Court filing
Nevada Legislative Auditor Report LA22-05 — Employment Security Division (March 29, 2021)
Filed January 1, 2022 in State Audits; one of 3 filings from this case.
Record facts
| Court | Nevada Legislative Auditor, Legislative Counsel Bureau |
|---|---|
| Filed | 2022-01-01 |
Full text
Legislative Auditor
Carson City, Nevada
LA22-05
STATE OF NEVADA
Performance Audit
Department of Employment,
Training and Rehabilitation
Employment Security Division
2020
For more information about this or other Legislative Auditor
reports go to: http://www.leg.state.nv.us/audit (775) 684-6815.
Audit Division
Legislative Counsel Bureau
Audit
Highlights
Highlights of performance audit report on the
Employment Security Division released on
March 29, 2021.
Legislative Auditor report # LA22-05.
Background
The Employment Security Division (Division) is
a division of the Department of Employment,
Training and Rehabilitation. The 1937 Nevada
State Legislature enacted the Unemployment
Compensation Law requiring the compulsory
setting aside of financial reserves to provide
temporary partial replacement of income to
unemployed workers. The Division’s mission is
to empower a vibrant labor market in Nevada by
creating business and worker connections with
high-quality demand-driven services.
The Division is responsible for the
administration of the Unemployment Insurance
program and numerous state and federally
funded workforce investment programs that seek
to connect employers with a skilled and
qualified workforce.
In fiscal year 2019, the Division had three
budget accounts with revenues and expenditures
of over $93 million. The Division is primarily
funded through federal grants and allowances,
which amounted to 69.5% of revenues in fiscal
year 2019. The Division headquarters is located
in Carson City, with a Southern Nevada office in
Las Vegas and career centers located in Elko,
Ely, Fallon, Henderson, North Las Vegas, Reno,
Sparks, and Winnemucca.
Purpose of Audit
The purpose of this audit was to evaluate certain
controls over the collection of unemployment
taxes from employers. The scope of our audit
included a review of tax overpayments and
refunds during calendar years 2018 and 2019.
We also reviewed past due state unemployment
tax receivables as of November 30, 2018, and
related collection activities during prior periods.
Audit Recommendations
This audit report contains 11 recommendations
to improve administrative controls over
overpayment activities and collection of
delinquent state unemployment taxes.
The Division accepted the 11 recommendations.
Recommendation Status
The Division’s 60-day plan for corrective action
is due on June 22, 2021. In addition, the 6-
month report on the status of audit
recommendations is due on December 22, 2021.
Employment Security Division
Department of Employment, Training and Rehabilitation
Summary
The Employment Security Division (Division) did not effectively administer certain aspects of
Nevada’s state unemployment taxes (SUTA) from employers. Employer accounts with
overpayments totaling over $25 million are being treated inconsistently, with some overpayments
rolling forward and others being removed from accounts after 3 years. Additionally, the Division
could improve collection of past due SUTA from employers. We found Division collection
activities were often untimely and monthly collection reports were incomplete, incorrect, or not
used effectively. Furthermore, the Division does not always document collection activities
completed on accounts and does not use the Debt Offset Program to assist in the collection of
delinquent SUTA. With over $26 million in outstanding SUTA as of November 2018,
enhancements to the Division’s collection process should be made.
Key Findings
The Division’s refund practices result in inequitable refund conditions for Nevada employers.
The UINV system expires some account overpayments after 3 years, consistent with statute and
previous processes, while others roll forward each quarter. Active employer accounts are not
subject to credit expiration and employers may be allowed to use or request a refund indefinitely,
even though statute requires refunds be requested by employers no later than 3 years after the
overpayment was made. The Division did not process overpayments in this manner until the
UINV system was implemented. In October 2018, almost 17,000 employer accounts had over
$25 million in overpayments. (page 6)
The Division can improve the effectiveness of its operations and administrative controls over the
collection of accounts receivable. Collection activities on delinquent SUTA employer accounts
were not always performed, and sometimes the Division did not perform any collection activities
when employers failed to pay taxes due. As of November 2018, there were over $26 million in
outstanding SUTA due from over 10,000 employer accounts. (page 7)
The Division has not established guidelines for the timing of collection activities, other than
system generated employer billing statements. Standard collection activities include sending
billing statements, conducting warning calls, issuing pre-demand and demand letters, entering
into payment agreements, and generating judgements and notices to withhold. Inconsistent and
inadequate collection processes lead to a wide variation between accounts as to when collection
activities occur. Inconsistent collection activity persists because the Division has not determined
which collection activities are most successful nor does it prioritize accounts based on payment
history, industry, amount, age, or account type, to maximize limited resources. (page 9)
Reports used by the Division’s collection unit are not always complete, which delays recoveries.
System support staff were not aware of report deficiencies to correct the errors. Additionally, an
accounts receivable aging report is not generated by the UINV system. If reports used by the
Division are not accurate or reliable, employer accounts may not be detected, collection activities
may not begin timely, and delinquent accounts may remain deficient indefinitely. (page 13)
Collection documents are not consistently scanned into UINV by the Division. UINV is the
system of record and should be used to track completed collection activities. However, we found
documents were often not in the system because policies and procedures have not been properly
developed to ensure collections activities are completely documented. (page 14)
The Division is not using the statutorily authorized Debt Offset Program offered by the State
Controller to assist in the collection of delinquent SUTA. Debts can be submitted to the
Controller exclusively for the offset program. If the Division does not utilize all the collection
tools available to it, the probability of collecting delinquent SUTA decreases. (page 15)
Employer accounts with returned billing statements that do not have forwarding addresses are not
placed on account hold by the Division. The Division sends approximately 25,000 monthly
statements to all employers with any non-zero balance on their account. Account holds suspend
mail notifications including monthly statements. This would eliminate mailing of undeliverable
statements and reduce some postage costs. (page 15)
CARSON CITY OFFICE
LEGISLATIVE BUILDING
401 S. CARSON STREET
CARSON CITY, NEVADA 89701
(775) 684-6800
LAS VEGAS OFFICE
GRANT SAWYER STATE OFFICE BUILDING
555 E. WASHINGTON AVENUE, SUITE 4400
LAS VEGAS, NEVADA 89101
(702) 486-2800
STATE OF NEVADA
LEGISLATIVE COUNSEL BUREAU
Legislative Commission
Legislative Building
Carson City, Nevada
This report contains the findings, conclusions, and recommendations from our
performance audit of the Department of Employment, Training and Rehabilitation,
Employment Security Division. This audit was conducted pursuant to the ongoing
program of the Legislative Auditor as authorized by the Legislative Commission. The
purpose of legislative audits is to improve state government by providing the Legislature,
state officials, and Nevada citizens with independent and reliable information about the
operations of state agencies, programs, activities, and functions.
The scope of this audit included certain processes associated with employer-paid
unemployment taxes but did not address unemployment benefits. In cooperation with the
Department, we postponed the release of the audit report to allow the agency to dedicate
its resources toward COVID-19 pandemic relief.
This report includes 11 recommendations to improve operating and administrative
controls over overpayment activities and collection of past due state unemployment taxes.
We are available to discuss these recommendations or any other items in the report with
any legislative committees, individual legislators, or other state officials.
Respectfully submitted,
Daniel L. Crossman, CPA
Legislative Auditor
March 22, 2021
Carson City, Nevada
Employment Security Division
Table of Contents
Introduction .................................................................................................... 1
Background .............................................................................................. 1
Scope and Objective ................................................................................ 5
Unemployment Tax Practices Not Always Equitable ...................................... 6
Refund Practices Are Inconsistent ........................................................... 6
Collection Activities Need Improvement ................................................... 7
Incomplete Accounts Receivable Reports ................................................ 13
Collection Activity Not Always Documented ............................................. 14
State Controller’s Debt Offset Program Not Used ..................................... 15
Statements Sent to Incorrect Addresses .................................................. 15
Appendices
A. Select Nevada Revised Statutes for Unemployment Insurance
Contributions and Collections ......................................................... 17
B. Audit Methodology .............................................................................. 19
C. Response From the Employment Security Division ............................ 22
LA22-05
1
Introduction
The Employment Security Division (Division) is a division of the
Department of Employment, Training and Rehabilitation. The
1937 Nevada State Legislature enacted the Unemployment
Compensation Law requiring the compulsory setting aside of
financial reserves to provide temporary partial replacement of
income to unemployed workers. The Division’s mission is to
empower a vibrant labor market in Nevada by creating business
and worker connections with high-quality demand-driven services.
To support its mission, the Division administers programs that
promptly pay unemployment benefits, administer an effective tax
system, and improve the employment stability of those collecting
unemployment insurance.
The Division is responsible for the administration of the
Unemployment Insurance (UI) program and numerous state and
federally funded workforce investment programs that seek to
connect employers with a skilled and qualified workforce.
The Division’s programs include:
•
Unemployment Insurance - Contributions Activity:
UI contributions are part of the UI program, a joint state
and federal insurance system. It administers the collection
of state employment payroll taxes from businesses to fund
UI benefits for eligible unemployed job seekers.
•
Unemployment Insurance - Benefits Activity:
UI benefits is part of the UI program that administers
benefits and temporary wage replacement to eligible
Nevadans, financed through employer payroll taxes. The
program ensures timely and proper payment to qualified
job seekers, who are unemployed through no fault of their
own, by administering claims intake, eligibility
Background
Employment Security Division
2
adjudications, appeals, payment, fraud detection,
investigation, and quality control activities.
•
Workforce Development:
Provides comprehensive employment training and services
to Nevada businesses and workers. Services include a
combination of community support, job training, and
education that position an individual for success in the
workforce. It includes engagement activities to connect
businesses to a qualified workforce and develop
employment opportunities for individuals.
The Division headquarters is located in Carson City, with a
Southern Nevada office in Las Vegas. It also has career centers
located in Elko, Ely, Fallon, Henderson, North Las Vegas, Reno,
Sparks, and Winnemucca.
Budget and Staffing
In fiscal year 2019, the Division had three budget accounts with
revenues and expenditures of over $93 million. The Division is
primarily funded through federal grants and allowances, which
amounted to 69.5% of revenues in fiscal year 2019. Exhibit 1
shows the Division’s revenues and expenditures related to the
three operating accounts. As of June 2019, the Division had 569
authorized positions, of which 440 were filled.
LA22-05
3
Revenues and Expenditures – Operating Budget Accounts
Exhibit 1
Fiscal Year 2019
Revenues
Workforce
Development
Employment Security
Special Fund
Unemployment
Insurance
Totals
Federal Funds: Cost Allowances
$ 11,438,142
$
-
$ 22,353,596
$ 33,791,738
Federal Funds: Grants
30,907,431
-
-
30,907,431
Beginning Cash
15,667,357
7,183,897
860
22,852,114
Wage Assessment
16,135,060
-
-
16,135,060
Other(1)
817,967
4,815,806
618,376
6,252,149
Transfers
-
-
4,063,576
4,063,576
Bond Program
-
-
588,371
588,371
Total Revenues
$ 74,965,957
$11,999,703
$27,624,779
$114,590,439
Expenditures
Grants
$ 40,453,730
$
-
$
-
$ 40,453,730
Personnel
14,422,817
-
16,859,687
31,282,504
Cost Allocation
4,589,812
11,339
7,527,500
12,128,651
Operating(2)
2,757,636
243,955
2,856,892
5,858,483
Other(3)
1,064,468
553,123
287,216
1,904,807
Transfers
-
1,465,602
-
1,465,602
Total Expenditures
$ 63,288,463
$ 2,274,019
$27,531,295
$ 93,093,777
Differences
11,677,494
9,725,684
93,484
21,496,662
Balance Forward to Fiscal Year 2020
$(11,677,494)
$ (9,725,684)
$
(93,484) $ (21,496,662)
Source: State accounting system.
(1) Other revenues include filing fees, contract service charges, penalties, prior year refunds, excess property sales, and other
receipts.
(2) Operating includes equipment, maintenance, and utilities.
(3) Other expenditures include travel, information services, training, UI bond administration, and individual plan funding.
Unemployment Insurance Contributions
The UI contributions unit administers the employer tax system that
encompasses tax rate setting, billing, collection, audit,
investigation, and records maintenance processes to ensure an
effective and fair tax system and a fiscally sound Unemployment
Trust Fund. The Division accomplishes the administration of UI
contributions through the use of an UI online operating system
(UINV). The UI contributions unit began using UINV in October
2015 after replacing its more than 30-year-old legacy UI
application.
State Unemployment Tax Act Employer Rates
Most employing units that have more than $225 in wages during
any calendar quarter must register with the Division and pay taxes
on those wages. Total gross wages are reportable on a quarterly
Employment Security Division
4
basis. Tax rates for new businesses are 2.95% of wages paid to
each employee up to the taxable wage limit of 66.67% of the
average annual wage paid to Nevada workers. An experience
rating system administered by the Division allows for a reduction
in the percentage charged over time. There is an additional
0.05% tax for the Career Enhancement Program, which provides
training to foster job creation, increase skill sets of the general
workforce, and minimize unemployment costs for employers.
Unemployment Trust Fund
The Division collects state unemployment taxes from employers
and deposits collections in the Unemployment Trust Fund (Trust
Fund). These funds can only be used to pay unemployment
benefits to eligible Nevadans. Administrative funding to operate
the state program is provided by the Federal Unemployment Tax,
through the U.S. Department of Labor, and is allocated at the
federal level each year based on the state’s economic and
unemployment condition relative to other states. States generally
receive less funding as economic conditions improve and claim
workloads decrease.
The Trust Fund allows the state’s UI program the ability to better
endure the cyclical nature of the economy and pay benefits to
eligible unemployed Nevada workers. The Trust Fund is
stabilized by building reserves in times of relative economic
prosperity, through employers’ contributions, and then using those
reserves in times of economic downturn, when contributions
generally decrease and unemployment insurance claims are more
prevalent.
According to the Division, Nevada’s Trust Fund started calendar
year 2019 with $1.49 billion and ended with a balance of over
$1.94 billion. Funding sources for the Trust Fund included taxes
collected from employers and interest earned. In calendar year
2019, UI tax contributions totaled $685 million. Funding uses for
calendar year 2019 included $272.8 million in benefit payments,
for a net contribution of $412.2 million. Subsequent to our audit,
the effects of the COVID-19 pandemic significantly depleted the
Trust Fund balance.
LA22-05
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The scope of our audit included a review of tax overpayments and
refunds during calendar years 2018 and 2019. We also reviewed
past due state unemployment tax receivables as of November 30,
2018, and related collection activities during prior periods. Our
audit objective was to:
•
Evaluate certain controls over the collection of
unemployment taxes from employers.
This audit is part of the ongoing program of the Legislative Auditor
as authorized by the Legislative Commission, and was made
pursuant to the provisions of Nevada Revised Statutes (NRS)
218G.010 to 218G.350. The Legislative Auditor conducts audits
as part of the Legislature’s oversight responsibility for public
programs. The purpose of legislative audits is to improve state
government by providing the Legislature, state officials, and
Nevada citizens with independent and reliable information about
the operations of state agencies, programs, activities, and
functions.
Scope and
Objective
Employment Security Division
6
Unemployment Tax Practices
Not Always Equitable
The Employment Security Division (Division) did not effectively
administer certain aspects of Nevada’s state unemployment taxes
(SUTA) from employers. Employer accounts with overpayments
totaling over $25 million are being treated inconsistently, with
some overpayments rolling forward and others being removed
from accounts after 3 years. Additionally, the Division could
improve collection of past due SUTA from employers. We found
Division collection activities were often untimely and monthly
collection reports were incomplete, incorrect, or not used
effectively. Furthermore, the Division does not always document
collection activities completed on accounts and does not use the
Debt Offset Program to assist in the collection of delinquent
SUTA. With over $26 million in outstanding SUTA as of
November 2018, enhancements to the Division’s collection
process should be made.
The Division’s refund practices result in inequitable refund
conditions for Nevada employers. The UINV system expires
some account overpayments after 3 years, consistent with statute
and previous processes, while others roll forward each quarter.
Active employer accounts are not subject to credit expiration and
employers may be allowed to use or request a refund indefinitely,
even though statute requires refunds be requested by employers
no later than 3 years after the overpayment was made. The
Division did not process overpayments in this manner until the
UINV system was implemented. In October 2018, almost 17,000
employer accounts had over $25 million in overpayments.
The UINV system automatically adjusts new quarterly contribution
payments due by rolling overpayments forward and applying them
first, before applying payments made by taxpayers. As a result of
this automatic system process, new in the UINV system,
Refund Practices
Are Inconsistent
LA22-05
7
management has reinterpreted statute and indicates the rolling
forward of overpayments represents a new credit each quarter.
This contradicts previous Division processes and may violate
statute (see Appendix A) by allowing automatic adjustments to
employer accounts without the employer’s request. Under these
new conditions, active employers can also seek a refund for
overpayments indefinitely since overpayments are generated
anew each quarter.
However, not all employer accounts are processed the same. For
instance, in the first quarter of 2019, almost $42,000 in expired
overpayments were purged from active employer accounts, while
others rolled forward. Also, overpayments related to inactive
employer accounts expire and refunds are denied, in accordance
with how ESD has historically processed overpayments and
interpreted statutes. The Division could not explain why the UNIV
system processed overpayment credits differently, including why
some were automatically purged while others rolled forward.
Prior to October 2018, requests for refund of overpayments older
than 3 years were not honored by the Division. If the Division
refunds or applies overpayment credits generated more than 3
years prior, employers will be receiving funds that may not be
allowed by statute.
Inadequate notice to employers of expiring credit balances further
contributes to this issue, since employer billing statements do not
communicate when an overpayment originated or when it will
expire. As a result, employers may not request action related to
overpayments on accounts. If the Division continues to roll
forward overpayments on active accounts indefinitely, it could
unnecessarily reduce the funds available to support eligible UI
claimants.
The Division can improve the effectiveness of its operations and
administrative controls over the collection of accounts receivable.
Timely collection activities on delinquent SUTA employer accounts
were not always performed, and sometimes the Division did not
perform any collection activities when employers failed to pay
taxes due. As of November 2018, there were over $26 million in
Collection
Activities Need
Improvement
Employment Security Division
8
outstanding SUTA due from over 10,000 employer accounts.
Exhibit 2 details the outstanding SUTA amounts from employers
by aged delinquency.
State Unemployment Tax Delinquent Amounts By Age
Exhibit 2
As of November 30, 2018
Source: Auditor prepared from November 30, 2018, Division accounts receivable report. Amounts rounded to the nearest thousand.
Our review of employer accounts included 131 accounts with over
$1.18 million in delinquent SUTA and other fees. For 20.6% of
employer accounts reviewed, no collection activity was
documented. Some of these accounts were not old, but collection
activities are often most successful when deployed early. The first
collection activity performed by the Division was, on average, over
1 year (384 days) after the first delinquent quarter. Exhibit 3
details collection activity information for three of the five employer
types reviewed.
$4,414,000
$1,863,000
$2,588,000
$3,935,000
$3,936,000
$7,699,000
$1,648,000
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
0-3 Months
3-6 Months
6-12 Months
1-2 Years
2-3 Years
3-6 Years
> 6 Years
LA22-05
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Collection Activity Status
Exhibit 3
From Sampled Accounts
Employer Account
Type
Accounts
Tested
Accounts With No
Collection Activity
Accounts With
Collection Activity
Average Time for
First Collection
Activity(2)
Active
52
13
25.0%
39
75.0%
0.9 year
Inactive
45
4
8.9%
41
91.1%
1.3 years
Small Balance(1)
20
10
50.0%
10
50.0%
0.9 year
Totals
117
27
23.1%
90
76.9%
Source: Auditor derived from a review of Division records.
(1) Small Balance employers are those employers whose outstanding delinquent account balances were between $501-$1,000.
(2) Excluding system generated billing statements.
The Division has not established guidelines for the timing of
collection activities, other than system generated employer billing
statements. Standard collection activities include sending billing
statements, conducting warning calls, issuing pre-demand and
demand letters, entering into payment agreements, and
generating judgments and notices to withhold. Inconsistent and
inadequate collection processes lead to a wide variation between
accounts as to when collection activities occur. For example, our
review found a judgement was filed for one employer with
outstanding debt of $51,000 almost 850 days after taxes were
due, but another employer with a $1,800 debt had a judgment filed
almost 250 days sooner.
Inconsistent collection activity persists because the Division has
not determined which collection activities are most successful nor
does it prioritize accounts based on payment history, industry,
amount, age, or account type, to maximize limited resources. If
the Division does not prioritize accounts, or implement consistent
collection practices, employers are not treated consistently and
debts age and become more difficult to collect.
Management stated every delinquent account is unique and
therefore timelines are not possible to implement or follow. While
we agree each case may be unique, our review of accounts found
significant variation in actions taken by the Division without any
reasoning for the disparities noted. Improvements can be made
by implementing timelines and consistent operating practices, to
increase efficiency and utilize resources on those debts and
activities most likely to result in recovery. This would enhance
Employment Security Division
10
equity among employers and help ensure an adequate UI system
is maintained for Nevada.
Demand Letters and Judgments
The Division is not consistently issuing demand letters or filing
judgments with county offices. Recorded judgments extend the
collection timeframe from 3 to 6 years after a payment becomes
delinquent. NRS allows the Division to file a summary judgment
when delinquent employers are uncooperative. An employer must
be given 15 days notice prior to a judgment being filed, with a
demand letter sent by certified mail. Our sample testing identified
demand letters were sent on average almost 2 years from the first
outstanding quarter.
Moreover, Division policies and procedures state judgments
should be obtained within 60 days from the date the demand letter
was issued, although our testing identified longer time frames
occurred.
•
For active employer accounts, the time from when the
demand letter was sent to the time a judgment was filed
was an average of 95 days, with a minimum of 17 days
and up to 688 days.
•
For inactive employer accounts, the time from when the
demand letter was sent to the time a judgment was filed
was an average of 52 days, with a minimum of 19 days
and up to 209 days.
The Division only has 3 years to file a judgment; otherwise, statute
precludes additional efforts to collect debts. We found judgments
were often filed late, which increases the chance they may not
meet the statutorily authorized timeframe. Exhibit 4 provides
further details on the timeframes found during our testing
regarding when judgments are filed.
LA22-05
11
Judgments Filed by the Division for Select Accounts
Exhibit 4
Employer
Total Amount
Due
Quarter Taxes
Due
Date Judgment
Filed
Days to File
Judgment
Employer A
$17,108
10/30/2015
10/09/2018
1,075
Employer B
51,563
10/30/2015
02/21/2018
845
Employer C
27,269
07/30/2016
11/14/2018
837
Employer D
11,542
04/30/2016
07/24/2018
815
Employer E
14,125
04/30/2016
07/24/2018
815
Employer F
6,026
04/30/2016
07/10/2018
801
Employer G
7,932
01/30/2016
03/29/2018
789
Employer H
2,774
06/30/2016
06/26/2018
726
Employer I
15,298
07/30/2016
07/03/2018
703
Employer J
4,536
11/10/2016
07/10/2018
607
Source: Auditor prepared from a review of Division records.
Notice to Withhold
Notice to withhold were not always used as a priority collection
tool. The notice to withhold is a powerful collection tool available
to capture delinquent funds from uncooperative employers, and
should be utilized sooner in the collection process. The notice to
withhold can capture delinquent SUTA from employers’ bank
accounts, but if used too late in the process, an employer’s bank
account may be closed.
•
For 10 of 52 (19.2%) active employer accounts the Division
completed the withhold in 219 days, on average, after
taxes were due. In seven (70.0%) of those instances
amounts were recovered.
•
For 17 of 45 (37.8%) inactive employer accounts the
Division completed the withhold in 149 days, on average,
after taxes were due. In four (23.5%) of those instances
amounts were recovered.
The Division does not have policies detailing the progression or
timeframes in which collection activities should occur. However,
the Division should use the notice to withhold sooner in the
collection process, as it is often more successful than other
collection activities. Deploying this activity sooner, especially
when employers are unresponsive, can increase the probability of
collecting outstanding SUTA amounts.
Employment Security Division
12
Payment Agreements
The Division does not have sufficient policies regarding the use
and renegotiation of payment agreements. Payment agreements
utilize significant resources and do not always yield results, and
the Division often negotiates payment agreements before
performing a notice to withhold. Yet, policies and procedures do
not detail the conditions under which an employer would qualify
for an agreement or a renegotiation. In one case, an employer
with over $20,000 in delinquent SUTA defaulted on two payment
agreements within a 4-month period. The Division collected a
portion of the outstanding balance using other collection activities,
but not until 9 months after defaulting on the first two payment
agreements. Despite the failed payment agreements, the Division
then entered into a third unsuccessful payment agreement in an
attempt to collect the remaining balance.
Perpetually uncooperative employers may not be good candidates
for payment agreements when other collection activities may yield
better results. Our review of payment agreements found they are
often renegotiated once a default occurs instead of progressing to
other collection activities. Additionally, payment agreements take
a significant amount of collection examiners’ time to monitor,
negotiate, and process. Our review found 12 of 23 (52.2%)
accounts with payment agreements showed multiple payment
plans or significant contact and discussion with employers who did
not comply, or were uncooperative. If payment agreements are
not complied with, other collection tools should be employed
sooner.
Policies and procedures include payment agreement terms and
acceptance, but do not specify actions to be taken when default
occurs, or how many defaults are acceptable. The Division should
focus its efforts on the most successful collection activities to
utilize resources efficiently and to increase recoveries.
LA22-05
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Reports used by the Division’s collection unit are not always
complete, which delays recoveries. System support staff were not
aware of report deficiencies to correct the errors. Additionally, an
accounts receivable aging report is not generated by the UINV
system. If reports used by the Division are not accurate or
reliable, then delinquent employer accounts may not be detected,
collection activities may not begin timely, and delinquent accounts
may remain deficient indefinitely.
Because accounts receivable reports are not generated, the
Division’s collection unit does not always know all employers with
delinquent SUTA, or the age of the overdue balance. When
accounts are over 90 days past due, the risk of not collecting the
debt increases significantly.
SUTA Non-Filer Reports
Collection unit staff can benefit from receiving information
regarding employers who are late filing SUTA tax returns and
related payment. Currently, collection unit staff do not receive
timely information regarding delinquent filers, which hinders the
unit’s ability to proactively engage in early collection efforts.
Delinquent employers who failed to file tax returns do not always
show on receivable reports since accounts do not show a balance
due. However, tax liabilities typically exist regardless of whether
employers file tax returns. Generally, collection efforts are most
productive on recent debts and engaging delinquent employers
early in the process may prevent the need for more time
consuming activities later.
Other Division units generate reports regarding employers who
are delinquent in filing SUTA tax returns and payments. These
reports are provided to the federal government and employers are
sent automated system generated reminder letters to file returns.
However, delinquent filer reports are not provided to the
collections unit. Providing delinquent filer reports to collection unit
staff and coordinating activities between Division units can help
prioritize accounts and focus collection efforts on those accounts
where payment is most likely.
Incomplete
Accounts
Receivable
Reports
Employment Security Division
14
Collection Reports
Monthly collection reports generated the first day of each month
by the UINV system are not always complete; multiple staff
indicated delinquent accounts often do not appear one month, but
will appear or reappear the following month even though a
balance was due during both months. These system generated
reports are used by the Division to begin collection activities. A
breakdown in communication between collection management
and system support staff prevented the report from being
corrected, since system support staff were not told of the report
errors.
Additionally, the UINV system does not produce an aging
receivables report for delinquent SUTA employers. The Office of
the State Controller recommends agencies identify overdue
balances in an aged trial balance of accounts receivable, to help
ensure timely collection efforts and activities. An aging report
could assist the Division in prioritizing delinquent accounts, but
has not been requested by collection unit management or staff.
Collection documents are not consistently scanned into UINV by
the Division. UINV is the system of record and should be used to
track completed collection activities. However, we found
documents were often not in the system because policies and
procedures have not been properly developed to ensure collection
activities are completely documented.
Collection staff should enter notes and scan collection documents
into the UINV system that have been sent to delinquent
employers. Our testing showed a total of 99 of 178 (55.6%)
collection documents were not scanned into UINV. Staff indicated
they do not immediately scan in documents as activities are
completed because they wait to scan them all in at once. This
could result in duplication of effort from inaccurate and incomplete
records of activities performed. Moreover, if documents are not
scanned, supervisors cannot review or verify collection activities
and the agency may not have the appropriate evidence to proceed
with certain collection activities in the future.
Collection
Activity Not
Always
Documented
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The Division is not using the statutorily authorized Debt Offset
Program offered by the State Controller to assist in the collection
of delinquent SUTA. Division management was not aware that
the Controller’s offset program could be utilized at any time,
including beyond 60 days of delinquency. Debts can be submitted
to the Controller exclusively for the offset program. If the Division
does not utilize all the collection tools available to it, the probability
of collecting delinquent SUTA decreases.
This program provides state agencies with the capability of
recovering debt by intercepting payments made from the State to
vendors. Per NRS 353C.190, the Controller may offset debt with
the amount owed to the debtor by any state agency, regardless of
whether the agency, which owes the vendor, is the same agency
to which the vendor owes the debt. Our review of 131 delinquent
employer accounts found 19 were also registered state vendors.
Of the $216,000 that employers owed the Division in SUTA,
$14,000 (6.5%) could have been intercepted, as payment from the
State was made during the same period that the employers’
accounts were delinquent.
Employer accounts with returned statements that do not have
forwarding addresses are not placed on account hold by the
Division. The Division sends approximately 25,000 monthly
statements to all employers with any non-zero balance on their
account, costing over $10,000 a month in postage. Account holds
suspend mail notifications including monthly statements. This
would eliminate mailing of undeliverable statements and reduce
some postage costs.
Our review of inactive employer accounts identified 38 (84.4%) of
45 inactive employers are still receiving monthly statements.
Moreover, 15 of 38 (39.5%) statements mailed were returned and
the employer’s current mailing address was not updated with a
valid address. Division staff receiving returned mail should notify
collection staff who can place account holds until addresses can
be identified and corrected, saving the State unnecessary
postage.
State Controller’s
Debt Offset
Program Not
Used
Statements Sent
to Incorrect
Addresses
Employment Security Division
16
Recommendations
1. Consult with legal counsel regarding the perpetual roll
forward of overpayments and clarify whether current practice
complies with statute.
2. Ensure the UINV system administers overpayments
consistently across employer account types in accordance
with NRS 612.655.
3. Enhance the notification process of overpayments to
employers on billing statements including actions required by
employers to apply credits or request refunds.
4. Develop policies and procedures prioritizing debts and
establish timelines for specific collection activities.
5. Establish written policies and procedures for payment
agreements to specify which employers qualify for plans and
the number of defaults allowed before initiating the next level
of collection activity.
6. Work with system support staff to correct erroneous
collection reports.
7. Create an aged account receivables report.
8. Utilize the non-filers report to assist in prioritizing accounts
and collection activities.
9. Establish formal policies and procedures for recording
collection activities in the UINV system. Include procedures
for documenting the collection process in system notes and
scanning collection documents.
10. Develop policies and procedures to identify employers with
delinquent accounts who are current state vendors and use
the Controller’s Debt Offset Program for possible payment
interception.
11. Develop a process to identify and correct address errors,
and establish account holds when otherwise applicable.
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Appendix A
Select Nevada Revised Statutes for Unemployment Insurance
Contributions and Collections
NRS 612.630 Summary judgment: Filing certificate; where to be filed; contents; entry of
judgment.
1. In addition to or independently of the remedy by civil action provided in NRS 612.625, the
Administrator, or the Administrator’s authorized representative, after giving to any employer who defaults
in any payment of contributions, interest or forfeit provided by this chapter 15 days’ notice by registered or
certified mail, addressed to the employer’s last known place of business or address, may file in the office of
the clerk of the district court in the county in which the employer has his or her principal place of business,
or if there is no such principal place of business, then in Carson City, a certificate, which need not be verified,
but which must specify the amount of contribution, interest and forfeit due, the name and last known place
of business of the employer liable for the same, and which must contain a statement that the Division has
complied with all the provisions of this chapter in relation to the computation and levy of the contribution,
together with the request that judgment be entered for the State of Nevada, and against the employer named,
in the amount of the contribution, interest and forfeit set forth in the certificate.
2. Within the 15-day period, the employer may pay the amount specified in such notice, under protest,
to the Administrator, and thereupon has the right to initiate, within 60 days following such payment, and to
maintain his or her action against the Division for a refund of all or any part of any such amount and to
recover so much thereof as may have been erroneously assessed or paid. Such an action by the employer
must be commenced and maintained in the district court in the county wherein is located the principal place
of business of the employer. In the event of entry of judgment for the employer, the Division shall promptly
refund such sum without interest as may be determined by the court.
3. If no such payment under protest is made as provided in subsection 2, upon filing the certificate as
provided in subsection 1, the clerk of the district court shall immediately enter a judgment in favor of the
Division and against the employer in the amount of the contributions, interest and forfeit set forth in the
certificate.
[Part 14:129:1937; A 1939, 115; 1941, 412; 1945, 299; 1949, 257; 1951, 351; 1955, 698] — (NRS A
1959, 110; 1969, 95, 312; 1993, 1845; 2013, 100)
NRS 612.635 Judgments: Recording of abstract or copy; liens; priorities; execution.
1. An abstract of a judgment entered pursuant to NRS 612.630 or a copy thereof may be recorded with
the county recorder of any county in the State of Nevada, and from the time of the recording the amount of
the contribution, interest and forfeit therein set forth constitutes a lien upon all the real and personal property
of the employer in such county, owned by the employer or which the employer may afterward acquire, which
lien has the force, effect and priority of a judgment lien.
2. Execution must issue upon such a judgment upon request of the Administrator or the Administrator’s
authorized representative in the same manner as execution may issue upon other civil judgments, and sales
must be held under such execution as upon other executions upon civil judgments.
[Part 14:129:1937; A 1939, 115; 1941, 412; 1945, 299; 1949, 257; 1951, 351; 1955, 698] — (NRS A
1993, 1846)
Employment Security Division
18
Appendix A
Select Nevada Revised Statutes for Unemployment Insurance
Contributions and Collections (continued)
NRS 612.655 Refunds and adjustments.
1. Where a payment of contributions, forfeit or interest has been erroneously collected, an employer
may, not later than 3 years after the date on which such payments became due, make application for an
adjustment thereof in connection with subsequent contributions, forfeit or interest payments or for a refund.
All such adjustments or refunds will be made without interest. An adjustment or refund will not be made in
any case with respect to contributions on wages which have been included in the determination of an eligible
claim for benefits, unless it is shown to the satisfaction of the Administrator that such determination was due
entirely to the fault or mistake of the Division.
2. Refunds of interest and forfeit collected under NRS 612.618 to 612.675, inclusive, 612.7102 to
612.7116, inclusive, and 612.740 and paid into the Employment Security Fund established by NRS 612.615
must be made only from the Employment Security Fund.
[Part 14:129:1937; A 1939, 115; 1941, 412; 1945, 299; 1949, 257; 1951, 351; 1955, 698] — (NRS A
1993, 1846; 2013, 1973)
NRS 612.660 Arbitrary assessments upon failure of employer to file report or upon filing of
incorrect or insufficient report.
If an employer neglects or refuses to make and file any report of wages and contributions as required by
this chapter or by any regulation of the Administrator, or if any report which has been filed is deemed by the
Administrator to be incorrect or insufficient, and if, within 7 days after the Administrator has given written
notice by mail to the employer to file a sufficient report, the employer fails to file such report, the
Administrator may make an estimate based upon any information in his or her possession of the amount of
wages paid or payable by the employer for the period or periods in respect to which the employer has failed
to report, which estimate is prima facie correct, and upon the basis of such estimated amount shall compute
and assess the contribution payable by the employer, together with all forfeit and interest which may have
accrued for the period covered by the assessment.
[Part 14 1/2:129:1937; added 1939, 115; renumbered 14.1:129:1937 and A 1941, 412; A 1949, 257;
1955, 698] — (NRS A 1993, 1847)
NRS 612.665 Notice of arbitrary assessment: Contents; finality of assessment.
1. Upon the levy of any assessment as provided in NRS 612.660, the Administrator shall forthwith give
written notice thereof by mail to the employer at the employer’s last known address. The notice must:
(a) Contain the amount of the assessment and forfeit, if there be any.
(b) Advise the employer of the right to petition for readjustment thereof as provided in this chapter.
2. The assessment becomes final, and the amount of contribution and forfeit therein specified becomes
due and payable, 15 days after the date of mailing such notice, except as otherwise provided in this chapter.
3. An assessment which has become final is subject to the same interest as provided in NRS 612.620
for other unpaid contributions.
[Part 14 1/2:129:1937; added 1939, 115; renumbered 14.1:129:1937 and A 1941, 412; A 1949,
257; 1955, 698] — (NRS A 1993, 1847)
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Appendix B
Audit Methodology
To gain an understanding of the Employment Security Division
(Division), we interviewed staff and reviewed statutes, regulations,
and policies and procedures significant to its operations. We also
reviewed financial information, prior audit reports, budgets,
legislative committee minutes, and other information describing
the Division’s activities. Furthermore, we documented and
assessed internal controls over the Division’s regulatory oversight
duties, which include the collection of State Unemployment Taxes
(SUTA) and in particular, the collection process for delinquent
SUTA employer accounts and the overpayment return process for
employers. To obtain a better understanding of the Division’s
collection process, we discussed with collection management and
staff key collection activities, software, and written guidance
covering these areas.
We interviewed staff and management, requested policies and
procedures for overpayment refunds, and obtained a list from
UINV of all employer’s accounts with overpayment balances. We
requested lists of expired overpayments and of refunds issued
and processed from January 2018 through January 2019, and
compared the lists to identify accounts that may have had expired
overpayments refunded. Of 15 accounts identified on both lists,
we judgmentally selected 5 of the accounts with the highest
balances to verify the accuracy of the refund processing. We
analyzed a historical record of expired overpayments from 2016 to
2018. We isolated the historical values of expired overpayments
associated with active accounts and summed the values to obtain
our estimate of the potential impact of approving future
overpayment refunds.
To determine if the Division performed timely collection activities,
we acquired two accounts receivable lists for historical
outstanding balances through November 30, 2018. To verify the
Employment Security Division
20
completeness of each list we judgmentally selected 25 employer
records from the online operating system, UINV, and traced the
hardcopy quarterly tax report to the information stored in UINV.
We determined the data stored in the UINV system to be complete
and reliable. We also discussed reports used by collection staff to
determine if report results contained all delinquent employer
accounts and were used to begin collection activity. We randomly
selected and reviewed 131 delinquent employer accounts for
collection activity: 52 active accounts, 45 inactive accounts, 6
involuntary terminations, 8 void and transfers, and 20 small
balance accounts, from a population of 10,129 total accounts.
We reviewed the UINV system to determine whether the collection
activities were performed as described by staff and outlined in
current policies and procedures. We reviewed when collection
activities were completed to determine if they were performed
timely, and whether documents were scanned into the UINV
system. To confirm instances where no collection activities were
identified, we discussed our results with staff. We also verified
employers’ first employer billing statement (statement) and last
statement, and determined if the employer’s address was up to
date or if statements were being returned to the Division. We
contacted three other states for collections best practice
comparisons.
To identify if any delinquent employers were also state vendors,
we compared delinquent employer lists to the state vendor listing,
and documented if the employer received payments from the
State. We also contacted the State Controller’s Office to
determine if vendor debt offset interception was possible, and
what it would require to establish this process.
We used nonstatistical audit sampling for our audit work, which
was the most appropriate and cost-effective method for
concluding on our audit objective. Based on our professional
judgment, review of authoritative sampling guidance, and careful
consideration of underlying statistical concepts, we believe that
nonstatistical sampling provided sufficient, appropriate audit
evidence to support the conclusions in our report. For these tests,
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we did not project the findings to the population. Our samples
included both randomly and judgmentally selected items.
Our audit work was conducted from July 2018 to August 2019.
We conducted this performance audit 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 objective. We
believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objective.
In accordance with NRS 218G.230, we furnished a copy of our
preliminary report to the Administrator of the Employment Security
Division. On March 9, 2021, we met with agency officials to
discuss the results of the audit and requested a written response
to the preliminary report. That response is contained in Appendix
C, which begins on page 22.
Contributors to this report included:
A. Lilliana Camacho-Polkow, CIA, MBA
Deputy Legislative Auditor
Dameon Meeks, MBA
Deputy Legislative Auditor
Jeffrey Mullen, MAcc
Deputy Legislative Auditor
Jane Giovacchini, MS
Audit Supervisor
Shannon Riedel, CPA
Chief Deputy Legislative Auditor
Employment Security Division
22
Appendix C
Response From the Employment Security Division
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Employment Security Division
24
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Employment Security Division
26
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Employment Security Division’s Response to Audit Recommendations
Recommendations
Accepted
Rejected
1.
Consult with legal counsel regarding the perpetual roll
forward of overpayments and clarify whether current practice
complies with statute ..................................................................
X
2.
Ensure the UINV system administers overpayments
consistently across employer account types in accordance
with NRS 612.655 ......................................................................
X
3.
Enhance the notification process of overpayments to
employers on billing statements including actions required by
employers to apply credits or request refunds ............................
X
4.
Develop policies and procedures prioritizing debts and
establish timelines for specific collection activities ......................
X
5.
Establish written policies and procedures for payment
agreements to specify which employers qualify for plans and
the number of defaults allowed before initiating the next level
of collection activity ....................................................................
X
6. Work with system support staff to correct erroneous
collection reports ........................................................................
X
7. Create an aged account receivables report ................................
X
8. Utilize the non-filers report to assist in prioritizing accounts
and collection activities ...............................................................
X
9. Establish formal policies and procedures for recording
collection activities in the UINV system. Include procedures
for documenting the collection process in system notes and
scanning collection documents ...................................................
X
10. Develop policies and procedures to identify employers with
delinquent accounts who are current state vendors and use
the Controller’s Debt Offset Program for possible payment
interception .................................................................................
X
11. Develop a process to identify and correct address errors,
and establish account holds when otherwise applicable .............
X
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