Tax Performance System

TAX PERFORMANCE SYSTEM
OPERATIONS HANDBOOK 407
4thEdition

United States Department of Labor

CHAPTER I

TAX PERFORMANCE SYSTEM OVERVIEW

COMPONENTS

INTRODUCTION
BACKGROUND
TPS POLICY
REGIONAL ROLE
OVERVIEW OF HANDBOOK

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INTRODUCTION
The Tax Performance System (TPS) is intended to assist State administrators in improving their
Unemployment Insurance (UI) programs by providing objective information on the quality of
existing revenue operations. TPS will also serve to help the U.S. Department of Labor carry out
its oversight, technical assistance, and policy development responsibilities.
The TPS program is a part of the Department's "UI Performs", a comprehensive performance
system in which the States and Federal government work together as partners to strengthen the
UI system. Other UI measurement programs such as Benefit Accuracy Measurement and
Performance Measurement Review are also a part of this system. One of the primary goals of
the system is to achieve continuous improvement of overall performance quality.
This handbook provides the standard instructions for operating the Core TPS program. This
chapter is intended as an executive summary of TPS background and policy. Chapter II
describes the approach for conducting reviews, while subsequent chapters contain detailed
instructions for review of each major tax function. Appendices containing reference material are
included. An on-line tutorial has also been created at: http://ows.doleta.gov/tps/

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BACKGROUND
In 1983, the Department, upon the recommendation of an interagency Benefit Payment
Oversight Committee, decided to implement a quality control (QC) program for the UI system
administered by the State Employment Security Agencies (States). The first component,
Benefits Quality Control (BQC), now known as Benefit Accuracy Measurement, was
implemented in all States except the Virgin Islands.
Before QC became mandatory, the Department undertook a thorough public policy review of the
intended design. The lasting result of this review was the development of a series of "consensus
principles" by major parties with an interest in the UI program, which the Department not only
accepted but also reflected explicitly in the QC regulation.
State Input

In 1988, the Department began the development of TPS. A small
Federal workgroup was established, assisted by tax specialists
from several States working under Intergovernmental Personnel
Act (IPA) arrangements.
Over the years, major design and many subsequent improvements were
initiated and produced by these State tax experts from Florida, Alabama,
Illinois, Minnesota, Texas, Kansas, New Mexico, Colorado, Utah,
Arizona, California, Oregon, and Washington. The work group also
consulted extensively with the public and outside interest groups.
Numerous States were visited to inform them of the work in progress and
obtain reaction to the design approaches and conclusions. In addition,
Federal Register notices and UI Program Letters were published to solicit
comments on the TPS design. Discussions were also conducted by a
contracting firm with a panel of State tax experts and administrators from
Connecticut, New York, the District of Columbia, Florida, South Carolina,
Wisconsin, Kansas, Missouri, Oklahoma, North Dakota, California, and
Washington.

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Testing the
Design

In 1990, TPS was pretested in eight States (Massachusetts,
Pennsylvania, Kentucky, Oklahoma, Colorado, Illinois, Hawaii, and
Alaska), and pilot tested in eight States (New York, Maryland, the District
of Columbia, South Carolina, Wisconsin, Iowa, Montana, and California)
during 1991 - 1992. Revisions were made to the design based upon the
feedback of those involved in testing the TPS design.

Phasing in
the Program

Effective 1993, a revised operating manual was released and
49 States began to voluntarily implement the program. A video describing
the program was released and four large-scale training sessions were held
to assist in implementation. Unemployment Insurance Program Letter
number 32-94 announced full implementation as a two-phased approach to
begin with the revised ETA 581 taking effect January 1995 and the
balance of TPS to become mandatory January 1996 under the Secretary's
existing statutory authority to require reports and operations data from the
States.

TPS POLICY
The following policy decisions were reached based on pilot testing, and input and comments
from States and other interested parties.
Tax Functions
Examined

TPS will review the following major tax functions:
 Status Determination
 Cashiering
 Report Delinquency
 Collections
 Field Audit
 Account Maintenance.

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Methodologies

The dimensions of quality in UI tax operations are accuracy, timeliness,
and (in some instances) completeness. Two methodologies are utilized
(See Figure I-1).
1.

Computed Measures - consist of reporting the data about
UI tax operations with the bulk of information received from the
ETA 581 reports. These measures, based on reported aggregate
information, are indicators of timeliness and completeness with
which UI tax transactions occur. States report a quarterly series of
data elements, which the TPS data system uses to automatically
calculate the computed measures. Data are provided to the TPS
reviewers so that they may factor them as part of the assessment of
each tax function.
Under separate development is a methodology to validate report
data to ensure that the data mean the same thing in every State.

2.

Program Reviews - consist of Systems Reviews which
examine tax systems for the existence of internal controls, and
Acceptance Samples which examine small numbers of transactions
to verify the effectiveness of the internal controls in producing
accurate outputs. If more extensive review is deemed necessary,
this handbook contains instructions for pulling a second small
sample as well as pulling large, representative samples ("Expanded
Samples") to determine a specific error rate.

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Figure I-1
TAX PERFORMANCE SYSTEM

REVIEW METHODOLOGIES
TAX FUNCTION

COMPUTED
MEASURES

PROGRAM REVIEW
Systems Review/
Acceptance Sampling

STATUS
DETERMINATION

X

X
X
(Estimation Sampling)

CASHIERING
REPORT
DELINQUENCY

X

X

COLLECTIONS

X

X

FIELD AUDIT

X

X

ACCOUNT
MAINTENANCE

X

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Overview of Steps

TPS Review includes the following:


Collect and examine computed measures to identify trends
in the timeliness and completeness of State operations.


Conduct a review to ensure that internal control/quality
assurance systems are in place (Systems Review).


Draw a small sample of outputs or transactions - 60 per tax
function (Acceptance Sampling).


Review the quality of the outputs against uniform standards
of quality (Acceptance Sample Questionnaire).


If two or fewer errors or defects are found in the acceptance
samples, a judgment is made that the State internal controls
are effective in producing quality outputs.


Draw conclusions from Computed Measures, Systems
Reviews and Acceptance Sample findings and prepare
recommendations for improvement.

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Organizational
Placement

State management, in consultation with the Regional Office (RO),
should determine the organizational placement of TPS. The unit
should be placed so as to ensure integrity and acceptance of TPS
data and findings.
Regulations (20 CFR Part 602.20) requires that the program be
"...independent of, and not accountable to, any unit performing
functions subject to evaluation by the…unit." The Regulation
would prohibit TPS staff from reporting to a manager whose sole
or predominant responsibility is to manage an area being evaluated
by TPS.

Staffing

One staff year per State has been allocated in the Grants to States
to perform the TPS review. This effort can be completed by one
full time person or divided among several staff on a part time
basis.
A comprehensive knowledge of the UI tax system is essential in
completing an TPS review. Skills in planning and conducting
reviews of State systems and procedures are also necessary. The
ability to communicate effectively through presentation of findings
and recommendations to line staff and management is critical in
fostering improvements in the State tax operation.

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Major Tasks

Major tasks include the following:


Conducting meetings with management and line staff to
discuss the project and to update on progress and findings.


Developing annual workplans to conduct the TPS review
including coordination of tax and ADP staff involvement


Performing examinations of State internal controls and
verifying their existence through direct observation


Selecting and reviewing samples of outputs from the
various tax functions to test the effectiveness of internal
controls


Evaluating computed measures to determine trends over
time


Preparing annual reports of findings, conclusions, and
recommendations for program improvement. Ensuring that
sample data is entered into the SUN system.


Development and implementation of program improvement
plans based on strategy arrived at by State and Region


Potential travel to other States to assist in conducting
fourth-year Federal TPS reviews (subject to State and RO
agreement).

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Sequencing
Reviews

TPS reviews are conducted on a cyclical basis. Complete reviews
of State internal controls take place every four years unless
problems have been discovered or program changes have been
made within the last year. To confirm that the State's controls are
working effectively and producing accurate outputs, samples of
each tax function's outputs are drawn and examined every year.
(Tax Rates are excluded from the yearly review and subject to a
minimum of one review every four years if they, and related
functions of Report Processing and Benefit Charging pass the
previous year’s review; and no program changes have been made.
If Report Processing and/or Benefit Charging fail a subsequent
review, the Rate sample must be conducted as usual the following
year.)

Technical
Assistance

TPS design encourages extensive technical assistance. As the TPS
reviewer discovers and confirms areas of strengths and
weaknesses, State management can identify internal problems and
take corrective action immediately when remedies are apparent; or
later, after interrelated factors are analyzed.
Participation in the reviews by experts from other States and
Federal staff, and the subsequent exchange of ideas between them
and staff from the host State, can result in secondary benefits to
both parties.

Automation of
Data Collections

TPS provides for the use of automation in several areas to assist in
data collection. Detailed specifications are provided to States for
selecting the various samples and reporting data elements used in
functional indicators. Information gathered as a result of the
review is collected and entered into the State computers currently
being used by Benefit Accuracy Measurement system, and for
processing the Required Reports. TPS software developed by the
National Office is used to assist in the analysis of results.

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REGIONAL ROLE
The Regional Office (RO) staff act as liaisons between the National Office and the TPS
reviewer. The RO will work with the TPS reviewer during all phases of the review process to
answer questions and offer technical assistance. The RO is responsible for ensuring that all
aspects of the review process are being conducted properly and timely. This can consist of
requesting a workplan for the upcoming year and requiring progress reports during the year to
ensure the work is being completed on schedule.

REGIONAL RESPONSIBILITIES DURING ONGOING REVIEWS


Approving requests for waivers of Systems Reviews.


Ensuring state meets guidelines if changing sampling periods.


Allowing the use of “Not Applicable” responses.


Allowing the use of “Other” responses (Compensating Controls).


Ensuring reviewer is adhering to workplan.
Ensuring TPS Annual Report is properly completed and accurate.

In its capacity as liaison between the National Office and the state, the RO is the primary source
of guidance for interpreting TPS policy and procedures. State will direct programmatic
questions and problems to the RO. Questions regarding ADP issues such as sampling frames,
extraction routines and computed measures should be directed to the National Office hotline:
1-800-473-0188.

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As described in the “Sequencing Reviews” section, every fourth year, the RO coordinates a
review utilizing home state and neighboring state staff. They also organize and participate in
reviews and sampling, and are responsible for coordinating the development of the TPS Annual
Report.

REGIONAL RESPONSIBILITIES DURING FOURTH YEAR REVIEWS



Organizing a team to conduct the review.


Coordinating and reviewing completed Systems
Reviews.


Coordinating and reviewing completed Acceptance
Samples.


Coordinating development of the Annual Report.

Text referring to the RO will be italicized in the remainder of the handbook.

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OVERVIEW OF HANDBOOK
The following chapters of this Handbook cover these topics:


General Procedures. Chapter II presents the general instructions for conducting the TPS
Review, including preparation, conducting the review, and reporting findings.



Function-specific Procedures. Chapters III-VIII present detailed instructions for
conducting the Systems Review, reviewing the Acceptance Samples, examining the
Computed Measures, and for drawing conclusions on the strengths and weaknesses of
each tax function. (As shown on Figure I-1, the type of methodology employed differs
from function to function.)



Appendices. Reference materials supporting the review are included as appendices.
They include: sampling specifications, computed measures specifications, the TPS
glossary, an example of an Annual Report, the Employment Security Manual section
regarding Field Audits, and data entry instructions.

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