April 22, 2008 - Unemployment Insurance Advisory Council Meeting Minutes

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Unemployment Insurance Advisory Council Meeting Minutes

Tuesday, April 22, 2008 – 9:30 a.m.

Wisconsin Manufacturers and Commerce
501 East Washington Avenue
Madison, Wisconsin

Members Present

Management: James Buchen, Ed Lump, Dan Petersen, Earl Gustafson, Susan Haine

Department staff present: Secretary Roberta Gassman, Hector Colon, Hal Bergan, Tracey Schwalbe, Dick Tillema, Lutfi Shahrani, Carla Breber, Andrea Reid, Brian Bradley, Troy Sterr, Tom McHugh, Rick Holzbauer, Bill Markhardt, Christopher O’Brien, John Zwickey, Robin Gallagher.

Others present: Bob Andersen (Legal Action of Wisconsin), Michael Metz (WI Independent Business), John Metcalf (Wisconsin Manufacturers and Commerce), Larry Smith (UC Management Services), Bill Smith (National Federation of Independent Business).

MINUTES

1. Brief Remarks – Roberta Gassman, Secretary, DWD

Secretary Gassman thanks the Council, Hal Bergan, Dan LaRocque, and the department staff, for the work in the last two years that became 2007 Wis. Act 59. She introduces Hector Colon, Executive Assistant at DWD. the department contact with outside groups and the Legislature. Secretary Gassman relates the various provisions of the bill. She indicates that having the bill come out of the Council with unanimous support was very powerful. To see substantial majorities approve the bill in both houses was very encouraging. The bill sets the foundation for the program for the next two years. Wisconsin’s unemployment insurance program is a model for the world and the country. The changes will ensure that the program and the fund remain strong.

Secretary Gassman indicates that the SUITES tax system will be helpful for years to come. This was scrutinized by reporters, legislators, and taxpayers, and we are encouraged that the deployment of the system has been accomplished.

The skills shortage in the state is a huge issue. Employers are facing older workers retiring and changes in technology. Those trends together are putting tremendous pressures on employers to have skilled workers if they are to be successful and thrive in Wisconsin. Workers need the skills to be able to do the jobs that employers are looking to fill. The department is very focused on this challenge. Secretary Gassman is willing to come back to the Council about what the department is considering doing to connect workers to the skills they need while they are unemployed so they can move into jobs that employers need to fill. Tim Sullivan, head of Bucyrus International, is the chair of the Governor’s Council on Workforce Investment, is very focused on this issue. In a time of shrinking federal resources, we need to determine how we can get the training for individuals and help employers have trained workers. There may be recommendations in the fall from the Council on Workforce Investment to the Governor as he works on his next budget.

The National Governors Association has a best practices policy academy program that brings states together to work on certain major challenges. Wisconsin was selected to be one of 6 states in the program starting this month on Regional Economic and Workforce Development and how to build regional economies in states so we have the best skilled workforce. Representing Wisconsin will be Secretary Gassman, Tim Sullivan, Superintendent of Public Instruction, a Technical College President, Secretary of Commerce and others.

Mr. LaRocque thanks the Secretary for her informative remarks and for taking the time to visit the Council today.

2. Minutes of Meeting January 22, 2008

Motion (Yunk), seconded (Buchen), to approve the Minutes of the January 22, 2008, meeting. Minutes are approved unanimously.

11. UI Treasurer’s Financial Statements

Tom McHugh, Supervisor of the Accounting Area, presents the financial statements. The Cash Analysis statement tells how much money the department has for benefits. The bottom line lists the cash balance. There is a 26.5% decline from one year ago. The balance as of yesterday was $291,000,000, of which $151,000,000 is Reed Act funds. This is the low receipts period before the tax receipts come in by the end of April. Based on last year, we expect to take in about $350,000,000, so we will still be in schedule B. Last year in 2007, we were down about 22.7% from twelve months ago for our balance; our receipts were down 5.3% and our disbursements were up 12.3%. The last time we had an increase in receipts from the twelve months prior was in 2001. The fund balance is going down because receipts including interest income were down 5.3% while our disbursements were up 12.3%.

Question (Buchen): Is this attributable to the interest decline? If you take interest out of the calculation, are tax collections down?

Mr. McHugh indicates that the rates are down and the fund balance is down. The interest was down $3,000,000 less than the prior year. Tax collections are down. For example, the reserve fund was down in December 2007 when we took in $536,000,000; in the prior year this was $569,000,000. Solvency was about $2,000,000 less than the twelve months prior.

Question (Haine): There have been reductions in the workforce. Would this account for the reduction in taxes?

Mr. Bergan indicates that collections may have been down because employment was relatively flat and individual accounts were getting healthier and tax rates were not as high. This is the time of year when the balance goes to its lowest.

Question (Penkalski): Do the collections increase in the third quarter when deferred payments are made?

Mr. Brian Bradley indicates that this is not a large number since there are only about 400 employers who take advantage of the deferral at this time. Mr. McHugh indicates that we take in about $350,000,000 in the first quarter and $150,000,000 in the second quarter, but our biggest disbursements are in January and February so we are at the lowest point.

Question (Gustafson): Given the projected income at the end of the second quarter, what schedule will be used?

Mr. McHugh indicates that we will make schedule B. Mr. Bergan indicates that the testing year will be 2009. There are some encouraging things. Although continued claims are up about 2.5% for the year, initial claims are only up a little more than 1% so far. Expenditures are up more than we would expect with those kinds of expenditures so we are sorting it out to see where those are coming from. If we are at an early stage of a recession, we will see people stay on benefits a little longer rather than have a lot more recipients.

Comment (Haine): Anecdotally, QTI has seen this happening. The length of time on unemployment benefits has increased. They deal with thousands of employees.

Question (Yunk): Do we track the wage base of the individuals who are claiming unemployment to see if there is any pattern, for example that the average wage of the person laid off is different than it was in the last quarter or year, indicating that a different segment of the population might now be entering the unemployed?

Dick Tillema indicates that it may be possible to get this information, but we do not have it now. Mr. Bergan indicates that the easiest data on this may be the average benefit amount. If they have a higher weekly wage, the benefit rate will go up. That we could get without too much difficulty and we could look at it over previous years.

Ms. Haine indicates about $17 per hour. Carla Breber indicates $8,875 for the quarter.

Mr. Bergan indicates that there may have been Wisconsin extended benefits in the past, but that is no longer in place. Ms. Breber indicates that “TSB” were temporary supplemental benefits under Wisconsin law and is not extended benefits; it was repealed. Wisconsin supplemental benefits are still on the books. Mr. Zwickey indicates that the state extended benefits trigger is 5% or 4% if the IUR is also equal to or greater than 120% of the average of the IURs in the corresponding 13-week periods in the previous two years. The federal-state extended benefit trigger is 6% or 5% if the IUR is also equal to or greater than 120% of the average of the IURs in the corresponding 13-week periods in the previous two years. Mr. Bergan indicates that in practice the federal benefits kick in before the state extended benefits. Mr. Zwickey indicates that we are not close on any of the triggers. Mr. Zwickey indicates that the current IUR is 5.1% and it is done on a weekly basis.

Question (Gustafson): How murky does the limit on the maximum weekly benefit make the use of that figure to determine who is collecting benefits? Is it hard to get a sense of the wages of people claiming benefits because of the cap on benefits?

Mr. Tillema indicates that it’s pretty murky. Ms. Breber indicates that the department could look at the high quarter wages as well as the maximum weekly benefit amount. Mr. Bergan indicates that it is a good question and we can get this information to make a comparison.

Comment (Gustafson): Ms. Yunk was interested in seeing if as unemployment continues people claiming benefits continue to drop in the wage level as a result of repeated separations.

Comment (Yunk): I am also looking at what segment of the population is claiming benefits. In the initial phase of a recession it may be the lowest wage workers and as the recession escalates it may be higher wage earners claiming benefits. It could give us a snapshot of what stage the economy is in and can make projections. It might not be scientific enough for projections, but it would be useful information.

Comment (Gustafson): In the paper industry over the last 8-9 years there has been downsizing with people accepting buyouts. These people would not have shown up as unemployed. It would be interested to see how that is being tracked.

Mr. Lutfi Shahrani, Director of the Bureau of Benefits, responds that there is benefit data showing trends over time. Over time, the number of actual claimants has changed from 2000 (213,000), 2001 (257,000), 2002 (379,000), 2003 (351,000), 2004 (320,000), 2005 (286,000), 2006 (254,000), 2007 (274,000). The average number of weeks a claimant was paid benefits in 2000 (10.3), 2001 (11.1) 2002 (12.5), 2003 (13.1), 2004 (12.2), 2005 (11.8), 2006 (11.8), 2007 (12.1). The duration of receiving unemployment benefits has gone up. The average amount of benefits paid for a claim 2000 (2400), 2001 (2700), 2002 (3344), 2003 (3000), 2004 (2996), 2005 (3000), 2006 (3047), 2007 (3123). The amount paid out has not changed dramatically.

Comment (Gustafson): The paper industry has dropped employment about 25-27% since 1999, but we do not know what percentage of those 15,000 showed up as unemployment or went back into the workforce elsewhere.

Comment (Haine): The information is interesting, but it is not clear how the Council could use this information.

Comment (Lump): The committee referenced by the Secretary may be better able to use this information in its workforce analysis.

Comment (Yunk): The Council deals with maintaining solvency of the fund. I was interested in whether this information would help translate into solvency of the fund.

3. SUITES Project – report on system deployment

Rick Holzbauer, Information Systems Manager for the Bureau of Tax and Accounting, presents an update on the deployment of SUITES. The previous accounting system called UTAS (Unemployment Tax and Accounting System) was in place for over 25 years. It was replaced in March with SUITES (State Unemployment Insurance Tax Enterprise System), which was put into production on March 2, with the first batch run on March 3. We were able to pay benefit checks on time without incident. We are running cycle 50 and have encountered a few minor problems, but nothing that prevented daily business. These have been corrected.

In deploying the SUITES system, we had user acceptance testing. All of the staff (90-100) over a six-month period from June to December 2007 pounding the system with day-to-day transactions to make sure that when we put this into production it was ready to go. Following user acceptance testing, we had quality assurance last minute changes before we went into production. The conversion process involved over 76,000,000 monetary and nonmonetary transactions that existed in the legacy system, 274,000 active and inactive employers, and 695,000 active and inactive claimants. At IT conferences we learned that you can never do too many mock conversions of your data, and not to underestimate the possible problems that you can experience. Prior to our deployment, we conducted over 30 full mock and test conversions. We did this so we could ensure the integrity of the system when it went live. The entire conversion process took approximately 38 hours. It began on February 29 and was completed on March 1. The data validation itself of the converted data took approximately 7 hours and involved over 45 employees. Currently the application is about 1.4 million lines of dot net code. It has over 300 streams (internally and externally), and over 500 batch jobs running daily, weekly, monthly, quarterly, etc. We have deployed approximately 95% of the SUITES program; the balance will be done by the end of May.

By way of comparison, in multi-transactional cases we may have to make adjustments to claimant accounts or employer accounts that involve several steps. In the old batch process we would have to fill out forms, have them data entered, wait for a batch, and wait for the transaction to go through before we could do the next one. In some cases, the transactions only took an hour, but it took 3 or 4 weeks to get through the system. In the meantime, the account was not what it should have been. Now, with SUITES and online transactions, instead of taking an hour, the transactions take a half an hour. Instead of sitting on the transactions, however, even the most complex cases are done in no more than an hour. The status of the account is accurate and customer service has improved. For refunds, in the past, it took 2 to 3 weeks to process a refund, assuming it was not during a collection month when, because of the conflict of resources, we needed to process the incoming money before handling refunds. Now, within a matter of one to two days a refund is processed and mailed. We have also automated the warrant system for collections to enter into the CCAP (“Consolidated Court Automation Programs”) system with 71 counties. In the past, we filled out paper and the counties processed that and sent it back to us. Now this is automated in 71 of 72 counties.

The most significant outside process to SUITES is the new employer registration. In the past, the process was a form with a series of questions that staff asked. The new process is an intelligent, interactive application. It will ask a question and based on the answer, it will decide what needs to be asked next. It will assign an account number immediately and based on the answers, if you meet the liability criteria, you will be issued a determination, given your tax rate, told about your filing requirements and you are done. There is no need for mailing paper forms back and forth. What in the past took 2 to 4 weeks can now be done in one half hour or less.

In the next couple of months, the pieces coming out will be the access to employers to view their own accounts. Employers will be able to see their account balances, tax rates, and what is happening with benefit charges. This would be available on line 24 hours a day. Employers will be able to update name and address information and request refunds on line. Employers will also be able to get the 940 recertification form without having to contact the department.

Question (Haine): Will this be to the level of detail that will include individual claimant activity?

Mr. Holzbauer indicates that is further down the road. The weekly statement that shows who the claimants are will be available on line and employers will be able to recreate those. We hope to stop mailing those eventually and have them available on line. This is probably the most complex feature we have.

Ms. Andrea Reid, Bureau Director of Tax and Accounting, adds that the department will have employer focus groups to practice using these. It may be possible to make some of the reports downloadable.

Question (Penkalski): On the application is there anything that encourages the employer to file electronically?

Mr. Holzbauer indicates that when the employers come on line to register, they will not be sent paper forms. They will be directed where to file quarterly reports on line. Rather than encouraging them, they are not given the paper choice.

Mr. Bergan indicates that the reason the department offered this presentation in part was because it was a controversial project. It cost $47 million and took a long time. It is easy to lose track of the value, but if you take what was described here and multiply it by thousands and thousands of times, we know the value is very substantial to the department and employers. We wanted to fill in the benefit side of the cost benefit analysis that you have to do on these kinds of projects.

Larry Smith (UC Management Services): A compliment to the department for the charge statement that makes more sense and is understandable and more readable. It is very nicely done.

Mr. Bergan indicates that as part of the SUITES transfer, the department rewrote every piece of correspondence, forms and letters to try to make them clearer.

4. UI administrative funding – update

Mr. Bergan indicates that in the bill there was authorization to use the Reed Act funding because we could see that we were headed for budgetary difficulties. That has turned out to be true. We had similar authorization in the previous bill and were able to get by without using it. As the budget realities have unfolded over the last couple of months, it is clear that we will need to use that authority to use the Reed Act funds in order to accomplish our mission administratively.

Congress was late in appropriating its funds for domestic agencies and did so in an omnibus appropriation bill. That bill essentially cut everything 1.7%. For us, that translated into a cut in above base funding. Typically, this is a calculus based on what the actual volume of claims is. It is funded at a percentage. Last year it was funded at 85%, this year the funding is at 32%. In practice, our operating funds are diminished by $1.5 million. This is out of a total grant as between $60-62 million. Program revenue charges for IT services and overhead are up about $1.7 million in FY08 over FY07. This has to do with the rate we are charged for maintaining our IT systems and department overhead. For a while the rate was artificially depressed and they decided they needed to catch up, and it hit us pretty hard.

The economics of our department are changing somewhat. There is a new Department of Children and Family Services. We are peeling off some of DWD to do that. When this is done, the Unemployment Insurance Division will be about 60% of DWD. Our responsibility for department charges will be proportionately greater. The salary expense from FY07 to FY08 was up about $1,000,000, which has to do with the pay package. We have part-time positions that we have asked to work full-time to meet our workload. Fringe benefits are also up.

We are in the process now working with the DWD budget staff and have ideas how to meet our budget needs by the end of this fiscal year. We have a small gap to meet by the end of the state fiscal year of June 30th. We have a larger gap to fill by the end of the federal fiscal year of September 30th. We are reducing overtime, out-of-state travel, delaying in filling non-critical positions, etc., but this is not enough to fill the gap. The $1,000,000 in Reed Act is not enough to fill the gap, but we think that the funds along with other steps will get us through. There is a possibility that there may be modest additional funds from the federal government, but it is not likely and we cannot plan on it.

Question (Haine): What are the demographics of the UI Division? Are you seeing an issue with people leaving the workforce and having a hard time finding younger workers to fill the gap?

Mr. Bergan responds that this is part of workforce planning. The state requires that all agencies do workforce planning and we are doing that now.

Question (Penkalski): Will the department have to use the $1,000,000 in the next year as well?

Mr. Bergan responds that we do not know yet. We are going to try to avoid it, but I am not optimistic. We are among the last states to use Reed Act funds for administrative expenses. A lot of states have had to do this. We are looking at cost saving strategies, like direct deposit for checks rather than mailing.

5. Proposed DWD 149 and DWD 140, Disclosure of UI Records

Mr. LaRocque indicates that the Council approved these proposed rule changes last fall. The department will update the Council on changes made since that time. We would like it approved in its final form so it can be submitted to the Legislature and approved by our final deadline in October 2008.

Ms. Schwalbe indicates that a summary of the rule was distributed last fall when the Council originally looked at the proposed rule. The rule follows the statute and requires that unemployment records are confidential except as allowed in the rule. We also must comply with the federal rule that all states must conform to by October 2008. The department rules coordinator put the prior draft into the rules format necessary for the Legislature and reorganized some of the provisions. She pointed out where we needed a definition for a term used in the rule. Mandatory disclosures were organized in the same order as the federal rule to make it easier to see how the state is complying with the federal rule. The permissive disclosures were also reorganized. Disclosures to agents were all put in one place, whether the disclosure was to a legislator for a constituent issue, an attorney, or a union representative. The rule was reviewed for conformity, clarity and consistent organization.

The federal government originally adopted its proposed rule on confidentiality of unemployment records in the early 1990s. The department adopted DWD 149 at that time to conform to the proposed rule. The rule was set up well in the first place and we are adapting it to the final federal rule. The Legislative Council reviewed the rule and had some comments on grammar and clarity. Copies of those comments are available. We made all but two changes. The Department of Labor also reviewed the rule for conformity and we have heard back from them that it meets the conformity requirements. The public hearing on the rule was held April 8, and there were no comments. One of the requirements under the rule is that many third parties who may access unemployment information must have a data sharing agreement that requires that they comply with our confidentiality safeguards. We are in the process of reviewing the current agreements.

Question (Yunk): There are two different dates for the public hearing on the documents. Which is correct?

Ms. Schwalbe indicates that the public hearing was April 8 and comments were accepted until April 9. The rules coordinator will be notified to correct the date.

Motion (Haine), second (Penkalski), to approve the proposed rule changes to DWD 140 and 149 related to disclosure of unemployment insurance records. The motion passes unanimously.

6. DWD 128 Able and Available – brief update

Mr. LaRocque explains that a revised rule, DWD 128 Able and Available, has taken effect as of April 1, applicable to determinations after April 6. This rule eliminated the numerical measurements of able to work and available for work, and replaced them with a series of factors that are applied by the adjudicator or reviewing authority. The automated system remains a tool for determining if someone is able and available, but the primary thrust of the rule is to apply the factors.

Mr. LaRocque states that the department did a lot of training with adjudicators and administrative law judges because this is a significant change and involves the exercise of more complex judgments. We expected the change to cure some of the unfairness we saw with the numerical results. Ms. Breber indicates that this is only the second week. We plan to run a scan and take a look at cases when this week is over and see what we find.

Question (Lump): Will you report back to us later what you find and how this is going?

7. Annual Report on Detection and Prosecution of Fraud

Lutfi Shahrani presents the highlights of the report. The written report was submitted to the Council previously. Wisconsin detected overpayments at a rate of 64.4% exceeding the 2007 federal goal of 59.5%.

Mr. Shahrani indicates that for the rate of overpayment detection, there is an estimated percentage of how much overpayment is out there and how much we should collect. We take what we actually do and compare it to what the statistical model anticipated.

Wisconsin exceeded the federal goal of 55% recovery of overpayments established versus the amount we actually collect. In 2007, $16.63 million in overpayments were recovered, while $16.31 million in overpayments were established during the same period. This includes the federal unemployment programs. The cross-check with the National Directory of New Hires was implemented in December 2007 and is expected to help us detect failure to report work and wage issues more quickly and reducing overpayments. This is a true benefit for Wisconsin employers who have employment in Wisconsin but report to other states, such was Wal-Mart. We have plans to do a cross-match with the Department of Corrections to identify claimants filing for benefits while incarcerated. Initially we wanted to do this directly with a DOC data base. However, they were somewhat reluctant and we knew that even if we did this, we would still miss those in county jails because the DOC does not have that data. Through our data sharing agreement with the Social Security Administration, we were able to piggyback on that agreement and add to it to cover unemployment getting that information from the SSA which will include the county jail population. This is in the testing phase. A new Program Integrity Section was created in the Bureau of Benefits to better coordinate the activities regarding overpayments, fraud prevention and detection. We are working to try to get staff to train and turn into experts on identity theft, imposters, aiding and abetting, etc.

Prevention activities are listed in the report. Significantly, we provide educational information to warn about fraud and possible consequences and repayment obligations. This is provided on line, at labor law clinics, in interactions with our customers, laid off workers, small employer information presentations, and during interviews and investigations. Automated tools help us detect fraud with the Department of Transportation, the Social Security Administration, employer wage files, Citizenship and Immigration Services, and checks are matched with our bank. For our fraud detection activities, the cross-matches have been very effective. This includes the Wisconsin Quarterly Wage Record Cross-match, the Interstate Wage Record Cross-match, Wisconsin’s New Hire Cross-match, the National Directory of New Hire Cross-Match, and the Vital Statistics (deaths) Cross-match. We scan them against our payment file. We can detect fraud early with these cross-matches. We also use field audits, employer complaints, tips from the public, staff detection, post-verification of weekly wages, automated scans of employer tax information using the SUTA dumping software, use 1099 information from the IRS, and coordinate special investigations with the Wisconsin Office of Privacy Protection for investigations of identity theft.

The report shows these detection efforts separated by code, the totals detected and the percentage for each code of the total detected. The significant categories are wage record cross-match at 14.62%, the verification of low earnings at about 30%, the employer protesting charges at about 17%, and agency detection is about 16%. Note that there are some that are claimant initiated.

For overpayment and penalty processes, we developed a policy a few years ago to streamline the work and give an opportunity to “first time offenders” for the verification of law earnings to be put on notice, assess the overpayment but not the penalty. If the overpayment is under $1,000 and there has been no previous fraud, we give them the opportunity to be forewarned and assess the overpayment. It is not something I foresee continuing forever; it depends on our resources. Most of these cases are detected by the cross-match with the new hire directories, wage record cross match, and agency detection. The post-verification of weekly wages results in detection of over $5 million in overpayment recovery. This is the easiest recovery we have because it is often during a continuing claim process so we make adjustments on the benefit checks.

Forfeiture assessments are the loss of future benefits. Forfeitures are recovered before overpayments. Act 59 simplified our fraud forfeiture assessment process. The feedback is that adjudicators are very pleased. I anticipate that the portion of Act 59 addressing the wage fraud that denies benefits in a week where fraud was detected will be a great deterrence. Note that both for payments and forfeitures the collection is not necessarily related to how much was assessed because both will have overlap from prior years. The percent collected is, however, related to the percent assessed. Any forfeiture older than six years is removed from the system. If the fraud involves overpayments of $5,000 or more and at least 5 acts of concealment, cases are referred for prosecution primarily to the Department of Justice.

Question (Buchen): It appears from the report that the conviction rates have declined over time. Is that because the cases are still pending? There are more referrals for prosecution from 2005 to 2007, but fewer convictions.

Mr. Shahrani indicates that it is in part because the cases are still pending. Also, it may be resolved before it gets to a conviction. Mr. LaRocque indicates that with some staff changes, we have also had an uneven referral to the DOJ. The funded position is a 0.5 FTE but the time resources of the person do not come very evenly. There was a gap in our activities until the new Fraud Section was reestablished. Mr. Shahrani indicates that we do not have a lot of staff at this time to devote to this. Mr. Bergan indicates that there was also a retirement that slowed this.

Mr. Shahrani continues that aiding and abetting does not reflect any cases for 2007. This does not mean we did not investigate any. These cases are very difficult to establish. With additional resources we might be able to establish more of these cases. Known imposters are false claims using someone else’s identity; we had one case in 2007. This is also very difficult to establish who the person is. We do quality appraisal of fraud investigations to evaluate the tools we use to investigate fraud. No formal appraisals were conducted in 2007, but were reviewed internally. We are now doing one for the fourth quarter of 2007. This is important for program integrity. The target overpayment detection rate is set by the Department of Labor; it is 56% for 2008 for all states cumulatively. Wisconsin is currently at 64.44%. We exceed the US average and the standard.

Question (Buchen): The estimate increases by $10 million in one year, from June of 2006 to June of 2007. Why is that? Our average of overpayments is fairly consistent, but their estimate of what it is supposed to be varies greatly.

Mr. Shahrani indicates that this is a statistical model that takes into consideration benefit payments, historical activity, some of the national trends, and a lot of the factors are federally established and plugged into the state numbers. Mr. Bergan indicates that the federal estimate is often problematic. Sometimes we go over 100%; some states go 200-300%. John Mand handles this and he can address what accounts for this variation. On the collection side, we are optimistic that SUITES will help recovery.

Mr. Shahrani indicates that the fraud recovery rate in 2007 was 97%; the nonfraud recovery rate in 2007 was 103%. This is more than 100% because the assessment and recovery are not necessarily from the same years. These do not include federal military benefits. With the new program integrity section, we are looking forward to 2008 and making program integrity a high priority. We are seeking to add four new program integrity positions. Mr. Bergan adds we are also going to focus on reducing overpayments in the first place.

Question (Penkalski): With the SUTA dumping software, have you discovered any fraud cases with that and, if so, what is the dollar amount?

Brian Bradley indicates that we have run a number of different queries. We are still testing it out. Some of the shifts in payroll that have been identified we have gone back and checked out and we are finding that in most cases we have identified the transfer situation before the SUTA dumping software identified it. We had some things in place prior to the SUTA dumping software and we were always looking at shifts in payroll.

Mr. LaRocque indicates that we will make a note of that and ask Jeff Becker to focus on that.

Comment (Lump): I would encourage adding staff for fraud collection, especially specialists in the aiding and abetting issue would be useful. This is an issue in terms of providing information to the Legislature in the contents of the bill just passed. It was a subject that came up from time to time in those discussions, and it comes up with employers. Pointing to four cases in the past few years is not enviable, but I understand the difficulty.

Mr. Bergan indicates that some of the work must be done in the field. We want to investigate to detect fraud activity and also to have a sentinel effect for deterrence. We need investigatory resources that we do not have.

Comment (Haine): I agree with Mr. Lump, but if we look at the chart we can see that certain activities account for most of the fraud, and you may be able focus on those areas. Good work.

8. Committee to study definition of “Employee”

Mr. LaRocque indicates that Act 59 calls for the Council to appoint a committee to study the definition of employee and to make recommendations by June 30, 2009. Mr. Bergan would like to get a sense from the Council how to approach this. The sense I had on this from Phil Neuenfeldt was that he thought there would be some value to having some outside participants in this other than simply a department staff effort. There is also interest in looking at this more broadly outside our department. I am anxious to get any guidance from the Council and then bring back a proposal for how this would work.

Comment (Haine): I have been thinking about this a great deal. It is a timely issue with press articles about potential abuse by FedEx and the flip side where we had someone testify to the Council previously how he wants to be an independent contractor. First, in terms of the goals of this committee, we should research information about the definitions of employee/independent contractor in employment law, workers compensation, federal law, unemployment law, etc. I would like to see this body have a couple of interested members meet and decide if we should bring in outside experts or consultants as a stage one quick meeting. If they talk to us for one meeting, it would be very helpful. For consistency, I want to see what the definitions in other statutes are, not that we need to follow them. As much as possible, we need to meet the overall philosophical goals of the unemployment insurance program to provide employees with benefits. The abuses and confusion go both ways. I am interested in being involved in this. We would set the scope of the work and purpose, the approach, and then execute the plan.

Mr. Bergan indicates that we have the public hearing process coming up. We could put this issue on the notices for those hearings. Or we could set up a small group and have them do the work for the Council.

Comment (Lump): This is a complicated issue. We would be well served by having some outside people involved in the committee. How you select them may be difficult. We have had some people before the Council or who wrote letters that may be a place to start. There are some industries that are more likely to use independent contractors and they might have members interested in being involved in this. The labor side will have people involved, too. The idea of putting it on the public hearing notices would be a good way to get some attention from which you might get committee members. It does not necessarily require the full Council to be involved through the process until some recommendations are made.

Comment (Haine): I think there are many employers who would be interested in speaking on either side of the issue. Employees may also be interested in testifying. We will see if there is inconsistency, maybe even within the state with workers compensation. Those are different purposes, but it would be nice to have some consistency.

Comment (Buchen): Many people may want to come in and complain, but they may not help us find an answer. The struggle is to find people who understand the application of the law and the process. I think it would be helpful to provide a forum for the complaints, whether it is the public hearings or other hearings. We would get a better perspective on what the issues are and maybe some fact situations.

Comment (Yunk): The germane question as a Council that we need to ask in approaching this is do we think that we should set out a framework for the questions and then move forward in terms of how to answer those or do we allow a forum of having a more open process to lay out the issues. Frankly, I think that our obligation is to lay out what we see as the intrinsic questions and then go forth and decide how we best get answers to those questions. I have real concerns in terms of logistics that we have a hard time meeting on a regular basis. It is prudent to ask for written input that requires people to be more tenacious in terms of their thought process. The Council should lay out the scope, what the issues are, and what we are attempting to resolve so once we identify that we can decide how we go about finding solutions. That is very different than an open-ended question of what should we resolve.

Comment (Haine): The overall purpose is to put something in the law that adjudicators and judges use to determine who is an employee or whether an employer should be paying into the fund. There is benefit to having input from the public to help us to be responsive to constituents. That comes later after a small group gets together to set out the purpose and goal. I do not see the Council will not meet on this over and over. The committee can report to the Council.

Comment (Buchen): Ms. Yunk’s idea is good. We need to frame the issue and decide what goes forward. The administrative law judges may have a lot of useful information applying these factors.

Comment (Peterson): We need to keep in mind that this controversy has gone on for years. This is not something new. What we looked at last year was the federal identification number because those procedures have changed in recent years. That might be one thing we take a look at. If we establish a definition that is different than the IRS and different than workers compensation and Wisconsin Department of Revenue, we are creating more havoc for employers who have to come up with a decision whether someone is an employee or independent contractor. I do not think we are necessarily straightening things out if we make it worse and have two different definitions for the same thing.

Comment (Haine): I agree 100%. That is why I want to look at the definitions that exist. I think they will be similar but slightly different.

Mr. LaRocque suggests that this is a complex issue and requires a fair amount of expertise and legal analysis. We have three lawyers who work on this issue, and these cases are the most highly contested. We have resources that we can bring to you on the technical aspect. To some degree, getting focused on what the issues are is important. If we do not, we open up the whole issue of the definition of employee and the related questions of what is covered employment. The definition of “employee” is to state the policy of who gets the insurance coverage and who does not. It is not that unemployment insurance is better as defining an employee than workers compensation. We have a different mission.

Question (Penkalski): Has anyone done any research on independent contractors and if that has been a cause of why our revenue dropped?

Comment (Yunk): Our job here is to establish a definition that meets the objectives of the unemployment insurance law. That is why we need to layout the framework of the issue. Our objective is not to make the staff’s lives easier, but to establish a definition for statutory purposes so it can be applied consistently and universally if possible.

Mr. Bergan suggests that for the next meeting the department will do a baseline presentation on the differences in the definitions of employee on the tax and benefit sides. The controversies that are appealed are primarily resolved on the tax side, but we have to deal with it on the benefit side as well. We can provide a concise summary of how those issues present themselves, and if we have data in terms of how they are resolved, we can give you that data. That will help focus what the Council needs to do. Other states grapple with this, and there might be value in doing interstate comparisons.

9. Schedule 2008 public hearings and meetings

May 20, 2008 in Madison
June 5, 2008 in Green Bay
June 25, 2008 in Milwaukee
September 9, 2008 in Wausau
October 2, 2008 in Northwest location

Mr. LaRocque notes that in the packet there was a copy of the letter from Red Platz thanking the Council and indicating he was resigning as of April 1st.