The Department of Unemployment Assistance Did Not Properly Administer the Collection of Millions of Dollars in Unemployment Insurance Contributions.

The Department of Unemployment Assistance (DUA) did not collect delinquent unemployment insurance (UI) contributions from Massachusetts employers, and as a result, the Commonwealth is losing the opportunity to receive significant revenue that could be used to fund unemployment benefits.

Overview

collect delinquent unemployment insurance (UI) contributions from Massachusetts employers. As a result, the Commonwealth is losing the opportunity to receive significant revenue that could be used to fund unemployment benefits.

Specifically, according to its records, DUA did not refer for collection to the Revenue Enforcement Department over $170 million of the $284,453,420⁹ in delinquent UI payments and interest owed to it as of the end of our audit period, as detailed below.

DUA Collection Activity for Employers with Delinquent UI Contributions

Outstanding Balance	Number of Employers	Did Not Attempt to Collect	Attempted to Collect	Total Amount Owed
$100,000+	370	$64,335,721	$61,988,616	$126,324,337
$50,000–$99,999.99	464	9,935,987	21,948,194	31,884,181
$10,000–$49,999.99	3,449	44,066,645	27,084,687	71,151,332
$1,000–$9,999.99	13,725	42,878,578	2,895,896	45,774,474
$10.01–$999.99	43,741	9,147,466	93,879	9,241,344
$0.01–$10.00	77,004	77,094	657	77,751
Total	138,753	$170,441,490*	$114,011,930*	$284,453,420*

*    These totals have been rounded to the nearest dollar.

According to regulation and statute, DUA can use various tools to enforce the payment of delinquent UI contributions from Massachusetts employers, the most significant of which include the following:

• placing levies after a court judgment and formal notice on both a delinquent employer’s bank account and state or local government funds owed to the employer
• placing liens on real estate owned by a delinquent employer
• seeking assistance from the state Department of Revenue in locating employers not registered with DUA so that DUA can pursue collection activities
• initiating civil complaints
• intercepting state and federal payments due the employer, including state and federal tax refunds, and transferring them to DUA to pay off delinquent UI accounts
• seeking prosecution of individuals and principals in corporations by the Massachusetts Office of the Attorney General for not paying UI contributions

However, for the $170 million identified by our audit, DUA did not take any of these measures to collect delinquent contributions.

Further, DUA did not properly manage the volume of its delinquent accounts. Specifically, Section 69A of Chapter 151A of the Massachusetts General Laws gives DUA the authority to annually charge off, or remove from its accounting records, the balance of any delinquent employer account where the amount owed is 10 dollars or less, but it chose not to do so. Charging off these accounts would have decreased the number of delinquent employers by more than 55% (decreasing it by 77,004 employers, totaling $77,751 in delinquent UI contributions) and possibly made it easier for DUA to collect contributions from other employers with delinquent accounts.

DUA was in the process of collecting $114,011,930 of the $284,453,420 owed to it as of the end of our audit period. However, according to its records, it did not refer individual accounts receivable from employers that had a debt of $10,000 or more, totaling $111,021,498, to its own Revenue Enforcement Department in a timely manner. In fact, DUA took more than a year to initiate collections on the amounts owed by 1,057 (68%) of those employers, totaling $86,848,333. For 336 (21%) of the employers, it took five or more years to initiate collection, as detailed below.

DUA Collection Summary for Employers Owing $10,000 or More

Time to Initiate Collection	Number of Employers	Amount Attempted to Collect
5 or More Years	336	$32,456,241
3–5 Years	285	21,735,141
2–3 Years	195	12,123,122
1–2 Years	241	20,533,829
6 Months–1 Year	125	6,942,087
30 Days–6 Months	108	6,054,706
30 Days or Less	273	11,176,372
Totals	1,563*	$111,021,498

*    There are 1,563 distinct employers associated with 1,602 collection cases.

Further, for this $111,021,498, we found the following additional collection deficiencies:

• DUA did not file liens for 523 (33%) of the collection cases and thus did not ensure that it promptly secured its interest in delinquent employers’ real or personal¹⁰ property.
• DUA did not pursue civil judgments against employers for 737 (46%) of the collection cases.
• DUA did not issue Notices of Levy to identify and levy the financial accounts for 396 (46%) of the 853 collection cases that received a judgment against applicable employers.

Authoritative Guidance

According to regulations promulgated by the Office of the State Comptroller (OSC), state departments such as DUA are required to follow certain procedures for collecting outstanding debt. Section 9.03 of Title 815 of the Code of Massachusetts Regulations (CMR) discusses diligent efforts for collecting past-due debt:

State Department Billing Entities are responsible for making diligent efforts to collect legislatively authorized Accounts Receivables and Debts . . . [and] are required to maintain detailed records to support the Collection of an Accounts Receivable.

Regarding liens, Section 16 of Chapter 151A of the General Laws requires DUA to place a lien on property owned by any company that has certain delinquent UI contributions:

Judgments obtained under any provision of section fifteen and overdue contributions or payments in lieu of contributions, with interest thereon or penalties assessed in lieu of interest thereof, shall until collected be a lien upon the entire interest of the employer, legal or equitable, in any property, real or personal.

According to DUA’s Employer Accounts Receivable Process document, a civil judgment extends the statute of limitations for collecting a delinquent balance to 20 years from the date of the judgment, as opposed to 6 years after the end of the calendar year without a judgment. Employers with delinquent UI accounts over $100,000 will be referred to the Massachusetts Office of the Attorney General for criminal prosecution.

Reasons for Noncompliance

DUA had not established formal policies and procedures and lacked sufficient monitoring controls and oversight of its collection process to ensure that its collection activities were conducted efficiently and effectively. DUA management informed us that it did not have adequate staff to conduct all the required collection procedures.

Recommendations

DUA should establish formal policies and procedures for all activities regarding the administration of its collection process and implement effective monitoring controls to ensure that these policies and procedures are adhered to. The policies and procedures should include a policy that provides for the charge-off or removal of any delinquent employer account where the amount owed is 10 dollars or less.

Auditee's Response

Department of Unemployment Assistance (DUA) performs activities for collecting Unemployment Insurance (UI) debt as outlined in G.L. Chapter 152 §§15, 15A and 16. For fiscal years 2014, 2015, and 2016 (audited periods) UI contributions were $2,152,271,365; $1,294,872,062 and, $1,657,924,243 respectively. During this period, approximately 90% of contributions were paid on time.

DUA acknowledges the impact of manual revenue enforcement processes on its ability to track and collect outstanding UI debt. DUA will review, update and make enhancements to current practices, policies, and systems to maximize its potential for collecting outstanding UI debt, and automating processes.

Additionally, DUA will collaborate with the Finance Department of the Executive Office of Labor and Workforce Development (EOLWD), to review and correct practices related to writing off UI debt. This will allow us to focus our efforts on collectible debt.

Auditor's Reply

In its response, DUA asserts that during the audit period, approximately 90% of the contributions for UI contributions were paid on time. Although we cannot comment on the accuracy of this statement, our concern, as noted above, was that DUA was not properly administering its process for collecting delinquent UI contributions from Massachusetts employers and that as a result, the Commonwealth was losing the opportunity to receive significant revenue.

Based on its response, DUA plans to take measures to address our concerns in this area,

9. According to DUA’s records, more than $231 million of this amount had been delinquent for six years or less.

10. Personal property is portable property, including anything that can be conditional on ownership, except land. Real property is fixed property, including land and anything attached to it.

Date published:	June 15, 2018