If the SSN and name on  an earnings report submitted by the employer do not match information in  SSA’s Master Earnings File (MEF), the reported earnings are placed in the  ESF, which is a repository for earnings reports for unidentified workers. SSA Uses Electronic and Manual Processes to Match Earnings Reports to Appropriate Records

SSA uses various processes to post reported workers’ earnings to valid  Social Security records. Over the past several years, such routines have allowed SSA to post an  annual average of 15 million earnings reports to individual MEF records,  rather than to the ESF. SSA then attempts to find the W-2 in the ESF and  validate the corrected name and SSN that IRS provides against SSA’s  records; when both conditions are met, SSA accepts IRS’s corrections and  reinstates the item to the worker’s record. Other types  of correspondence involve Young Child Earnings Records and Earnings  After Death, for which SSA sends letters to employers and/or the persons  whose SSNs appear on the reports; SSA automatically posts such earnings  reports to the ESF because the persons named in the reports are,  respectively, either (a) 6 years of age or younger (thus unlikely to have  earnings through employment) or (b) have a date of death recorded on  their Numident record for a year prior to the tax year for which earnings  on Form W-2 have been reported. ESF Earnings Reports Frequently Include Inaccurate and Missing Information

Earnings reports in the ESF have serious data problems. In addition, a small portion of employers account for a  disproportionate number of ESF reports, and employers in certain  industry categories are more likely than others to submit reports with  invalid worker identity information. Between 1985 and 2000, about 61,000 employers used one SSN for more  than one worker in multiple tax years. In contrast, while only about 8,900 employers (0.2 percent of all  employers with reports recorded in the ESF for tax years 1985-2000) had  1,000 or more reports in the ESF, they accounted for over 30 percent of  the total number of ESF reports (see shaded area of table 6). Earnings from Frequently Used SSNs Are Often Reinstated and Increasingly Belong to Foreign- Born Workers

SSA successfully reinstates a substantial number of earnings reports  associated with frequently used SSNs in the ESF. Overall, the majority of  reinstated earnings we examined were posted to the Social Security  records of U.S.-born workers. In recent years, however, the number of  foreign-born workers receiving reinstatements from these SSNs has  significantly grown. Of the reports associated  with these SSNs since 1937, SSA reinstated 13.1 million to the records of  about 11.7 million individuals. SSA maintains limited data on  the characteristics of persons who receive reinstatements. Employers  do not have to show that they attempted to corroborate this information  with SSA. DHS also requires employers to solicit key information from workers to  prevent unauthorized employment. 3). 4). However, DHS reported that it has made little use of this information in its  worksite enforcement efforts. Voluntary Employee Verification Services Have Some Limitations and Are Underutilized

Employers do not widely use worker verification services offered by both  SSA and DHS. In fact, millions of earnings  reports are submitted each year with erroneous or missing SSN and name  information, and the same employers often file substantial numbers of  such reports year after year, creating administrative problems for SSA and  IRS and the possibility that Social Security benefits to such workers will  not be accurately calculated. Other major contributors  are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

To obtain information describing the various electronic processes that the  Social Security Administration (SSA) uses to post earnings reports to  worker records and resolve errors in reported worker names and Social  Security Numbers (SSN), we reviewed numerous SSA Office of the  Inspector General, GAO, and contractor reports on the Earnings Suspense  File (ESF). To identify factors that contribute to ESF postings, we examined  provisions of law that authorize (1) penalties for employers who file  earnings reports with inaccurate SSNs and hire workers who are not  authorized to work in the United States and (2) the disclosure of  information on persons with nonwork SSNs to the Department of  Homeland Security (DHS).
Why GAO Did This Study

Each year, the Social Security Administration (SSA) receives millions of employer-submitted earnings reports (Form W-2s) that it is unable to place in an individual Social Security record. If the Social Security number (SSN) and name on a W-2 do not match SSA's records, the W-2 is retained in the Earnings Suspense File (ESF). SSA's ability to match earnings reports is essential to calculating Social Security benefits. Because of concerns about the size of the ESF, GAO was asked to determine (1) how SSA processes workers' earnings reports, (2) the types of errors in ESF reports and the characteristics of employers whose reports are in the ESF, (3) how often earnings from repeatedly used SSNs have been reinstated and who receives the earnings from theses reports, and (4) what key factors contribute to ESF postings.

What GAO Found

Upon receiving over 250 million earnings reports annually from employers, SSA uses various processes to post such reports to workers' Social Security records. For reports in which worker names and SSNs exactly match SSA's information, the earnings are credited to the appropriate Social Security record. When SSA encounters earnings reports that do not match its records, SSA attempts to make a match through various automated processes. Such processes have allowed SSA to identify valid records for an average of 15 million reports annually. However, about 4 percent of the reports still remain unmatched and are retained in the ESF. SSA uses additional automated and manual processes to continue to identify valid records. The most recent data show that SSA posted ("reinstated") over 2 million earnings reports in the ESF to valid records from such processes. Earnings reports in the ESF have serious data problems and are particularly likely to be submitted by certain categories of employers. Such problems include missing SSNs and employer use of the same SSN for more than one worker in the same tax year. Additional problems include missing surnames or names that include nonalphabetic characters. Forty-three percent of employers associated with earnings reports in the ESF are from only 5 of the 83 broad industry categories. Among these industry categories, a small portion of employers account for a disproportionate number of ESF reports. SSA has reinstated a substantial number of earnings reports with SSNs that appear repeatedly in the ESF. We analyzed the most frequently occurring 295 SSNs, which appeared in ESF 1,000 times or more between tax years 1985 and 2000. Of the earnings reports associated with these SSNs, SSA reinstated 13.1 million to the records of about 11.7 million workers. Although most reinstatements were for U.S.-born workers, in recent years the percentage of reinstatements to foreign-born workers has markedly increased. Also increasing is the percentage of foreign-born workers that received reinstatements for earnings in years prior to receiving a valid SSN--a potential indicator of unauthorized employment. Three major factors contribute to ESF postings. Under IRS regulations, employers must ask new hires to provide their name and SSN, but are not required to independently corroborate this information with SSA. DHS requires employers to visually inspect new workers' identity and work authorization documents, but employers do not have to verify these documents, and they can be easily counterfeited. Further, IRS regulations are minimal; IRS has no record of assessing a penalty for filing inaccurate earnings reports; and DHS enforcement efforts against employers who knowingly hire unauthorized workers has been limited in recent years because of shifting priorities following the events of September 11, 2001. Last, although SSA and DHS offer employers verification free of charge, these services are voluntary, have some limitations, and remain underutilized.