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DEPARTMENT OF LABOR
CFDA 17.225 UNEMPLOYMENT INSURANCE (UI) PROGRAM
I. PROGRAM OBJECTIVES
The Regular Compensation, Unemployment Compensation for Federal Employees (UCFE), and
Unemployment Compensation for Ex-Servicemembers (UCX) programs provide Unemployment
Compensation (UC) to unemployed workers for periods of involuntary unemployment and help
stabilize the economy by maintaining the spending power of workers while they are between jobs.
During periods of high unemployment, the Extended Benefits (EB) program pays UC for an
additional (or extended) period of time to eligible unemployed workers who have exhausted their
entitlement to Regular Compensation.
States must ensure full payment of UC "when due," and must deny payments when not due (42
USC section 503(a)(1)).
II. PROGRAM PROCEDURES
The structure of a Federal-State Unemployment Insurance (UI) program partnership is provided
for by Titles III, IX and XII of the Social Security Act of 1935 (SSA) (42 USC section 501 et
seq.) and the Federal Unemployment Tax Act (FUTA) (26 USC section 3301 et seq.). Initially,
the UI program consisted solely of the Regular Compensation program. Since its inception,
however, the program was expanded to include the payment of UC, or monetary benefits, to other
eligible groups. UC coverage was extended to Federal civilian employees in 1954 by the UCFE
program (Public Law 83-767), and to ex-members of the Armed Forces in 1958 by the UCX
program (5 USC sections 8501-8525; Public Law 85-848). The Federal-State Extended
Unemployment Compensation Act (EUCA) of 1970 provided for an EB program (26 USC
section 7805; 20 CFR part 615).
The structure of the Federal-State UI Program partnership is based upon Federal law; however, it
is implemented primarily through State law. Unless otherwise noted, responsibilities of the U.S.
Department of Labor (DOL) include: (1) collection of Federal unemployment taxes (Internal
Revenue Service); (2) allocating available administrative funds among States; (3) administering
(U.S. Department of the Treasury) and monitoring activities of the Unemployment Trust Fund
(UTF); (4) establishing program performance measures; (5) monitoring State performance; (6)
ensuring conformity and substantial compliance of State law and operations with Federal law;
and, (7) setting broad overall policy for program administration. State UI program operations are
conducted by the State Employment Security Agency (SESA; the generic name for the agency
which has responsibility for the State's Employment Security function). State responsibilities
include: (1) establishing specific, detailed policy and operating procedures which comply with the
requirements of Federal laws and regulations; (2) determining the State UI tax structure; (3)
collecting State UI contributions from employers (commonly called "unemployment taxes"); (4)
determining claimant eligibility and disqualification provisions; (5) making payment of UC benefits
to claimants; (6) managing the program's revenue and benefit administrative functions; and, (7)
administering the programs in accordance with established policies and procedures. The
administrative procedures governing operation of the Federal-State partnership are found in 20
CFR part 601.
Almost 97 percent of all employees are covered by UC programs, which collectively consist of:
(1) the Regular Compensation Program; (2) the EB Program; and, (3) UCFE and UCX. Each
program has its own eligibility and benefit provisions.
Note: Informal references are frequently made to eligibility for "weeks" of UC. The auditor is
cautioned eligibility is actually for AMOUNTS of UC, which is inaccurately referred to as receipt
of UC for a given number of weeks.
Program Funding
UC payments to claimants are funded by State UI taxes on covered employers, and
reimbursements from Federal entities, certain State governments, political subdivisions and
instrumentalities of the States, and qualified non-profit organizations. While "experience-rated"
UI taxes on employers are the primary source of revenue, some employers make direct
reimbursements to the State for UC payments made on their behalf. State governments, political
subdivisions and instrumentalities of the States, and qualified non-profit organizations may
reimburse the State for UC benefits paid by the SESA; however, they may elect to be contributory
employers (i.e., remit State UI taxes) in lieu of reimbursing the State. Also, States are reimbursed
from the UTF for UCFE and UCX paid by the SESA on behalf of various Federal entities.
Program administration is funded by a Federal UI tax on covered employers (see below). The
employment covered by State UI taxes and Federal UI taxes may not be identical.
State UI taxes and reimbursements are used almost exclusively for the payment of Regular
Compensation to eligible claimants. All UI taxes and reimbursements remitted by employers to
the States are deposited in State accounts in the UTF. SESAs periodically draw funds from their
UTF accounts for the purpose of making UC payments.
FUTA imposes a Federal tax on covered employers. FUTA revenues are collected by the IRS
and deposited into the general fund of the U.S. Treasury, which by statute are appropriated to the
UTF. FUTA revenues are used primarily to finance Federal and SESA administrative expenses,
the Federal share of EB, and advances to States whose UTF account balances are low or
exhausted. DOL allocates administrative grant funds to the States based on forecasted workload
and costs and adjusted for increases or decreases in workload during the current year.
Currently, the FUTA tax on covered employment (generally employment subject to a State UI
tax) is 6.2 percent of the first $7000 of covered employee wages. Employers, however, receive
two credits against the FUTA tax. One credit is equal to the amount of State UI tax paid by the
employer; the employer receives this credit when the State UI law, and its application, conforms
and substantially complies with FUTA requirements. A second credit is awarded only to
employers in States which have a federally-approved experience-rated State UI tax system. All
States currently meet the Federal criteria for both credits to be applicable to the State's employers.
The two credits combined cannot exceed 5.4 percent of taxable employee wages.
Synopsis of Regular Compensation Program
The Regular Compensation program provides UI coverage of most wage and salary workers in
each State, the District of Columbia, Puerto Rico, and the Virgin Islands. Except for provisions
necessary to comply with Federal law, the provisions of State UI laws vary greatly, including their
qualifying requirements and methods used to compute UC amounts.
The period during which a claimant may receive UC is referred to as the "benefit year." A benefit
year lasts one year from the effective date of the claim. The total Regular UC that a claimant may
receive in a benefit year is computed by the SESA in a dollar amount. A claimant may draw UC
against the total UC allowable for the benefit year during periods of unemployment that occur
during the benefit year. Under State UI laws, the total (maximum) UC a claimant is entitled to
varies within certain limits according to the worker's wages in the base period (see Eligibility).
Reduced benefits may be paid for weeks of partial unemployment. In some States, the weekly UC
benefit payment is augmented by a dependent's allowance.
The entitlement to UC (both Regular Compensation and EB) is frequently and imprecisely
expressed in lay terms as receipt of UC for a fixed number of weeks.
Synopsis of Extended Benefits Program
An interval of high unemployment at a certain level will "trigger on" a period of not less than 13
weeks during which the State will make extended UC (or EB) payments to eligible unemployed
workers who have exhausted their entitlement to Regular Compensation (20 CFR section
615.11). With certain qualifications, EB is payable at the same rate as the claimant's Regular
Compensation amount (20 CFR section 615.6). The EB period is determined by the State in
which the original claim was established (EUCA section 202(a)(2), 20 CFR section 615.2(k)(2)).
A reduction in the unemployment rate will "trigger off" the period for the payment of EB.
A claimant may receive EB equal to the lesser of the following amounts: (a) one-half the total
amount of Regular Compensation, including dependent's allowances, (b) 13 times the weekly
amount of Regular Compensation, or (c) 39 times the weekly amount of Regular Compensation
reduced by the amount of Regular Compensation paid to the claimant (EUCA, section 202(a)(2),
20 CFR section 615.7(b)). However, the qualifying and benefit provisions of the EB program
change if the unemployment rate assumes a benchmark level established in EUCA. While EB are
payable under the terms and conditions of State law, FUTA requires that State UI law conform to
certain provisions of EUCA (26 USC section 3304(a)(11)).
States are reimbursed with Federal funds for one-half the cost of EB paid to claimants by the
SESAs, with the following exceptions: (1) EB paid to former UCFE and UCX claimants are 100
percent reimbursable from Federal funds; and, (2) EB paid to former employees of the State
government, and political subdivisions and instrumentalities of the State, are not reimbursable
from Federal funds. Reimbursements will be prorated for claimants who had employment in both
the private and public sectors during their "base periods." The first week of EB is reimbursable to
the State only if the State requires the first week in an individual's benefit year be an unpaid
"waiting week" (EUCA, section 204; 20 CFR section 615.14). The auditor should refer to 20
CFR section 615.14 for a complete explanation of when EB is not reimbursed to the State.
Employer Experience Rating
States annually compute an "experience-rating" for contributing, or tax-remitting, employers. The
experience-rating is the dominant factor in the computation of an employer's State UI tax rate.
While methods of computation differ, the key factor in most methodologies is the amount of UC
paid by the SESA within a time period specified by State UI law, to claimants who are former
employees of the employer. Also, various methods are used by the SESAs to identify which one
or more of the claimant's former employers will be "charged" with the UC paid to the claimant.
Synopsis of UCFE and UCX Programs
For UCFE, the qualifying requirements, determination of UC benefit amounts, and duration of UC
are generally determined under the applicable State law, which is generally the State in which the
official duty station was located (5 USC Chapter 85; 20 CFR part 609).
The UCX program combines elements of the applicable State law and factors unique to the UCX
program, such as "schedules of remuneration" (20 CFR section 614.12), which must be
considered by the SESA in making its determinations of eligibility, UC benefit amounts and
duration (5 USC Chapter 85; 20 CFR part 614).
States are reimbursed from the UTF for UC paid to UCFE and UCX claimants. On a quarterly
basis, States report UCFE and UCX paid to the DOL, which is responsible for obtaining
reimbursement to the UTF from the appropriate Federal agencies.
III. COMPLIANCE REQUIREMENTS
In developing the audit procedures to test compliance with the requirements for a Federal
program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to
identify which of the 14 types of compliance requirements described in Part 3 are
applicable and then look to Parts 3 and 4 for the details of the requirements.
A. Activities Allowed or Unallowed
Administrative grant funds may be used only for the purposes and in the amounts necessary for
proper and efficient administration of the UI program (SSA, section 303(a)(8)).
E. Eligibility
1. Eligibility for Individuals
a. Regular Compensation Program
Under State UI laws, a worker's benefit rights depend on the amount of the worker's wages in
covered employment in a "base period." While most States define the base period as the first 4 of
the last 5 completed calendar quarters prior to the filing of the claim, other base periods are used.
To qualify for benefits a claimant must have worked a certain number of weeks, or have worked a
certain number of weeks or calendar quarters within the base period, or meet some combination
of wage and employment requirements. A "waiting period" is a noncompensable period of
unemployment in which the worker was otherwise eligible for benefits. Most States require a
waiting period of one week of total or partial unemployment before UC is payable.
To be eligible to receive UC, all States provide that a claimant must be able and available for
work (i.e., must be in the labor force; unemployment must be caused by lack of suitable work; and
the claimant must be legally authorized to work). A claimant must not be unemployed for such
acts as leaving voluntarily without good cause, discharge for misconduct connected with work,
and refusal of suitable work.
b. EB Program
To qualify for EB, a claimant must have exhausted Regular Compensation (20 CFR section
615.4(a)). To be eligible for a week of EB, a claimant must apply for and be able and available to
accept suitable work, if offered. What constitutes suitable work is dependent on a required
SESA's evaluation of the claimant's employment prospects. An EB claimant must make a
"systematic and sustained effort" to seek work and must provide "tangible evidence" to the SESA
that he or she has done so (EUCA section 202(a)(3); 20 CFR section 615.8).
c. The UCFE and UCX Programs
For UCFE, the claimant's eligibility and benefit amount will generally be determined in accordance
with the UI law of the State of the claimant's last duty station (20 CFR section 609.8). For UCX,
a claimant's eligibility is determined in accordance with the UI law of the State in which the
claimant files a first claim after separation from active military service (20 CFR section 614.8).
2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable
3. Eligibility for Subrecipients - Not Applicable
G. Matching, Level of Effort, Earmarking
1. Matching - Shareable Compensation Program (EB)
From its UI tax revenues, the State is required to pay either zero percent (UCFE, UCX), 50
percent (EB) or 100 percent (Regular Compensation) of the UC paid by the SESA to eligible
claimants.
The State is required to provide 50 percent of the amounts paid to the majority of eligible EB
claimants (those not covered by Federal law or special provisions of State law) (20 CFR sections
615.2 and 615.14(a)). Those EB amounts paid by the SESA, and which are not the responsibility
of the State, are reimbursable to the State from the UTF (20 CFR section 615.14). The first week
of EB is reimbursable to the State only if, in addition to other requirements, the State requires the
first week of an individual's benefit year to be an "unpaid waiting week" (EUCA section 204; 20
CFR section 615.14).
The 50 percent share of EB for which the State is responsible is prorated for those claimants
whose base period includes wages from both public and private sector employment.
2.1 Level of Effort - Maintenance of Effort - Not Applicable
2.2 Level of Effort - Supplement not Supplant - Not Applicable
3. Earmarking - Not Applicable
L. Reporting
1. Financial Reporting
Instructions for reporting financial and program activities are contained in the Unemployment
Insurance Reports Handbook, ET Handbook 401. The SESA may file certain reports
electronically.
a. SF-269, Financial Status Report - One SF-269 is submitted for unemployment insurance
operations, Trade, and North American Free Trade Agreement (NAFTA) benefits. Separate
SF-269s are submitted for UI National Activities (excluding cooperative agreements), NAFTA
benefits, and Disaster Relief projects (administration and benefits).
States are to submit the report each quarter for each fiscal year of funds until all resources on
order are liquidated and a final SF-269 submitted. The Final SF-269 is to be submitted when all
financial activity has ceased. States are to report administrative expenditures on the accrued
expenditure basis, per 29 CFR 97.41(b)(2). UI benefit payments for DUA, Trade, and NAFTA
are to be reported on the cash basis.
b. SF-270, Request for Advance or Reimbursement - Not Applicable.
c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not
Applicable.
d. SF-272, Federal Cash Transaction Report - In accordance with 29 CFR 97.41(c), SESAs are
required to submit the SF-272 under the Department of Health and Human Services' Payment
Management System. However, SESAs are exempt from submitting the SF-272A Continuation
Sheet.
e. ETA 2112, UI Financial Transaction Summary (OMB No. 1205-0154) - A monthly summary
of transactions which account for all funds received in, passed through, or paid out of the State
unemployment fund. (Page II-1-1 of ETA Handbook No. 401)
f. ETA 581, Contribution Operations (OMB No. 1205-0178) - Quarterly report on volume of
SESA work, performance in determining the taxable status of employers, and other information
pertinent to the overall effectiveness of the tax program. (Page II-2-1)
g. ETA 191, Financial Status of UCFE/UCX (OMB No. 1205-0162) - Quarterly report on UCFE
and UCX expenditures and the total amount of benefits paid to claimants of specific Federal
agencies. (Page II-3-1)
h. ETA 227, Overpayment Detection and Collection Activities (OMB No. 1205-0173) - Quarterly
report on results of SESA activities in principle detection areas of benefit payment control. (Page
IV-3-1)
2. Performance Reporting - Not Applicable
3. Special Reporting - Not Applicable
N. Special Tests and Provisions
1. Employer Experience Rating
Compliance Requirement - Certain benefits accrue to States and employers when the State has
a federally-approved experience-rated UI tax system. All States have an approved system. For
the purpose of proper administration of the system, the SESA maintains accounts, or subsidiary
ledgers, on State UI taxes received or due from individual employers, and the UC benefits
charged to the employer.
The employer's "experience" with the unemployment of former employees is the dominant factor
in the SESA computation of the employer's annual State UI tax rate. The computation of the
employer's annual tax rate is based on State UI law (26 USC section 3303).
Audit Objective - To verify the accuracy of the employer's annual State UI tax rate. To
determine if the tax rate was properly applied by the State.
Suggested Audit Procedures
a. Experience rating systems are generally highly automated systems. These systems could
contain errors that are material in the aggregate, but which are not susceptible to detection solely
by sampling. Or if detected, sampling may not be the most effective and efficient means to
quantify the extent of such errors. For this reason, the auditor should have a thorough
understanding of the operation of these systems, and is strongly encouraged to consider the use of
computer-assisted auditing techniques (CAATs) to test these systems.
b. On a test basis, reconcile the subsidiary employer accounts with the State's UI general ledger
control accounts.
c. Trace a sample of taxes received and benefits paid to postings to the applicable employer
accounts. Verify the propriety of any non-charging of benefits paid to an employer account.
d. Trace a sample of postings to employer accounts to documentation of taxes received and
benefits paid.
e. On a test basis, recompute employer experience-related tax rates.
2. Match with IRS 940 FUTA Tax Form
Compliance Requirement - States annually perform a match of employer tax payments with
credit claimed for these payments on the employer's IRS 940 FUTA tax form (IRS Doc. No.
65-81, "Specifications for a Nationwide System for Computerized Certification of State FUTA
Credits," Rev. October 1995).
Audit Objective - Determine whether the State performed the required match and followed-up
properly on the results of the match.
Suggested Audit Procedures
a. Ascertain the State's procedures for conducting the annual match.
b. Ascertain if the match was performed by reviewing supporting documentation.
c. Ascertain if the proper follow-up action was taken by the State on the results of the match.
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