UIPL13-10a1.pdf

ETA Advisory File Text

ET HANDBOOK NO. 407 CHAPTER TWO TAX PERFORMANCE SYSTEM II - 19 R 10 09 GENERAL PROCEDURES SYSTEMS REVIEWS Training Systems Managers and employees responsible for key decisions should possess and maintain a level of expertise which enables them to accomplish their assigned duties. Training systems should be sufficient to ensure that personnel understand and perform their duties properly. New employees should have some form of training and experienced employees also benefit from refresher courses. When reviewing training systems reviewers must look for formal training procedures e.g. the training is conducted using an established schedule and using set guidelines to make judgments about the quality of work being produced . There should be procedures for identifying general and specific training needs and for delivering training as needed. Recording of Transactions and other significant events are to be recorded and properly Transactions and classified. The entire life cycle of a transaction or events should be Events promptly recorded. This includes recording the action which initiated the transaction s recording the transaction s that took place and recording the end result. Whether systems are manual or automated audit trails are necessary so that original information is recorded and retained. Hard copies microfiches or imaging of original information can provide audit trails. For employers filing or reporting electronically on disk or tape a copy of the reported information loaded into the employers account file would be considered an original document and provide an audit trail. Subsequent changes or deletions to the file must also be recorded. If the reviewer comes across a system which simply overlays new information over the original without any apparent provision for an audit trail the IT unit should be contacted to locate back up files such as tapes disc etc. of the computer program runs. The IT or Internal Security units should be able to explain how original information is recreated short of running every back up tape and the method used to catalog information so that the reviewer can be assured he or she is looking at original versus adjusted information. Electronic source data will not have the same appearance as the more-familiar paper document versions. For the TPS reviewer to understand and identify information when examining a string of fixed width fields in various data rows the IT unit may have to provide a data dictionary or assist in deciphering record specifications. ET HANDBOOK NO. 407 CHAPTER TWO TAX PERFORMANCE SYSTEM II - 20 R 04 03 GENERAL PROCEDURES SYSTEMS REVIEWS Reviewers will determine whether State audit trail requirements provide for the classification and prompt recording of all significant events. The reviewer will also need to determine whether records are readily available to be used as needed for agency operation and management review. Execution by Transactions and other significant events are to be executed Authorized only by persons acting within the scope of their authority. Only Individuals authorized individuals have access to and accountability for resources such as employer remittances. Reviewers will determine whether State requirements provide for the execution of significant events by only authorized individuals. Systems to Assure Systems and controls such as monitoring procedures exception Execution of Events identifications checks and balances reconciliations and edits should be routine in operational procedures. Automated or manual exercise of these controls as an integral part of program operations assures accurate and timely execution of transactions and events. Reviewers should determine if such program management systems have been built into the State revenue operation. Review of Qualified and continuous review is to be provided to ensure Completed Work that objectives which are material to the proper payments of tax are achieved. The following tasks are involved Systematic review of assigned work on a regular ongoing basis. Systematic review to determine whether systems and procedures are working as intended. State Figure II-4 Review Period PROGRAM REVIEW FINDINGS Systems Review Verified Controls for Sampling Tax Function Recorded Instructions Training Recording of Events Authorized Individuals Execution of Events Review of Work EXCEPTIONS COMPLETE STATUS DETERMINATION New Successor Inact Term. CASHIERING REPORT DELINQUENCY COLLECTIONS FIELD AUDIT ACCOUNT MAINTENANCE Contrib Rpt Processing Employer Debits Billings Contr Reimb Contr Reimb Employer Credits Refunds Employer Charging Employer Tax Rates SYSTEMS C All controls verified as present SAMPLING EXCEPTIONS S Size of universe too small SAMPLING COMPLETE P Passed REVIEW R Risk 1 or more controls missing I Invalid universe or not sampled F Failed of Cases Failing O Other control compensated for E Exemption tempo Exp Rate only F I Failed Invalid or not sampled missing control requires Regional approval F Failed due to missing case information F M Failed Missing case information W Waived tempo requires Regional approval N Not marked complete U Undeterminable Cashiering only Out of tax unit s authority ET HANDBOOK NO. 407 CHAPTER TWO TAX PERFORMANCE SYSTEM II - 33 R 07 06 GENERAL PROCEDURES ACCEPTANCE SAMPLES S III. ACCEPTANCE SAMPLING a. Select Samples Acceptance Samples are not meant to stand alone. They are to be the means of confirming the performance of a system whose internal controls have already been assessed by a Systems Review. If risks have been identified in the Systems Review the samples will likely verify that system outputs fail to meet minimum levels of accuracy or completeness. If a system is deemed to be risk-free samples of outputs should confirm this fact. For these purposes it is not necessary to draw large samples for estimating the defect or error rate. Large samples are costly and time consuming. Since the purpose of the samples in the TPS Program Review is to verify a level of performance much smaller samples can be used. In assembling files from which samples will be selected the state must ensure that they are randomized or that a randomized algorithm is used before the sample is selected. Once the Systems Review is complete draw a sample of 60 cases from each tax function to confirm that system outputs meet minimum levels of accuracy or completeness e.g. all appropriate actions are being taken to resolve delinquent reports and field audits meet ESM requirements . The desired accuracy completeness level is 98 - that is 98 of the tax function s outputs or work products should be accurate. For a tax unit operating with an underlying accuracy level of 98 there is an 88 chance that two or fewer errors will be discovered in a sample of 60 cases. As the tax function s underlying accuracy level increases there is a proportional increase in the chances of passing. Conversely as the tax function s accuracy level decreases the more cases in the sample are likely to fail. The failure of three or more cases is reason to conclude that the exception rate for that function is at an unacceptable level. As the graph below shows tax functions with accuracy levels below 98 still have a chance to pass the sample review but the probability of passing rapidly decreases as the underlying accuracy level decreases. For instance if the underlying error is 9 there is only an 8 chance of passing the sample. ET HANDBOOK NO. 407 CHAPTER TWO TAX PERFORMANCE SYSTEM II - 34 R 10 09 GENERAL PROCEDURES ACCEPTANCE SAMPLES S b. Case Removal or Non Use. There are three instances where cases may not be used or case removal may be necessary. 1. The particular case selected should not have been in the universe to be sampled. Note that this should not occur if when developing sampling systems the universe files were properly reviewed. There may be instances when the universe was not assembled correctly. For example when building the universe of Collection cases an account receivable which had less than 100.00 unpaid UI tax due could be inadvertently included. The universe should consist of 100.00 or more in unpaid tax. However it is important to have some evaluation of each tax function if at all possible. If cases that should not be in the universe are selected do not replace them instead continue extracting samples. As long as the sample contains a minimum of 53 valid cases i.e. cases that meet the universe definition two cases can still fail and the results of the Acceptance Sample will remain consistent with that of 60 case samples. In such instances the Regional Office needs to notify the National Office which will ensure that the SUN system accepts such modification on a case-by-case basis. If the sample size drops below 53 that tax function cannot be evaluated The IT section should be alerted in order to make modifications for future sampling efforts. The reviewer must then advise the Regional Office to ensure that future universes will be sound. Note must also be included in the Annual Report of the problem as well as corrective action steps taken to rectify the situation. ET HANDBOOK NO. 407 CHAPTER TWO TAX PERFORMANCE SYSTEM II - 35 R 10 09 GENERAL PROCEDURES ACCEPTANCE SAMPLES S A non-evaluated tax function can not be found to have reasonable assurance of quality and will be counted as a failure. Code the Program Review Findings Chart s Sampling Exceptions cell with an I . This will generate a failing score in the tax function s Sampling Complete cell. The only permissible exceptions for non-sampling are universes that are too small S Experience Rate samples not due for a review E or Federally-approved waivers W . 2. In Collections any cases selected that had been subject to a TPS review the previous year for which no subsequent debt was created should be removed. 3. The particular case selected cannot be reviewed due to a missing case folder or other documentation is missing such as the microfiche or image of source documents. Sometimes documents cannot be found in order to make a ruling on the case s accuracy. Records may have been destroyed through circumstances beyond control e.g. fire flood etc. . The documents may be misfiled or checked out to some other staff member and cannot be found. In instances of this type removal is allowed for one and only one lost case. Before removal the reviewer must Assure to the extent possible that the work on the case was actually done and make every effort to find the information. Check all possible places persons where the information could be located. Inform the Regional Office of the removal. If a second case in the sample is missing then the reviewer cannot reach a conclusion that there is reasonable assurance of accuracy and the entire sample will fail. The failure will count towards the total number of tax functions that have failed TPS quality review. Code the Program Review Findings Chart s Sampling Exceptions cell with an F . This will generate a failing score in the tax function s Sampling Complete cell. Further details on the finding can be explained in the Annual Report. While the review may stop at this point tax managers may wish to continue the review in order to get an unofficial assessment of how the tax function is faring or to see the extent of missing documentation. ET HANDBOOK NO. 407 CHAPTER TWO TAX PERFORMANCE SYSTEM II - 36 R 04 03 GENERAL PROCEDURES ACCEPTANCE SAMPLES S c. Review Samples Once the sample is selected each case in it must be reviewed using the appropriate sample questionnaire. Each questionnaire contains a series of questions which must be answered for each case to determine whether it is correct. One of the more difficult aspects of rating the cases involves deciding whether or not a given case is acceptable. For some transactions the decision is relatively simple. For example if a given employer contribution was not credited to the proper account in the right amount then the transaction is not acceptable. However Status Determinations Collections and Field Audits have many more elements in them. Some of those elements may be incomplete or inaccurate without materially affecting the accuracy of the outcome. In each function every effort has been made to identify the essential elements for analysis and to exclude unnecessary elements. Any question that the reviewer and State has about materiality of an element should be resolved with Regional staff as per the earlier Planning for Reviews section. Note that if a sample case uncovers that something was done in error but that the error was subsequently discovered and rectified due to the State s internal controls the case would not fail. If however the error is rectified due to the employer bringing it to the State s attention the case fails. Appeals When a case appearing in the sample is under appeal the review procedure should not be affected when the reason or basis for an appeal or its outcome is not germane to the purposes of the review. However the appeal is a structured legal proceeding. The reviewer should determine if the agency has followed established procedure up to the point at which the case is being reviewed. d. Complete the Acceptance Sample Coding Sheet The answers to the Acceptance Sample Questionnaire questions should be recorded on the coding sheet for the respective function. The coding sheet allows space to record an answer for each question on the questionnaire. Most questions are coded Yes or No however some questions on the form provide for I Information Not Available or A Not Applicable which should be used only when appropriate. ET HANDBOOK NO. 407 CHAPTER THREE TAX PERFORMANCE SYSTEM III - 47 R 10 09 STATUS DETERMINATION PROGRAM REVIEW SYSTEMS REVIEW QUESTIONS 9. If procedures are automated is a systems check performed every time a program is changed Yes No VS Question 9 10. Does the state have a system in place and operating to detect tax rate manipulation i.e. SUTA Dumping Yes No If Yes answer below. a. Have written procedures or guidelines been developed to document requirements for identification and investigation of potential rate manipulators Yes No VS Examine operating instructions to confirm rule criteria for SUTA Dumping detection. Question 10 a. b. Does the agency compile a database of employers who indicate an excessive movement of employees from one quarter to the next Yes No VS Examine query documentation for tracking movement of employees changes in tax rate changes to reimbursing status and excess voluntary contributions. Question 10 b. ET HANDBOOK NO. 407 CHAPTER THREE TAX PERFORMANCE SYSTEM III - 48 R 10 09 STATUS DETERMINATION PROGRAM REVIEW c. Are potential rate manipulators routinely identified and assigned for further investigation every quarter Yes No VS Locate cases and confirm they have been investigated. Question 10 c. 11. If any of the preceding evaluative questions are answered No does the state have a substitute or compensating control Yes No N A If yes describe in the Narrative Section following the questions. VS Question 11 ET HANDBOOK NO. 407 CHAPTER THREE TAX PERFORMANCE SYSTEM III - 63 R 10 09 STATUS DETERMINATION PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures If the System is automated the Reviewer must work closely with the IT unit to ensure a thorough understanding of what when and how the samples should be selected. Appendix A describes what action needs to be taken for sampling in both manual and automated systems. Reviewing Samples Assemble the following information for each of the New Status Determinations selected for review 1. Status information in the employer account record. 2. The original source of information and any other documentation from the state s records. Documentation can consist of a hard copy registration form field auditor s report notations to the file explaining the source etc. If the employer registered electronically the electronic data screen containing the original registration information or facsimile of the original data entered by the employer or employer s representative can be used as the source document. If the employer registered by telephone with agency staff transmitting the data directly into the mainframe that mainframe data can be used as the source document. Employer contact information and identity of agency staff must also be documented. If the original information is not available the answer to question 3a. must be no. Compare all source documents with the information on the employer s account record and answer the questions on the Acceptance Sample Questionnaire. ET HANDBOOK NO. 407 CHAPTER THREE TAX PERFORMANCE SYSTEM III - 64 R 04 03 STATUS DETERMINATION PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Reviewing Samples 1. Accuracy of Initial Liability Decision - includes questions to evaluate if a correct initial decision based on minimum information was made. TPS refers to actual rather than temporary or pending accounts . Some States have procedures which allow an initial liability decision to be made based on partial information i.e. a partially completed contribution return with no other information . These States should follow up after the initial liability decision to ensure that information to make an accurate Status Determination has been obtained. If insufficient time has lapsed for the information to have been received the review may end with question 3. The time period needed to obtain information is as set by State procedures but not longer than 3 months to avoid a situation where a blocked claim could result. States which do not have such a procedure are directed to proceed to question 3. 2. Accuracy of New Employer Determination at Time of Review - includes questions to evaluate if a correct decision liability date and initial rate have been assigned. Initial rate means the first rate assigned to the account. I.e. if liability began five years ago the rate assigned for the first year of liability would be the initial rate . ET HANDBOOK NO. 407 CHAPTER FOUR TAX PERFORMANCE SYSTEM IV - 111 R 11 07 CASHIERING PROGRAM REVIEW ESTIMATION SAMPLE INSTRUCTIONS Drawing Conclusions contd. If the percentage of the total dollar amount deposited within 3 banking days line 8 of Summary Sheet is equal to or greater than the value to pass percentage then the reviewer will conclude that 90 of the dollar amount of employer contribution payments have been deposited timely. If the percentage of the total dollar amount deposited within 3 banking days is less than the value-to-pass percentage then the reviewer must conclude that timely deposit of employer contribution payments cannot be confirmed. The value to pass figure is lower than the 90 timeliness standard in order to lessen the probability of Type I Error . Type I Error is the appearance of failure when in fact the sample passes. SAMPLING TABLE of Sample Items Value to Pass 375 - 405 87.5 406 - 441 87.6 442 - 481 87.7 482 - 527 87.8 528 - 579 87.9 580 - 640 88.0 ET HANDBOOK NO. 407 CHAPTER FOUR TAX PERFORMANCE SYSTEM IV - 112 R 10 09 CASHIERING PROGRAM REVIEW ESTIMATION SAMPLE INSTRUCTIONS Drawing Conclusions contd. EFT SAMPLING TABLE EFT Sample Size Value to Pass 50 54.9 400 77.4 55 59.9 400 75.1 60 64.9 400 72.2 65 69.9 300 68.1 70 74.9 300 63.2 75 79.9 200 55.6 80 84.9 200 45.5 85 89.9 200 29.1 90 - 100 0 N A If the State receives no EFTs then this conclusion will be based solely on the outcome of the Estimation Sample. If EFTs are accepted by the agency the conclusion will be based on a combination of the Estimation Sample results and the EFTs received by the agency. See Step 11 . For all untimely deposits the reviewer must provide an explanation on the Acceptance Sample Explanation Sheet. Documentation All electronic and paper documentation gathered to review samples which does not include checks must be kept until review completion and Regional Office approval of the Annual Report. This documentation should be maintained unless the State is able to recreate the identical information used in the review. ET HANDBOOK NO. 407 CHAPTER FIVE TAX PERFORMANCE SYSTEM V - 61 R 10 09 REPORT DELINQUENCY PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures 5. If the system is automated the Reviewer must cont. work closely with the IT unit to ensure a thorough understanding of what when and how the samples should be selected. 6. Appendix A describes what action needs to be taken for sampling both manual and automated systems. Reviewing Samples Assemble the following information for each of the cases selected for review 1. A copy of the original delinquency notice or a facsimile generated from the electronic data that created the original delinquency notice at a minimum it must include the employer name account number address and quarter year delinquent . 2. The electronic or paper account information related to the report delinquency in the state s employer account record. Compare all electronic and paper source documents with the information in the employer s account record. To answer question 1 the reviewer will need to know what cut off date the state used. The reviewer will then compare the date the employer s wage report was received by the state against the cut off date to ensure it was properly identified as delinquent. ET HANDBOOK NO. 407 CHAPTER FIVE TAX PERFORMANCE SYSTEM V - 62 R 04 03 REPORT DELINQUENCY PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Reviewing Samples For purposes of answering question 2b. suppressed refers to a restrictive action taken by the State that intentionally prevents a normal work flow from being completed e.g. not mailing a delinquency notice to an employer due to a pending appeal or an employer that is in bankruptcy and State procedures that do not allow notices to be mailed . Drawing Conclusions Using this information answer the questions on the Acceptance Sample Questionnaire. The following questions are evaluative 1. Proper identification of delinquent employer. 2.a Was the delinquent notice for the correct quarter and year. ET HANDBOOK NO. 407 CHAPTER SIX TAX PERFORMANCE SYSTEM VI 65 R 11 04 COLLECTIONS PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Purpose Intent To assure that Accounts Receivable are being managed in accordance with State s established procedures. Scope The scope of the review will focus on collection cases of 100.00 or more which are more than 30 days old. Day 1 of the 30 day count can begin the day after the account receivable was established. Do not include accounts declared legally uncollectible. Universe The universe for the Collections Acceptance Sample will include 1. Accounts that have been established for at least 30 days. See Note above. 2. All accounts with 100.00 or more in unpaid UI tax or the State s established benchmark figure if higher . This universe should be identified between February 1 and June 30. 3. Select 60 cases or if universe is small select the number of cases based on Table in Appendix A-III Timing Frequency The sample will be selected once per calendar year. The population should be identified any day in the period between February 1 and June 30 a single snapshot of the day selected . ET HANDBOOK NO. 407 CHAPTER SIX TAX PERFORMANCE SYSTEM VI 66 R 10 09 COLLECTIONS PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures The following steps must be taken to establish the universe and to select the sample accounts 1. Identify the universe of all employer account receivables over 30 days old with tax due in the amount of 100.00 or more or the State s established benchmark if higher . Rounding up or down is permitted. The debt or a portion should have been created in the past two calendar years or less. This universe should be identified between February 1 and June 30. 2. In order to give the State time to follow its collections procedures select the sample of 60 cases six months after identifying the universe. 3. Any case that was a part of the previous years sample whether passed or failed must be removed from the current review. However if new debt had been created since the previous year s snapshot date the case can remain in the sample. 4. The review should be completed no later than March 31 of the following year. If the system is automated the Reviewer must work closely with the IT unit to ensure a concise understanding of what when and how the samples should be selected. Appendix A describes what action needs to be taken for sampling in both manual and automated systems. ET HANDBOOK NO. 407 CHAPTER SIX TAX PERFORMANCE SYSTEM VI - 67 R 10 09 COLLECTIONS PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Reviewing Samples Assemble the following information from the employer s account 1. All electronic and paper information the State has in its possession relating to the collection history of the selected account including copies of liens enforced collection action and other supporting documents. Electronic information includes data from sources such as the employer account file imaged files and data in magnetic media. 2. The employer account information on the State s computer files. Review actions taken with the preceding 2 calendar years plus current year only. Review timeliness of contacts for most recent quarter of liability only. The most recent quarter is the most recent quarter of liability preceding the snapshot date any day between February 1 and June 30 of the year under review . If multiple receivables have been established during the preceding 2 calendar years and current year time frame review actions taken and resolutions applied towards the most recently established receivables. Up to a maximum of the ten most recently established receivables are to be reviewed. When full payment is received further review of collection action may be necessary to see if any enforced collection action was properly released. Uncollectible accounts will be reviewed up to the point they are declared uncollectible and to determine if they are properly written off. Accounts in bankruptcy status will be reviewed up to the point where a claim is filed in bankruptcy court unless the bankruptcy has already been discharged or closed. Question 8 ET HANDBOOK NO. 407 CHAPTER SIX TAX PERFORMANCE SYSTEM VI - 68 R 04 03 COLLECTIONS PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Drawing Conclusions Using this information answer the questions on the Acceptance Sample Questionnaire. The following questions are evaluative 1. Is the account correctly classified. 2. Were successor liability procedures followed. 3. Were initial written notices sent timely. 4. Was the employer contacted other than through initial written notice. 5. Was an assessment filed properly. 5a. If yes was the employer properly notified. 6. Was a lien s filed properly. 6a. If yes was the employer properly notified 7 Were other actions taken properly. 8. Was a proof of claim filed timely if employer was in bankruptcy. 10. Was enforced collection action properly released. A NO answer to any evaluative question must result in failure of the sampled case. The following questions are non-evaluative 4a. Was telephone contact made after written notice was mailed. 4b. Was the employer contacted in person. 4c. Was the employer contacted by mail. 4d. Other contacts. 9. Were any payments received. ET HANDBOOK NO. 407 CHAPTER SEVEN TAX PERFORMANCE SYSTEM VII - 57 R 10 09 FIELD AUDIT PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Purpose Intent To assess the degree to which completed audits meet the requirements of the Employment Security Manual. To assess the accuracy of posting audit results in the State s employer records. Scope Due to TPS end-of-year workload concerns reviewers may select one of the following options audits completed in the four quarters of the calendar year under review or audits completed the fourth quarter of the previous calendar year and first second and third quarters of the calendar year under review. Universe There is one universe to be identified for the Field Audit Acceptance Sample 1. All audits completed on Contributory Employers during the period selected for TPS review. 2. 60 completed audits will be selected. Timing Frequency The samples will be selected once per calendar year. The population of transactions will be identified after the end of the fourth or third quarter depending on the period selected for TPS review. ET HANDBOOK NO. 407 CHAPTER SEVEN TAX PERFORMANCE SYSTEM VII - 58 R 10 09 FIELD AUDIT PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures The following describes the steps to be taken to build the universe for the samples 1. Identify all contributory employers audited during the period selected for TPS review. These should be the same employer accounts that are being reported as Total Audits on the ETA 581. 2. Select a sample of 60 cases. 3. The sample should be selected after the fourth or third quarter ends depending on the period selected for TPS review. Appendix A describes what action needs to be taken for sampling in both manual and automated systems. If the system is automated the reviewer must work closely with the IT unit to ensure a thorough understanding of what when and how the samples should be selected. Reviewing Samples Assemble the following information for each of the completed audits selected for review. 1. The complete audit report. 2. The supporting documentation containing any additional information to support the audit decisions. This could be in paper or electronic format such as work papers or notations on a computerized audit program. ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 23 R 10 09 ACCOUNT MAINTENANCE Report processing PROGRAM REVIEW SYSTEMS REVIEW QUESTIONS 5. In the opinion of the supervisor or manager does the training meet the needs of the Contribution Report processing function E.g. are sufficient resources available--training packages facilities staff etc. Yes No 6. If any of the preceding evaluative questions were answered No does the State have a substitute or compensating control Yes No N A If Yes describe in the Narrative Section following these questions. VS Question 6 ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 24 R 10 09 ACCOUNT MAINTENANCE Report processing PROGRAM REVIEW ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 33 R 10 09 ACCOUNT MAINTENANCE Report processing PROGRAM REVIEW SYSTEMS REVIEW Systems to Assure Execution of Events Built-in reviews should be in place to assure the execution of events such as mailing contribution reports to employers who are to receive such reports or updating and testing of the State s electronic reporting system in preparation for employer reporting and accurate and prompt processing of information received from employers. The review may be automated e.g. quarter and year edits math computation edits or manual e.g. pre-audit or post-audit procedures . The reviewer must become familiar with the types of built-in checks used by the State to assure employers are notified of reporting requirements e.g. mailing of contribution reports notification of requirements instructions on electronic reporting procedures and that all quarterly report and payment information is processed accurately and promptly when received. In the narrative section following the questions explain Other responses and describe Compensating Controls . Identify the question being explained by referencing the number and section. ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 35 R 10 09 ACCOUNT MAINTENANCE Report processing PROGRAM REVIEW SYSTEMS REVIEW QUESTIONS 1. Does the state have procedures and or controls to assure that each system of reporting contributions and wages e.g. paper reporting internet filing telephone filing third party electronic filing is updated with accurate employer data at the start of each filing period Yes No Yes No N A a. Does the state reconcile the count of reports that should be mailed to the number of reports that will be mailed E.g. subtract the number of reports suppressed from printing electronic and third party filers seasonal employers from the number of active employers and compare that number to the count of mailed reports. Yes No N A b Before mass mailing or before electronic reports are due does the state review the data file used to print paper reports and or used to populate web- based sites to ensure accuracy and correct record layout E.g correct quarter year due date Yes No N A c. Is a small sample of employer accounts from the data file used to print paper reports and or used to populate web-based sites reviewed to ensure employer specific data are accurate E.g. correct name address pre-printed social security numbers tax rate VS Questions 1a and c 2. Does the State have systems procedures and or internal controls to assure accurate processing of employer contribution reports Yes N o ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 36 R 04 03 ACCOUNT MAINTENANCE Report processing PROGRAM REVIEW SYSTEMS REVIEW QUESTIONS 2. a. What automated internal controls does the State use to assure that employer contribution reports are posted accurately Yes No 1 Edit for correct math computation ............................................................... 2 Employer account number edit .................................................................... e.g. hash totals check digits 3 Quarter year edit .......................................................................................... 4 Report totals balance with wage detail listing ............................................. 5 Other ............................................................................................................ VS Question 2 3. Does the State have system procedures or internal controls to assure that quarterly contribution reports are posted promptly to prevent the mailing of delinquent employer notices or assigning to the field Yes No 4. Does the State have a method for handling system rejects Yes No ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 55 R 10 09 ACCOUNT MAINTENANCE Report Processing PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures cont. Appendix A describes what action needs to be taken for sampling in both manual and automated systems. If the system is automated the Reviewer must work closely with IT staff. A thorough understanding of what the universe includes and excludes and when the samples are to be selected is essential. Reviewing Samples Assemble the following information for the employer s account Contribution report payment and any additional related information. 1. A copy of the originally filed paper or electronic contribution report or wage detail and any adjustment forms affecting the report. Source documents could also include images or screen copies or unformatted flat files of electronic reports or line items of employer s allocation in magnetic media diskettes. Also see Ch. II- 19 R04 03. 2. A copy of the payment associated with this quarterly contribution report. Source documents could include check images or cancelled checks or line items of employer s payment on magnetic media diskettes or employer payment confirmations that are specifically associated with the sampled employer or line items or unformatted flat files of payment allocation as noted in bank deposit records or copies of ACH deposits from the state s depository bank. 3. Any additional paper or electronic information related to the employer s account. The review should be completed as soon as possible after selecting the sample and no later than September 30. ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 56 R 10 09 ACCOUNT MAINTENANCE Report Processing PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Drawing Conclusions Using this information answer the questions on the Acceptance Sample Questionnaire. If no report was received by the review date the only evaluative question to be answered is 2. Identification of the employer as failing to file a timely report. NOTE Use N A if no report is owed e.g employer was inactivated terminated. If a report was received the following questions are evaluative 3a Accuracy of the employer account number. 3b Accuracy of the quarter and year. 3c Accuracy of the amount of money remitted. 3d Accuracy of the total gross and or taxable wages. 5 Accuracy of the computation of tax due. A No answer to question 2 3 a-d or 5 will mean that the sampled account was not processed accurately and is not considered an acceptable case. If payment was made by the TPS review date payment posting accuracy must be examined regardless of whether the payment accompanied the employer s report or was submitted separately. Payment should have been applied to the proper quarter based on the state s procedure. Of the 60 cases if three or more are not acceptable then the reviewer must conclude that accuracy in the State s processing of Contribution Reports cannot be confirmed. For all unacceptable cases the reviewer must provide an explanation for the unacceptable case on the Acceptance Sample Explanation Sheet. ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 57 R 10 09 ACCOUNT MAINTENANCE Report Processing PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Documentation All documentation which was gathered to review samples must be kept until the completion and Regional Office approval of the TPS Annual Report. Either hard copy documentation or in some highly automated systems the ability to recreate the identical information used in the review must be maintained. ET HANDBOOK NO. 407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 59 R 10 09 ACCOUNT MAINTENANCE Report processing PROGRAM REVIEW ACCEPTANCE SAMPLE QUESTIONNAIRE Identification of Delinquent Employers 1. Was a Contribution Report received for the account by the TPS review date Yes No If No answer question 2 and end review 2. Was the account appropriately identified as delinquent Yes No N A Accuracy and Timeliness of Posting 3. Was the following Contribution Report and payment information posted accurately Yes No a. the employer account number b. the quarter and year c. the amount of money remitted d. the total gross and or taxable wages Depending on State posting requirements 4. Was the Contribution Report processed promptly according to State policy and procedures Yes No Accuracy of Computations 5. Did the State correctly compute the tax due on the report Yes No ET HANDBOOK NO.407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM ACCOUNT MAINTENANCE Debits Billings PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures Cont. If the State bills reimbursing employers more frequently than quarterly the State should discuss sampling procedures with the Regional Office Representative. In some States the entire universe of reimbursing employers may be very small. In these cases see Appendix A for number to be reviewed. If the system is automated the Reviewer must work closely with IT. A thorough understanding of what the universe includes and excludes and when the samples are to be selected is essential. Appendix A describes what action needs to be taken for sampling in both manual and automated systems. Reviewing the Samples Assemble the following information for the employer s account 1. A copy or image of the original debit memorandum billing notice or a facsimile generated from the electronic data that created the original notice and a copy or image of any payment history. 2. The original or imaged source documentation of information in the state s files that created the debit billing e.g. contribution reports adjustment reports benefit charges rate changes etc. VIII 117 R 10 09 ET HANDBOOK NO.407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM ACCOUNT MAINTENANCE Debits Billings PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Reviewing the Samples Cont. 3. The electronic or paper account information related to the debit billing in the state s employer file. Compare all electronic and paper source documents with the information on the employer s account record. The review should be completed within 45 days after the samples are selected. Drawing Conclusions Using this information answer the questions on the Acceptance Sample Questionnaire. The following questions on the Acceptance Sample Questionnaire are evaluative 1. Establishing to proper account. 2. Accuracy of dollar amount and time frame. 4. Accuracy of the billing notice. 5. Accurate processing of the debit established. A No answer to 1 2 4 or 5 will mean that the sampled account was not processed accurately and is not an acceptable case. An inaccurate penalty or interest assessment will not cause the case to fail. VIII 118 R 10 09 ET HANDBOOK NO.407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 179 R 04 03 ACCOUNT MAINTENANCE Credits Refunds PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures Cont. a. Have an overpayment for any quarter current or prior which was established during the processing period and b. The credit remains outstanding not refunded or applied to a debit at the end of the processing period. The processing period is defined as the State time period during which the quarterly reports and contributions are processed after the selected quarter has ended. e.g. if the 1st quarter is selected for review the processing period would begin April 1 and end approximately June 30. This definition is for the sole purpose of defining the time frame from which the universe of credits established is to be drawn. States who do not build the universe as credits are established or whose automated systems make it difficult or impossible to locate the targeted credits may find it necessary to identify the population of all contributory employers at the beginning of the processing period and again at the end of the period and then compare the two populations to isolate those employers who had a credit balance established or increased during the defined processing period . These employers constitute the sampling universe. ET HANDBOOK NO.407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 180 R 10 09 ACCOUNT MAINTENANCE Credits Refunds PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures Cont. 3. Select 60 cases or if universe is small select the number of cases based on Table in Appendix A-III Note The reviewer will have to investigate procedures for issuing credits refunds and then identify the appropriate sample selection date. e.g. in some States there may be a lag time of 90 - 180 days before refunds are issued etc. - thus the sample selection date would be after the 90 - 180 day time lag period. If the system is automated the Reviewer must work closely with IT. A thorough understanding of what the sample includes and when it is to be extracted is essential. Appendix A describes what action needs to be taken for sampling in both manual and automated systems. Reviewing the Samples Assemble the following information for each of the cases selected for review 1. A copy or image of the original credit memorandum or a facsimile generated from the electronic data that created the original notice or advisement such as a line item on the electronic or paper contribution report or a copy of the cancelled check if a refund was issued or a computer generated listing showing the employer account number check amount mail date and address. ET HANDBOOK NO.407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 181 R 10 09 ACCOUNT MAINTENANCE Credits Refunds PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Reviewing the Samples cont. 2. The original or imaged source documentation of information in the state s files that created the credit refund e.g. contribution reports remittance adjustment reports wage detail adjustments rate changes etc. 3. The electronic or paper account information related to the credit refund in the state s employer file. Compare all electronic and paper source documents with the information on the employer s account record. The review should be completed within 45 days after the sample is selected. Drawing Conclusions Using this information answer the questions on the Acceptance Sample Questionnaire. The following questions are evaluative 1. Establishment to proper account. 2 Accuracy of dollar amount and time frame. 4. Accuracy of the credit memorandum or refund. 5. Accurate processing of the established credit. 6. Credit memorandum refund issued to correct address 7. Accuracy of withholding credit memorandum refund A No answer to 1 2 4 5 6 or 7 will mean that the sampled account was not processed accurately and is not considered an acceptable case. ET HANDBOOK NO.407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 182 R 11 04 ACCOUNT MAINTENANCE Credits Refunds PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Drawing Conclusions Note that when a credit or refund is due in excess of Contd. established tolerance limits the employer must be given the opportunity to request a refund or to apply the credit to future tax obligations or to automatically receive a credit or refund. If the sampled case indicates that the state did not fulfill this obligation for instance no attempt was made to advise the employer of credit or refund due or no credit refund adjustments were made question 7 would be answered No and the case would fail. Of the 60 cases if three or more are not acceptable then the reviewer must conclude that accuracy in the Credit Refund processing function cannot be confirmed. For all unacceptable cases the reviewer must provide an explanation for the unacceptable case on the Acceptance Sample Explanation Sheet. Documentation All documentation gathered to review samples must be kept until the completion and Regional Office approval of the Annual Report. Either hard copy documentation or in some highly automated systems the ability to recreate the identical information used in the review must be maintained. ET HANDBOOK NO.407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 297 R 10 09 ACCOUNT MAINTENANCE Tax Rates PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Sampling Procedures Cont. E. g. During a 2010 TPS review in a State which issues 2010 tax rate notices in January 2010 a sample of the 2010 notices issued in January would be selected and reviewed. For a State which issues 2011 tax rate notices in November 2010 a sample of the 2011 notices issued in November 2010 would be selected and reviewed. 3. Select 60 samples. The samples will be selected from the universe immediately after the rate notices are prepared. If the system is automated the Reviewer must work closely with IT. A thorough understanding of what the sample includes and when it is to be extracted is essential. Appendix A describes what action needs to be taken for sampling in both manual and automated systems. ET HANDBOOK NO.407 CHAPTER EIGHT TAX PERFORMANCE SYSTEM VIII - 298 R 10 09 ACCOUNT MAINTENANCE Tax Rates PROGRAM REVIEW ACCEPTANCE SAMPLE INSTRUCTIONS Reviewing Samples Identify which of the following items are included in the State s rate computation formula a. total benefit charges b. total benefit wages c. total taxable wages d. taxes paid e. total payroll wages f. reserve balance g. other describe Assemble the following information for the employer s account 1. Copies of the electronic or paper contribution reports and any adjustments to these reports used in the tax rate calculation for the most recent four quarters of the calculation period or more depending on the calculation period . Electronic source documents could include screen images or unformatted flat files of electronic reports. 2. The benefit charges used in the tax rate calculation for the most recent four or more quarters of the calculation period. 3. Electronic or paper information from the employer s data file used in the tax rate calculation. 4. The State s experience rate factor e.g. tax table schedule ratio etc. . 5. Any other factors used by the State to calculate the employer s tax rate.