PERFORMANCE AUDIT REPORT Limited-Scope Audit

Transcription

1 Limited-Scope Audit Unemployment Benefit Payments: Reviewing Benefit Payouts and Changes in the Number of Employees Determined To Be Eligible A Report to the Legislative Post Audit Committee By the State of Kansas March

2 Legislative Post Audit Committee THE LEGISLATIVE POST Audit Committee and its audit agency, the Legislative Division of Post Audit, are the audit arm of Kansas government. The programs and activities of State government now cost about $11 billion a year. As legislators and administrators try increasingly to allocate tax dollars effectively and make government work more efficiently, they need information to evaluate the work of governmental agencies. The audit work performed by Legislative Post Audit helps provide that information. We conduct our audit work in accordance with applicable government auditing standards set forth by the U.S. Government Accountability Office. These standards pertain to the auditor's professional qualifications, the quality of the audit work, and the characteristics of professional and meaningful reports. The standards also have been endorsed by the American Institute of Certified Public Accountants and adopted by the Legislative Post Audit Committee. The Legislative Post Audit Committee is a bipartisan committee comprising five senators and five representatives. Ofthe Senate members, three are appointed by the President of the Senate and two are appointed by the Senate Minority Leader. Of the Representatives, three are appointed by the Speaker of the House and two are appointed by the Minority Leader. Audits are performed at the direction of the Legislative Post Audit Committee. Legislators or committees should make their requests for performance audits through the Chairman or any other member of the Committee. Copies of all completed performance audits are available from the Division's office. LEGISLATIVE POST AUDIT COMMITTEE Representative John Edmonds, Chair Representative Tom Burroughs Representative Peggy Mast Representative Bill McCreary Representative Tom Sawyer Senator Les Donovan, Vice-Chair Senator Anthony Hensley Senator Nick Jordan Senator Derek Schmidt Senator Chris Steineger LEGISLATIVE DIVISION OF POST AUDIT 800 SW Jackson Suite 1200 Topeka,Kansas Telephone (785) FAX (785) LPA@Ipa.state.ks.us Website: Barbara J. Hinton, Legislative Post Auditor The supports full access to the services of State government for all citizens. Upon request, Legislative Post Audit can provide its audit reports in large print, audio, or other appropriate alternative format to accommodate persons with visual impairments. Persons with hearing or speech disabilities may reach us through the Kansas Relay Center at Our office hours are 8:00 a.m. to 5:00 p.m., Monday through Friday.

3 LEGISLATURE of KANsAS LEGISLATIVE DIVISION of PosT AuDIT 800 SOU1HWEST JACKSON STREET, SUITE 1200 ToPEKA, KANsAS TELEPHONE (785) FAX (785) March 18, 2005 To: Members, Legislative Post Audit Committee Representative John Edmonds, Chair Representative Tom Burroughs Representative Peggy Mast Representative Bill McCreary Representative Tom Sawyer Senator Les Donovan, Vice-Chair Senator Anthony Hensley Senator Nick Jordan Senator Derek Schmidt Senator Chris Steineger This report contains the findings, conclusions, and recommendations from our completed performance audit, Unemployment Benefit Payments: Reviewing Benefit Payouts and Changes in the Number of Employees Determined to Be Eligible (Limited Scope Audit). The report also contains appendices showing information on three temporary extended unemployment benefit programs as well as a summary of various historical statistics related to the unemployment insurance program. We would be happy to discuss the findings presented in this report with any legislative committees, individual legislators, or other State officials. Barbara J. Hinton Legislative Post Auditor

4 Get the Big Picture Read these Sections and Features: 1. Executive Summary - an overview of the questions we asked and the answers we found. 2. Conclusion and Recommendations - are referenced in the Executive Summary and appear in a box after each question in the report. 3. Agency Response - also referenced in the Executive Summary and is the last Appendix. Helpful Tools for Getting to the Detail ~ In most cases, an "At a Glance" description of the agency or department appears within the first few pages of the main report. Side Headings point out key issues and fmdings. Charts/Tables may be found throughout the report, and help provide a picture of what we found. Narrative text boxes can highlight interesting information, or provide detailed examples of problems we found. Appendices may include additional supporting documentation, along with the audit Scope Statement and Agency Response(s). 800 SW Jackson Street, Suite 1200, Topeka, KS Phone: lpa@lpa.state.ks.us Web:

5 EXECUTIVE SUMMARY legislative DIVISION OF PoST AUDIT Overview of the Unemployment Insurance Program Unemployment insurance is funded by a tax on wages paid to... page 3 employees. Unemployment insurance is a joint federal-state program. Employers pay federal unemployment taxes to help administer the Program and fund extended unemployment benefits. Employers also pay State unemployment taxes into the Kansas Unemployment Security Trust Fund. Because the Fund grew to be very large, the Kansas Legislature authorized a moratorium on the collection of unemployment taxes between 1995 and Because of the severity of the 2001 recession, the federal and Kansas governments authorized several temporary extended benefit programs. To receive unemployment insurance benefits, claimants must... page 5 meet the requirements of law. In general, an individual must have made a claim for benefits, be registered for and able to work and actively seeking work, and must have received wages for a specific period of time for work that wasn't excluded by the Act. An individual may be disqualified from receiving benefits when he or she has been discharged for misconduct or left work without good cause. Employers and claimants both have the right to appeal an eligibility determination. How Has the Number of Employees Applying for And Receiving Unemployment Benefits Changed Over Time? In recent years, the amount of unemployment benefits paid... page 7 out has increased substantially. Benefit payments peaked at about $375 million in fiscal year Legislators questioned why payments in 2003 were much higher than amounts paid in 1994 even though the unemployment rates for those two years were similar. In 2003, more people were receiving benefits, their payments... page 8 were higher, and they got paid for a longer period of time than in Possible explanations for the increase in the average weekly benefit payments include layoffs of employees in certain industries earning higher wages, which is the basis for benefit computation. Although more employees are receiving benefits, we saw no... page 9 evidence that claims now are being decided unjustifiably in their favor. If claims were being decided unjustifiably in favor of employees, we would expect to see significant changes in statistics related to claims determinations and appeals. However, we found: EXECUTIVE SUMMARY 1

6 there's been almost no change in the percentage of people receiving unemployment benefits compared to the number who apply. there's been essentially no change in the rate at which employers appeal the Division's initial claims decisions. there's been no significant change in the percent of appealed cases that employees win. there's been no perceptible increase in the percent of appeals employees have won since the new phone appeal process was implemented in there's been no significant upward trend in the number of employees winning "voluntary quit" appeals. CONCLUSION... page 12 APPENDIX A: Scope Statement... page 13 APPENDIX 8: Information on Three Temporary... page 14 Extended Benefit Programs APPENDIX C: Summary of Various Historical Statistics... page 15 Related to the Unemployment Insurance Program APPENDIX D: Agency Response... page 18 This audit was conducted by Katrin Osterhaus and Ivan Williams. Leo Hafner was the audit manager. If you need any additional information about the audit's findings, please contact Ms. Osterhaus at the Division's offices. Our address is:, 800 SW Jackson Street, Suite 1200, Topeka, Kansas You also may call us at (785) , or contact us via the Internet at 2 EXECUTIVE SUMMARY

7 Unemployment Benefit Payments: Reviewing Benefit Payouts and Changes in the Number of Employees Determined To Be Eligible The Unemployment Insurance Division within the Kansas Department of Labor operates the State's Unemployment Insurance Program. This program collects State unemployment insurance taxes from employers. Those taxes are used to pay benefits to replace part of insured employees' wages when they lose their jobs because of involuntary unemployment. Although benefits paid under the Program can vary widely because of the condition of the economy, legislative concerns have been raised about the high and sustained level of benefits that have been paid out in recent years. These concerns have generated questions about the number of claimants being determined to be eligible for unemployment compensation benefits. Specific questions for this limited-scope audit focus on how those figures have changed over time, and whether it has become more common for cases appealed to an unemployment insurance judge to be decided in favor of the employee. One concern is that the more recent practice of holding appeal hearings by phone might be more favorable to employees. This limited-scope performance audit addressed these issues by answering the following question: How has the number of employees applying for and receiving unemployment benefits changed over time? To answer this question, we analyzed unemployment and appeals data from the Unemployment Insurance Division, reviewed case records for a sample of appealed unemployment claims, and interviewed Division officials including the Chief of Appeals. A copy of the scope statement for this audit approved by the Legislative Post Audit Committee is included in Appendix A. In conducting this audit, we followed the applicable government auditing standards set forth by the U.S. Government Accountability Office, except that, because of time constraints, we performed only limited testing on the appeals data the Division supplied, and we didn't test other data the Department supplied to us such as size of the Kansas workforce, unemployment rates, initial unemployment claims, or the average weekly benefit amounts. If any of these numbers are significantly mistated, our conclusions could be affected. 1

8 Furthermore, it should be noted that the Federal Bureau of Labor Statistics has developed a new model for estimating certain statistics related to the labor force and unemployment. This will cause the Kansas Department of Labor to revise historical employment and unemployment statistics, so future reported unemployment statistics may not be the same as those shown in this report. Our findings begin on page 7, following a brief overview. 2

9 Unemployment Insurance Is Funded By a Tax on Wages Paid to Employees Overview of the Unemployment Insurance Program In 1937, the Kansas Employment Security Law was enacted to provide some income during times of unemployment for people who are unemployed because of conditions in the economy or labor market, and through no fault of their own. Unemployment insurance is a joint federal-state program. Generally, employers must pay both State and federal unemployment taxes if they pay wages of at least $1,500 in any calendar year quarter, or if they had at least one employee during any day of a week during 20 weeks in a calendar year, regardless of whether or not the weeks were consecutive. Under the Kansas Employment Security Law, employers don't pay Kansas unemployment taxes on certain exempt employees, such as elected officials, commissioned real estate and insurance agents, clergy, and students employed by universities. Likewise, these employees aren't eligible to claim benefits. Employers pay federal unemployment taxes to help administer the program and fund extended unemployment benefits. Employers generally pay federal unemployment taxes based on.8% of their taxable wage base, currently set at $7,000 per employee. This equals $56 per employee per year (.8% x $7,000). The federal tax covers the costs of administering the unemployment insurance and job service programs across the states. In addition, the tax pays part of the cost of extended unemployment benefits during periods of high unemployment. Employers pay State unemployment taxes into the Kansas Unemployment Security Trust Fund. Most employers pay State unemployment taxes based on a specified contribution rate times the first $8,000 of wages paid to each employee during the calendar year. The contribution rates are revised annually and reflect each industries' historical risk with unemployment. For example, the 2005 contribution rate for the construction industry is 5.16%, but it's only 3.83% for the manufacturing industry. Employers' tax contributions go into an Unemployment Security Trust Fund and are used to pay unemployment benefits. In addition, the Division keeps track of each employers' contributions and any benefits charged to the employer as a result of unemployment claims. When an employer has a negative account balance (when benefits charged to an employer's account exceed taxes paid by that employer), the employer must pay taxes based on the maximum contribution rate and is subject to a surcharge. 3

10 The Kansas Legislature authorized a moratorium on the payment of unemployment taxes between 1995 and During periods of high or increasing employment, both workers and wages go up, increasing employers' payroll and therefore the contributions to the Fund. In 1994, the Unemployment Trust Fund balance had reached $735 million and the Legislature implemented a temporary stop on requiring contributions from those employers that had positive balances in their unemployment tax accounts. Figure OV-1 shows employers' contributions over the past 15 years, adjusted for inflation. $325 'I -=-ln-:m":':'il::;:"lio-n-s'~300 FigureOV-1 Annual Unemployment Fund Employer Contributions & Interest (In Millions -Adjusted for Inflation) $275 $250 $225 $200 $175 $150 $125 $100 $75 $50 $25 Employer Contribution Moratorium Source: Unverified data provided bv the Kansas Department of Labor and the Consumer Price Index Because of the severity of the recession, the federal government authorized two temporary extended benefit programs and the 2003 Kansas Legislature authorized two weeks of extended benefits for These additional benefits were implemented to help individuals that had exhausted their regular benefits. Department of Labor staff told us the statistics reported in the 2004 Employment Security Advisory Council Annual Report - the impetus for this audit - exclude temporary benefit claims and payments. Therefore, benefit data in this report reflect only the regular unemployment program. Appendix B provides more information about these extended benefit programs. 4

11 To Receive Unemployment Insurance Benefits, Claimants Must Meet the Requirements of Law Individuals who are involuntarily unemployed can receive up to 26 weeks of benefits. In general, the individual must have made a claim for benefits, be registered for and able to work and actively seeking work, and must have received wages for a specific period of time for work that wasn't excluded by the Act. In addition, the individual must not be disqualified under the provisions of the law. For example, a claimant is disqualified from receiving initial or continued benefits if he or she: left work without good cause attributable to the work or the employer (there are 12 exceptions that may allow benefits to be paid). was discharged for misconduct connected with the work failed, without good cause, to apply for or to accept suitable work when offered by an employment office or employer made false statements or withheld information to obtain more benefits than due Claims examiners (within the Employment Security Division) determine whether claimants are eligible. Division staff calculate the total benefit amount based on each eligible claimant's highestpaid quarter in his or her ''base period." The claimants' base period is defined as the first four of the last five completed calendar quarters immediately preceding the quarter in which the claim was filed. Employers and claimants both have the right to appeal an eligibility determination. The appeals branch of the Division reviews cases that are appealed. Hearings are informal and conducted in accordance with appellant procedure regulations that mirror the Kansas Administrative Procedures Act. An unemployment insurance judge's decision may be appealed to the Board of Review, and further to the district court. The Board of Review consists of three members, two of whom are appointed by the Governor; the third is appointed by the first two. The Board of Review and the district court render decisions solely based on the initial appeal record from the Division. Since 1999, the Division has conducted appeals by phone. As part of a modernization project, the Division implemented a call center concept for job services, unemployment claims, and appeals. Phone appeals are now almost universal. Fewer than 20 appellants requested an in-person hearing of the more than 13,000 appeal hearings in

12 Unemployment Insurance Services Division - Department of Labor AT A GLANCE Authority: Staffing: Budget: Created by K.S.A et seq., the Division administers the State's unemployment insurance law and related federal programs. The Division determines the employer's tax rates; receives, processes, and pays benefit claims; adjudicates irregular claims; hears appeals; and compiles data to meet State and federal requirements. The Division has 298 full-time-equivalent positions, the majority of which are program specialists who process unemployment claims. The Divison spent nearly $14 million to run the Program. Almost all of the Division's expenditures are funded through the Employment Security Administration Fund. FY 2004 Expenditures :Dll!! Amount %of Total Salaries/Wages $11,242,474 80% Contractual Services $2,142,720 15% Commodities $230,762 2% Capital Outlay & Improvements $354,379 3% Other $15,396 0% Employment Security Administration Fund, $13,979,665, 99.96% Sources for Funding for Expenditures State General Fund, $6,066, 0.04% Total Expenses: $13,985, % Total Funding: $13,985,731 Source: The Governor's Budget Report, Vol. 2, FY

13 ANSWER IN BRIEF: How Has the Number of Employees Applying for And Receiving Unemployment Benefits Changed Over Time? In recent years, 'the amount of unemployment benefits paid out has increased substantially, raising questions about why payments in 2003 were more than double the amount paid out in 1994, when the unemployment rate was nearly the same, and whether the Department of Labor had adopted a more "employee-friendly, philosophy in granting benefits and making decisions about appeals. Payments were higher in 2003 because of the cumulative effect of more people receiving benefits, their benefit amounts being higher, and the fact that they received benefits for a longer period of time than in Although more employees are receiving benefits, we saw no evidence that claims or appeals now are being decided unjustifiably in their favor. These and other findings are discussed in more detail in the sections that follow. In Recent Years, the Amount of Unemployment Benefits Paid Out Has Increased Substantially Figure 1-1 shows the total benefits paid under the regular unemployment program (not including the extended benefits authorized by the Federal government and the Kansas Legislature over the past several years) since :fiscal year The figure also shows benefit payments on an inflation-adjusted basis, and compares them with the annual average unemployment rates. I Figure 1-1 Actual and Inflation Adjusted Regular Benefit Payments (in Millions) And Unemployment Rates- FY Benefit Payments in I Millions $450 $400 $350 $300 $250 $200 $150 $100 $50 Source: Unaudited data provided by the Kansas Department of Labo1 I Unemployment Rates $0 1$ in Millions I Unadjusted $ $151 $173 $185 $179 $175 $155 $148 $143 $130 $139 $168 $205 $309 $375 $353 c:::::jadjusted $ $218 $240 $249 $234 $223 $192 $178 $168 $151 $158 $185 $219 $324 $385 $353..,.._Unemployment% 4.2% 4.7% 4.1% 4.7% 5.4% 4.8% 4.5% 4.1% 3.8% 3.3% 3.2% 4.0% 4.7% 5.3% 5.1% I 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 7

14 As the figure shows, benefit payments started to rise in fiscal year 1999, rose much more sharply after the terrorist attacks on September 11th, and peaked at about $3 7 5 million in fiscal year The figure also shows that the long-term trend in unemployment benefit payments generally parallels the trend in the unemployment rate. However, the amount of benefits paid out during the periods of highest unemployment was significantly higher in 2003 than in This significant increase in unemployment benefits has raised a number of questions: Why were benefit payments in 2003 so much higher than the amounts paid in 1994, even though the unemployment rates for those two years were similar? Are benefit payments increasing because a more "employee-friendly" philosophy has been adopted in recent years in granting benefits and making decisions about appeals? Were employees who quit voluntarily being granted unemployment benefits they weren't qualified to receive? Has the new procedure allowing appeals to be conducted by phone resulted in more appeals being decided in favor of the employees? We address these questions in the following sections. In 2003, More People Were Receiving Benefits, Their Payments Were Higher, and They Got Paid for a Longer Period of Time Than in 1994 The amount of unemployment benefits paid out will depend on three things: the number of people receiving payments, the amount they receive, and the duration of those payments. Figure 1-2 on the next page summarizes this information for 1994 and 2003, years for which the unemployment rate was similar. Appendix C provides similar information for Figure 1-2 shows that all three factors increased between 1994 and That means the higher amounts paid out in unemployment benefits in 2004 have been affected by the cumulative impact of these increases. Some possible reasons why the duration of benefits paid and adjusted average weekly benefit paid have increased: companies in two industries with high-paying jobs-boeing and Sprint-laid off large numbers of people since September 11,2001. These employees not only had higher wages (which would have been the basis for computing their benefits), but also may have had a harder time finding replacement jobs that matched their skills and past wage levels. 8 The following section examines the concerns raised about increases in the number of employees receiving unemployment benefit payments.

15 Unemployment rate (a) 5.4% 5.3% Unemployment benefits paid out (b) (unadjusted) (adjusted for inflation to 2004) $175 million $223 million $375 million $385 million 114% 73% Factors that can relate to the # of people who receive benefits Civilian labor force (a) 1,339,745 1,424, % Unemployed people (a) (average at a point in time) 71,727 75, % # of people who applied for benefits (cumulative for the year) 106, ,213 39% #of new claims filed (a person can file multiple claims) 130, ,630 52% Avg #of claims filed per person (employees can file multiple claims) % # of people who received benefits 90, ,484 31% Average weekly benefit paid (unadjusted) (adjusted for inflation to 2004) $188 $240 $273 $280 45% 17% (a) In Spring of 2005, the Department of Labor will revise historical employment and unemployment statistics by using a new model developed by the Federal Bureau of Labor Statistics. Those revised statistics may not match the numbers reported in this table. (b) excludes extended benefit payments authorized and funded by the Federal and State governments in 2002, 2003, and Source: Analysis of unaudited data received from the Department of Labor. More Employees Are Receiving Benefits, But We Saw No Evidence Claims Are Being Decided Unjustifiably In Their Favor Because of concerns that benefit payments have skyrocketed as a result of the Department adopting a more "employee-friendly" policy in recent years, we looked at trends in a number of different statistics related to claims determinations and appeals. The trends we saw in each area are discussed below. Trends and Issues Related to Claims Decisions There's been almost no change in the percentage of people receiving unemployment benefits compared to the number who apply. If the Department of Labor had become more "employee friendly" in its claims determinations process in recent years, we would have expected to see a significantly higher proportion of those who applied for unemployment benefits being granted benefits. We didn't. 9

16 The Department doesn't track the number of claims filed that actually are awarded benefits. However, Department officials were able to use their computer system to identify the number of unique employees who filed one or more unemployment claims during the year, and the number of unique employees who received unemployment benefits sometime during the year. These figures provide an acceptable surrogate measure of the extent to which employees who apply for benefits are being granted benefits. As Figure 1-3 shows, the ratio of people receiving unemployment benefits to people applying for such benefits has fluctuated only slightly over the last decade. In 1994 it was 86%, and in 2003 it was 81%. 100% Figure 1-3 Percentage of Individuals Applying For Benefits Who Actually Received Them FY GA 84GA 87% 86% % 82% 80% 81% 79% 80% 78% 79% 81% 82% 80% -l--- 60% 65% 40% 20% 0% Source: LPA Analysis of unaudited data from the Kansas Department of Labor There's been essentially no change in the rate at which employers appeal the Division's initial claims decisions. If the Division were inappropriately granting benefits to significantly more employees who had applied for them in recent years, we would have expected to see a big increase in the percent of cases appealed by employers. As Figure 1-4 shows, we didn't. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Figure 1-4 Proportion of Employers and Employees Appealing Initial Unemployment Decisions (FY ) 1 'Includes appeals brought under the temporary extended benefit programs. Source: Unaudited data from the Kansas Department of Labor []% of appeals brought by employee % of appeals brought by employer 10

17 Unemployment laws apparently haven't changed in the past 3-4 years in a way that would make it easier for significantly larger numbers of employees to receive benefits. Although we didn't review all those changes within the timeframe for this audit, Division officials and a senior unemployment insurance judge we talked with said the law has changed several times over the past several years, but not in a way that would have "opened the gates" for employees. Trends and Issues Related to Appeal Decisions There's been no significant change in the percent of appealed cases that employees win. If the unemployment insurance judges who hear appeals had shifted their policies to rule significantly more often in favor of the employee, we would have expected to see an increase in the percentage of appealed cases where the employee won. As Figure 1-5 shows, the percent of appeals decided in favor of the employee has fluctuated only slightly over time. 100% Figure 1-5 Proportion of Employees and Employers Who Win Appeals (FY ) 1 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% includes appeals brought under the temporary extended benefit programs. Source: Unaudited data from the Kansas Department of Labor D Employers Winning Appeals II Employees Winning Appeals We also noted that, to try to reduce a backlog of appeal cases, the Division set up a system in late 2002 to identify employers who wouldn't be liable for the benefits paid to the employee whose case they were appealing and to notify them that if they withdrew the appeal, it wouldn't affect their unemployment account record. [Employers' accounts aren't charged when an employee worked for that employer only a short time before filing a claim, so the claim actually impacts the previous employer(s).] The senior unemployment insurance judge told us that, out of about 1 00 appeals on a recent docket that fell into this category, all but four employers decided to withdraw their appeals. The judge also explained that generally the employee will win cases where an employer withraws his or her appeal because the initial examiners' decision is upheld. 11

18 If this practice had resulted in employees "prevailing" in significantly more appeals, we would have expected to see that trend reflected in the appeals data for fiscal years 2003 and However, as Figure 1-5 shows, we didn't. That percentage has remained relatively constant. There's been no perceptible increase in the percent of appeals employees have won since the new phone appeal process was implemented in If appeals handled over the phone were favoring employees, we would have expected to see an increase in the percent of appeals employees won during and since 1999, when the process was implemented. As Figure 1-5 shows, we didn't. There's been no significant upward trend in the number of employees winning "voluntary quit" appeals. Concerns have been raised that unemployment insurance judges were deciding these cases more and more in favor of the employee. If that were the case, we would have expected to see employees winning a rising percent of appeals within that category. However, appeals won by employees who "voluntarily quit" their jobs has remained relatively constant over the years. That figure dropped from 43% in 1994 to 39% in During this audit, we also reviewed the case files for a sample of 19 ''voluntary quit" appeals in which an unemployment insurance judge decided in favor of the employee. Although we didn't have the benefit of all information presented to the judge during the hearing, we didn't identify any cases in which we thought the judge ruled in favor of the employee when the evidence clearly would have suggested otherwise. Conclusion: If the dramatic rise in regular unemployment payments in Kansas during the past several years were attributable to the Department of Labor becoming more "employee-friendly," that shift in philosophy should manifest itself in a number of different ways, including a higher number of employer appeals, and a higher percentage of claims and appeals being decided in the employees' favor. We saw no evidence of this in the statistics the Department has maintained over the years. Instead, the data show that more people have become unemployed recently, they have received higher benefits because of the higher salaries they earned while working, and they have tended to be unemployed for a somewhat longer period than in the past. l2

19 APPENDIX A Scope Statement This appendix contains the scope statement that has been authorized by the Chair of the Legislative Post Audit Committee on December 10, The requesting Legislator was Senator Schmidt, Committee Chair. Unemployment Benefit Payments: Reviewing Benefit Payouts and Changes in the Number of Employees Determined To Be Eligible The Unemployment Insurance Division within the Kansas Department of Labor (formerly the Department of Human Resources) operates the State's unemployment insurance program. This program collects State unemployment insurance taxes from employers. Those taxes are used to pay employment insurance benefits to replace part of insured employees' wages when they lose their jobs because of involuntary unemployment. Although benefits paid under the program can vary widely because of the condition of the economy, legislative concerns have been raised about the high and sustained level of benefits that have been paid out in recent years. For calendar years 2002, 2003, and 2004 (estimate), benefit payments were $360 million, $388 million, and $300 million (estimated), respectively. Between calendar years 1994 and 2000, those payments totaled less than $175 million each year. The increase in benefit payments has resulted in a corresponding increase in unemployment tax collections from employers. These concerns have generated questions about the number of employees being determined to be eligible for unemployment compensation benefits. Specific questions for this limited-scope audit focus on how those figures have changed over time, and whether it has become more common for cases appealed to an administrative law judge to be decided in favor of the employee. One concern is that the more recent practice of holding such hearings by phone or computer might be more favorable to employees. A limited-scope performance audit would address these issues by answering the following question: 1. How has the number of employees applying for and receiving unemployment benefits changed over time? To answer this question, we would analyze trend information about the unemployment insurance taxes employers have paid into the program during the past 25 years, the unemployment benefits the program has paid out, and the number of employees who received them. We would also analyze computerized information from the Kansas Department of Labor or other relevant sources showing changes in the number of employees who applied for benefits, and the number who were denied. If computerized information is readily available, we also would summarize the reasons why employees requests for unemployment benefits were approved or denied, determine whether any employees who voluntarily quit their jobs were receiving benefit payments, and determine whether a higher percentage of the cases adjudicated in recent years are being ruled in employees' favor than in the past. Within the scope of this audit, we would not be able to determine the reasons for any changes in the outcomes of adjudicated cases. We would perform other audit work as needed. Estimated time: 200 hours 13

20 APPENDIXB Information on Three Temporary Extended Unemployment Benefit Programs Here are additional details on the two federal temporary extended benefit programs and the Kansas additional benefit program, and what their financial impact was during the past three fiscal years. Temporary Extended Unemployment Compensation ITEUQ: This federal program provides additional benefits that are the lesser of 50% of the recipient's total benefit amount or 13 times his or her weekly benefit amount. This benefit provides extra weeks of federallyfunded unemployment benefits to unemployed workers throughout the country who have received all regular unemployment benefits available to them. This benefit began in fiscal year 2002 and ended April Temporary Extended Unemployment Compensation- Airlines (TEUC-A): This federal program provides the lesser of 150% of a recipients' original unemployment total benefit or 3 9 times his or her weekly benefit amount. Eligible individuals must have (1) worked for an air carrier, (2) worked at a facility at an airport, (3) worked for a supplier for an air carrier, or ( 4) worked for an upstream producer for an air carrier, and were laid off as a result of the terrorist actions, security measures in response to that attack, or the military conflict with Iraq. Benefits under TEUC-A started Apri12003 and ended January Kansas Additional Benefits (KAB): The 2003 Legislature approved a 2-week extension of benefits for employees who have exhausted their regular benefit payments. This additional benefit was available only during fiscal year Payments Made Under Three Temporary Extended Unemployment Benefit Programs lin Millions 1 (in Millions Adjusted for Inflation) $100.0 $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 Source: Unverified data supplied by the Department of Labor 14

21 APPENDIXC Summary of Various Historical Statistics Related to the Unemployment Insurance Program This appendix contains several historical unemployment statistics as follows: Chart 1 - The number of individuals applying for unemployment benefits Chart 2 - The number of individuals receiving unemployment benefits Chart 3- The number of unemployment claims filed (individuals may file more than one claim) Chart 4 - The average duration of benefit payments (in weeks) Chart 5 - The average weekly unemployment benefit amounts Chart 6 - The number of appeals of unemployment determinations Except for Chart 6, showing the number of appeals over time, the data presented in this appendix excludes information related to the temporary extended benefit programs shown in Appendix B. 15

22 Chart 1 - Number of Unique Individuals Who Filed a Claim State Fiscal Years , , Source: Unaudited data from the Kansas Department of Labor Chart 2 - Number of Unique Individuals Who Received Benefits State Fiscal Years Source: Unaudited data from the Kansas Department of Labor Chart 3 - Number of Initial Claims (Individuals May File More Than One Claim) State Fiscal Years ,000., ; 180, ~ 160,000 Source: Unaudited data from the Kansas Department of Labor 16

23 Chart 4- Average Duration of Benefit Payments - In Weeks State Fiscal Year ~a ~~~~~~ ~HHr-~~ ~ 10 ell ~ Source: Unaudited data from the Kansas Department of Labor $300 Chart 5 -Average Weekly Benefit Amount- Actual and Adjusted for Inflation State Fiscal Year $250 $200 $150 $100 $50 $O Actual $166 $170 $173 $180 $188 $192 $196 $201 $205 $219 $242 $249 $270 Cl Adjusted $240 $236 $233 $235 $240 $239 $236 $237 $237 $248 $265 $266 $283 Source: Unaudited data from the Kansas Department of Labor $273 $270 $280 $270 Chart 6 -Total Number of Appeals Filed by Employees and Employers State Fiscal Year , , , , ~ ~ Source: Data from the Kansas Department of Labor 17

24 APPENDIXD Agency Response On March 14th, 2005 we provided copies of the draft audit report to the Department of Labor for review and response. We received the Department's written response on March 18th, and have included it in this Appendix. 18

25 D~PARTMENT OF LABOR Jim Garner, Secretary KATHLEEN SEBELIUS, Governor March 18, 2005 Barbara Hinton 800 SW Jackson, Suite 1200 Topeka, KS legis\litive OI'IISIOH! Ot: pqsl P.~ ~- Dear Ms. Hinton: Thank you for the opportunity to review the LP A report on Unemployment Benefit Payments: Reviewing Benefit Payouts and Changes in the Number of Employees Determined to be Eligible. This audit confirms that Kansas' Unemployment Insurance (UI) program is serving employers and employees across the state well. Unemployment Insurance was designed to provide financial assistance to unemployed workers in their time of need. The employees at the Kansas Department of Labor are dedicated to providing effective and efficient service to all our customers. It is clear from this audit that Kansas' program is administered in an equitable manner, fairly balancing the interests of both employers and employees. At KDOL, we have high standards for all the programs administered by the Department, incl:uding the Unemployment Insurance program. In addition to this Legislative Post Audit, we regularly undergo audits by the United States Department of Labor. These audits have always reflected well upon Kansas' UI programs. Internally, we also monitor all processes very closely. One team of staff in our UI division is dedicated to ensuring the integrity of the UI program. They monitor UI for overpayments, fraud and other payment errors that may affect the fairness of the program. One item in the audit report I must comment on is the statement on page 1 regarding the testing of data supplied by the Department. I understand it is a gen:eral disclaimer that LPA staff did not personally test the numbers for civil workforce, unemployjd.ent rates OFFICE OF THE SECRETARY 401 SWTopeka Boulevard, Topeka, KS fax

26 Barbara Hinton March 18,2005 Page2 and the number of initial unemployment claims. Nevertheless, it should be noted that these numbers are compiled in strict compliance with Bureau of Labor Statistics and U.S. Department of Labor standards. KDOL will continue in its mission to serve Kansas employees and employers with the workforce services they need. Very truly yours, Secretary 20