2001 - Audit Report

U.S. Department of Labor
Office of Inspector General
Office of Audit

UI FIELD AUDIT PROGRAM: FOLLOWUP ON THE RESULTS OF BLOCKED CLAIM AUDITS FOR CY 2000

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An employer's misclassification of the employment status of an employee (for example, as an independent contractor) may be an attempt to avoid payment of unemployment insurance (UI) taxes, social security taxes, worker's compensation, and other costs associated with an employer-employee relationship. A "blocked claim audit" is a state-level audit of a claim for UI benefits when the employment status or earned wages of the claimant is in question. This type of audit is an effective method of identifying unreported wages.

A prior OIG audit report (Improvements are Needed in the Evaluation of Audit Quality and the Reporting of Blocked Claim Audits, No. 03-98-008-03-315) found many State Employment Security Agencies (SESAs) were discouraged from conducting blocked claim audits, primarily because ETA did not "credit" states for conducting this type of audit. As a result, ETA modified this policy in February 1999.

Subsequently, the OIG followed up with certain SESAs to determine the results of the ETA policy revision. For Calendar Year 2000, SESAs reported they identified more than 20,000 misclassified employees and recovered more than $6 million of UI taxes from audits which would not have been conducted without the ETA policy revision. As the following table indicates, these results represent a substantial increase over corresponding results for CY 1999.

CY 1999 and CY 2000 by Quarter	Number of States Reporting		Misclassified Employees Identified		Net Contributions Recovered
CY 1999 and CY 2000 by Quarter	CY 1999	CY 2000	CY 1999	CY 2000	CY 1999	CY 2000
Totals	23	27	13,250	20,220	$2,543,549	$6,002,970