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.payroll taxes levied on employers. 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. Labor’s Primary Role in Facilitating IT Modernization Efforts is Providing Funding and Technical Support to State UI Programs

Labor’s role in facilitating UI IT modernization efforts primarily consists of  providing funding and technical support to the state agencies. There are two primary  federal sources: (1) supplemental budget funding that is designated by  Labor for specific state and consortium IT modernization efforts; and (2)  general UI administration funding, which can be used for a variety of  purposes, including IT modernization. In this regard, a  “base” administrative grant for each state is determined by Labor at the  beginning of each fiscal year. This act was an  economic stimulus package from which states received two special  distributions of funds. Of the nine states we reviewed, each of the three states that  were part of a consortium were in the initial phases of planning that  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. The challenges for individual states relate to limited funding  and the increasing cost of UI systems, among others. 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. 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. All of the selected states have  established management controls for modernizing the IT systems that  support their UI programs. These controls align with industry-accepted  program management practices and, if effectively implemented, could  help successfully guide modernization efforts. 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. 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. 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. Specifically, Labor noted that the Reed Act  distribution funds are not solely available for UI IT modernization efforts. Appendix I: Objectives, Scope, and 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. We selected the states on the basis of  varying regional location, size, and modernization status. 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.
Why GAO Did This Study

Labors UI program is a federal-state partnership that provides partial compensation for lost earnings of eligible individuals who become unemployed through no fault of their own. In fiscal year 2011, about $117 billion was spent on the UI program. To administer the program, states rely heavily on IT, including benefits and tax systems. However, a July 2010 state survey noted that most of the UI IT systems are outdated and cannot efficiently handle their current workloads.
GAO was asked to (1) determine Labor's role in facilitating UI IT modernization efforts, (2) identify and describe the types of federal funding selected states have spent on modernization, (3) provide the status of modernization for selected states, (4) determine key modernization challenges, and (5) determine what management controls have been established for IT modernization. To do this, GAO analyzed documentation and interviewed officials from a nongeneralizable sample of nine states (selected based on varying location, size, and modernization status); and reviewed Labor policies; and interviewed department officials.

What GAO Found

The Department of Labor (Labor) facilitates states efforts to modernize information technology (IT) systems supporting their unemployment insurance (UI) programs by (1) providing funds for administrating overall UI operations and (2) participating in groups that provide technical support to states. While the federal-state structure of the UI program places primary responsibility for its administration on the states, Labor provides potential strategies for IT modernization activities through supplemental budget funds.
Federal funds for UI modernization efforts come primarily from two sources: (1) supplemental budget funds that are designated by Labor for state IT modernization efforts and (2) general UI administration funding. General administration funding primarily consists of State UI and Employment Service Operations funds (an administrative grant issued by Labor at the beginning of each fiscal year); Job Creation and Worker Assistance Act of 2002 funds, (distributed under the Reed Act, a mechanism by which the federal government transfers surplus UI funds to states); and American Reinvestment and Recovery Act funds (an economic stimulus package enacted in February 2009). However, federal funds can be used for multiple UI purposes, and states are not required to report costs for UI modernization projects.
The status of the nine states UI IT modernization efforts that GAO reviewed range from planning to deployment. Of the nine states, three are part of a consortium (multiple states that develop a single common system) and are all in the initial planning phase; two individual state efforts are in the development phase; two are in a combination of different phases; and two are in operations and maintenance. For example, Virginia is in the development phase whereas Minnesota has a deployed system and is in operations and maintenance.
States and Labor have challenges specific to (1) individual states and (2) consortiums modernization efforts. The challenges for individual states that GAO reviewed relate to having sufficient technical expertise and limited funding, among others, and challenges faced by consortiums relate to differences in state laws and business processes among member states. It is widely recognized that analyzing and prioritizing challenges and then documenting lessons learned can help mitigate risk and track successful ideas for more effectively managing IT in the future. A committee was tasked to assess lessons learned from consortium efforts which may serve as a valuable first step toward helping the states mitigate challenges. However, the effort is not complete and does not represent an independent survey of all the states lessons learned. As such, Labor has not yet comprehensively evaluated and prioritized challenges and lessons learned, disseminated them to each state, or facilitated an appropriate information sharing mechanism. Until it does, Labor may miss opportunities to help support future consortium and state modernization efforts.
All nine states reviewed have established selected management controls for modernizing IT which, if properly implemented, could help reduce the risks of modernization challenges. The controls align with industry-accepted program management practices, such as independent verification and validation; and include state-specific practices, such as oversight through a Chief Information Officer office and consortium-specific practices, such as governance structures.

What GAO Recommends

GAO recommends that Labor (1) comprehensively analyze and document challenges and lessons learned and (2) distribute the lessons learned to each state to share and foster ideas for effective modernization of UI systems. Labor generally agreed with the first recommendation; it did not agree or disagree with the second recommendation, but said it is committed to sharing lessons learned.