency oversight  committee to discuss project progress. State officials also periodically  meet with the project’s IV&V vendor to report on the UI modernization  project’s scope, schedule, and budget. State officials said that the  presence of both the IV&V contractor and the vendor help ensure that  system requirements will be met. These officials further elaborated  that the IV&V process helps identify potential issues in scheduling and  may reduce project problems as the system is developed and  implemented.
IT investment management is a process for linking investment decisions  to an organization’s strategic objectives and business plans that focuses  on selecting, controlling, and evaluating investments in a manner that  minimizes risks while maximizing the return on investment. Consistent  with this, our IT Investment Management (ITIM) framework consists of  five progressive stages of maturity for any given agency relative to  selecting, controlling, and evaluating its investment management  capabilities. These maturity stages are cumulative; that is, in order to  attain a higher stage of maturity, the agency must have institutionalized  all of the requirements for the previous stage before moving on to the  next one. The framework can be used both to assess the maturity of an  agency’s investment management processes and as a tool for  organizational improvement. For each maturity stage, the ITIM describes  a set of critical processes that must be in place for the agency to achieve  that stage. We have used the framework in many of our evaluations, and  a number of agencies have adopted it.
One of the nine states within our review—Virginia—has adopted our ITIM  standards for implementing selected modernization projects and has  incorporated the standards into its UI system development guidance. The  state’s UI modernization efforts follow certain procedures for selecting,  controlling, and evaluating projects. This provides a mechanism for the  state to help ensure that critical tasks and elements that were considered  as the UI modernization project were selected and developed, and that  critical points throughout the process were brought to management’s  attention when approvals were needed to continue or redirect the project.  Other states have also followed selected aspects of the ITIM standards to  monitor their UI modernization projects and to help ensure appropriate  approvals and reviews at critical points in the systems development  process were obtained.
Earned value management helps project managers to measure project  performance. It is a systematic project management process used to find  variances in projects based on the comparison of work performed and  work planned. Earned value management is used to support cost and  schedule control and can be very useful in project forecasting. The project  baseline is an essential component of earned value management and  serves as a reference point for all related activities. Earned value  management provides quantitative data for project decision making.
One of the three consortiums—WyCAN-said it intends to use earned  value management as one of the tracking measures as it develops the UI  system. If adequately implemented, earned value management can assist  the program managers in accurately forecasting scope, schedule, and  cost and in identifying any potential problems and risks.
The Information Technology Infrastructure Library provides guidance to  organizations on how to use IT as a tool to facilitate business change,  transformation, and growth. The five core guides of the library map the  service life cycle, beginning with the identification of customer needs,  through the design and implementation of the service into operation and,  finally, to the monitoring and improvement phase. According to the IT  Service Management Forum,range of benefits that include: increased user and customer satisfaction  with IT services, improved service availability, financial savings from  reduced rework, improved resource management and usage, and  improved decision making, among other benefits.   adopting the core guides can offer users a  Two of the nine states in our review had considered using the five core  guides as a best practice and these states reported using the standards  to help identify potential problems in their UI modernization efforts, such  as limitations on resources and appropriately defining customer needs.  For example, Colorado had adopted the standards to aid with the  development of their UI modernization project to help define customer  needs and associated systems requirements, and the resources required  to implement these requirements.
All the states in our review noted that oversight was important and have  some form of governance. For example, states have formed committees  to guide modernization efforts, created oversight programs aimed at  modernization, and used their CIO offices to lead their efforts:
California created an IT oversight agency which approves all IT  projects over $1 million and receives monthly and quarterly reports on  projects. A feasibility study report is prepared to approve a  development project, and a special project report is required when a  project is rebaselined. California has used this control for its UI  modernization projects.
Colorado uses a tiered system for IT projects, which is referred to as  its executive governance committee. For the UI IT modernization  project, Colorado is implementing a project health index that provides  a numeric rank to the project status. This is intended to provide  information on the status of the project to the executive governance  committee so that it is informed of the project’s health, and is intended  to help ensure the project is aligned with its planned strategic  direction. In addition, Colorado’s technology office is required to report  on an annual basis to a state legislature oversight committee to  discuss the status of the UI modernization project.
Florida has monthly meetings with CIOs from other state agencies to  identify any issues related to the IT modernization project and UI  program that need to be resolved or discussed. In addition, Florida  has implemented an executive steering committee which has the  responsibilities of providing direction and support to the management  team; assessing the IT modernization project’s alignment with the  strategic goals of the department; reviewing and approving any  changes to the project’s scope, schedule, and costs; reviewing,  approving, and determining whether to proceed with any major project  deliverables; and recommending suspension or termination of the  project if the primary objectives cannot be achieved. In addition to the  executive steering committee, a technical steering committee exists  and includes a small group of subject matter experts. The technical  steering committee provides technical guidance and advice to the  project team.
Tennessee uses a Fiscal Review Committee, which reviews contracts  over $250,000 for which the state is required to present contract and  funding information. According to state officials, the committee has  authority to review state funding and risk management. In addition,  Tennessee established a governance committee at the Department of  Finance and Administration called the Information Technology  Assessment and Budget Committee, which meets monthly to review  the status of projects, including the UI modernization project and new  project requests. Further, the state has an Information Systems  Council that is made up of state legislators as well as commissioners,  the state comptroller, employee representatives, and others who meet  quarterly to review major state IT projects’ status and costs, as well as  any issues that need management direction. Finally, Tennessee’s CIO  reviews requests for proposals and approves major IT procurements.
Virginia has an office that provides management controls and an  overall model for project management for projects such as UI  modernization. It has defined criteria for major projects, such as those  that have a budget over $1 million, are mission critical, or are  multiagency projects. In addition, Virginia’s project management office  provides checks and balances on the project to ensure accuracy and  protect the state’s financial and operational interests.
As part of the IT governance process in Vermont, the state CIO office  provides direction and oversight to IT projects such as the UI  modernization project. According to a state official, the state requires  the CIO to review and approve any IT projects estimated to cost over  $500,000. In addition, the CIO office is responsible for overseeing  contracts and any significant changes (over $100,000) to  procurements.
In addition, the three consortiums—SCUBI; Maryland, Vermont, and West  Virginia; and WyCAN— have established governance structures that are  specific to their consortiums, in order to help review and oversee  multistate decisions affecting the modernization efforts:
SCUBI’s state officials have established a steering committee to  oversee states’ efforts to determine the feasibility of designing,  developing, and implementing a core UI benefit system. SCUBI’s  project steering committee is responsible for the overall management  of the business of the consortium and project. It also has a project  management office which is responsible for the day-to-day  management of the project. Each participating state will provide both  program and technical staff to work as a project team and to provide  project management resources for the office. The UI project is  supported by the IT staff of the consortium states, the executive  management of the member states, NASWA, and Labor.
The Vermont, Maryland, and West Virginia Consortium have  established three committees that aid in the oversight of the  consortium: the Project Steering Committee, the Consortium Project  Team, and the Contractor Project Team. The Project Steering  Committee is comprised of the UI directors from each consortium  state. This committee has authority to approve the project scope,  project schedule, project assumptions, project constraints, project  risks, the project communication plan, and the technical plan and  approach. The Consortium Project Team, consisting of subject matter  experts and technical staff from each state, execute the work of the  consortium based on guidance from the Project Steering Committee.  The Contractor Project Team aids the consortium by conducting a  review of the current benefit and tax operations in each state,  developing business and functional requirement documents, and  helping the consortium identify an approach to developing new  systems.
The WyCAN consortium, led by Colorado, is planning to develop a  common, integrated and combined UI benefits and tax IT system. To  do this, the consortium states have established multiple governance  structures to help regulate the interaction of the states within the  consortium. One of the governance structures includes the executive  committee and is comprised of eight members in each consortium  state that meet at least once quarterly. The head of the UI program  and the state CIOs are included in the executive committee and  provide leadership and approval of the consortium efforts.
section_title: Conclusions
paragraphs: In recognition of the states’ need to modernize their UI systems, Labor  has provided funding and technical assistance. Yet, the status of states’  efforts varies, ranging from the planning and requirements phase to the  implementation and operation of modernized solutions. In undertaking  these major efforts, the nine states we reviewed have encountered a  variety of challenges in managing their modernization projects, resulting  from factors such as the need to provide sufficient staff to operate both  legacy and modernized systems, and differences in state law and  business processes among consortium member states. Labor has tasked  ITSC to assess lessons learned, observations, and successful practices  of consortium efforts, which is a valuable first step toward helping the  states overcome challenges as they move forward in modernizing UI  systems. However, this effort is not complete and does not represent an  independent survey of all the states’ lessons learned. As such, Labor has  not clearly identified challenges and lessons learned, disseminated them  to each state, or facilitated an appropriate information sharing  mechanism. This can hinder states’ ability to draw upon each others’  experiences to mitigate future challenges and facilitate success going  forward to improve the effectiveness and efficiency of modernization  efforts. The states we reviewed have identified numerous management  controls to aid their modernization efforts which, if implemented  successfully, can also help to mitigate challenges.
section_title: Recommendations for Executive Action
paragraphs: To further facilitate state and consortium modernization efforts, we  recommend that the Secretary of Labor direct the Administrator of the  Office of Unemployment Insurance to take the following two actions:
Perform a comprehensive analysis of lessons learned and identify  specific areas that would help mitigate current state challenges and  provide guidance for future consortiums and individual state efforts.  This assessment should include an evaluation of ITSC’s lessons  learned and observations identified, as well as input from individual  states, consortium representatives, and the ITSC Steering Committee.  Lessons learned and best practices identified could include practices  for mitigating issues associated with inconsistent and insufficient  funding streams, helping ensure staff have the necessary technical  and project management expertise to manage modernization  technology resources, and sufficient staff to operate both legacy and  modernized systems while developing and implementing new  systems; and consortium-specific challenges, including practices for  addressing concerns about differences in state requirements and  business processes among consortium member states, mitigating  potential liabilities and concerns that lead states face in providing  services to and oversight of another states’ modernization efforts, and  identifying independent qualified leadership for consortium efforts.
Distribute the analysis of lessons learned to each state to share and  foster ideas and facilitate the efficient and effective modernization of  UI systems through an information-sharing platform or repository,  such as a website, so that state agencies can contribute ideas and  case studies of best practices and lessons learned on a continuing  basis, and so that states’ input can be solicited for each major phase  of system development.
section_title: Agency Comments and Our Evaluation
paragraphs: Labor’s Assistant Secretary for Employment and Training Administration  provided written comments on a draft of this report, which are reprinted in  appendix II. In its comments, the department generally agreed with our  recommendation to perform a comprehensive analysis of lessons learned  and identify specific areas that would help mitigate current state  challenges and provide guidance for future consortiums and individual  state efforts. In this regard, the department said it agreed with the need  for an ongoing process of continuous learning that would involve  collecting and analyzing lessons learned and best practices and offering  technical assistance to states. To accomplish this, the department  believed it would be more prudent to evaluate the report on state lessons  learned that ITSC is expected to finalize by September 28, 2012, to avoid  conducting a possibly duplicative analysis. We noted in our report that  ITSC’s assessment of lessons learned provides a valuable first step  toward helping the states overcome challenges as they move forward in  the modernization of UI systems. As such, we recommended that the  department’s assessment include an evaluation of ITSC’s lessons  learned and observations identified and use this information as a good  first step. Labor’s assessment, as we noted, should also include input  from all individual states, consortium representatives, and the ITSC  Steering Committee.
Labor neither agreed nor disagreed with our second recommendation,  which called for it to distribute the analysis of lessons learned to each  state to share and foster ideas and facilitate the efficient and effective  modernization of UI systems through an information-sharing platform or  repository, such as a website. Nonetheless, the department noted that it  is committed to working actively to support knowledge sharing among the  states related to UI IT modernization best practices and lessons learned  through ITSC’s website, department guidance, webinar presentations,  participation in conferences with states, and the department’s recently  established UI Community of Practice website. Labor acknowledged its  commitment to identify lessons learned and the need to reevaluate them  on an ongoing basis. The department also recognized the importance of  maintaining a repository of best practices and lessons learned to provide  a forum for the states to provide ideas and feedback on a continuing  basis for each major phase of systems’ development.
Labor also provided clarifying information in its technical comments,  which we incorporated as appropriate. In these comments, the  department sought to clarify our discussion of funding sources, such as  the Reed Act distribution. Specifically, Labor noted that the Reed Act  distribution funds are not solely available for UI IT modernization efforts.  As we noted in our report, federal funds can be used for multiple UI  purposes, and states have the authority to spend these funds on a  number of administrative activities, including IT, as well as other activities,  such as capital improvement projects and payment of benefits. In  response to Labor’s technical comments, we revised the wording to make  clearer the sources of funding for IT modernization efforts.
Beyond the aforementioned comments, we requested technical  comments through email from ITSC and the nine states included in our  study. In response, the Director of ITSC and five state officials—  California’s Deputy Director of the Employment Development  Department, Colorado’s Program Manager of the Colorado Department of  Labor and Employment, Minnesota’s Director of the Unemployment  Insurance Division, Tennessee’s Information Technology Administrator of  the Tennessee Department of Labor and Workforce Development, and  Virginia’s Project Manager of the Virginia Employment Commission— provided comments on relevant facts discussed in the report message.  We have incorporated these comments where appropriate.
We are sending copies of this report to the Secretary of Labor,  appropriate congressional committees, and other interested parties. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have questions about this report, please contact me at  (202) 512-6304 or melvinv@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) determine the Department of Labor’s (Labor)  role in facilitating the modernization efforts, (2) identify and describe the  types of federal funding selected states have spent on IT modernization,  (3) provide the status of modernization efforts for the selected states, (4)  determine key modernization challenges, and (5) evaluate what  management controls have been established for IT modernization.
To address each objective, we conducted in-depth interviews with  management and IT staff in nine state unemployment insurance (UI)  offices—California, Colorado, Florida, Indiana, Minnesota, Ohio,  Tennessee, Vermont, and Virginia. We selected the states on the basis of  varying regional location, size, and modernization status. Specifically, our  selection of nine states represents each of the six Labor regions, at least  one small, medium, and large state, and each of the major phases of  systems modernization, including planning and requirements,  development, testing and operations and maintenance. We also selected  states developing individual systems, those developing integrated tax and  benefits systems, and states involved in consortium efforts. While our  sample is nongeneralizable, these states offered insight and perspective  on their experiences in modernizing UI systems, including sources of  funding, challenges, and established management controls. In addition,  we interviewed Labor officials, evaluated state audit entities’ reports, and  spoke to stakeholders involved in modernization of states’ UI systems,  such as officials from the National Association of State Workforce  Agencies’ (NASWA) Information Technology Support Center (ITSC).
To determine Labor’s role in facilitating the modernization efforts, we  collected and analyzed documentation describing Labor’s responsibilities,  including regulations, department project plans, and program guidance.  We interviewed relevant Labor program officials to identify and discuss  Labor’s role and efforts in supporting state UI modernization efforts,  including facilitating state UI agencies in mitigating their modernization  challenges. We also interviewed relevant officials from the selected state  UI agencies as well as from the NASWA’s ITSC to obtain their views on  Labor’s role and efforts to assist states in the modernization of their UI  systems.
To identify and describe the types of federal funding selected states have  spent on IT modernization, we obtained and analyzed selected states’ IT  modernization expenditure data such as funding allocations, project  reports, and spending reports. We also reviewed documentation on  federal funding sources that can be used for state UI modernization, such  as the State Unemployment Insurance and Employment Service  Operations appropriation, Reed Act distributions, and the American  Reinvestment and Recovery Act, as well as Labor’s documentation on  funding for UI modernization, including supplemental budget funds for  state UI modernization efforts. In addition, we reviewed documentation  discussing nonfederal funding sources that are used for state UI  modernization. To supplement this information, we interviewed officials  from Labor, the selected UI states, and stakeholders such as the  NASWA’s ITSC, to identify the type of federal and other funds spent on UI  modernization efforts. In addition, we summarized the information  collected from the state UI agencies on the types of federal funds and  obtained clarification and confirmation from the states on the accuracy of  this information.
To provide the status of modernization efforts for the selected states, we  collected and reviewed the selected states’ documentation of their  modernization planning and development efforts, such as IT strategic  plans, project plans, status reports, and descriptions of current systems  development artifacts. We also held discussions with officials from the  selected UI agencies, including officials involved in planning and  developing the UI systems, regarding the status of and plans for state UI  modernization efforts.
To determine key modernization challenges, we analyzed public and  internal reports on state UI modernization efforts and lessons learned. We  also interviewed relevant Labor, UI state, and NASWA’s ITSC officials to  identify modernization challenges and to discuss lessons learned and  means for addressing the challenges. We also summarized the  information collected from the state UI agencies on their modernization  challenges and obtained clarification and confirmation from the states on  this information.
To evaluate what management controls have been established for IT  modernization, we interviewed Labor and selected UI states’ officials to  identify and discuss the management controls used by the selected state  UI agencies. To supplement this information, we also met with  representatives from the NASWA’s ITSC who were involved in assisting  states in their modernization efforts, to discuss management controls  used to support state UI consortiums’ modernization efforts. We also  reviewed the documentation describing the selected states’ UI  management controls and compared these controls to best practices and  industry standards, such as those identified by the Project Management  Institute. We did not, however, assess the extent to which the selected UI  agencies implemented the management controls or the effectiveness of  these controls in modernizing state UI systems.
We conducted this performance audit from January 2012 through  September 2012 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Labor
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Christie Motley (Assistant  Director), Michael Alexander, Neil Doherty, Rebecca Eyler, Christopher  Nemr, Teresa M. Neven, Monica Perez-Nelson, and Charles Youman  made key contributions to this report.