More Effective Federal and State Cash Management Would Increase Interest Income of Unemployment Trust Fund

Cash management policies were reviewed to determine what improvements are needed to increase the earnings of the Unemployment Trust Fund. According to the Social Security Act, unemployment taxes are to be deposited in the Unemployment Trust Fund for investment by the Secretary of the Treasury. Interest from investments enables the Fund to grow, thus increasing the amount that states have available to pay the unemployed. During the last quarter of 1978, the Fund earned interest at an annual rate of 6.25 percent. Several million dollars of state-collected unemployment taxes are not on deposit in the Fund. The Department of Labor (DOL), which is responsible for administering the program, has not effectively monitored the states' cash management performance nor provided guidance to the states.

Some states forfeit substantial Fund interest earnings because they take too long to deposit unemployment taxes; withdraw money from the Fund earlier than necessary to pay the unemployed on time; maintain average daily balances in excess of amounts required by their banks as compensation for their services; deal with banks having considerably higher compensating balance requirements than other banks; and operate under restrictive state statutes or administrative procedures. While some states earn additional interest because they delay withdrawing money from the Fund until after unemployment checks are written, this procedure is restricted in states requiring that funds be on deposit in state bank accounts before checks are written. The guidance of DOL to the states on banking arrangements causes some states to: (1) delay transferring money to the Fund; (2) accumulate excessive balances in benefit checking accounts; (3) overestimate future cash needs; and (4) commingle Fund money in bank accounts with funds from other employment programs.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: No director on record Team: No team on record Phone: No phone on record