oversight

Information Technology: Department of Labor Could Further Facilitate Modernization of States' Unemployment Insurance Systems

Published by the Government Accountability Office on 2012-09-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States Government Accountability Office

GAO              Report to the Acting Chairman,
                 Subcommittee on Human Resources,
                 Committee on Ways and Means, House
                 of Representatives

September 2012
                 INFORMATION
                 TECHNOLOGY
                 Department of Labor
                 Could Further
                 Facilitate
                 Modernization of
                 States’ Unemployment
                 Insurance Systems




GAO-12-957
                                              September 2012

                                              INFORMATION TECHNOLOGY
                                              Department of Labor Could Further Facilitate
                                              Modernization of States’ Unemployment Insurance
                                              Systems
Highlights of GAO-12-957, a report to the
Acting Chairman, Subcommittee on Human
Resources, Committee on Ways and Means,
House of Representatives



Why GAO Did This Study                        What GAO Found
Labor’s UI program is a federal-state         The Department of Labor (Labor) facilitates states’ efforts to modernize
partnership that provides partial             information technology (IT) systems supporting their unemployment insurance
compensation for lost earnings of             (UI) programs by (1) providing funds for administrating overall UI operations and
eligible individuals who become               (2) participating in groups that provide technical support to states. While the
unemployed through no fault of their          federal-state structure of the UI program places primary responsibility for its
own. In fiscal year 2011, about $117          administration on the states, Labor provides potential strategies for IT
billion was spent on the UI program. To       modernization activities through supplemental budget funds.
administer the program, states rely
heavily on IT, including benefits and         Federal funds for UI modernization efforts come primarily from two sources: (1)
tax systems. However, a July 2010             supplemental budget funds that are designated by Labor for state IT
state survey noted that most of the UI        modernization efforts and (2) general UI administration funding. General
IT systems are outdated and cannot            administration funding primarily consists of State UI and Employment Service
efficiently handle their current              Operations funds (an administrative grant issued by Labor at the beginning of
workloads.                                    each fiscal year); Job Creation and Worker Assistance Act of 2002 funds,
GAO was asked to (1) determine                (distributed under the Reed Act, a mechanism by which the federal government
Labor's role in facilitating UI IT            transfers surplus UI funds to states); and American Reinvestment and Recovery
modernization efforts, (2) identify and       Act funds (an economic stimulus package enacted in February 2009). However,
describe the types of federal funding         federal funds can be used for multiple UI purposes, and states are not required to
selected states have spent on                 report costs for UI modernization projects.
modernization, (3) provide the status of
                                              The status of the nine states’ UI IT modernization efforts that GAO reviewed
modernization for selected states, (4)
determine key modernization                   range from planning to deployment. Of the nine states, three are part of a
challenges, and (5) determine what            consortium (multiple states that develop a single common system) and are all in
management controls have been                 the initial planning phase; two individual state efforts are in the development
established for IT modernization. To do       phase; two are in a combination of different phases; and two are in operations
this, GAO analyzed documentation and          and maintenance. For example, Virginia is in the development phase whereas
interviewed officials from a                  Minnesota has a deployed system and is in operations and maintenance.
nongeneralizable sample of nine states
                                              States and Labor have challenges specific to (1) individual states and (2)
(selected based on varying location,
                                              consortiums’ modernization efforts. The challenges for individual states that GAO
size, and modernization status); and
reviewed Labor policies; and
                                              reviewed relate to having sufficient technical expertise and limited funding,
interviewed department officials.             among others, and challenges faced by consortiums relate to differences in state
                                              laws and business processes among member states. It is widely recognized that
What GAO Recommends                           analyzing and prioritizing challenges and then documenting lessons learned can
                                              help mitigate risk and track successful ideas for more effectively managing IT in
GAO recommends that Labor
                                              the future. A committee was tasked to assess lessons learned from consortium
(1) comprehensively analyze and
                                              efforts which may serve as a valuable first step toward helping the states mitigate
document challenges and lessons
learned and (2) distribute the lessons
                                              challenges. However, the effort is not complete and does not represent an
learned to each state to share and            independent survey of all the states’ lessons learned. As such, Labor has not yet
foster ideas for effective modernization      comprehensively evaluated and prioritized challenges and lessons learned,
of UI systems. Labor generally agreed         disseminated them to each state, or facilitated an appropriate information sharing
with the first recommendation; it did not     mechanism. Until it does, Labor may miss opportunities to help support future
agree or disagree with the second             consortium and state modernization efforts.
recommendation, but said it is                All nine states reviewed have established selected management controls for
committed to sharing lessons learned.
                                              modernizing IT which, if properly implemented, could help reduce the risks of
                                              modernization challenges. The controls align with industry-accepted program
View GAO-12-957. For more information,
contact Valerie Melvin at (202) 512-6304 or   management practices, such as independent verification and validation; and
melvinv@gao.gov.                              include state-specific practices, such as oversight through a Chief Information
                                              Officer office and consortium-specific practices, such as governance structures.
                                                                                      United States Government Accountability Office
Contents


Letter                                                                                      1
               Background                                                                   3
               Labor’s Primary Role in Facilitating IT Modernization Efforts is
                 Providing Funding and Technical Support to State UI Programs               9
               A Variety of Funding Sources Exist for States’ Modernization of UI
                 Programs                                                                 13
               Selected States Vary in Their Efforts to Modernize UI Systems              20
               States and Consortiums Have Experienced Challenges with IT
                 Modernization                                                            26
               The Selected States Have Established Management Controls to
                 Help Guide Their IT Modernization Efforts                                34
               Conclusions                                                                44
               Recommendations for Executive Action                                       45
               Agency Comments and Our Evaluation                                         45

Appendix I     Objectives, Scope, and Methodology                                         48



Appendix II    Comments from the Department of Labor                                      51



Appendix III   GAO Contact and Staff Acknowledgments                                      54



Tables
               Table 1: Reported Distributions of Federal UI Administration
                        Funds to the Nine Selected States                                 17
               Table 2: Overview of the Selected States’ UI Modernization Efforts         21




               Page i                  GAO-12-957 Unemployment Insurance Systems Modernization
Abbreviations

CIO               Chief Information Officer
COBOL             Common Business Oriented Language
ETA               Employment and Training Administration
IT                information technology
ITIM              information technology investment management
ITSC              Information Technology Support Center
IV&V              independent verification and validation
NASWA             National Association of State Workforce Agencies
PMBOK             Program Management Body of Knowledge
PMI               Project Management Institute
SCUBI             Southeastern Consortium for Unemployment Insurance
                  Integration
UI                unemployment insurance
WyCAN             Wyoming, Colorado, Arizona and North Dakota consortium



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Page ii                       GAO-12-957 Unemployment Insurance Systems Modernization
United States Government Accountability Office
Washington, DC 20548




                                   September 26, 2012

                                   The Honorable Erik Paulsen
                                   Acting Chairman
                                   Subcommittee on Human Resources
                                   Committee on Ways and Means
                                   House of Representatives

                                   Dear Acting Chairman Paulsen:

                                   The unemployment insurance (UI) program is our nation’s largest income
                                   maintenance program, with its benefits serving as a critical source of
                                   income for millions of unemployed Americans. The program, which is
                                   administered by the Department of Labor (Labor) in partnership with the
                                   states, has been particularly essential in the wake of the recent recession
                                   and slow pace of economic recovery: in fiscal year 2011, $116.8 billion
                                   was spent to provide temporary, partial compensation for lost earnings of
                                   individuals who became unemployed through no fault of their own.

                                   As a federal-state partnership, the framework of the program is
                                   determined by federal law, and benefits for individuals are dependent on
                                   state law and administered by State Workforce Agencies. 1 To administer
                                   the program, state agencies must, among other things, collect state
                                   unemployment taxes, determine eligibility and benefits amounts, and pay
                                   unemployment benefits. In carrying out these key responsibilities, the
                                   state agencies rely heavily on information technology (IT), including
                                   benefits and tax systems. However, a July 2010 state survey noted that
                                   most of the IT systems used for the UI program were old and based on
                                   outmoded programming languages, were costly and difficult to support,
                                   and could not efficiently handle workload demands. 2 Given the


                                   1
                                    State Workforce Agencies administer their respective state unemployment insurance
                                   laws and provide employment services, training programs, employment statistics, and
                                   labor market information.
                                   2
                                    National Association of State Workforce Agencies Center for Employment Security
                                   Education and Research, Information Technology Support Center, A National View of UI
                                   IT Systems, July 2010. The Information Technology Support Center (ITSC) is a national
                                   collaboration of state workforce agencies and Labor to maximize the sharing of UI IT best
                                   practices and to facilitate the appropriate application of IT in state UI programs. The goal
                                   of ITSC is to provide accurate, efficient, cost-effective, and timely service to all UI
                                   customers.




                                   Page 1                         GAO-12-957 Unemployment Insurance Systems Modernization
importance of IT to state agencies’ abilities to effectively process and
provide timely UI benefits to millions of unemployed Americans, you
requested that we examine states’ efforts to modernize the systems
supporting their UI programs. Our specific objectives were to (1)
determine Labor’s role in facilitating the states’ IT modernization efforts,
(2) identify and describe the types of federal funding selected states have
spent on IT modernization, (3) provide the status of modernization efforts
for the selected states, (4) determine key modernization challenges, and
(5) determine what management controls have been established for IT
modernization.

To accomplish our objectives, we selected and examined the IT
modernization efforts of nine states. 3 We selected the states on the basis
of varying regional location, size, and modernization status. We also
selected states developing individual systems, those developing
integrated tax and benefits systems, and states involved in consortium
efforts. While the sample was nongeneralizable, the selected states
offered insight and perspective on their experiences in modernizing UI
systems, including sources of funding, challenges, and established
management controls.

To determine Labor’s role in facilitating the modernization efforts, we
analyzed documentation describing its responsibilities, including
regulations, department project plans, and program guidance. We also
interviewed Labor officials responsible for overseeing states’ UI programs
to further clarify the department’s role. To identify and describe the types
of federal funding selected states have spent on IT modernization, we
analyzed states’ expenditure data, such as funding allocations and
spending reports. Further, to determine the status of modernization efforts
for the selected states, we reviewed the states’ modernization project
plans and status reports, and interviewed officials responsible for UI
technology. To determine key modernization challenges, we analyzed
public reports and interviewed relevant officials from Labor and the nine
states regarding issues encountered while initiating and developing the
states’ efforts to modernize the UI systems. Based on these challenges
reported and observed, we also reviewed state modernization
documentation and interviewed state and Labor representatives to



3
 The nine states selected for our study were California, Colorado, Florida, Indiana,
Minnesota, Ohio, Tennessee, Vermont, and Virginia.




Page 2                        GAO-12-957 Unemployment Insurance Systems Modernization
             identify and assess lessons learned for the nine states selected. Finally,
             to determine what management controls have been established for IT
             modernization, we reviewed documentation from Labor and each state
             describing existing management controls and interviewed cognizant
             officials about the controls. However, we did not assess the extent to
             which the selected UI agencies implemented these management controls.

             We conducted this performance audit from January 2012 through
             September 2012 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 objectives. We
             believe that the evidence obtained provides a reasonable basis for our
             findings and conclusions based on our audit objectives. Further details on
             our objectives, scope, and methodology are provided in appendix I.


             The federal-state UI program, created in part by the Social Security Act of
Background   1935, is administered under state law based on federal requirements. 4
             The primary objectives of the program are to provide temporary, partial
             compensation for lost earnings of individuals who become unemployed
             through no fault of their own, with some exceptions, and meet certain
             other eligibility criteria, and to stabilize the economy during economic
             downturns. 5 The program is generally financed by federal and state
             payroll taxes levied on employers. Within the guidelines of federal law,
             states administer the program and can specify who is eligible to receive
             UI benefits and how much they receive. Generally state and federal taxes
             on employers fund UI benefits and administrative costs. Within Labor, the
             Employment and Training Administration’s (ETA) Office of Unemployment
             Insurance—along with the agency’s six regional offices—oversee the
             states’ implementation and administration of their UI programs.


             4
              UI was initiated on a national basis as Title III and Title IX of the Social Security Act of
             1935. Pub. L. No. 74-271, 49 Stat. 620, codified as amended at 42 U.S.C. ch. 7, subch. III
             and IX.
             5
              Some states allow for some workers who quit for certain work-related or personal
             reasons to be eligible for UI benefits. The American Recovery and Reinvestment Act of
             2009 authorized the Secretary of Labor to make unemployment compensation
             modernization incentive payments to a state if, among other things, the state law included
             provisions that would not disqualify an individual from UI benefits who quit employment for
             a specified compelling family reason, such as following their spouse to a new job. Pub. L.
             No. 111-5, div. B, § 2003, 123 Stat. 115, 439-443 (Feb. 17, 2009).




             Page 3                         GAO-12-957 Unemployment Insurance Systems Modernization
Applicants must have earned at least a certain amount in wages and/or
have worked a certain number of weeks over a period of time to be
eligible for benefits. In addition, the individuals must, with limited
exceptions, be available for and able to work, and actively search for
work. For their part, UI agencies must identify recipients who are likely to
exhaust their benefits and refer them to reemployment services, such as
those available through state-run employment centers known as
“American Job Centers.” 6 At these centers, states and localities provide
services for many federally funded employment and training programs,
and they have the option of including additional programs, such as the
Temporary Assistance for Needy Families program (one of the nation’s
primary income support programs for low-income families).

Typically, eligible unemployed workers can receive UI benefits for up to
26 weeks in most states (though individuals may be eligible for fewer
weeks). During periods of high unemployment, the states may provide up
to 20 additional weeks of benefits through the Extended Benefits
program. In 2008, Congress provided for the temporary extension of
benefits through the Emergency Unemployment Compensation program.
In 2009, Congress temporarily authorized 7 the extension of benefits
based on unemployment rates in each state and, has since, amended the
rate and time frame several times, most recently in 2012. 8 As of January
2012, eligible unemployed workers could potentially receive the maximum
99 weeks of benefits in 17 states, according to Labor data, though some
individuals may be eligible for fewer weeks in these states. In 2012,
through the passage of the Middle Class Tax Relief and Job Creation Act,
Congress extended the Emergency Unemployment Compensation
program until January 2, 2013, and also extended full federal funding of
the Extended Benefits program until December 31, 2012. 9



6
 According to Labor officials, many of these centers are operated by contractors and are
governed by regional boards. The states provide oversight and set performance standards
and policies.
7
Pub. L. No. 111-5, § 2005, 123 Stat. 444.
8
 The sequencing of unemployment benefits is determined by three separate programs
and starts with the Unemployment Compensation program, providing up to 26 weeks of
benefits. After this initial benefit, the temporarily authorized Emergency Unemployment
Compensation program may provide up to an additional 53 weeks of benefits, though in
2008 provided a maximum of 33 weeks.
9
Pub. L. No. 112-96, §§ 2122-2123, 126 Stat. 156, 163-167 (Feb. 22, 2012).




Page 4                        GAO-12-957 Unemployment Insurance Systems Modernization
Federal and State        Federal law sets forth broad coverage provisions for the categories of
Requirements for         workers that are covered by the UI program, as well as some benefit
Unemployment Insurance   provisions, the federal tax base and rate, and administrative requirements
                         such as what program data will be reported. Within the framework
                         established by federal law, states can determine key elements of their UI
                         programs, such as eligibility/disqualification provisions, the benefit
                         amount, and the amount of taxes that employers must pay.

                         Within the context of the federal-state partnership, Labor has general
                         responsibility for overseeing the UI program to ensure that the states are
                         operating the program effectively and efficiently. 10 For example, Labor is
                         responsible for monitoring state operations and procedures, providing
                         technical assistance and training, as well as analyzing UI program data to
                         diagnose potential problems. The federal-state structure of the UI
                         program places primary responsibility for its administration on the states,
                         and gives them wide latitude to administer their programs in a manner
                         that best suits their needs within the guidelines established by federal
                         law. In addition, an administrative decision made by Labor in 1986
                         provided states “bottom line authority” in administering their UI programs,
                         giving them greater control over their expenditures and reducing federal
                         monitoring of administrative expenditures. 11 In particular, bottom-line
                         authority permits states to move resources among cost categories—such
                         as from benefit payment control activities to claims processing—and
                         across quarters within a fiscal year. It also permits states to use UI
                         administrative resources based on the state’s assessment of its particular
                         needs.

                         To oversee the program, the Office of Unemployment Insurance within
                         Labor’s ETA and ETA offices in six geographic regions are responsible
                         for working with the states. The regional offices are the states’ main
                         points of contact with Labor and serve as a link between the department
                         and the states for providing technical assistance and clarifying program
                         policies, objectives, and priorities. Moreover, the regional offices have
                         primary responsibility for overseeing the fiscal and management integrity
                         of the UI program. This oversight includes ensuring that states do not


                         10
                           See 42 U.S.C. § 502(a); see also 20 C.F.R. Parts 601 (Administrative Procedure) and
                         602 (Quality Control in the Federal-State Unemployment Insurance System).
                         11
                          51 Fed. Reg. 18052 (May 16, 1986).




                         Page 5                       GAO-12-957 Unemployment Insurance Systems Modernization
                            provide unemployment compensation to ineligible recipients and ensuring
                            that states detect these overpayments when they do occur.


Funding Provided to         The UI program was designed to be forward funded and self-financed by
Administer the UI Program   states, with each state’s trust fund building up reserves from employer
                            taxes during periods of economic expansion in order to pay UI benefits
                            during economic downturns. Because unemployment can vary
                            substantially during a business cycle, it is important that states build
                            sufficient trust funds to remain solvent during recessionary times. Toward
                            this end, the program is financed primarily by taxes levied on
                            employers, 12 with each state setting tax rates and a tax base which must
                            be at least equal to the federal wage base (currently set at $7,000) to
                            automatically finance regular UI benefits. In addition, in accordance with
                            the Federal Unemployment Tax Act, employers pay a federal tax. This tax
                            is used to fund: (1) federal and state UI administration costs; 13 (2) the
                            federal share of extended benefits; (3) Title XII loans to state trust funds
                            when they cannot pay benefits; 14 (4) benefits under federal supplemental
                            and emergency programs; (5) labor exchange services, 15 employment,
                            and training for veterans; and (6) some labor market information
                            programs.

                            The Unemployment Trust Fund in the U.S. Treasury consists of 53 state
                            accounts, including one each for the District of Columbia, the Virgin




                            12
                             Alaska, New Jersey, and Pennsylvania also withhold UI taxes from employee wages.
                            13
                              GAO has conducted past reports on UI funding used to administer the program. See
                            GAO, Unemployment Insurance Trust Funds: Long-standing State Financing Policies
                            Have Increased Risk of Insolvency, GAO-10-440 (Washington, D.C.: Apr. 14, 2010);
                            Human Service Programs: Demonstration Projects Could Identify Ways to Simplify
                            Policies and Facilitate Technology Enhancements to Reduce Administrative Costs,
                            GAO-06-942 (Washington, D.C.: Sept. 19, 2006); and Unemployment Insurance:
                            Increased Focus on Program Integrity Could Reduce Billions in Overpayments,
                            GAO-02-697 (Washington, D.C.: July 12, 2002).
                            14
                              Title XII of the Social Security Act, 42 U.S.C. §§ 1321 – 1324, authorizes advances or
                            loans to state unemployment compensation programs.
                            15
                              Labor exchange services include job search assistance, job referral, placement
                            assistance for job seekers, reemployment services to UI claimants, and recruitment
                            services to employers with job openings.




                            Page 6                        GAO-12-957 Unemployment Insurance Systems Modernization
                           Islands, and Puerto Rico; 16 plus six federal accounts that are dedicated
                           for special purposes. 17 Of these six accounts, federal taxes go into the
                           Employment Security Administration Account, the Extended
                           Unemployment Compensation Account, and the Federal Unemployment
                           Account, while state taxes go into individual state accounts.

                           When the aforementioned three federal tax accounts reach prescribed
                           statutory ceilings at the end of September 30 in any year, any excess
                           funds are transferred to individual state accounts, in accordance with the
                           Reed Act—the mechanism by which the federal government transfers
                           surplus UI funds to states. 18 Labor bases each state’s share of Reed Act
                           funds on the state’s proportional share of Federal Unemployment Tax Act
                           taxable wages. Federal law restricts states’ use of Reed Act distributions
                           to covering only the cost of state benefits and, if certain conditions are
                           met, for the administration of state UI and Employment Services
                           programs. A state must have a specific appropriation from its legislature,
                           specifying the purposes and amounts, pursuant to which the state may
                           use its share of the Reed Act funds for administrative expenses. 19 There
                           have been eight Reed Act distributions since 1956, most recently in
                           2002; 20 Congress has raised the Reed Act’s statutory ceilings that trigger
                           the distribution of the excess funds several times.


States’ Unemployment       State agencies rely extensively on IT to carry out their UI program
Insurance IT Environment   functions. Specifically, IT systems are used to administer the programs



                           16
                             According to Labor, funds deposited in the 53 state accounts may only be used for the
                           payment of claimant benefits and refunds of sums erroneously paid, and may not be used
                           for any other purpose, with limited, statutory exceptions.
                           17
                             The six accounts include: the Employment Security Administration Account, the
                           Extended Unemployment Compensation Account, the Federal Unemployment Account,
                           the Federal Employees Compensation Account, and two accounts related to the Railroad
                           Retirement Board.
                           18
                             The term “Reed Act” refers to a part of the Employment Security Financing Act of 1954,
                           Pub. L. No. 83-567. The provisions referred to are found in Title IX of the Social Security
                           Act, 42 U.S.C. §§ 1101-1104.
                           19
                             42 U.S.C. § 1103(c)(2).
                           20
                             The 2002 Reed Act distribution was made under the Job Creation and Worker
                           Assistance Act of 2002, and was not the result of a transfer due to the accounts reaching
                           the statutory ceilings.




                           Page 7                        GAO-12-957 Unemployment Insurance Systems Modernization
   and to support related administrative needs. For example, benefits
   systems are used for:

   •   determining eligibility for benefits;
   •   recording claimant filing information, such as demographic
       information, work history, and qualifying wage credits;
   •   determining updates as needed, such as changes in work-seeking
       status; and
   •   calculating state-specific weekly and maximum benefit amounts.

In addition, tax systems are used for:

   •   online reporting and payment of employers’ tax and wage reports;
   •   calculating tax, wage, and payment adjustments, and any penalties
       and interest accrued;
   •   processing quarterly tax and wage amounts;
   •   determining and processing late payment penalties, interest, civil
       penalties, or fees; and
   •   adjusting previously filed tax and wage reports as a result of a tax
       audit, an amended report submitted by the employer, or an
       erroneously keyed report.
   States use an appeals system to provide appellate and due process
   rights to claimants and employers. An appeals system allows any party
   (claimant or employer) who is dissatisfied with an adjudicator’s decision to
   contest that decision.

   The majority of the states’ existing systems for UI operations were
   developed in the 1970s and 1980s. Although some agencies have
   performed upgrades throughout the years, most of the state legacy
   systems have aged considerably. Accordingly, as the systems have aged,
   they have presented various challenges to the efficiency of states’
   existing IT environments. For example, a survey conducted by the
   National Association of State Workforce Agencies (NASWA) 21 in 2010
   found that states reported:

   •   over 90 percent of the systems run on outdated hardware and
       software programming languages, such as Common Business


   21
     National Association of State Workforce Agencies Center for Employment Security
   Education and Research, Information Technology Support Center, A National View of UI
   IT Systems, July 2010.




   Page 8                      GAO-12-957 Unemployment Insurance Systems Modernization
                             Oriented Language (COBOL), which is one of the oldest computer
                             programming languages; 22
                        •    the systems are costly and difficult to support: the survey found, for
                             example, that over two-thirds of states face growing costs for
                             mainframe hardware and software support of their legacy systems;
                        •    most states’ systems cannot efficiently handle current workload
                             demands, including experiencing difficulties implementing new federal
                             or state laws due to the constraints posed by the outdated inefficient
                             IT systems; and
                        •    states have realized an increasing need to transition to web-based
                             online access for UI data and services.
                        •    States also cited specific issues with legacy systems, including the
                             fact that they cannot be reprogrammed quickly enough to respond to
                             changes due to legislative mandates. In addition, states have
                             developed one or more standalone ancillary systems to fulfill specific
                             needs; however, these systems are not integrated with the states’
                             legacy mainframe systems, thus decreasing efficiency. Finally,
                             according to the states, the existing legacy systems cannot keep up
                             with advances in technology, such as the move to place more UI
                             services online.

                        Labor’s role in facilitating UI IT modernization efforts primarily consists of
Labor’s Primary Role    providing funding and technical support to the state agencies. In this
in Facilitating IT      regard, the department distributes federal funds to each state for the
                        purpose of administering its UI program, including funds that can be used
Modernization Efforts   for IT modernization. (Federal sources of funding for UI IT modernization
is Providing Funding    are discussed later in this report.)
and Technical Support   In addition to providing funding for the individual state modernization
to State UI Programs    efforts, Labor has also supported the establishment of state consortiums,
                        in which three or four states work together to develop and share a
                        common system. These efforts are intended to allow multiple states to
                        pool their resources and reduce risk in the pursuit of a single common
                        system that they can each use after applying state-specific programming
                        and configuration settings. For example, through supplemental budget




                        22
                          COBOL is a business application programming language that was introduced in the
                        1960s. This language is generally viewed as obsolete and there are a limited number of
                        programmers that know the language, therefore it is difficult to implement new business
                        processes and new service delivery models, such as online, real-time processing.




                        Page 9                        GAO-12-957 Unemployment Insurance Systems Modernization
funds, 23 in 2009 the department provided $29 million to initiate two state
consortium modernization efforts—the Wyoming, Colorado, Arizona, and
North Dakota (WyCAN) 24 consortium and the Southeastern Consortium
for Unemployment Insurance Integration (SCUBI). Later, in 2011, Labor
provided state UI agencies, under certain conditions, additional funding
totaling about $192 million to modernize tax and benefit systems and to
enhance the program integrity and technology infrastructure systems.
This money supported the two initial consortiums (WyCAN and SCUBI)
and a third consortium that was formed in 2011—the Vermont, Maryland,
and West Virginia technology infrastructure consortium.

However, because states’ bottom-line authority permits them to use UI
administrative resources as they deem appropriate, and Labor ETA
officials stated that the department has limited control over how states
actually spend administrative funds, Labor does not track each state’s UI
IT modernization spending. The officials added that Labor does not track
or monitor the progress of states’ UI IT modernization initiatives. Further,
the department’s Administrator of the Office of Unemployment Insurance
said that while Labor monitors supplemental funding provided to specific
consortium projects, 25 Labor does not have sufficient technical resources
to monitor all of the states’ modernization efforts.

Beyond providing funding for individual states’ and consortiums’ efforts,
Labor also helps to provide technical assistance to the states by
supporting and participating in two key groups—NASWA and the
Information Technology Support Center (ITSC):

•    NASWA provides a forum for states to exchange information and
     ideas about how to improve program operations; serves as a liaison
     between state workforce agencies and federal government agencies,


23
  Labor and the states refer to these as “supplemental budget requests” when they apply
for the funding.
24
  When the consortium was initiated in 2009, the states involved were Arizona, Wyoming,
Idaho, and North Dakota; however, in 2011 Idaho decided to manage its own
modernization effort and withdrew from the consortium. At about the same time Colorado
decided it would take part as the lead.
25
  Labor provides sample grant proposals for the states to use to obtain money through
supplemental budget funds. Labor establishes specific state requirements and designates
what the funding is to be used for, and monitors if the states are using the funding for the
intended purposes.




Page 10                        GAO-12-957 Unemployment Insurance Systems Modernization
     Congress, businesses, and intergovernmental groups; and is the
     collective voice of state agencies on workforce policies and issues. 26
     In 1994 the association established the Center for Employment
     Security Education and Research to serve as its research arm. Under
     a grant from Labor, the center is conducting a study to measure
     progress and challenges in implementing the workforce and UI
     provisions of the American Recovery and Reinvestment Act of 2009,
     to highlight new and promising practices, and to provide guidance to
     ETA, the states, and local workforce investment areas. Specifically, in
     September 2010 NASWA’s Center for Employment Security
     Education and Research developed a national vision for Labor to
     improve the UI and workforce systems’ connection and integration.
     This vision included, among other things, a client-integrated service
     systems delivery plan, and it identified the need for real-time
     automated processing, technical staff developmental needs, and
     required systems upgrades to support the UI program.
•    ITSC 27 is funded by Labor and the states to provide technical
     services, core projects, and a central capacity for exploring the latest
     technology for all states. 28 The core services that ITSC provides to the
     states include:
     •    Application development—develops, distributes, and supports UI
          components and independent modules or products for high-payoff
          and cost-efficient multistate use. ITSC develops requests for
          proposals to procure the required programming and other
          technical services.
     •    Standards development—in conjunction with the states, develops
          suggested technical standards and guidelines to help states in


26
  NASWA receives funding from workforce state agencies’ membership dues. Also,
through the Center for Employment Security Education and Research, grant money is
provided by Labor for specific projects or tasks. These specific projects may include those
in which money is provided for ITSC to perform UI information technology tasks.
27
  Recognizing that the UI program was dependent on technology, Labor funded ITSC. It
was created in 1994 as a partnership between Labor and the Maryland Department of
Labor, Licensing and Regulation to support state UI IT initiatives. Labor supports the ITSC
through grants to the Maryland agency. ITSC supports all states’ modernization efforts,
either directly with states’ requests and funding or with funding support from Labor.
28
  ITSC performs three primary types of projects: (1) core projects defined and agreed on
by the 11 voting member ITSC Steering Committee which is comprised of Labor officials,
state UI and IT directors, State Workforce Agency Administrators, and ITSC technical
representatives and is funded by Labor; (2) projects requested and funded by Labor; and
(3) projects requested and funded by the states.




Page 11                       GAO-12-957 Unemployment Insurance Systems Modernization
          developing systems that are highly configurable and can be used
          by multiple states and consortiums.
     •    Independent verification and validation (IV&V) 29—provides
          consultative services to help states safeguard Labor and state
          funds.
     •    UI modernization services—provide best practice services for UI
          modernization initiatives.
     •    Advisory services—provide advisory assessments of technologies
          that UI agencies may review and/or adopt.
ITSC also provides other services at the request of individual states, such
as responding to a specific request to modernize an interactive voice
response system to support the processing of UI benefits. In addition to
providing funding to ITSC for state technical support, Labor facilitates
states’ individual efforts by:

•    Meeting quarterly with the ITSC Steering Committee 30 comprised of
     ITSC technical experts and state representatives to discuss and
     review IT challenges, issues, status, and consortium approaches.
     Within these meetings, Labor participates in providing informal
     recommendations of potential solutions to issues raised. For example,
     in a June 2012 ITSC Steering Committee meeting, Labor officials,
     including the Administrator of the Office of Unemployment Insurance
     in ETA, participated in a discussion regarding the need to document
     lessons learned from UI modernization projects.
•    Providing potential strategies and a framework to the states on how
     the states should use the grant money through supplemental budget
     funds. For example, for one of the supplemental budget funds
     provided to support a consortium system’s effort, Labor established a
     framework on how the states should develop and administer a study
     to determine the feasibility of designing, developing, and
     implementing a core UI benefits system that could be used by multiple
     state workforce agencies. As part of this framework, Labor, for



29
   IV&V is a process conducted by a party independent of the development effort that
provides an objective assessment of a project’s processes, products, and risks throughout
its life cycle and helps ensure that program performance, schedule, and budget targets
are met.
30
   The ITSC Steering Committee consists of 11 voting members, including State
Workforce Agency administrators, State Workforce Agency Unemployment Insurance
directors, State Workforce Agency IT directors, and two representatives from the
department’s Office of Unemployment Insurance.




Page 12                      GAO-12-957 Unemployment Insurance Systems Modernization
                             example, required the consortium states to undertake an analysis of
                             the various state laws, regulations, policies, procedures, and IT
                             standards to determine their ability to make adjustments or changes in
                             their state in order to increase commonality between the states and
                             simplify the consortium’s approach to a new, common benefits and
                             tax system.
                        •    Participating in UI conferences primarily established by NASWA,
                             leading discussions and forums that address IT challenges and
                             issues, and helping gain an understanding of the general directions
                             and progress being made by states. For example, during the October
                             NASWA UI conference, the Administrator of the Office of
                             Unemployment Insurance in ETA discussed, among other things,
                             NASWA/ITSC supporting an integrated client registration tool, as well
                             as identifying useful IT best practices.

                        The states we reviewed have used various sources of federal and state
A Variety of Funding    funding to support their IT modernization efforts. There are two primary
Sources Exist for       federal sources: (1) supplemental budget funding 31 that is designated by
States’ Modernization   Labor for specific state and consortium IT modernization efforts; and (2)
                        general UI administration funding, which can be used for a variety of
of UI Programs          purposes, including IT modernization. 32

                        In particular, ETA has awarded supplemental funds to the states. Among
                        other purposes, these supplemental funds may provide an opportunity for
                        states to implement consortium technology-based solutions to improve
                        the efficiency and performance of their UI operations. Supplemental
                        budget funds are offered to the states with the understanding that ETA
                        cannot assure that future federal supplemental funds will be available to
                        complete the projects. Thus, in applying for supplemental budget funds,
                        the state in essence agrees that the projects will be completed with no
                        additional federal supplemental budget funds and that it will supply any
                        additional funds necessary to complete the project in a timely manner,
                        such as with states’ specific monies.




                        31
                          According to Labor officials, supplemental budget request funding is drawn from the
                        State UI and Employment Service Operations Appropriation.
                        32
                          In addition, other federal sources of funding include Reed Act distributions when
                        statutory caps are met and other special distributions as authorized by Congress.




                        Page 13                       GAO-12-957 Unemployment Insurance Systems Modernization
As previously mentioned, three consortiums have been formed with
federal funding:

•   The WyCAN consortium was formed in 2009 following an initial ETA
    grant of about $19 million for a feasibility study to develop a common
    UI benefits and tax system. In 2011, ETA provided additional funding
    of about $72 million to this consortium to develop and implement
    integrated UI benefit and tax systems.
•   SCUBI was formed in 2009 and is comprised of the following states:
    Tennessee, South Carolina, North Carolina, and Georgia. This
    consortium received an initial grant from ETA of $10 million to perform
    a feasibility study to develop a common UI benefits system.
    Tennessee took the lead for the consortium, providing the project
    management and direction for the four-state modernization effort. In
    2011 the consortium completed a requirements document and
    received a second grant from ETA, in the amount of about $50 million,
    to develop and implement an integrated UI benefits system for the
    member states.
•   The Vermont, Maryland, and West Virginia technology infrastructure
    consortium was formed in 2011, when ETA provided a grant of $6
    million to develop common UI tax, benefits, and appeals systems
    requirements, using products from the WyCAN and SCUBI
    consortiums as a baseline.
The second federal source of funding, the general UI administration
funding, primarily comes from (1) the State UI and Employment Service
Operations funds, (2) Reed Act distributions, and (3) American
Reinvestment and Recovery Act funds. However, while states report their
general UI administrative spending, 33 they are not required to report
specific costs for individual projects such as IT modernization initiatives
and, as stated earlier, Labor does not track states’ UI IT modernization
spending. The states have the authority to spend these funds on a
number of administrative activities, including IT, and use a range of
sources aside from federal funds to support their modernization efforts.
Thus, neither Labor nor the nine selected states could provide full and
specific information regarding what has been spent on UI IT



33
  General administrative UI funding provides funding to the states to administer the UI
program. These costs do not include the benefit payments provided to claimants.
Administrative funding is given to the states to establish specific policies and operation
methods for: (1) determining benefit entitlement, (2) paying benefits, and (3) collecting
state UI taxes from employers.




Page 14                        GAO-12-957 Unemployment Insurance Systems Modernization
modernization efforts. 34 The following describes the categories of UI
administrative funding that were provided to the nine states.

State UI and Employment Service Operations Appropriations. This
appropriation provides federal funding through Labor to each state to
administer its UI programs, including modernization. In this regard, a
“base” administrative grant for each state is determined by Labor at the
beginning of each fiscal year. In developing these administrative funding
allocations, Labor uses a formula that is designed to provide each state
with an amount that will equally provide services across states to
beneficiaries and employers. This funding, at the discretion of the state,
may be used in part for UI modernization efforts.

Reed Act distribution. In March 2002, in response to an increase in
unemployment and the September 11, 2001, terrorist attacks, Congress
passed the Job Creation and Worker Assistance Act of 2002. This broad
stimulus package included a distribution to states of $8 billion from the
unemployment tax revenue held in reserve, referred to as a Reed Act
distribution. 35 The act provided that these funds may be used to pay UI
benefits and/or to enhance UI benefits, such as increasing weekly benefit
payments, extending the period of time benefits are paid, or otherwise
expanding eligibility to groups that currently do not qualify for benefits. 36
Funds may also be used for the administration of UI and employment
services programs, including American Job Centers, if appropriated by
state law. 37 In addition, Reed Act funds may be used to support states’


34
  Actual amounts spent on specific UI modernization projects, such as tax and benefit
systems, are difficult to fully determine. Specifically, individual UI modernization projects
are generally not a separate budget line item, and the budget documents may not be
detailed on the sources of the funds, such as federal UI IT administration or Reed Act
funding. Moreover, all of the UI funds—funds for benefits as well as for administration—
are identified under the same budget category and include direct payments with
unrestricted use and formula grants, hindering the identification of IT modernization funds.
However, selected modernization funding and certain states do have the ability to break
down spending amounts–including consortium money from Labor for supplemental budget
funds and the state of California, which does track spending on individual UI IT
modernization projects.
35
  Unlike traditional Reed Act distributions, this distribution was required regardless of the
ceilings and did not take place at the beginning of a fiscal year.
36
  Pub. L. No. 107-147, § 209, 116 Stat. 22, 31-33 (Mar. 9, 2002).
37
  The American Job Centers—a centralized service delivery structure (one-stop career
centers) consolidating delivery of most federally funded state and local employment and
training assistance—was mandated by the Workforce Investment Act of 1998.




Page 15                        GAO-12-957 Unemployment Insurance Systems Modernization
funding needs in undertaking major IT renovation and capital
improvement projects (such as automated and centralized claims
handling capabilities).

American Reinvestment and Recovery Act funding. This act was an
economic stimulus package from which states received two special
distributions of funds. 38 The first special distribution was intended to
provide unemployment compensation modernization incentive payments,
and made a total of $7 billion available for all states. To obtain its share,
each state was required to submit an application to Labor demonstrating
that its unemployment compensation law contained certain benefit
eligibility provisions. 39

The second distribution was a special transfer of $500 million to the
states’ accounts in the Unemployment Trust Fund to be used for certain
administrative purposes. This administrative transfer was made
regardless of whether the state qualified for a modernization incentive
payment. States did not need to apply to receive these amounts.

The administrative transfer could only be used for several specific
purposes:

•     implementation and administration of the provisions of state law that
      qualify the state for the incentive payments;
•     improved outreach to individuals who might be eligible by virtue of
      these provisions;



38
    Pub. L. No. 111-5, § 2003, 123 Stat. 439-443.
39
  The American Reinvestment and Recovery Act provided funding to the states for
purposes of making unemployment compensation modernization incentive payments. The
maximum incentive payment allowable to any state was determined by a formula. A state
received one-third of the maximum incentive payment if the state’s laws determining
eligibility met the requirement of using a base period that includes the most recently
completed calendar year or provided for an alternate base period that uses a base period
that includes the most recent calendar quarter. States could receive the remaining two-
thirds of their incentive payment if the state’s laws include provisions to carry out at least
two of the following: (1) an individual shall not be denied unemployment compensation for
seeking only part-time work, (2) an individual shall not be disqualified from unemployment
compensation for separating from employment for compelling family reasons, (3)
unemployment compensation to an individual who has exhausted state unemployment
compensation but is participating in an approved training or job program, or (4) benefits
include an allowance for dependents.




Page 16                        GAO-12-957 Unemployment Insurance Systems Modernization
•    the improvement of unemployment compensation benefit and tax
     operations, including responding to increased demand for
     unemployment compensation; and
•    staff-assisted reemployment services for unemployment
     compensation claimants.
According to Labor, federal law does not require state legislatures to
appropriate these special administrative transfers (unlike the incentive
payments, which must be appropriated by the state legislature before
they can be used for administrative purposes). However, a Labor UI
official noted that nothing prohibits a state legislature from appropriating
such money or from attaching more specific or limiting conditions to the
use of such money.

Labor officials provided funding amounts for the selected states which
could be used, in part, at the states’ discretion for UI modernization
activities, as shown in table 1. 40 As previously mentioned, neither Labor
nor the selected states could fully provide detailed information regarding
the specific sources of funding and amounts spent on individual UI IT
modernization efforts.

Table 1: Reported Distributions of Federal UI Administration Funds to the Nine
Selected States

                                                         American
                                                     Reinvestment            American
                     2011 State                      and Recovery        Reinvestment
                         UI and                      Act Funding -       and Recovery
                   Employment                                2009        Act Funding -
                       Services                      Modernization        2009 Special
State               Operationsa 2002 Reed Act            Incentive        Distributionb
California        $458,777,005      $936,873,766       $838,680,283         $59,905,736
Colorado            $45,664,818     $142,666,574       $127,469,762          $9,104,983
Florida           $105,826,544      $449,667,718                  $0        $31,733,965
Indiana             $43,079,673     $174,573,012                  $0        $10,607,023
Minnesota           $49,410,044     $163,061,573       $130,063,620          $9,290,259
Ohio              $102,641,818      $343,709,635        $88,169,529         $18,893,471




40
  These funding amounts are primarily provided to support the general day-to-day state
agency operations and are only in part available for UI IT modernization. Also,
Unemployment Compensation Modernization Act incentive funds can be used for the
costs of expanded benefits eligibility and for general administration purposes.




Page 17                      GAO-12-957 Unemployment Insurance Systems Modernization
                                                                 American
                                                             Reinvestment               American
                       2011 State                            and Recovery           Reinvestment
                           UI and                            Act Funding -          and Recovery
                     Employment                                      2009           Act Funding -
                         Services                            Modernization           2009 Special
    State             Operationsa 2002 Reed Act                  Incentive           Distributionb
    Tennessee         $91,496,224        $162,633,730          $141,808,031            $10,129,145
    Vermont           $14,218,036         $16,395,967           $13,917,898               $994,136
    Virginia          $47,705,615        $214,949,942           $62,817,683            $13,460,932
Source: Labor.
a
 These figures only include fiscal year 2011 base funding, above-base funding (additional funds that
are available on a quarterly basis for claims-related workloads actually processed above the base
level), and supplemental budget funds.
b
 American Reinvestment and Recovery Act funding was used for certain administrative purposes,
including the improvement of UI benefit and tax operations and responding to increased demand for
benefits.


Federal funding provides only a portion of the funding states can use for
UI modernization. Seven out of nine states in our study have also used
nonfederal sources of funding for UI modernization. For example, in every
state an employer is subject to certain interest or penalty payments for
delay or default in payment of contributions, and usually incurs penalties
for failure or delinquency in filing required reports. States set up special
administrative funds, made up of such interest and penalties, to meet
special needs. In some states, the fund is capped: when it exceeds a
specified sum, the excess is transferred to the unemployment fund or, in
one state, to the general fund, where the state legislature designates how
these funds are used. Officials of two states that we interviewed told us
that they use the penalty and interest funds collected from employers for
selected UI modernization efforts.

The selected states also identified other sources of nonfederal funds that
are being used to modernize UI systems. These included (1) California’s
special acquisition method, (2) Ohio’s employers’ surcharge, and (3)
Tennessee’s in-kind staff resources:

•      California is developing its UI tax system modernization project
       through a special agreement with an IT vendor. Specifically, state




Page 18                           GAO-12-957 Unemployment Insurance Systems Modernization
     officials said a vendor that has a commercial-off-the-shelf system 41
     has agreed to modify this system, thus adapting it to the needs of
     California and providing the state with a new UI tax system. This
     project is to be benefit funded—that is, funded based on additional
     revenues that will be obtained from the increased efficiencies and
     effectiveness of the newly implemented tax system. As part of this
     agreement, the vendor is to provide the initial funding for hardware,
     software, and configuring the system, and is to be paid based on the
     state’s additional revenues generated by the newly developed state
     system. The state-vendor agreement is to contain a maximum vendor
     payment cap of $46 million, and the vendor is not to receive full
     compensation if sufficient revenue levels are not met.
•    Ohio implemented an employer surcharge to provide funds for the
     administration of the UI program, as well as to pay UI benefits. In
     addition, it used this funding to, in part, develop and deploy a
     modernized UI benefits system.
•    The Tennessee Department of Finance and Administration
     established a dedicated IT work unit to support efforts in developing
     and implementing IT. According to Tennessee state technology
     managers, the creation of this unit was intended to help deliver large
     IT projects on time and on budget across departments. These
     managers noted that the cost of providing the unit services will not be
     charged to the UI systems modernization efforts or to the departments
     receiving services and will expand the availability of technology
     expertise to work across state units.
•    As such, state funding sources, as well as federally provided UI
     administrative funds and specific consortium supplemental budget
     funds, can be used by states to modernize their UI IT systems.




41
  A commercial-off-the-shelf system is software that has been defined by a market-driven
need, is commercially available, requires limited additional development, and has been
demonstrated as fit for use by a broad variety of commercial users.




Page 19                      GAO-12-957 Unemployment Insurance Systems Modernization
                       The nine states in our study were in varying phases 42 of modernizing their
Selected States Vary   UI systems. Of the nine states we reviewed, each of the three states that
in Their Efforts to    were part of a consortium were in the initial phases of planning that
Modernize UI Systems   includes defining business needs and requirements; two individual states
                       were in the development phase, that is, building the system based on
                       requirements; two were in a combination of development and operations
                       and maintenance (also called a “mixed” phase, meaning a portion of the
                       system is completed and in the operations and maintenance phase but
                       other portions are still in the development phase); and two were
                       completed and in operations and maintenance. These modernization
                       efforts have, for example, enhanced states’ UI technology to support web-
                       based services with more modern relational databases 43 and replaced
                       outdated programming languages, such as COBOL. These efforts also
                       included the development of auxiliary systems, such as document
                       management systems and call center processing systems, that allow
                       claimants who have been denied benefits the ability to file an appeal
                       using a phone-based system.




                       42
                         The phases of modernizing a system can be sequential or overlapping and performed in
                       an incremental manner, completing components of the overall system in iterations, or
                       stages. The phases include (1) initiation, which identifies a business need that requires a
                       technological solution; (2) concept, when the IT governance organization approves the
                       business needs statement; (3) planning, which begins when the project has been formally
                       approved and funded; (4) requirements analysis, during which the business requirements
                       are validated and further analyzed and decomposed into functional and nonfunctional
                       requirements; (5) design, which develops detailed specifications that emphasize the
                       physical solution to the end user’s IT needs; (6) development, in which the system
                       developer takes the detailed design information and transforms it into machine executable
                       form; (7) test, to determine whether the business product developed or acquired is ready
                       for implementation; (8) implementation, in which the business product is moved from
                       development status to production status; and (9) operations and maintenance, in which
                       the certified and accredited business product operates in a full-scale production
                       environment.
                       43
                         A relational data base is a system comprised of multiple files which can be linked to
                       each other. Specifically, current data base management systems are based on the
                       relational model, which generally involves data bases full of numerous, relatively short
                       records that are frequently updated. The records often can be sorted in many different
                       ways; they do not have to follow any inherent sequence. Relational data base systems
                       arrange these records in tables that allow great flexibility in sorting and provide quick
                       access to make updates to specific records. See GAO, Information Technology: Critical
                       Factors Underlying Successful Major Acquisitions, GAO-12-7 (Washington, D.C.: Oct. 21,
                       2011) and Earth Observing System: NASA’s EOSDIS Development Approach Is Risky,
                       GAO/IMTEC-92-24 (Washington, D.C.: Feb. 25, 1992).




                       Page 20                       GAO-12-957 Unemployment Insurance Systems Modernization
The following table provides an overview of the states’ modernization
initiatives—specifically, the systems that are being developed and their
status.

Table 2: Overview of the Selected States’ UI Modernization Efforts

    State                       Modernization initiativesa       Status
    California                  Separate tax and benefits        Tax and benefits: mixed.
    Colorado                    Integrated tax, benefits, and    Tax, benefits, and appeals:
    (WyCAN                      appeals                          defined business needs and
    consortium)                                                  requirements; planning to initiate
                                                                 design.
    Florida                     Integrated tax, benefits, and    Tax: implemented; benefits and
                                appeals                          appeals: development.
    Indiana                     Integrated tax, benefits, and    Tax, benefits, and appeals: mixed.
                                appeals
    Minnesota                   Integrated tax, benefits, and    Tax, benefits, and appeals:
                                appeals                          operations and maintenance.
    Ohio                        Separate tax; Integrated         Tax, benefits, and appeals:
                                benefits and appeals             operations and maintenance.
    Tennessee                   Integrated benefits and          Benefits and appeals: planning
    (SCUBI consortium)          appeals                          and defining business needs and
                                                                 requirements.
    Vermont                     Integrated tax, benefits, and    Tax, benefits, and appeals:
    (Vermont-Maryland-          appeals                          planning and defining business
    West Virginia                                                needs and requirements.
    consortium)
    Virginia                    Integrated tax, benefits, and    Tax: testing; benefits and appeals:
                                appeals                          development.
Source: GAO analysis of state documents.
a
 The states’ efforts included enhancing or redesigning existing tax and benefits systems, and may
have been designed as an integrated or standalone system.


California

The California UI modernization project was initiated in 2003 to begin
modernizing the state’s tax and benefits systems. Both systems are
currently in a mixed state of development and implementation, with full
implementation scheduled for 2014. According to the Deputy Director,
Employment Development Department, the total cost budgeted for the
modernization is $192.7 million—approximately $68.7 million for the tax
system and $124 million for the benefits system. The project included
upgrading to a modern programming language and converting from a
legacy database to a database that would allow the state to use web-



Page 21                                    GAO-12-957 Unemployment Insurance Systems Modernization
based programs. In this regard, the state completed a database
modernization project in November 2011 that replaced the outdated
database management system which supported multiple programs,
including UI and disability programs. As a part of its benefits system
modernization effort, the state modernized its (1) electronic benefit
payment system and (2) continued claim web certification system. The
electronic benefit payment project converted the payment of UI benefits
from paper check to a debit card or direct deposit in an attempt to
eliminate the delays associated with processing and mailing checks.
According to a state UI official, the continued claim web certification
project enabled UI customers to use a web-based system to certify for
benefits, eliminating the need to certify by paper. Specifically, they noted
that the system authenticates the customer’s identity through an identity
management component to help ensure customers are eligible for
benefits, and allows customers to enter their claim information on the
form in English or Spanish. According to California Employment
Development Department officials, these functions have increased the
security of benefit payments and eliminated the need for paper
certification.

Colorado

According to IT state officials, Colorado’s existing systems are over 20
years old, operating inefficiently, and difficult to modify. To modernize its
systems, Colorado joined the WyCAN consortium in 2011 and is taking a
lead role in managing the consortium modernization efforts. The
consortium is in the planning phase of developing a common integrated
tax and benefits system to support the UI program. Specifically, according
to the program manager, WyCAN has performed a gap analysis to
identify differences in requirements among states, which was completed
in March 2012, and the consortium’s system requirements were
completed in April 2012. A request for proposals was released in June
2012 and the program manager said that once these IT services are
procured the states will initiate the system design phase. A request for
proposals was released in June 2012. The consortium’s goal is to
develop open source software code 44 that would provide a tax and


44
  The term “open source software code” means software for which the source code is
open and available: open means the source code for the software can be read (seen) and
written (modified) and there are no restrictions on how the software is used or by whom;
and available means the source code can be acquired either free of charge or for a
nominal fee.




Page 22                      GAO-12-957 Unemployment Insurance Systems Modernization
benefits system that could be potentially exported to other states.
According to the program manager, the Colorado WyCAN Team, the
consortium has spent $347,796 to complete a feasibility study of an
integrated tax and benefits system.

Florida

Florida is in the development phase for its integrated tax, benefits, and
appeals system. The modernization effort initially began as a separate tax
system in 2006, and this individual system was completed in 2008. The
effort for the benefits and appeals system and the effort to integrate it with
the tax system began in 2010. This modernization effort includes
increased automated system interfaces using web-based architecture and
new business requirements. Florida engaged a contractor to help the
state reengineer the UI benefits process for the modernization effort, and
has dedicated subject matter experts to support the system
modernization redesign. In 2010, the state issued a request for proposals
to modernize the UI benefits system. A vendor was selected and,
according to IT officials, as of June 2012 the state was about halfway
through the 3- to 4-year project. Specifically, according to the Director,
Florida Department of Economic Opportunity, the state plans to validate
the requirements and test and implement the system, with deployment
scheduled for September 2013 at a cost of approximately $57.8 million.

Indiana

Indiana’s integrated tax and benefits systems modernization effort began
in 2002, when it received funds under the Reed Act. In late 2005 Indiana
awarded a $24 million contract to upgrade its system to replace a 1980s
legacy system. According to state IT officials, the modernization project is
using a phased approach in which system functions are to be
implemented in separate releases. Functions and capabilities that have
been released include:

•   web-based employer self-service and document scanning capabilities,
    including online payments and debit cards for benefit distribution;
•   automated fact finding for employers, spreadsheet submission of
    layoffs for large-scale employers, and business intelligence reporting
    tools; and
•   automated claims processing and additional features, such as a new
    user identification, passwords, a job search function, and the
    capability for online filing of federal emergency unemployment
    compensation and state benefits.



Page 23                   GAO-12-957 Unemployment Insurance Systems Modernization
Despite these new capabilities, Indiana is still operating its legacy UI
system, and on a daily basis performs updates to both the legacy and
modernized UI systems. According to state UI officials, the next release is
scheduled to be implemented in late 2012, at which time the state should
be able to shut down most parts of the legacy system. Further, the
officials stated that, after the next two releases are deployed in 2013,
Indiana will have implemented all of the capabilities needed to retire the
legacy system. Indiana has a total budget of approximately $40 million for
its modernization effort.

Minnesota

Minnesota began its modernization project in 2001 and fully deployed an
integrated tax, benefits, and appeals system in 2007. The system is
currently in operations and maintenance. According to the Director,
Unemployment Insurance Division, the state spent approximately $50
million on its modernization efforts. At the same time that Minnesota
modernized its UI IT system, it also modernized its business model to
improve program efficiency and quality. As a result, according to state
technology officials in charge of IT modernization, 100 percent of UI
benefit appeals are filed online or over a voice-activated phone system,
which speeds claims processing. The system that Minnesota developed
is now being modified for use in Massachusetts, New Mexico, and
Florida.

Ohio

Ohio began planning for the modernization of its benefits system in the
early 1990s and deployed the new system in 2004. In addition, the state
began planning for the modernization of its tax system in early 2000 and
deployed it in March 2011. Completion of each of these modernization
efforts took approximately 10 years from planning to deployment. Ohio
reported that it spent approximately $85.6 million to modernize the tax
system and approximately $88 million for the benefits system. One
important example of modernization included implementing a web-based
unemployment compensation benefit system that offers self-service
capabilities to employers and claimants. This application supports
increased customer online use, with many of the online claims being
processed without any staff intervention.




Page 24                  GAO-12-957 Unemployment Insurance Systems Modernization
Tennessee

Tennessee, the lead state of the SCUBI consortium, began its
modernization effort in 2009. The effort is intended to replace its legacy
benefits systems built in the 1970s and 1980s and run on mainframe
systems using outdated COBOL language. According to state IT officials,
these systems were never intended to function in today’s environment
with the current claims processing volume. Tennessee is planning to
issue a request for proposals in October 2012 and expects full
deployment of its modernized system by May 2015. The modernization
effort is currently in the requirements development phase and, as part of
the SCUBI consortium, has a budget of $56 million for the modernization
effort. The effort is intended to provide a common core system for the
benefits and appeals process of the UI program. 45 Specific state
members are to adapt the core system to their unique state functions.

Vermont

Vermont is the lead state of the Vermont–Maryland–West Virginia
consortium; it is collectively updating those states’ benefits, tax, and
appeals systems, which date from the 1980s. The consortium effort was
initiated in 2011 and is currently in the planning phase. The consortium
released a request for proposals in February 2012 and is negotiating a
contract with the selected vendor. According to state IT officials, the
vendor is expected to be developing requirements during 2013. These
requirements are to ensure design consistency and allow for variations
between the three states’ laws and their required functionality as a result
of their variations.

Virginia

Virginia is operating a legacy system and, during discussions with us,
state business and IT managers said that the system is at risk and that
the state needs to move forward with modernization to avoid system
problems. Specifically, the officials said that there have been many



45
  Consortium officials said SCUBI is intended to develop an integrated benefit and
appeals system and does not include modernization of the tax system. While the SCUBI
states plan to have their respective tax systems interface with the modernized benefit and
appeals system, a Tennessee UI state official said that its state does not have plans to
modernize the tax system.




Page 25                       GAO-12-957 Unemployment Insurance Systems Modernization
                     unanticipated changes to the business environment (such as legislative
                     changes) and, as a result, Virginia has had to patch the legacy system.
                     Virginia initiated its UI modernization effort in 2008 with the intent of
                     developing an integrated tax and benefits system and is implementing the
                     project incrementally in four stages, 46 scheduled to be fully deployed in
                     2013. The first stage was the development of an imaging and workflow
                     system that was completed in 2011 and replaced an older document
                     management solution, as well as microfilm, with a more modern
                     technology platform; the tax system is in the second stage and is in
                     testing; and the benefits and appeals system is planned for the third stage
                     and is currently in development. Virginia has a total budgeted amount of
                     about $58.5 million for its modernization effort. The new system is also
                     expected to provide the state with more efficient processing, less
                     dependence on manual processes, and greater flexibility in responding to
                     legislative mandates.


                     The selected states and Labor have experienced challenges related to
States and           both individual states’ and consortiums’ efforts towards modernizing the
Consortiums Have     UI systems. The challenges for individual states relate to limited funding
                     and the increasing cost of UI systems, among others. The consortiums
Experienced          pointed to difficulties that derive from the differences in state laws and
Challenges with IT   business processes among member states, as well as a lack of sufficient
Modernization        skills in leading a multistate modernization effort. State officials and ITSC
                     have recognized the importance of understanding challenges to identify
                     lessons learned and approaches to address selected issues and mitigate
                     potential risks.


States Have Been     While the nine states included in our study are taking various steps to
Challenged With UI   modernize systems supporting their UI programs, they have also
Modernization        experienced challenges to doing so:

                     •   Funding streams are declining or inconsistent. All nine of the states,
                         as well as Labor and ITSC, said that limited funding and/or the
                         increasing cost of UI systems is a major challenge. In addition, the
                         current economic environment has resulted in smaller state budgets,


                     46
                       The four stages and scheduled deployment dates are: (1) imaging and workflow,
                     October 2011; (2) tax, May 2013; (3) benefits and appeals, August 2013; and (4) final
                     system acceptance, September 2013.




                     Page 26                       GAO-12-957 Unemployment Insurance Systems Modernization
    which has further limited state funds for IT modernization. Moreover,
    once funds are identified or obtained there is often a considerable
    amount of time between identifying the funds and when the IT project
    is completed. Specifically, state IT officials said that the development
    of large state or multistate systems may span many years, and that
    states’ priorities and competing demands on resources can delay
    project implementation. As such, states often have to fund one phase
    of a project with the hope that funds will be available in the future
    when they are ready to move to the next project phase. The states
    also noted that the lack of a steady stream of funding potentially
    hinders effective IT project planning. For example, when Labor first
    provided consortium funding in 2009, department officials said that it
    was uncertain if there would be additional money available to
    complete the implementation of these projects. While Labor was able
    to provide additional grant funds for implementation to the first two
    consortiums in 2011, state officials said that there is still uncertainty if
    the modernization funding will be sufficient to implement and operate
    over the life cycle of a project, including the initial planning, design,
    development, and operation of their UI systems.
•   Ensuring staff have necessary technical and project management
    expertise to manage modernization efforts is difficult. Further, seven
    of the nine states cited as a challenge the lack of workers in their UI
    offices with the necessary expertise to manage IT modernization
    efforts. For example,
    •     Several states said that they had insufficient subject matter
          experts that are knowledgeable of the extensive rules and
          requirements of the UI program. However, such experts are
          essential to helping computer designers and programmers
          understand the program’s business process, supporting an
          effective transition to the re-engineered process, and identifying
          systems requirements and needs.
    •     States also said that if they had a system developed by vendors
          they would have been challenged with operating and maintaining
          the modernized system because the state staff may not have the
          needed expertise to maintain the new system once the vendor
          staff leave.
    •     The states said they may have staff that implement larger scale
          systems only once every 10 to 15 years and, as a result, a large
          amount of time usually passes between modernization efforts.
          This causes voids in required knowledge and skills, process
          maturity and discipline, and executive oversight.
    •     Because the states’ staff typically has expertise in an outdated
          computer language, such as COBOL, they now must learn new



Page 27                    GAO-12-957 Unemployment Insurance Systems Modernization
          skills and modern languages in order to support the modernized
          systems.
     •    In 2011, a workforce survey found that over 78 percent of state
          CIOs confirmed that state salary rates and pay grade structures
          presented a challenge in attracting and retaining skilled IT talent.
          In this regard, the top five skills and disciplines presenting the
          greatest challenge were security, project management,
          architecture, application and mobile application development and
          support, and analysis and design. 47
     •    According to Labor, the limited staff resources facing states
          requires that subject matter experts 48 be pulled off projects to
          address the workload demands of daily operations.
•    States have limited staff resources to operate both legacy and
     modernized systems. Six of the nine states noted that continuing to
     operate their legacy systems while simultaneously implementing new
     UI systems required them to balance scarce staff resources between
     the two major efforts. They explained that legacy systems must be
     maintained for a period of time while operations are established on
     the new UI systems. Thus, the states must continue to staff the
     operations and maintenance of the legacy systems while also
     providing staff to assume management of the modernized systems.
     For example,
     •    One state’s COBOL language programmers were being trained in
          a modern language for 6 months but had to be pulled out of the
          training to meet pressing needs on other projects, thus preventing
          the state from establishing technical expertise required for
          modernization.
     •    An official from another state said that data had to be transferred
          between and maintained on both the legacy and new systems,
          which was time-consuming and could potentially introduce
          processing errors.
     •    According to officials of another state, programmers will have to
          split their time between maintaining the legacy system and



47
  The National Association of State Chief Information Officers, State IT Workforce: Under
Pressure (January 2011). This survey refers to all state IT modernization and not
specifically to UI IT modernization.
48
  Subject matter experts are experts in the processes being automated. For example, a
team member representing financial customers must be fully familiar with the needs of
those customers.




Page 28                       GAO-12-957 Unemployment Insurance Systems Modernization
          supporting the development effort, which they said could
          potentially delay the development efforts.
    •     Another state noted that modernization planning efforts took
          longer because the IT staff had to maintain the existing system,
          code new federally mandated changes to the legacy system, and
          create the plans for the modernization project, all using the same
          finite resources. According to this IT official, this type of situation
          leads to increased risk as legacy resources become less readily
          available in the marketplace, driving up the costs for hardware and
          software support services.
•   There are a limited number of vendors to develop UI IT systems.
    Officials in four of the nine states we reviewed, as well as the ITSC,
    noted that the limited number of state modernization systems that
    have been developed over the last decade, and the declining amounts
    of funding, has resulted in there being only a small number of vendors
    that have the knowledge and experience to build UI IT systems.
    According to an ITSC official, only a limited number of vendors have
    successfully implemented UI modernized systems on time and within
    budget with major functionality delivered. Further, one state UI official
    noted that, understanding the intricacies of the UI program and the
    number of legislative changes that impact IT systems programming to
    accommodate the changes require vendors to invest extensive time
    and resources. Consequently, the vendors often distribute their
    knowledgeable staff among several different states’ modernization
    efforts simultaneously, resulting in system development delays. In
    addition, three of the nine states said there is significant competition
    for IT staff from the private sector. For example, three states are using
    the same vendor and, according to the states’ IT managers, their
    individual schedules for modernization have been impacted by the
    limited vendor resources being divided among the multiple states.
    One IT project manager told us his state is experiencing project
    delays because its vendor has diverted resources to address issues
    with another state’s project.
•   There are restrictions on certain funding that is available. Four states
    said the restrictions tied to federal funding created a hindrance to
    accepting those funds. For example, one state chose to not accept
    federal funds for its IT modernization efforts because the funds came
    with the requirement to increase UI benefits, which the state opposed.
    Other federal restrictions include a prohibition on the commingling of
    funds, such as using the federal funds for other projects. One official
    said this impaired his state’s ability to leverage funds and projects and
    potentially could hinder a state’s ability to, for example, consolidate its
    computer operations into one facility because this would involve using



Page 29                     GAO-12-957 Unemployment Insurance Systems Modernization
                             for other projects those resources designated for UI. Another state
                             said the short time frame in which to apply for federal supplemental
                             budget funds is not adequate to sufficiently explore the funding
                             conditions. Labor officials agreed with this challenge, further
                             commenting that the amount of funding available is not known until
                             the end of each fiscal year.

Consortiums Had Unique   States participating in consortiums have unique multistate structures with
Challenges with          different organizational oversight mechanisms. As such, the states in our
Modernization            study said they have encountered a separate set of challenges as they
                         develop common requirements and share technology platforms:

                             •     State law and business processes among consortium member
                                   states may differ. Representatives for all three consortiums
                                   indicated that differences in state laws, business processes, and
                                   aversion to risk pose challenges to modernizing their UI systems.
                                   Specifically, differences among states can be found in the areas of
                                   procurement, communication, and implementation of best
                                   practices; in the involvement of each state’s IT office; and in how
                                   centralized the state’s IT is. Designing and developing a common
                                   system that will work for all states is impacted because each
                                   state’s requirements and processes may differ. For example,
                                   because of these differences and the need to modify a UI
                                   technology framework, state officials told us that they see a
                                   consortium as not practical; another state official questioned
                                   whether a common platform for a system can be successfully built
                                   and made transferable between states in an economically viable
                                   manner.
                             •     Software development approaches may differ. There are multiple
                                   approaches to developing and modernizing systems, and states
                                   within a consortium have often had different opinions on the best
                                   approach. State officials said that having different software
                                   development approaches is not practical when developing a
                                   common system, and that it is difficult to reach consensus on an
                                   overall approach that satisfies all the states in the consortium. A
                                   state in one consortium effort had a preference for one type of
                                   system development approach and withdrew from the consortium
                                   to develop its own UI project because it did not agree with the
                                   development approach the consortium was taking. Specifically,
                                   instead of contracting out for systems development, the state
                                   preferred developing the system in house with its own state staff
                                   and resources, and further noted that joining the consortium would
                                   have required a “waterfall” project development method, such as



                         Page 30                    GAO-12-957 Unemployment Insurance Systems Modernization
          defining all requirements initially before designing the system
          instead of taking an agile approach and incrementally defining and
          changing system requirements during segmented development,
          which is the approach that state preferred to use.
     •    Potential liabilities that exist in providing services to another state
          cause concerns. IT representatives from one consortium’s lead
          state noted that taking leadership and managerial direction of a
          multistate consortium effort created concerns because officials
          from one state were taking responsibility for another state’s
          management duties in modernizing its systems to support the UI
          program. The official explained that if the lead state makes a
          decision that affects other states and the outcome is not desirable,
          blame may be placed on the lead state. In addition, there is a
          possibility that the lead state’s decision making could place other
          states’ funds at risk. In one case, a state withdrew from its
          leadership position due to concerns about liability, and it allowed
          another state to take this role and assume the responsibilities.
     •    Location of system resources causes concern. IT managers in
          one of the three consortiums pointed to difficulties identifying
          where the joint data center that would support the multiple states
          should be located, and that there were challenges with reaching
          agreement on the resources that should be designated to operate
          and manage the facility while complying with individual state
          requirements. For example, according to a UI state official, one
          state required the data center to be in-state. 49 In July 2012,
          according to consortium officials, the state’s UI program received
          an exception and was allowed the flexibility to choose the hosting
          location outside of its state. Without exceptions such as these,
          state-specific requirements that data centers be in-state potentially
          could inhibit the number of states willing to participate within the
          consortium efforts.
•    Independent qualified leadership may be insufficient. All three
     consortium representatives noted that obtaining an independent and
     qualified leader for a multistate modernization effort was challenging.
     The state IT project managers and CIOs elaborated that, while each
     state desires to successfully reach a shared goal, doing so requires
     strong leadership and commitment that crosses independent and
     diverse cultures in multiple states. The leadership of the consortium


49
   According to a consortium official, the state required a data center to be located within
its own state to help support businesses within that particular state.




Page 31                        GAO-12-957 Unemployment Insurance Systems Modernization
                                  must keep the interests of each state in balance. The leader of a
                                  consortium needs to have extensive IT experience, that goes beyond
                                  his or her own state’s technology environment, to effectively
                                  understand and support other states in the joint effort. Moreover, the
                                  consortium’s leader has to mitigate the appearance of partiality, which
                                  may be difficult given the priorities and demands within his or her own
                                  state. This was a significant challenge for one consortium, and to
                                  address the challenge the lead state decided to recruit a senior
                                  program manager from outside the member states to provide
                                  independent leadership and the appearance of being unbiased.

Analysis of Challenges and   As mentioned previously, Labor’s role, in partnership with the states, is to
Documenting Lessons          ensure that the UI program is operating effectively and efficiently. In its
Learned May Facilitate       role to facilitate states’ UI modernization efforts Labor participates in a
                             variety of activities and, in part through ITSC, stays up to date with the
Improvements                 states’ technological initiatives, strategies, approaches, and challenges.
                             Thus, it is uniquely positioned to help ensure effective and efficient
                             technology modernization by identifying and disseminating lessons
                             learned from the states’ efforts. We have recognized the importance of
                             analyzing and prioritizing challenges and then documenting lessons
                             learned from major efforts such as the UI projects, in order to help
                             mitigate risks and track successful ideas for more effectively managing IT
                             and improving cost effectiveness that can be utilized in the future. 50

                             Lessons learned is a principal component of an organizational culture
                             committed to continuous improvement. Sharing such information serves
                             to communicate acquired knowledge more effectively and to ensure that
                             beneficial information is factored into planning, work processes, and
                             activities. According to the Office of Management and Budget, lessons
                             learned can be based on positive experiences or on negative experiences
                             that result in undesirable outcomes. Documenting lessons learned can
                             provide a powerful method of sharing successful ideas for improving work
                             processes and increasing cost effectiveness by aligning these practices in
                             future modernization efforts. 51 Such an assessment of states’ challenges


                             50
                               GAO, Federal Chief Information Officers: Opportunities Exist to Improve Role in
                             Information Technology Management, GAO-11-634 (Washington, D.C.: September 2011);
                             GAO, NASA: Better Mechanisms Needed for Sharing Lessons Learned, GAO-02-195
                             (Washington, D.C.: Jan. 30, 2002).
                             51
                               OMB, Circular A-130, Transmittal Memorandum No. 4, “Management of Federal
                             Information Resources, 8. b (1)” (Washington, D.C.: Nov. 28, 2000).




                             Page 32                    GAO-12-957 Unemployment Insurance Systems Modernization
and documentation of lessons learned would be consistent with Labor’s
role.

Both individual state and consortium officials have developed methods to
mitigate specific challenges and have identified lessons learned. For
example, several states:

•    are centralizing and standardizing their IT operations to address
     technical challenges, which may allow a state to focus and leverage
     its IT funding, staff, and projects on UI IT modernization;
•    have found that a standardized, statewide enterprise architecture may
     provide a more efficient way to leverage project development; and
•    have taken steps to address consortium challenges they have
     encountered, such as requesting that the consortiums have an IT
     representative from each state to ensure that each state’s IT
     department is involved in the project from the beginning.
ITSC’s Steering Committee tasked the ITSC to prepare a lessons learned
assessment, but the effort has not been completed and, while it may
provide valuable information and a basis to build on lessons learned, it is
limited to ITSC’s observations and may not be a comprehensive
assessment. 52 Specifically, in September 2011 53 ISTC’s Steering
Committee tasked ITSC with documenting lessons learned, observations,
and successful practices of the consortiums. ITSC officials stated that
they plan to prepare a draft document that contains states’ status and
potential systems development approaches by the end of September
2012. 54 They stated that this document will incorporate lessons learned
based on ITSC observations; however, it is limited to ITSC’s scope of
observations and has not been formally reviewed by the states or Labor.



52
  Labor is an active participant and is involved in the committee’s decision process,
although the assignment of tasks is done in a collaborative manner by all members of the
Steering Committee.
53
  Specifically, the ITSC Steering Committee’s task order for “UI IT Modernization
Consortium Building and Best Practices” called for ITSC to work closely with states
interested in building a UI IT modernization project, with particular emphasis on
consortium forming. ITSC is also expected to assist states in understanding the positive
and negative aspects of consortiums, lessons learned to date, and how to formalize the
consortium for the project in terms of interstate agreements.
54
  Labor noted in its comments on our report, that ITSC is expected to finalize its report on
lessons learned by September 28, 2012. ITSC noted in its technical comments that it
would release its report by October 30, 2012.




Page 33                        GAO-12-957 Unemployment Insurance Systems Modernization
                      Furthermore, during our review, ITSC officials told us the date when the
                      report will be finalized and provided to the states had not been
                      determined. Subsequently, in commenting on our draft report, ITSC
                      officials said that the report is “evolutionary” and constantly changing over
                      time. They added that the work had been used to brief UI executives and
                      leaders of 26 states.

                      While this effort may be a good first step toward identifying challenges
                      and lessons learned, it does not represent a complete, independent
                      survey of all the states’ challenges and lessons learned. A
                      comprehensive assessment would include formal input from states and
                      consortiums, the ITSC Steering Committee, and Labor. Until Labor
                      undertakes a more comprehensive approach that clearly identifies critical
                      challenges and lessons learned, it may not be positioned to help states
                      mitigate future challenges and facilitate the effectiveness and efficiency of
                      states’ modernization efforts going forward.

                      If such actions to address challenges are analyzed, prioritized, and
                      documented into lessons learned and then widely disseminated, they
                      could assist in mitigating future challenges as states proceed with their UI
                      program modernization efforts. Further, steps to develop an information-
                      sharing platform for lessons learned could provide additional benefits.
                      Until Labor comprehensively analyzes and prioritizes challenges, and
                      documents lessons learned on these federally funded state UI
                      modernization efforts, it may miss opportunities to help support future
                      consortium and state modernization efforts, potentially hindering effective
                      administration of the UI program.


                      As we have previously reported, an organization’s ability to effectively
The Selected States   modernize its IT environment greatly depends on the extent to which it
Have Established      has established and implemented IT management controls. 55 These
Management Controls   controls include, among others, recognized program management
                      practices and effective oversight. All of the selected states have
to Help Guide Their   established management controls for modernizing the IT systems that
IT Modernization      support their UI programs. These controls align with industry-accepted
                      program management practices and, if effectively implemented, could
Efforts               help successfully guide modernization efforts.



                      55
                       GAO-11-762.




                      Page 34                  GAO-12-957 Unemployment Insurance Systems Modernization
Project Management Office Provides Leadership and Direction

A project management office is an organizational body assigned various
responsibilities related to the centralized and coordinated management of
those projects under its domain. The responsibilities of the office can
range from providing project management support functions to being
responsible for the direct management of a project. This office may be
delegated the authority to act as a key decision maker during the
beginning of each project, to make recommendations, or to terminate
projects or take other actions as required to keep business objectives
consistent. In addition, it may be involved in the selection, management,
and deployment of project resources. Our work and other best practice
research have shown that having a dedicated project leader that applies
effective management principles and practices improves the likelihood of
delivering expected modernization projects on time and within budget. 56
In other words, the quality of IT systems is largely governed by the quality
of project management processes and can help ensure that management
controls are being enforced.

All nine states in our study had established key aspects of project
management offices, and three of these states’ IT project managers said
that this office was a major factor in helping their UI modernization
projects. Among these states that have established a project
management office:

•    Colorado hired a project management office director with IT
     certifications and a diverse background with, according to state
     officials, extensive experience as a project management office
     director. The officials stressed that having an experienced director to
     lead the management office is key to successfully implementing UI
     modernization projects.
•    Florida uses the project management office as a key part of its UI
     modernization project. It is responsible for day-to-day project
     oversight, providing overall guidance and direction to the contractor,
     coordinating project resources, budgets, and contract management,


56
  GAO, Homeland Security: Progress Continues, but Challenges Remain on Department’s
Management of Information Technology, GAO-06-598T (Washington, D.C.; March 2006).
See also Software Engineering Institute/Carnegie Mellon, CMMI for Development, Version
1.3, CMU/SEI-2010-TR-033 (Hanscomb AFB, Massachusetts, November 2010); Institute
of Electrical and Electronics Engineers (IEEE), Systems and Software Engineering –
Software Life Cycle Processes, IEEE Std. 12207-2008, (Piscataway, N.J., January 2008).




Page 35                     GAO-12-957 Unemployment Insurance Systems Modernization
     and monitoring project management areas including scope, risk,
     quality, and change control. Officials from this state indicated that
     having the project management office play such a large role in day-to-
     day activities may assist Florida in successful completion of its UI
     modernization project. Officials explained that the office’s involvement
     in a wide range of tasks helps ensure that critical factors that need to
     be considered will be brought to management’s attention in a timely
     manner and, as such, could help implement the project effectively.
•    Minnesota had a statewide project management office that was in
     effect at the time the UI modernization project was initiated. This office
     required project registration and status reports, and the UI program
     included a project management consultant from that office on its
     steering committee. State officials indicated that this integrated effort
     added additional oversight to the UI project.
Program Management Body of Knowledge Provides Project
Management Standards

Effective project management is a critical element of any modernization
effort. One set of standards for managing a project includes the Program
Management Body of Knowledge (PMBOK). 57 For example, the project
management standards include processes, tools, and techniques used to
manage a project toward a successful outcome. PMBOK has
interrelationships to other project management disciplines such as
program management and portfolio management. The IT industry has
adopted the project management standards as an accepted best practice,
and if properly implemented and integrated into an organization’s
environment, these management controls could help reduce risks
associated with modernization projects by providing effective and efficient
process improvements. 58

Based on our discussions with state IT administrators and managers and
our assessment of their guidance, states we reviewed have incorporated
project management standards into their UI modernization efforts. While
all of the states use selected project management standards, seven of the


57
  PMBOK was developed by the Project Management Institute (PMI), which is an
organization that provides guidelines, rules, and characteristics for project management.
58
 Strategies for Implementing Capability Maturity Model Integration (CMMI) Project
Management Process Category, Natural SPI, An SEI Transition Partner, 2004. Also see
GAO, Information Technology: Critical Factors Underlying Successful Major Acquisitions,
GAO-12-7 (Washington, D.C.: Oct. 21, 2011).




Page 36                       GAO-12-957 Unemployment Insurance Systems Modernization
nine states noted that project management was a key contributor to their
states’ UI modernization projects. For example:

•   California derived its own project management methodology, called
    the California Project Management Methodology. This methodology
    provides a framework for the IT project life cycle, from planning and
    initiation to maintenance and operations. According to state officials,
    this framework provides consistent project information and, as a
    result, helps key policy makers with greater visibility concerning the
    status of IT modernization projects, such as UI modernization,
    potentially allowing them to provide informed direction and guidance
    to IT project managers.
•   Colorado has also created its own guidance, the Colorado Project
    Management Commonality Program, in alignment with project
    management standards. This program provides guidelines indicating
    when projects’ status and information should be elevated for the
    Executive Governance Committee’s review. State IT officials noted
    that these guidelines assist with the oversight of potentially risky
    projects, like UI modernization, and could help ensure successful
    completion.
•   Project management standards were also incorporated into Florida’s
    project management documents and, according to the state’s IT
    officials, may have helped ensure the quality of its project
    management. Specifically, for the state’s UI modernization project,
    PMBOK guidance defined project scope and helped ensure that only
    work within this scope was performed. In addition, the guidance
    required having key project management personnel certified, such as
    IT project leaders, providing training that could help ensure more
    experienced and skilled leadership. Moreover, Florida used project
    management standards to manage the modernization’s costs, cost
    reporting, and metrics; and budgeting controls were established for
    the state’s systems modernization efforts.
•   Indiana’s IT management officials noted that its state’s main source of
    guidance for project management was in part derived from selected
    standards from PMBOK that, according to the officials, may help
    mitigate challenges and foster better control of the project. Indiana
    officials said that it holds weekly meetings with the commissioner of
    the workforce agency, the commissioner of the office of IT, and the
    agency director of IT to help manage the UI project.
•   According to the Director, Minnesota Department of Employment and
    Economic Development, Minnesota’s UI program applied PMI
    standards in the management of its modernization project. The
    statewide project management office required project management
    disciplines to be applied to state projects. These project management


Page 37                  GAO-12-957 Unemployment Insurance Systems Modernization
     disciplines continue to be applied and the statewide project office
     works in partnership with a recently established centralized state IT
     agency. This centralized IT agency also provides guidance IT security
     controls and enterprise architecture.
•    Ohio has established a program management organization that
     follows project management standards to help ensure successful
     implementation of its modernization initiatives, such as UI
     modernization. Ohio officials noted that the state uses the PMBOK
     backbone to help drive UI modernization activities for planning and
     introducing change into the workplace. Change control (for both
     documents and source code) was key in helping to get interim
     deliverables from the vendor as milestones were reached.
•    Tennessee has a PMBOK-based methodology that is required for IT
     projects, including UI modernization. For example, its Office of
     Information Resources requires an annual system project plan from
     each agency for the 3 upcoming fiscal years, and projects are
     required to have a detailed funding plan, providing a baseline for a
     project’s status and progress to be tracked and managed. Also,
     Tennessee officials noted that project management controls are
     essential in overseeing modernization projects, including a structured
     change management practice, and this has been adopted by the state
     to capture legacy UI system changes, related legislative action, and
     policy changes.
Independent Verification and Validation Provides Effective Project
Evaluation

IV&V means that an independent entity evaluates the work generated by
the team that is designing a project. Verification is the process of ensuring
the accuracy of a project based on written specifications and
requirements. Validation is the process of evaluating software during the
development process to determine whether it satisfies specified
requirements and meets users’ needs. 59 The IV&V contractor will often
monitor and evaluate every aspect of the project from inception to
completion so that problems can be corrected before they escalate to
large-scale issues. We and others have recognized that, if properly
performed, IV&V is a best business practice that is invaluable in providing
management reasonable assurance that a planned system will meet user



59
  Capability Maturity Model Integration (CMMI V1.1) and CMMI for Development (CMMI V
1.2).




Page 38                     GAO-12-957 Unemployment Insurance Systems Modernization
needs. 60 For three of the states in our review, IT officials said IV&V played
a vital role in verifying the quality of their UI modernization project. Among
these:

•    Florida has an IV&V contractor that provides services for its UI
     modernization project such as verifying that the system is developed
     in accordance with validated requirements and design specifications,
     validating that the system performs its functions satisfactorily,
     monitoring project management processes, and providing feedback
     on any deficiencies noted.
•    Indiana also has an IV&V contractor that provides guidance to its UI
     modernization project. State officials noted that the IV&V process
     helps them measure and assess the project’s progress, allowing the
     state’s management to better provide redirection in a timely manner.
•    Virginia holds monthly meetings with its internal agency oversight
     committee to discuss project progress. State officials also periodically
     meet with the project’s IV&V vendor to report on the UI modernization
     project’s scope, schedule, and budget. State officials said that the
     presence of both the IV&V contractor and the vendor help ensure that
     system requirements will be met. These officials further elaborated
     that the IV&V process helps identify potential issues in scheduling and
     may reduce project problems as the system is developed and
     implemented.
IT Investment Management Helps Guide Investment Decisions

IT investment management is a process for linking investment decisions
to an organization’s strategic objectives and business plans that focuses
on selecting, controlling, and evaluating investments in a manner that
minimizes risks while maximizing the return on investment. 61 Consistent
with this, our IT Investment Management (ITIM) framework consists of
five progressive stages of maturity for any given agency relative to
selecting, controlling, and evaluating its investment management


60
  GAO, DOD Business Transformation: Lack of an Integrated Strategy Puts the Army’s
Asset Visibility System Investments at Risk, GAO-07-860 (Washington, D.C.: July 27,
2007). According to the Institute of Electrical and Electronics Engineers, verification and
validation processes for projects can be used to determine whether the software satisfies
intended user needs and helps ensure the systems conform to the requirements.
61
 GAO-04-394G; GAO/AIMD-10.1.13; GAO, Executive Guide: Improving Mission
Performance Through Strategic Information Management and Technology,
GAO/AIMD-94-115 (Washington, D.C.: May 1994); and OMB, Evaluating Information
Technology Investments, A Practical Guide (Washington, D.C.: November 1995).




Page 39                       GAO-12-957 Unemployment Insurance Systems Modernization
capabilities. 62 These maturity stages are cumulative; that is, in order to
attain a higher stage of maturity, the agency must have institutionalized
all of the requirements for the previous stage before moving on to the
next one. The framework can be used both to assess the maturity of an
agency’s investment management processes and as a tool for
organizational improvement. For each maturity stage, the ITIM describes
a set of critical processes that must be in place for the agency to achieve
that stage. We have used the framework in many of our evaluations, and
a number of agencies have adopted it. 63

One of the nine states within our review—Virginia—has adopted our ITIM
standards for implementing selected modernization projects and has
incorporated the standards into its UI system development guidance. The
state’s UI modernization efforts follow certain procedures for selecting,
controlling, and evaluating projects. This provides a mechanism for the
state to help ensure that critical tasks and elements that were considered
as the UI modernization project were selected and developed, and that
critical points throughout the process were brought to management’s
attention when approvals were needed to continue or redirect the project.
Other states have also followed selected aspects of the ITIM standards to
monitor their UI modernization projects and to help ensure appropriate
approvals and reviews at critical points in the systems development
process were obtained.

Earned Value Management Is a Process to Measure Project
Performance

Earned value management helps project managers to measure project
performance. It is a systematic project management process used to find
variances in projects based on the comparison of work performed and
work planned. Earned value management is used to support cost and
schedule control and can be very useful in project forecasting. The project
baseline is an essential component of earned value management and




62
  GAO, Information Technology Investment Management: A Framework for Assessing
and Improving Process Maturity, GAO-04-394G (Washington, D.C.: March 2004).
63
  See, for example, GAO, Information Technology: HUD Needs to Better Define
Commitments and Disclose Risks for Modernization Projects in Future Expenditure Plans,
GAO-11-72 (Washington, D.C.: Nov. 23, 2010) .




Page 40                     GAO-12-957 Unemployment Insurance Systems Modernization
serves as a reference point for all related activities. Earned value
management provides quantitative data for project decision making. 64

One of the three consortiums—WyCAN-said it intends to use earned
value management as one of the tracking measures as it develops the UI
system. If adequately implemented, earned value management can assist
the program managers in accurately forecasting scope, schedule, and
cost and in identifying any potential problems and risks.

Information Technology Infrastructure Library Provides Guidance
for Using IT as a Business Tool

The Information Technology Infrastructure Library provides guidance to
organizations on how to use IT as a tool to facilitate business change,
transformation, and growth. The five core guides of the library map the
service life cycle, beginning with the identification of customer needs,
through the design and implementation of the service into operation and,
finally, to the monitoring and improvement phase. According to the IT
Service Management Forum, 65 adopting the core guides can offer users a
range of benefits that include: increased user and customer satisfaction
with IT services, improved service availability, financial savings from
reduced rework, improved resource management and usage, and
improved decision making, among other benefits.

Two of the nine states in our review had considered using the five core
guides as a best practice and these states reported using the standards
to help identify potential problems in their UI modernization efforts, such
as limitations on resources and appropriately defining customer needs.
For example, Colorado had adopted the standards to aid with the
development of their UI modernization project to help define customer
needs and associated systems requirements, and the resources required
to implement these requirements.




64
  GAO, Information Technology: Agencies Need to Improve the Accuracy and Reliability
of Investment Information, GAO-06-250 (Washington, D.C.: Jan. 12, 2006).
65
 The IT Service Management Forum, An Introductory Overview of ITIL V3, Best Practice
Management, 2007.




Page 41                     GAO-12-957 Unemployment Insurance Systems Modernization
Governance Structures Provide Oversight

All the states in our review noted that oversight was important and have
some form of governance. For example, states have formed committees
to guide modernization efforts, created oversight programs aimed at
modernization, and used their CIO offices to lead their efforts:

•   California created an IT oversight agency which approves all IT
    projects over $1 million and receives monthly and quarterly reports on
    projects. A feasibility study report is prepared to approve a
    development project, and a special project report is required when a
    project is rebaselined. California has used this control for its UI
    modernization projects.
•   Colorado uses a tiered system for IT projects, which is referred to as
    its executive governance committee. For the UI IT modernization
    project, Colorado is implementing a project health index that provides
    a numeric rank to the project status. This is intended to provide
    information on the status of the project to the executive governance
    committee so that it is informed of the project’s health, and is intended
    to help ensure the project is aligned with its planned strategic
    direction. In addition, Colorado’s technology office is required to report
    on an annual basis to a state legislature oversight committee to
    discuss the status of the UI modernization project.
•   Florida has monthly meetings with CIOs from other state agencies to
    identify any issues related to the IT modernization project and UI
    program that need to be resolved or discussed. In addition, Florida
    has implemented an executive steering committee which has the
    responsibilities of providing direction and support to the management
    team; assessing the IT modernization project’s alignment with the
    strategic goals of the department; reviewing and approving any
    changes to the project’s scope, schedule, and costs; reviewing,
    approving, and determining whether to proceed with any major project
    deliverables; and recommending suspension or termination of the
    project if the primary objectives cannot be achieved. In addition to the
    executive steering committee, a technical steering committee exists
    and includes a small group of subject matter experts. The technical
    steering committee provides technical guidance and advice to the
    project team.
•   Tennessee uses a Fiscal Review Committee, which reviews contracts
    over $250,000 for which the state is required to present contract and
    funding information. According to state officials, the committee has
    authority to review state funding and risk management. In addition,
    Tennessee established a governance committee at the Department of
    Finance and Administration called the Information Technology


Page 42                   GAO-12-957 Unemployment Insurance Systems Modernization
    Assessment and Budget Committee, which meets monthly to review
    the status of projects, including the UI modernization project and new
    project requests. Further, the state has an Information Systems
    Council that is made up of state legislators as well as commissioners,
    the state comptroller, employee representatives, and others who meet
    quarterly to review major state IT projects’ status and costs, as well as
    any issues that need management direction. Finally, Tennessee’s CIO
    reviews requests for proposals and approves major IT procurements.
•   Virginia has an office that provides management controls and an
    overall model for project management for projects such as UI
    modernization. It has defined criteria for major projects, such as those
    that have a budget over $1 million, are mission critical, or are
    multiagency projects. In addition, Virginia’s project management office
    provides checks and balances on the project to ensure accuracy and
    protect the state’s financial and operational interests.
•   As part of the IT governance process in Vermont, the state CIO office
    provides direction and oversight to IT projects such as the UI
    modernization project. According to a state official, the state requires
    the CIO to review and approve any IT projects estimated to cost over
    $500,000. In addition, the CIO office is responsible for overseeing
    contracts and any significant changes (over $100,000) to
    procurements.
In addition, the three consortiums—SCUBI; Maryland, Vermont, and West
Virginia; and WyCAN— have established governance structures that are
specific to their consortiums, in order to help review and oversee
multistate decisions affecting the modernization efforts:

•   SCUBI’s state officials have established a steering committee to
    oversee states’ efforts to determine the feasibility of designing,
    developing, and implementing a core UI benefit system. SCUBI’s
    project steering committee is responsible for the overall management
    of the business of the consortium and project. It also has a project
    management office which is responsible for the day-to-day
    management of the project. Each participating state will provide both
    program and technical staff to work as a project team and to provide
    project management resources for the office. The UI project is
    supported by the IT staff of the consortium states, the executive
    management of the member states, NASWA, and Labor.
•   The Vermont, Maryland, and West Virginia Consortium have
    established three committees that aid in the oversight of the
    consortium: the Project Steering Committee, the Consortium Project
    Team, and the Contractor Project Team. The Project Steering
    Committee is comprised of the UI directors from each consortium



Page 43                  GAO-12-957 Unemployment Insurance Systems Modernization
                  state. This committee has authority to approve the project scope,
                  project schedule, project assumptions, project constraints, project
                  risks, the project communication plan, and the technical plan and
                  approach. The Consortium Project Team, consisting of subject matter
                  experts and technical staff from each state, execute the work of the
                  consortium based on guidance from the Project Steering Committee.
                  The Contractor Project Team aids the consortium by conducting a
                  review of the current benefit and tax operations in each state,
                  developing business and functional requirement documents, and
                  helping the consortium identify an approach to developing new
                  systems.
              •   The WyCAN consortium, led by Colorado, is planning to develop a
                  common, integrated and combined UI benefits and tax IT system. To
                  do this, the consortium states have established multiple governance
                  structures to help regulate the interaction of the states within the
                  consortium. One of the governance structures includes the executive
                  committee and is comprised of eight members in each consortium
                  state that meet at least once quarterly. The head of the UI program
                  and the state CIOs are included in the executive committee and
                  provide leadership and approval of the consortium efforts.

              In recognition of the states’ need to modernize their UI systems, Labor
Conclusions   has provided funding and technical assistance. Yet, the status of states’
              efforts varies, ranging from the planning and requirements phase to the
              implementation and operation of modernized solutions. In undertaking
              these major efforts, the nine states we reviewed have encountered a
              variety of challenges in managing their modernization projects, resulting
              from factors such as the need to provide sufficient staff to operate both
              legacy and modernized systems, and differences in state law and
              business processes among consortium member states. Labor has tasked
              ITSC to assess lessons learned, observations, and successful practices
              of consortium efforts, which is a valuable first step toward helping the
              states overcome challenges as they move forward in modernizing UI
              systems. However, this effort is not complete and does not represent an
              independent survey of all the states’ lessons learned. As such, Labor has
              not clearly identified challenges and lessons learned, disseminated them
              to each state, or facilitated an appropriate information sharing
              mechanism. This can hinder states’ ability to draw upon each others’
              experiences to mitigate future challenges and facilitate success going
              forward to improve the effectiveness and efficiency of modernization
              efforts. The states we reviewed have identified numerous management
              controls to aid their modernization efforts which, if implemented
              successfully, can also help to mitigate challenges.


              Page 44                 GAO-12-957 Unemployment Insurance Systems Modernization
                      To further facilitate state and consortium modernization efforts, we
Recommendations for   recommend that the Secretary of Labor direct the Administrator of the
Executive Action      Office of Unemployment Insurance to take the following two actions:

                      •   Perform a comprehensive analysis of lessons learned and identify
                          specific areas that would help mitigate current state challenges and
                          provide guidance for future consortiums and individual state efforts.
                          This assessment should include an evaluation of ITSC’s lessons
                          learned and observations identified, as well as input from individual
                          states, consortium representatives, and the ITSC Steering Committee.
                          Lessons learned and best practices identified could include practices
                          for mitigating issues associated with inconsistent and insufficient
                          funding streams, helping ensure staff have the necessary technical
                          and project management expertise to manage modernization
                          technology resources, and sufficient staff to operate both legacy and
                          modernized systems while developing and implementing new
                          systems; and consortium-specific challenges, including practices for
                          addressing concerns about differences in state requirements and
                          business processes among consortium member states, mitigating
                          potential liabilities and concerns that lead states face in providing
                          services to and oversight of another states’ modernization efforts, and
                          identifying independent qualified leadership for consortium efforts.
                      •   Distribute the analysis of lessons learned to each state to share and
                          foster ideas and facilitate the efficient and effective modernization of
                          UI systems through an information-sharing platform or repository,
                          such as a website, so that state agencies can contribute ideas and
                          case studies of best practices and lessons learned on a continuing
                          basis, and so that states’ input can be solicited for each major phase
                          of system development.

                      Labor’s Assistant Secretary for Employment and Training Administration
Agency Comments       provided written comments on a draft of this report, which are reprinted in
and Our Evaluation    appendix II. In its comments, the department generally agreed with our
                      recommendation to perform a comprehensive analysis of lessons learned
                      and identify specific areas that would help mitigate current state
                      challenges and provide guidance for future consortiums and individual
                      state efforts. In this regard, the department said it agreed with the need
                      for an ongoing process of continuous learning that would involve
                      collecting and analyzing lessons learned and best practices and offering
                      technical assistance to states. To accomplish this, the department
                      believed it would be more prudent to evaluate the report on state lessons
                      learned that ITSC is expected to finalize by September 28, 2012, to avoid
                      conducting a possibly duplicative analysis. We noted in our report that



                      Page 45                  GAO-12-957 Unemployment Insurance Systems Modernization
ITSC’s assessment of lessons learned provides a valuable first step
toward helping the states overcome challenges as they move forward in
the modernization of UI systems. As such, we recommended that the
department’s assessment include an evaluation of ITSC’s lessons
learned and observations identified and use this information as a good
first step. Labor’s assessment, as we noted, should also include input
from all individual states, consortium representatives, and the ITSC
Steering Committee.

Labor neither agreed nor disagreed with our second recommendation,
which called for it to distribute the analysis of lessons learned to each
state to share and foster ideas and facilitate the efficient and effective
modernization of UI systems through an information-sharing platform or
repository, such as a website. Nonetheless, the department noted that it
is committed to working actively to support knowledge sharing among the
states related to UI IT modernization best practices and lessons learned
through ITSC’s website, department guidance, webinar presentations,
participation in conferences with states, and the department’s recently
established UI Community of Practice website. Labor acknowledged its
commitment to identify lessons learned and the need to reevaluate them
on an ongoing basis. The department also recognized the importance of
maintaining a repository of best practices and lessons learned to provide
a forum for the states to provide ideas and feedback on a continuing
basis for each major phase of systems’ development.

Labor also provided clarifying information in its technical comments,
which we incorporated as appropriate. In these comments, the
department sought to clarify our discussion of funding sources, such as
the Reed Act distribution. Specifically, Labor noted that the Reed Act
distribution funds are not solely available for UI IT modernization efforts.
As we noted in our report, federal funds can be used for multiple UI
purposes, and states have the authority to spend these funds on a
number of administrative activities, including IT, as well as other activities,
such as capital improvement projects and payment of benefits. In
response to Labor’s technical comments, we revised the wording to make
clearer the sources of funding for IT modernization efforts.

Beyond the aforementioned comments, we requested technical
comments through email from ITSC and the nine states included in our
study. In response, the Director of ITSC and five state officials—
California’s Deputy Director of the Employment Development
Department, Colorado’s Program Manager of the Colorado Department of
Labor and Employment, Minnesota’s Director of the Unemployment


Page 46                   GAO-12-957 Unemployment Insurance Systems Modernization
Insurance Division, Tennessee’s Information Technology Administrator of
the Tennessee Department of Labor and Workforce Development, and
Virginia’s Project Manager of the Virginia Employment Commission—
provided comments on relevant facts discussed in the report message.
We have incorporated these comments where appropriate.

We are sending copies of this report to the Secretary of Labor,
appropriate congressional committees, and other interested parties. In
addition, the report is available at no charge on the GAO website at
http://www.gao.gov.

If you or your staff have questions about this report, please contact me at
(202) 512-6304 or melvinv@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Key contributors to this report are listed in appendix III.

Sincerely yours,




Valerie C. Melvin
Director, Information Management
  and Technology Resources Issues




Page 47                  GAO-12-957 Unemployment Insurance Systems Modernization
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              Our objectives were to (1) determine the Department of Labor’s (Labor)
              role in facilitating the modernization efforts, (2) identify and describe the
              types of federal funding selected states have spent on IT modernization,
              (3) provide the status of modernization efforts for the selected states, (4)
              determine key modernization challenges, and (5) evaluate what
              management controls have been established for IT modernization.

              To address each objective, we conducted in-depth interviews with
              management and IT staff in nine state unemployment insurance (UI)
              offices—California, Colorado, Florida, Indiana, Minnesota, Ohio,
              Tennessee, Vermont, and Virginia. We selected the states on the basis of
              varying regional location, size, and modernization status. Specifically, our
              selection of nine states represents each of the six Labor regions, at least
              one small, medium, and large state, and each of the major phases of
              systems modernization, including planning and requirements,
              development, testing and operations and maintenance. We also selected
              states developing individual systems, those developing integrated tax and
              benefits systems, and states involved in consortium efforts. 1 While our
              sample is nongeneralizable, these states offered insight and perspective
              on their experiences in modernizing UI systems, including sources of
              funding, challenges, and established management controls. In addition,
              we interviewed Labor officials, evaluated state audit entities’ reports, and
              spoke to stakeholders involved in modernization of states’ UI systems,
              such as officials from the National Association of State Workforce
              Agencies’ (NASWA) Information Technology Support Center (ITSC).

              To determine Labor’s role in facilitating the modernization efforts, we
              collected and analyzed documentation describing Labor’s responsibilities,
              including regulations, department project plans, and program guidance.
              We interviewed relevant Labor program officials to identify and discuss
              Labor’s role and efforts in supporting state UI modernization efforts,
              including facilitating state UI agencies in mitigating their modernization
              challenges. We also interviewed relevant officials from the selected state
              UI agencies as well as from the NASWA’s ITSC to obtain their views on
              Labor’s role and efforts to assist states in the modernization of their UI
              systems.




              1
               We selected the three lead consortium states as part of our review, obtaining
              representation of all consortium efforts.




              Page 48                       GAO-12-957 Unemployment Insurance Systems Modernization
Appendix I: Objectives, Scope, and
Methodology




To identify and describe the types of federal funding selected states have
spent on IT modernization, we obtained and analyzed selected states’ IT
modernization expenditure data such as funding allocations, project
reports, and spending reports. We also reviewed documentation on
federal funding sources that can be used for state UI modernization, such
as the State Unemployment Insurance and Employment Service
Operations appropriation, Reed Act distributions, and the American
Reinvestment and Recovery Act, as well as Labor’s documentation on
funding for UI modernization, including supplemental budget funds for
state UI modernization efforts. In addition, we reviewed documentation
discussing nonfederal funding sources that are used for state UI
modernization. To supplement this information, we interviewed officials
from Labor, the selected UI states, and stakeholders such as the
NASWA’s ITSC, to identify the type of federal and other funds spent on UI
modernization efforts. In addition, we summarized the information
collected from the state UI agencies on the types of federal funds and
obtained clarification and confirmation from the states on the accuracy of
this information.

To provide the status of modernization efforts for the selected states, we
collected and reviewed the selected states’ documentation of their
modernization planning and development efforts, such as IT strategic
plans, project plans, status reports, and descriptions of current systems
development artifacts. We also held discussions with officials from the
selected UI agencies, including officials involved in planning and
developing the UI systems, regarding the status of and plans for state UI
modernization efforts.

To determine key modernization challenges, we analyzed public and
internal reports on state UI modernization efforts and lessons learned. We
also interviewed relevant Labor, UI state, and NASWA’s ITSC officials to
identify modernization challenges and to discuss lessons learned and
means for addressing the challenges. We also summarized the
information collected from the state UI agencies on their modernization
challenges and obtained clarification and confirmation from the states on
this information.

To evaluate what management controls have been established for IT
modernization, we interviewed Labor and selected UI states’ officials to
identify and discuss the management controls used by the selected state
UI agencies. To supplement this information, we also met with
representatives from the NASWA’s ITSC who were involved in assisting
states in their modernization efforts, to discuss management controls


Page 49                       GAO-12-957 Unemployment Insurance Systems Modernization
Appendix I: Objectives, Scope, and
Methodology




used to support state UI consortiums’ modernization efforts. We also
reviewed the documentation describing the selected states’ UI
management controls and compared these controls to best practices and
industry standards, such as those identified by the Project Management
Institute. We did not, however, assess the extent to which the selected UI
agencies implemented the management controls or the effectiveness of
these controls in modernizing state UI systems.

We conducted this performance audit from January 2012 through
September 2012 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 objectives. We
believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.




Page 50                       GAO-12-957 Unemployment Insurance Systems Modernization
Appendix II: Comments from the Department
             Appendix II: Comments from the Department
             of Labor



of Labor




             Page 51                      GAO-12-957 Unemployment Insurance Systems Modernization
Appendix II: Comments from the Department
of Labor




Page 52                      GAO-12-957 Unemployment Insurance Systems Modernization
Appendix II: Comments from the Department
of Labor




Page 53                      GAO-12-957 Unemployment Insurance Systems Modernization
Appendix III: GAO Contact and Staff
                  Appendix III: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Valerie C. Melvin, (202) 512-6304 or melvinv@gao.gov
GAO Contact
                  In addition to the contact named above, Christie Motley (Assistant
Staff             Director), Michael Alexander, Neil Doherty, Rebecca Eyler, Christopher
Acknowledgments   Nemr, Teresa M. Neven, Monica Perez-Nelson, and Charles Youman
                  made key contributions to this report.




(310981)
                  Page 54                       GAO-12-957 Unemployment Insurance Systems Modernization
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