Top Management Challenges Facing the Department of Labor
Following are the areas the Office of Inspector General (OIG) considers
to be the most serious management and performance challenges facing the Department
of Labor (DOL). They involve compliance, accountability, and delivery of
services and benefits.
- Reducing Improper Payments
- Safeguarding Unemployment Insurance
- Integrity of Foreign Labor Certification
Programs
- Financial and Performance Accountability
- Systems Planning and Development
- Information Systems Security
- Security of Employee Benefit Plan Assets
- Accounting for Real Property
- Workforce Investment Act Reauthorization
Reducing Improper Payments
Reducing improper payments in DOL administered
benefit programs, including Unemployment Insurance (UI) and the Federal
Employee Compensation Act (FECA) program, is a challenge to the Department.
Improper payments include those made in the wrong amount, or to an ineligible
recipient, or improperly used by the recipient. The need for Federal agencies
to take action to eliminate overpayments is recognized by the President's
Management Agenda (PMA) and the Improper Payments Information Act of 2002.
UI overpayments by the states are projected by DOL at about $4 billion
annually. The Department's estimate for FECA overpayments, which we consider
conservative, is $10 million annually.
Unemployment Insurance and the Use of New Hire Data
The UI program, a Federal-state
partnership, is the DOL's largest income maintenance program. While the
framework of the program is determined by Federal law, benefits for individuals
are dependent on state law and administered by State Workforce Agencies.
The
UI system could attain significant savings by detecting overpayments
through cross-matching UI claims against state and national new hire data.
This would detect UI claimants who have returned to work but are still collecting
UI benefits. Using new hire data to identify overpayments is more effective
than the more common method of matching UI claims against employers'
quarterly wage records because employers must report new hires within twenty
days, whereas wage records are not available for months. The new hire method
results in earlier detection of overpayments, reduces overpayment
dollars, and increases the chance of overpayment recovery.
In 2003, the OIG made recommendations for reducing overpayments by expanding
states' use of new hire data. The full implementation of these recommendations,
in our opinion, would save the Unemployment Trust Fund (UTF) an estimated
$428 million annually. In response, DOL implemented a pilot program in 6
states and improved its quality control program. DOL's Employment and Training
Administration (ETA) also drafted policy changes and is collecting data for
the pilot program. The pilot cost-benefit study results are due in January
2006. DOL will then need to make sure that lessons learned from the pilot
are implemented.
Despite the benefits of new hire detection, a recent OIG audit found 12
states had not used their own state new hire data to reduce overpayments.
DOL should continue to provide technical assistance and resources to the
state UI programs that are currently not using new hire detection to initiate
and/or complete plans for implementation as soon as possible. In addition,
more detailed employer reporting, improving employer compliance for new hire
reporting, and helping states analyze how to best use their Benefit Payment
Control resources would enhance new hire detection. Finally, DOL should encourage
states to use the National Database of New Hires, which recently enacted
legislation made available to State Workforce Agencies, to help identify
overpayments.
Federal Employees' Compensation Act Program Controls
The DOL administered
FECA program impacts the employees and budgets of all Federal agencies. The
OIG is concerned about increased risks of FECA overpayments due to inadequate
controls in the system. In order to determine continuing eligibility for
FECA compensation payments, DOL's Office of Workers' Compensation Programs
(OWCP) is generally required to obtain and review medical evidence on a periodic
basis. In Fiscal Year (FY) 2003, the OIG determined that many FECA cases
did not have current medical information on file as required. This occurred
because OWCP does not have effective controls to ensure that current medical
evidence is requested and received in a timely manner. Inadequate procedures
for obtaining and reviewing current medical evidence increase the risk of
improper payments. The only way for
OWCP to determine if a person is still medically disabled is to obtain medical
evidence. If OWCP makes payments to a claimant who is no longer medically
disabled, that would be an improper payment. In January
2005, DOL plans to implement a new automated tracking system to alert claims
staff when medical evaluations are due. It will still require diligence on
the part of FECA staff to ensure the tracking system is used efficiently.
This year the OIG also reported additional weaknesses in medical bill payment
processing and the tracking of receivables due to medical bill overpayments.
These weaknesses resulted in erroneous payments being processed during FY
2004. OWCP contracted with a third party to perform medical bill processing
for FECA claimants, and encountered a number of problems at start up of the
Medical Bill Processing system because it did not have a quality assurance
and internal audit plan in place prior to implementation of the new system.
For FY 2004, we found 10.8% of bills were not paid the correct amount. However,
corrective actions taken by management resulted in a reduction in payment
errors in the third quarter of the fiscal year.
Safeguarding Unemployment Insurance
Improving the integrity and solvency
of the UI program to better serve qualified recipients is a challenge for
the Department of Labor. During FY 2003, the UI program paid over $53 billion
in income maintenance benefits to American workers. Among the difficulties
faced by the program are inadequate Unemployment Trust Fund reserves, overcharges
for UTF administration, and the program's susceptibility to fraud schemes
involving identity theft and organized crime.
Unemployment Trust Fund Resources
The OIG remains concerned that states may
not have adequate reserves to meet the demands on their UI compensation trust
funds, causing them to borrow from the Federal Unemployment Account (FUA)
to make benefit payments. In its yearly financial statements, DOL reports
on the number of states that are "not minimally solvent," or vulnerable to exhausting their funds during
a recession. As of September 2003, 32 states were reported by DOL as "not
minimally solvent" and four had outstanding loans from the FUA.
Internal Revenue Service (IRS) overcharges for administering the UTF is
a concern that has gone unresolved for too long. Prior OIG audits determined
the IRS did not have a system to capture its costs for administering the
UTF, and had overcharged the Fund millions of dollars. Our FY 2003 follow-up
audit determined that the IRS charged almost $300 million in administrative
costs to the UTF for FYs 1999-2002 without adequate documentation. We recommended
ETA work with IRS to adopt an alternative method to allocate costs and seek
reimbursement for overcharges.
Following our audit, the IRS reduced the amount of its FY 2002 administrative
charges to UTF. The IRS is scheduled to implement a new cost methodology
in FY 2004, and has proposed substantial charges ($73 million) to the UTF
through the first 3 quarters of FY 2004. Because of the magnitude of the
charges and the complexity of IRS' methodology, ETA has requested the OIG
again review IRS' charges. We are including another such audit in our FY
2005 work plan.
Identity Theft and Organized Crime Activity in Unemployment Insurance Fraud
OIG
investigations have identified several methods used to defraud the UI system
that have resulted in substantial losses to the UTF. Of greatest concern
are identity theft schemes, which involve the use of stolen identities to
apply for UI benefits. These cases often involve non-traditional organized
crime groups, and are therefore broader in scope and more costly to the
UI program than individual claimant fraud schemes of the past. One such case
in California involved 3,000 stolen identities and identified a total
of over $58 million in losses. The investigation disclosed that a Mexican
non-traditional organized crime group was involved, allowing for the systematic
filing of thousands of fraudulent claims in four states.
One key way for DOL to mitigate UI fraud is to make states more aware of
its dangers and of typical fraud schemes, such as identity theft or creation
of fictitious companies to obtain UI benefits for alleged former employees.
We therefore recommended and continue to work with ETA to provide training
for state UI personnel on fraud prevention and detection.
Integrity of Foreign Labor Certification Programs
Reducing the susceptibility
of DOL foreign labor certification programs to abuse remains a challenge
to the Department. These programs allow U.S. employers to hire foreign workers
when their admission does not adversely impact the job opportunities, wages,
and working conditions of citizens and legal residents. DOL received almost
400,000 employer applications for foreign workers through these programs
in FY 2003. Problems with the integrity of the labor certification process
and fraud against the program persist. This may result in economic hardship
for American workers, the abuse of foreign workers, and may have national
security implications when applications are not adequately screened before
being certified.
Problems with the Labor Certification Process
DOL's ETA is responsible for
approving employers' labor certification applications, which is the first
step in the process by which foreign nationals obtain work visas from U.S.
immigration officials. However, the Department's role in the labor certification
process continues to be perfunctory.
In the Permanent Labor Certification program, we are concerned that DOL
will approve questionable applications received prior to implementation of
a new automated processing system. All applications received before the systems'
implementation, known as backlogged applications, will be processed by companies
contracted by ETA before approval/denial by the Department's certifying officer.
The backlog (315,000 applications as of May 2004) was mostly created by a
December 2000 amendment to the Immigration and Nationality Act, which allowed
foreign labor certification applications for alien workers already in the
United States. This provision applied from January 1 through April 30, 2001,
and resulted in a 450% increase in applications over the prior year.
A recent OIG audit disclosed that 69% of the backlogged applications we
reviewed were misrepresented or incomplete; 84% of the aliens did not have
legal status to work in the U.S.; 72% of the aliens did not have a legal
status to be in the U.S.; and 67% of the aliens were already working for
the employer at the time of application, including 28% who had worked for
the employer for over 5 years. Because of the priority to eliminate the backlog,
the OIG is concerned that many applications that should be denied will be
approved.
Regarding automation of the Permanent Labor Certification approval system,
ETA has made a significant effort to develop labor certification applications
for the system that would assist in automatic fraud detection. Automation
of the certification process must ensure controls and safeguards to promote
transparency and oversight of the program.
In the H1-B Temporary Specialty Workers program, under current law DOL must
approve labor condition applications if they are complete and free of obvious
errors. Without the authority to validate information on the application,
DOL's role in this program does little to add value to the process of protecting
American jobs and wages. We recommend DOL seek legislative action
to rectify this situation.
Regulatory Change Needed
The OIG is also concerned about regulations that
allow employers to obtain permission to hire a specific foreign worker cleared
by immigration officials to fill the job. Since entering the U.S. as a substitute
worker on an approved labor certification is quicker than starting at the
beginning of the application process, alien workers are willing to pay for
approved certifications. The practice of allowing substitutions therefore
provides incentive for filing fraudulent applications. One attorney filed
1,000 applications using false worker names and then sold the certifications
to others. The OIG is also concerned that approved labor certifications do
not have an expiration date, and can therefore be used indefinitely. ETA
is working to address the problem of substitution, prohibit the sale or purchase
of certifications, and shorten the period a certification is valid in coordination
with the OIG and the Departments of Justice and Homeland Security.
Labor Certification Fraud
OIG continues to identify fraud cases that involve
corrupt immigration attorneys and labor brokers who file fraudulent labor
certification applications with DOL using either a fictitious company name
or the name of a real company without its knowledge. They then collect fees
up to $20,000 from foreign workers for the certifications. In one OIG case
alone, the defendant was convicted of obtaining 2,800 fraudulent labor certification
applications. Moreover, the OIG is concerned about the vulnerability of DOL's
foreign labor certification programs to fraud by non-traditional, transnational
organized crime groups. In one such case, five members of a Russian organized
crime group were sentenced for their roles in a complex scheme using fictitious
companies, falsified computer generated visas, and false social security
cards to help illegal aliens, some of which are Russian organized crime
associates, obtain H1-B visas.
Financial and Performance Accountability
In order to manage DOL programs
for results and fully integrate budget and performance, the Department needs
timely financial data, a managerial cost accounting system that matches cost
information with program outcomes, quality performance data, and useful information
from single audits that cover 90 % of its expenditures. While DOL has received
high marks on the President's Management Agenda scorecard for financial performance
and budget and performance integration, it faces challenges in fully implementing
improvements undertaken in these areas.
Financial Accounting
DOL is developing a new core accounting system that
will be the foundation for all financial management activity, including
preparation of the Department's financial statements. Among the challenges
the Department will encounter are: fully testing the system, performing
validation and verification of data transferring from the old system, and
ensuring that the system fully meets Federal financial system requirements
and users' needs. The OIG is planning to provide audit oversight of the system's
development.
Managerial Cost Accounting
OIG previously reported a substantial noncompliance
with the Federal Financial Management Improvement Act (FFMIA) because DOL's
accounting system did not comply with managerial cost accounting requirements
specified by Federal accounting standards. Spurred in part by the OIG's FY
2002 and FY 2003 FFMIA findings, in March 2003 the DOL's Office of the Chief
Financial Officer (OCFO) launched a redesign of the cost accounting initiative
to achieve full implementation of a DOL-wide managerial cost accounting system.
The implementation project has led to the successful development of cost
models for substantially all of DOL's major agencies and programs. These
cost models integrate program activities, outputs, costs, and non-financial
data to provide the basis for reporting useful managerial cost accounting
information. OCFO has recently selected cost accounting software and is in
the process of importing the cost model structures. In the near future, OCFO
will provide final training to agency personnel and effect formal transfer
of system ownership to the agencies. The remaining challenges rest with agency
and program management to refine the cost models and successfully institutionalize
the use of cost accounting information to achieve improved program operations
and better reporting of program results.
Quality Performance Data
Many program results data required by DOL to measure
attainment of its strategic plan goals are generated by states and other
sources below the Federal level. This presents challenges for ensuring data
quality and evaluating program effectiveness. Past OIG audit work has disclosed
high error rates in grantee-reported performance data and raised concerns
about the use of that data for decision-making. ETA has developed a data
validation program to improve the reliability of program data.
Single Audit
The Department relies on audits conducted under the Single
Audit Act to provide oversight of more than 90% of its expenditures. OIG
is concerned about the adequacy of information DOL receives from these audits,
which are conducted by public accountants or state auditors and procured
with DOL grant funds. Quality control reviews we conducted in 2002 found
serious deficiencies in single audits, including inadequate sampling, which
would make the audits unreliable. The OIG is participating in several projects
to improve single audit quality including an effort led by the Department
of Education OIG to assess the quality of single audits government-wide.
However, the Department should ensure that grantees procure quality audits
whose results are used to improve programs.
Systems Planning and Development
Developing efficient and effective systems
to perform the day-to-day business of DOL is also a challenge to the Department.
Judicious planning and program management are critical to the implementation
of new systems. Enduring problems in existing systems must also be addressed
in a timely, effective manner. The OIG has concerns about insufficient planning
for new DOL information technology and other systems. Lack of progress in
addressing longstanding concerns in established programs like the Davis-Bacon
prevailing wage determination process are also of concern.
Information Systems Planning and Implementation
OIG audits have demonstrated
that DOL information technology systems development activities have ineffective
planning for major system initiatives and weak project management. Current
system development plans should be structured to include milestone reviews
and key decision points. Project plans should be strengthened to include
budget and cost tracking, project timelines, and resources monitoring. Taking
these steps would improve DOL's management of IT systems. The Department's
Chief Information Officer needs to take a stronger role to ensure that the
agencies adequately plan for system development and are providing adequate
project management. Department IT Project Managers should be encouraged and
given the opportunity and resources to obtain certification in the field
of project management.
E-Payroll
DOL participation in government-wide initiatives like E-payroll,
which aims to consolidate and standardize civilian payroll processing in
Federal government, also presents challenges. Under this initiative, DOL's
payroll system, which covers 16,000 employees, will move to the National
Finance Center, which is part of the Department of Agriculture. OIG audit
work conducted during the Department's implementation of E-payroll identified
vulnerabilities in the management of the payroll migration, originally scheduled
for September 30, 2004, was postponed. We believe this was appropriate because
of the extent of system readiness questions and human resources data errors.
Among the vulnerabilities were that, as of March 31, 2004, DOL had prepared
only a draft detailed e-payroll conversion plan and lacked a data validation
process to ensure reliability of existing payroll data before conversion.
Also of concern were lack of user involvement in project development and
limited involvement of agency IT executives.
Davis-Bacon Prevailing Wage Determination
Another example involves the Davis-Bacon
prevailing wage determination process, which impacts the salaries and
fringe benefits of workers on Federally-funded or assisted construction
projects. The OIG continues to have concerns over the lack of progress
made by DOL in addressing past OIG and GAO (now the Government Accountability
Office) concerns and recommendations for improving prevailing wage determinations
used in the Davis Bacon program. From FY 1997 through 2003, DOL's Employment
Standards Administration (ESA) spent a total of over $22 million for Davis-Bacon
improvements.
A recent OIG follow-up audit found that this investment resulted in limited
improvements in wage data accuracy, timeliness of wage determinations, and
survey methodology. Since ESA obtains survey data from employers and third
parties who volunteer to participate in surveys, we have concerns about whether
survey results are representative and unbiased. Based on our audit work,
and because the economic impact of this program is substantial, we recommend
that the Department move to a statistically valid survey approach, such as
that used by Bureau of Labor Statistics (BLS), to collect the data upon which
Davis-Bacon wage determinations are based. ESA responded that it was willing
to reevaluate the feasibility of conducting surveys using a sampling methodology
involving BLS data. We strongly encourage the Department to take immediate
action on this important issue.
OSHA System Development Efforts
An OIG audit also identified project management
weaknesses in the Occupational Safety and Health Administration's (OSHA)
redesign of its Integrated Management Information System (IMIS), a mission
critical data system that collects information required to manage OSHA. Since
its initiation in 1995, the redesign project has experienced procurement
and contract performance problems and changed contractors. Its planned cost,
initially estimated at $2 million, was revised to $8.5 million in 2000 and
to $12.6 million in 2002. We found that IMIS's Project Management Plan did
not cover the entire redesign, that uncertain funding increased project risk,
and that the project manager lacked critical knowledge and experience. During
our audit fieldwork, OMB withdrew $4 million in funding for the redesign
and OSHA has since suspended the redesign effort. We recommend that OSHA
adopt best practices, such as using a system development lifecycle approach
to project planning and experienced project managers, to establish a better
foundation for, and minimize risks in, future system development projects.
Information Systems Security
As is the case for all government agencies,
information technology security is an ongoing challenge for the Department
of Labor because of new threats and increased automation through E-Government
initiatives. Keeping up with these developments, and providing assurances
that DOL systems will function reliably and safeguard information assets
in an E-government environment require a sustained effort. The security of
DOL IT systems and data is vital, since it relates to key economic indicators
and the payment of billions of dollars to workers.
IT Security Controls
The Department continues to take advantage of the benefits
of E-Government technology. This will require DOL to ensure Federal security
policies and guidance are being implemented at the system and application
level. Our audit efforts over the past 5 years have identified significant
control weaknesses across the programs, which continue to exist. For example,
1) the FECA system lacks adequate application access and input controls,
increasing the risk that an individual with access could input, process,
and approve an erroneous claim and not be detected; 2) the State UI Tax and
Benefit system has control weaknesses that could expose UI data to risk of
loss, misuse, or inadvertent/deliberate corruption; and 3) system access
and contingency planning is inadequate for financial related systems.
Keys to being successful include DOL providing more consistent and thorough
testing of its systems' controls, and becoming proactive in identifying and
mitigating IT security weaknesses identified through its own assessments,
as well as those identified by audits. Also, the Department can strengthen
its management over its IT resources by creating a Chief Information Officer
who is organizationally independent within DOL and focuses solely on IT issues,
much as the Chief Financial Officer is organizationally independent.
Security of Employee Benefit Plan Assets
Protecting the benefits of American
workers, including pensions and health care, remains a significant challenge
to the Department. DOL is responsible for overseeing and protecting the
interests of participants in about 730,000 private pension plans and 6
million health and welfare plans covered by the Employee Retirement Income
Security Act (ERISA). These pension plans hold over $4 trillion in assets
and cover more than 150 million workers. Recent failures in corporate financial
management and reporting, as well as in the auditing and oversight of these
activities, show the need to enhance worker pension and healthcare security
by expanding safeguards and improving benefit plan regulatory enforcement.
Safeguards to Protect Pension Assets
One of the safeguards ERISA put into
place was the requirement for an annual audit of employee benefit plans.
However, the OIG has longstanding concerns about the quality and scope of
these audits and the resulting protections for workers. An unacceptably high
number of benefit plan audits do not meet professional standards, and compliance
has not improved. Moreover, a recent OIG audit found that when the Employee
Benefits Security Administration (EBSA) detects deficiencies in plan audits,
it has not been effective in correcting those deficiencies. In our view,
ERISA does not provide EBSA with sufficient direct enforcement authority
to ensure that substandard audits are corrected and that auditors with poor
track records are not engaged to perform additional audits. ERISA's "limited scope" provision,
which exempts from audit all pension plan assets held in entities regulated
by Federal or State governments, also contributes to inadequate coverage
of pension plan assets and should be repealed. Current audits of these
plans do not provide sufficient safeguards to ensure plan assets are protected.
The Department is working to implement changes the OIG has recommended to
alleviate this situation. The changes include improving follow-up to audit
deficiencies found, better management systems, and improved enforcement targeting.
The OIG will continue to follow this important aspect of pension plan protection.
Based on our recent audit, the OIG is also recommending that DOL seek legislative
changes to ERISA that would give EBSA adequate enforcement authority over
plan auditors to effect corrective actions or prevent malfeasant auditors
from performing work in the employee benefit arena. EBSA's lack of enforcement
authority makes it difficult, if not impossible, to make audits an effective
protection for the American worker.
Pension Plan Fraud
Also of concern is the security of assets in pension plans,
which are attractive targets to organized crime groups, corrupt pension plan
officials, and those who influence the investment of plan assets. OIG labor
racketeering investigations consistently show that assets in Taft-Hartley
plans, which are jointly administered by labor union and management representatives,
are at risk. The courts ordered $4.3 million in monetary results, including
fines, restitutions and forfeitures, based on OIG investigations from October
1, 2003 through July 2004.
We continue to identify multi-million dollar abuses by plan service providers
whose complex financial schemes may impact more than one benefit plan. One
such case recently led to guilty pleas by an attorney, a real estate agent,
and a former pension plan trustee who received illegal payoffs in connection
with a $10 million land purchase by the pension fund of the Northwest District
Council of Carpenters. This joint investigation with EBSA is one of 64 current
joint OIG and EBSA pension investigations. In addition, the OIG has renewed
concern about the security of the assets in employer sponsored 401(k) plans
that are collectively bargained and is developing investigative casework
on these plans.
Cash Balance Pension Plans
In 2002, the OIG raised concerns about the methodology
used to calculate lump sum payments to participants who left converted cash
balance plans before normal retirement age. We found that some employers'
calculations resulted in underpaid benefits, and recommended that EBSA strengthen
the agency's oversight of cash balance pension plans. We further recommended
that EBSA work with the IRS to develop improved guidance for plan administrators
in calculating participant accrued benefits.
EBSA responded that its enforcement oversight responsibilities are statutorily
restricted. Nonetheless, in February 2002, EBSA asked the IRS for advice
concerning pension plans that may have underpaid participants. Two years
have passed and the IRS has not responded. We urge the Department to take
whatever action is necessary to resolve this matter in the best interest
of plan participants. We believe plan participants who left the plans before
normal retirement age may have been underpaid significant amounts because
of IRS' and EBSA's continued lack of action.
Corrupt Multiple Employer Welfare Arrangements (MEWAs)
DOL is also challenged
to enhance its commitment to investigating corrupt health insurers, whose
schemes are burdening an increasing number of Americans with unpaid medical
claims. These insurers establish unlicensed health benefit plans known as
MEWAs, which are not covered by ERISA and are therefore more vulnerable to
fraud. The insurers collect insurance premiums, but ultimately fail to pay
claims. Fraudulent MEWAs were recently identified by the Department of Justice
as an emerging area of health care fraud, which we believe merits increased
OIG and EBSA attention. In February 2004, the GAO reported that from 2000
to 2002, state insurance commissioners and the DOL identified 144 unauthorized
entities selling health insurance coverage across the country to at least
15,000 employers covering more than 200,000 persons. Over the same period
these unauthorized entities left more than $252 million in unpaid medical
claims.
Accounting for Real Property
The Department is challenged to improve accountability
for and management of millions of dollars worth of real property. The GAO
designated Federal real property as a high-risk area in January 2003, and
in February 2004 the position of Senior Real Property Officer for Federal
Agencies was established by Executive Order. The President's Management Agenda
also includes a government-wide initiative aimed at improving stewardship
of Federal real property assets. With respect to the Department of Labor,
OIG audits have highlighted opportunities for improvement in real property
management.
Job Corps Real Property
In our FY 2003 report on the Department's internal
controls over financial reporting, the OIG noted that Job Corps did not adequately
account for $728 million worth of real property. Namely, ETA did not sufficiently
utilize DOL's property reporting and tracking system and did not establish
sufficient controls to ensure that Job Corps real property was safeguarded
and accurately reported in DOL's tracking system and general ledger systems.
ETA has begun to review its existing processes and plans to restructure them
to strengthen the property management system.
State Workforce Agency Real Property
In addition, an OIG audit of management
controls over Federal equity in State Workforce Agency (SWA) real property
found that ETA had not established adequate management controls over accounting
for the Department's equity
interest in SWAs' real properties. Specifically, ETA's inventory of
SWA property was neither accurate nor complete, and ET A did not ensure
the states properly handled the proceeds from disposing of SWA properties
with DOL equity. We recommended the ETA make control and management of
real property a high priority. ETA has begun to review its existing processes
and will restructure them to strengthen the property management system.
Workforce Investment Act Reauthorization
The Department also faces the challenge
of improving Workforce Investment Act (WIA) programs through the WIA reauthorization
process. To date Congress has not reauthorized the WIA legislation. Prior
OIG audits identified areas in which WIA could be improved to better achieve
its goals. Based on our audit work, we recommended changes to increase training
provider participation, improve dislocated worker program services and outcomes,
better document youth program outcomes, and better assess states' current
WIA funding availability. DOL has agreed to most of our recommendations,
but many have yet to be implemented.
Changes from Last Year
In identifying the most critical management challenges
faced by DOL each year, the OIG recognizes significant matters meriting the
continued attention of the Department may be omitted from the list. In the
area of grant accountability, ETA has undertaken a grants management initiative,
the results of which the OIG plans to review. While it does not appear on
this year's challenges list, accountability over DOL awarded grants will
continue to merit diligent attention. DOL has also implemented a variety
of initiatives to enhance human capital management, which have been recognized
in its scores on implementing the President's Management Agenda. Nonetheless
continued attention to recruiting and retaining the best people will be critical
to the Department's future success.
Recently identified challenges have also replaced some well documented,
prior year challenges on the list of most critical issues. Insolvency of
the Black Lung Trust Fund, a well publicized concern with a legislative proposal
to address it, therefore does not appear on the challenge list. Nevertheless,
follow through by DOL will be required to address $8.2 billion in advances
the Fund has borrowed from the Treasury. The DOL will also need to follow
through on planned efforts to decrease asbestos contamination for miners
by lowering permissible exposure limits, using better detection methods,
and addressing take-home contamination from asbestos.
Management's Response to the Inspector General's Statement on the Top
Management Issues Facing the U.S. Department of Labor (September, 2004)
Since the announcement of the President's Management Agenda in 2001,
the Department of Labor (DOL) continues to make solid progress in implementing
the five Government-wide initiatives: Strategic Management of Human
Capital, Competitive Sourcing, Improved Financial Performance, Expanded
Electronic Government, and Budget and Performance Integration.
DOL remains one of the leaders among Cabinet agencies with status scores
of Green for four of the five Government-wide initiatives, and
progress scores of Green for all five. Nonetheless, we recognize
the areas needing improvement and have plans in place to achieve success.
The Department recognizes that the nine challenges identified by the
Inspector General represent issues of significant potential impact on
the effectiveness and efficiency of DOL's programs and operations. The
Department's responses identify extensive actions to address these challenges,
all of which have been completed or are currently in progress. The Department
anticipates that the results of initiatives to address several management
issues during FY 2004 and a reassessment of other issues should enable
the Inspector General to report even further progress next year.
Several of the challenges reference specific concerns reported in detail
in OIG audits issued over the past several years; the management response
summarizes corrective action plans taken or planned by the Department.
We anticipate that the majority of these findings should be corrected
within the next year. Other challenges require legislative action or require
that DOL take actions jointly with non-DOL government agencies. Performance
goals and strategies are provided in either the Departmental or agency
annual performance plans, whenever a sustained effort requires several
years to address an OIG management challenge that impacts a core program
or management priority. Actions taken or planned by the Department to
address each management challenge identified by the OIG are discussed
below.
Top Management Challenges Facing the Department of Labor
Following are areas the Office of Inspector General (OIG) considers to
be the most serious management and performance challenges facing DOL.
They involve compliance, accountability, and delivery of services and
benefits:
- Reducing Improper Payments
- Safeguarding Unemployment Insurance
- Integrity of Foreign Labor Certification
Programs
- Financial and Performance Accountability
- Systems Planning and Development
- Information Systems Security
- Security of Employee Benefit Plan Assets
- Accounting for Real Property
- Workforce Investment Act Reauthorization
Reducing Improper Payments
Unemployment Insurance and the Use of New Hire Data
DOL was very pleased
with the enactment of P.L. 108-295, which is based on draft legislation
proposed DOL, and which gives state UI agencies access to the National
Directory of New Hires. This will enhance states' ability to detect unreported
work violations by UI claimants working in other states or for certain
multi-state employers who may report all new hires to only one state.
ETA is working with the Department of Health and Human Services on implementation
details and will encourage states to use the directory when it becomes
accessible. ETA continues to promote activities to prevent and detect
overpayments. In FY 2004, $2.3 million in funds is being made available
to states that submitted acceptable proposals to implement or enhance
benefit payment control activities such as computer cross-matches to detect
overpayments. An example of these activities would include the use of
the states' Directories of New Hires as well as an electronic data exchange
between state UI agencies and the Social Security Administration.
Federal Employees' Compensation Act Program Controls
While ESA agrees
that obtaining current medical evidence for long-term disability cases
is important, the absence of it is not evidence of or even a likely indicator
of an improper payment. Existing procedures for requesting and verifying
medical reports are manual and rely on ad-hoc tracking utilized by individual
claims examiners in each of the FECA Program District Offices. The long-term
solution rests with the FECA Program's new automated claims processing
system, which will include a disability review function that determines
the presence or absence of current medical evidence in file. This will
update automated claims examiner task and reminder lists through the system's
workload tracking function and will also provide supervisors with the
ability to list overdue tasks and ensure follow-up. The new system will
be deployed in FY 2005.
The Central Bill Processing service encountered a number of problems
at start-up, many of which are documented in the audit findings. The audit
also documents a significant reduction in medical bill processing problems
by the third quarter of FY 2004. Throughout the start-up period and on
an ongoing basis, as OWCP and the contractor identify problems, corrective
actions were developed and put into place. For example, completion of
the medical bill Receivables Tracking/Adjustment processing design will
include automated recoupment of overpayments from future payments and
completion of an interface with FECA's new claims processing system. This
will enable review of previous adjustments made to medical bills and creation
of receivable/credit records for those adjustments. The program will be
able to record the overpayments and credits currently stored in Medical
Bill History to the receivable system. The development of a medical bill
processing audit plan for the FECA Program based on the successful Black
Lung Program's model is ahead of schedule. Draft procedures for the plan
will be developed by September, 2004, with plan implementation by October
2004.
Safeguarding Unemployment Insurance
DOL again notes that there is no Federal solvency standard, and that
states can borrow to make up any shortfall during economic downturns.
Unemployment Trust Fund Resources
DOL shares the OIG concern regarding
IRS overcharges for administering the Unemployment Trust Fund (UTF). ETA
has had several meetings with IRS to learn details and provide input into
the complex methodology that has been developed, the most recent meeting
being August 5, 2004. The new methodology, which IRS intends to implement
beginning October 1, 2004, produces charges of the same magnitude that
the OIG reported to be excessive. ETA is particularly concerned about
charges for compliance and the reliance on "area experts" to estimate
the amount of time devoted to collection of Federal Unemployment Tax Act
(FUTA) taxes when audits are conducted related to other taxes. Problems
have also surfaced relating to how IRS scrutinizes returns from multi-state
employers while charging the UTF for the service.
Identity Theft and Organized Crime Activity in Unemployment Insurance
Fraud
On September 17, 2004, ETA announced a second round of funding for Benefit
Payment Control integrity-related projects. These funds will provide
additional resources to implement or enhance activities, such as various
computer cross-matches to detect overpayments including fraud related
to identity theft. Unemployment insurance data is cross-matched with
a variety of data bases including states' Directories of New Hires,
Bureau of Vital Statistics, Departments of Corrections, Departments
of Motor Vehicles, as well as data exchanges with the Social Security
Administration.
Integrity of Foreign Labor Certification Programs
To clarify, DOL does not admit aliens into the country who may pose national
security risks. Our responsibility extends only to ascertaining whether
the area of intended employment has been adequately tested such that there
are no available, willing, able, and prepared U.S. workers for the position
being proposed by an employer.
Problems with the Labor Certification Process
We concur that reinstating
Section 245(i) of the Immigration and Nationality Act (INA) resulted in
dramatic increases in applications for permanent labor certification creating
a major backlog in the processing of applications. ETA has attempted to
eliminate the large backlog through administrative means available, however
additional resources have been appropriated to begin eliminating the entire
backlog.
ETA has always required, and will continue to require, foreign labor
certification applications to be processed in compliance with all applicable
statutes, regulations, and policies. Notices of Findings are issued routinely,
as warranted, by ETA Certifying Officers. Whether an alien has earned
experience with the petitioning employer is addressed in ETA policy and
is routinely reviewed during the certification adjudication process. ETA
is establishing central processing centers where the majority of the permanent
program backlog cases referenced in the OIG will be reviewed and adjudicated.
We agree with the OIG recommendation to verify an employer's current in-business
status prior to certification and refer to OIG Office of Labor Racketeering
and Fraud Investigations any applications where the employer is determined
not to be a bona fide employer; accordingly, we have already
built this verification process into the case-management software.
Regarding automation of the Permanent Labor Certification Program, ETA
has developed a fraud detection/prevention module for use in the new Program
Electronic Review Management (PERM) system. This module is being designed
to quickly validate applicant information and highlight signs of risk
or fraud using a public record database to be supplied and updated by
a third party vendor. ETA is considering the use of additional safeguards
to authenticate the identity of an employer and to maintain the integrity
of the process. Once the new system is implemented, the re-engineered
PERM system will mark a significant change to the labor certification
process in helping to validate information. The program will identify
ineligible employers using automated system edit checks.
ETA believes that statutory limitations restricting ETA in reviewing
H-1B applications for completeness and obvious inaccuracies is a structural
flaw in the program. Requiring employers to conduct a labor market test
as part of the application process could provide a reasonable degree of
protection for U.S. workers.
Regulatory Change Needed
ETA is working with representatives from interested Federal agencies
on the issue of fraud in the Permanent Labor Certification Program. To
clarify the point regarding substitution of aliens on approved labor certifications,
the Department of Homeland Security, not the Department of Labor, receives
requests from employers for an alien substitution and decides whether
or not to approve the request.
Labor Certification Fraud
When denying an application for H-2B Labor Certification, alien labor
certification staff attach a detailed explanation outlining all deficiencies
within the application. These explanations should reduce the number of
overturns by U.S. Citizenship and Immigration Services (CIS). ETA continues
to work with CIS to improve H-2B application processing. ETA meets quarterly
with CIS and Department of State to discuss ways to reduce fraud in the
foreign labor certification programs. ETA and CIS have formed a subgroup
that meets monthly to improve information sharing on employers that are
currently being investigated for fraud. ETA's Foreign Labor Certification
program has filled a policy analyst position whose sole focus will be
on quality control and fraud-related issues.
Financial and Performance Accountability
Financial Accounting
OCFO recognizes effective project management as among the most important
factors affecting the eventual success of the New Core Financial Management
System Project (NCFMS). Effective and responsive project monitoring, oversight,
and controls, clear and effective direction, and systems of governance
can mitigate the risk of missing the intended end result. Project risks
for the NCFMS are managed through the use of detailed project plans and
resourced Work Breakdown Structures (WBS), which also populate the Department's
Earned Value Management System. The project plan and WBS enable effective
management of tasks to be performed at the activity level, monitoring
resource and time consumption, and comparing baseline estimates with actual
costs and schedule. The project plan includes activities associated with
the testing of the various software deliveries against DOL requirements
documents, as well as responding to regulatory requirements and changes.
Both the vendor and DOL employees will conduct thorough testing and piloting
in the DOL test environment. After delivery is made, confirmation testing
will occur in the production environment. The NCFMS project team has engaged
an independent validation and verification contractor to ensure: (1) the
technical integrity of products and processes; and (2) that all data from
feeder and subsystems interface with the NCFMS. In order to conduct regression
testing, a baseline set of test scripts will be developed and executed
as a co-requisite to introducing changes to the software.
Since the adopted software, Oracle Federal Financials 11i, has been tested
and certified by the Joint Financial Management Improvement Program (JFMIP),
we assume that the functionality meets all the Federal standards for financial
management systems, as well as all DOL user requirements. Despite these
assurances from JFMIP, the NCFMS project team plans to continually test
the baseline requirements whenever new functionality or changes are introduced,
and conduct regression testing to ensure the system is indeed compliant
in all material respects. In addition, OCFO's partnership with the OIG
will help ensure that all Federal financial system requirements and user
needs are met.
Managerial Cost Accounting
In FY 2002 and FY2003 the Secretary determined that the Department was
in substantial compliance with the FFMIA. However, DOL did agree that
integrating performance and cost information to support decision making
was a top priority and initiated the Cost Analysis Manager (CAM) project.
The CAM initiative made substantial progress in FY 2004. Cost models were
completed for 15 agencies to provide cost information on outputs and activities
of major agency programs. OCFO selected and put into production a managerial
cost accounting software tool that will serve as the CAM system for ongoing
model updates, revisions, and reporting. OCFO trained approximately 50
employees representing all the participating agencies were trained in
managerial cost accounting principles and methodology; these are in addition
to approximately 130 employees trained in FY 2003. Additional training
for Agency managers is planned for the 1 st quarter of FY 2004 on how
to analyze cost information and use it for decision-making. In addition,
designated agency staff will be trained on how to update and maintain
the models in the CAM system. Agencies have already begun to make use
of information from their cost models and identified future plans for
using cost information. DOL submitted a Financial Data Integration Improvement
Plan to the Office of Management and Budget (OMB) outlining how agencies
intend to use CAM and demonstrating existing capabilities that help in
improving operations and reporting results.
The CAM system uses financial information supplied by the Department's
core accounting system (DOLAR$), along with labor distribution and workload
information. As such, the CAM system provides DOL the capability to integrate
performance and cost information to support agency program managers at
all levels. As part of the cost model development process for each Agency,
the OCFO CAM team analyzed and documented financial data for the agency
cost models. Based on that analysis, the OCFO CAM team determined that
the type and level of financial information provided by DOLAR$ meets the
managerial cost accounting needs of the agencies and that no changes are
needed to support the CAM system.
In FY 2005, agencies will update their models to include cost information
for FY 2004. Agencies will also refine and expand their cost models to
meet their specific cost information needs. OCFO expects to improve agency
cost models by refining resource and activity assignments, adding and
revising significant outputs, improving allocation of overhead and support
costs, and further mapping of outputs to performance goals. Automation
of data collection (from DOLAR$ core accounting system, agency workload
and time tracking systems) and standard report preparation are also planned.
Quality Performance Data
ETA currently requires data validation for three employment and training
programs: (1) Workforce Investment Act (WIA); (2) Employment Service (ES);
and (3) Trade Adjustment Assistance (TAA). The agency is developing data
validation software and guidance for three additional programs to be implemented
during 2005: (1) National Farmworker Jobs Program (NFJP); (2) Indian and
Native Americans (INA); and (3) Senior Community Service Employment Program
(SCSEP). OMB approved DOL's request to collect data validation results
from the states on August 31, 2004.
ETA issued Training and Employment Guidance Letter No. 3-03, Change 1, Data
Validation Policy for Employment and Training Programs, in August,
2004 which gave states new timelines for data validation and provided
guidance on acceptable source documents to be used in validating data
elements related to eligibility and performance. States are required
to complete report validation for WIA prior to submitting the Program
Year 2003 Annual Report on October 1, 2004. ETA requires report validation
and minimal data element validation. Report validation for the ETA 9002
and VETS 200 reports must be conducted prior to submission on November
15, 2004. States are required to conduct data element validation on
the cumulative file of four quarters of the FY 2004 TAPR by February
1, 2005. ETA is continuing to provide data validation software and technical
assistance to states during the validation process. NFJP grantees will
receive data validation training in November 2004. Data element validation
for PY 2003 must be completed by June 15, 2005. Validation software,
instructions, training and timetables for INA and SCSEP will be issued
at a later date.
Single Audit
We share the OIG's concerns about the adequacy of Single Audit Act (SAA)
audit coverage of its programs. In our oversight and monitoring activities,
we will continue our efforts to ensure that covered recipients and sub-recipients
have required audits performed, that audit findings are appropriately
resolved, and that audit results are used to improve program performance.
In FY 2004 and beyond, DOL will establish quality controls more proactively
through implementation of the Improper Payments Information Act of 2002.
For every program/activity with significant erroneous payments, the Department
will construct a statistically valid methodology and program design to
estimate the annual amount of erroneous payments, analyze the causes of
the errors, and ensure progress in reducing the amount of erroneous payments.
These actions will allow the Department to more effectively target payment
errors. DOL will also conduct periodic reviews to improve internal controls
and train staff to provide guidance on maintaining these controls over
the long term. ILAB completed an assessment which confirmed that the single
audits conducted for ILAB's grantees do not provide all the information
necessary for adequate oversight of the international child labor program.
To address this, ILAB recently entered into a contract, with OIG's support,
for an independent public accounting firm to examine grantees' compliance
with applicable regulations and cooperative agreement provisions and the
reliability of their financial and performance reports.
Systems Planning and Development
Information Systems Planning and Implementation
The Office of Chief Information
Officer (OCIO) continues to implement a comprehensive project management
structure that employs a rigorous system development life-cycle management
process that includes checks and balances to ensure projects are being
executed according to plan, within budget and meeting performance expectations.
This is accomplished through systematic quarterly reviews carried out
in accordance with the Department's Capital Planning, Investment, and
Control Process. During this monitoring/review process, the OCIO and the
Departmental Budget Center evaluate the progress of information technology
(IT) projects against a range of parameters, including: cost, schedule
and performance; enterprise architecture alignment; and compliance with
security requirements. IT development projects are then rated on quarterly
review "scorecards" in each of these categories.
Maturing this development life-cycle management process further, the
Chief Information Officer established policy for and implemented through
the OCIO an earned value management system (EVMS) for major IT investments
in FY 2004. By memorandum of September 27, 2004, the Deputy Chief Information
Officer issued detailed for guidance for implementation of the Department's
EVMS. The EVMS routinely captures standardized, detailed information for
monitoring the cost, schedule and performance of major IT investments
over time. Systematic tracking of this data allows project managers and
DOL top management to be informed in a timely manner about the progress
of IT development projects; this facilitates their ability to make informed
decisions about project direction and continued investment in projects.
The Department's EVMS is in compliance with current standards and guidance
from the Office of Management and Budget, including ANSI Standard 748.
The overall Departmental IT management structure continued to be strengthened.
In FY 2004, three IT Project Management classes were conducted
for DOL IT professionals; 48 staff members completed the training. Fourteen
IT professionals also submitted applications to complete the Project Management
Professional (PMP) certification exam in FY 2004. Going forward in FY
2005, IT Project Management classes will be offered on a quarterly basis,
and project management modules will be included in the Department's Skillsoft
online learning library. Contracting Officers Technical Representative
(COTR) training was also provided to the OCIO Programs and the Information
Technology Center entire senior staff to enhance the management and oversight
of systems planning and development services acquired through contract.
The Office of Management and Budget (OMB) continued in FY2004 to positively
rate the Department's performance under the E-Government component of
the President's Management Agenda (PMA). The Department has a modernization
blueprint that focuses IT investments, has steadily improved its business
cases for IT development projects and closely tracks cost, schedule and
performance metrics for information systems implementation. DOL has been
rated "green" for progress against these and other criteria for measuring
E-Government performance since inception of the PMA scorecard and reached "green" for
status in September 2004.
E-Payroll
DOL will migrate its payroll operations to the National Finance Center
(NFC) in FY 2005. At the inception of the project, OCFO submitted a complete
and approved conversion plan. Additionally, the OCFO validated that the
pay-affecting data of its employees contained in Peoplepower, DOL's current
payroll system, was complete and accurate. OASAM then implemented a department-wide
data validation process to confirm OCFO's results. Furthermore, HR users
and IT executives were involved in the project since inception leading
training and telecommunication efforts.
Davis-Bacon Prevailing Wage Determination
ESA/WHD agrees with the OIG that the Davis-Bacon Act (DBA) wage determination
process should be accomplished under the most efficient and effective
system possible. ESA/WHD remains unconvinced, that the Audit Report provides
adequate justification to promote statutory changes to the Davis-Bacon
Act as recommended by the OIG. ESA/WHD also has several concerns with
OIG conclusions relating to errors in the wage data, bias in the wage
date, and the timeliness of wage decisions. ESA/WHD believes, as the Government
Accountability Office (GAO) noted in May 1999, that the system changes
currently being pursued under DBA program have the potential to improve
wage determinations.
Although ESA/WHD did not agree with OIG concerns about the current universe
survey approach as opposed to a sample survey approach, there is justification
to reexamine our previous conclusions and intends to explore with the
Bureau of Labor Statistics (BLS) the possibility of using BLS data for
purposes of establishing prevailing wage rates under DBA. ESA/WHD believes
that any change to a sample survey methodology for DBA wage determinations
should involve the use of BLS data rather than create a whole new sample
survey program conducted by ESA/WHD.
OSHA System Development Efforts
OSHA accepted the recommendations from the OIG. The agency had previously
suspended further work on the IMIS Redesign and had contracted for an
independent assessment of its IMIS Redesign activities. OSHA is awaiting
the contractor's final report. Receipt of that evaluation will assist
the agency in determining how best to proceed in complying with the OIG
recommendations.
Information Systems Security
IT Security Controls
The Office of the Chief Information
Officer (OCIO) performed a comprehensive review of the Department's Security
Program to measure its efficiency and effectiveness. This review included
a broad assessment of security vulnerabilities identified by the OIG,
as well as applicable Departmental IT security policies and procedures.
Based on this review, a DOL Plan of Actions and Milestones (POA&M) was developed which mapped out a
strategy to mitigate identified security vulnerabilities and other program
areas needing improvement. Agency senior management was advised by the
Chief Information Officer to give priority and resources to their agency-specific
vulnerabilities prior to funding new IT investments. Agencies were also
advised to ensure these vulnerabilities and their corrective actions were
documented in their Plans of Actions and Milestones (POA&Ms). In addition,
the OCIO established several focus groups comprised of representatives
from multiple Departmental agencies to leverage agency expertise and assistance
in enhancing the Department's Cyber Security Program.
Accomplishments in IT security improvements include:
- Completing mitigation activities to close 62 and resolve
21 of 99 outstanding OIG audit recommendations, including ten FECA recommendations
that were closed and one that was resolved in FY 2004. Remaining FECA
issues will be addressed in the new claims processing system, scheduled
to be deployed in FY 2005. Progress was also made in implementing mitigating
activities for State UI systems. Eight UI system recommendations were
closed and six were resolved in FY 04. Additionally, data encryption
and testing has been implemented for data transfers between the State
UI systems and the Federal systems. A Federal IT team is working with
the State Workforce agencies to provide guidance and instructions on
computer security requirements.
- Developing Contingency Plans for 92%
of major systems, and testing 64% of those plans.
- Revising the DOL Computer
Security Handbook to include more comprehensive security procedures
and guidance.
- Completing Authority to Operate documentation for 95%
of Major Information Systems.
- Completing security testing and evaluation
for over 90% of Major Information Systems.
- Completing Computer Security
Awareness and Training for some 99% of employees and contractors.
The Department's completion of ATO's for the vast majority of DOL's Major
Information Systems was favorably noted in OMB's 3rd Quarter PMA scorecard
for E-Government. The Department will continue to assess the efficiency
and effectiveness of its IT security controls and focus on mitigating
security vulnerabilities. Currently, the Department is directing attention
to improving its Contingency Planning testing and vulnerabilities associated
with logical security controls and wireless technologies.
Security of Employee Benefit Plan Assets
Safeguards to Protect Pension Assets
Between 1991 and 1997, the Department submitted legislative proposals
calling for the repeal of the limited-scope audit provision and calling
for reforms to strengthen plan audits. During that same period, DOL also
proposed legislative changes that would require direct reporting of certain
criminal violations relating to employee benefit plans. Neither the House
nor Senate reported legislation out of committee.
The Department continues to take steps to improve the audit process established
by the Employee Retirement Income Security Act of 1974 (ERISA). In February
2003, EBSA initiated its second nationwide review to assess the quality
of employee benefit plan audits. The study involved a statistical sample
of 300 plan audits and assessed compliance with professional accounting
and auditing standards; a report of study findings is being prepared.
Ongoing DOL initiatives include cooperative efforts with the accounting
profession, such as referral of deficient accountant work to State boards
of accountancy and to the American Institute of Certified Public Accountants
(AICPA) for appropriate remedial and disciplinary actions. In addition,
EBSA will be coordinating closely with the Public Company Accounting Oversight
Board (created by the Sarbanes Oxley Act) and continue its active involvement
with the AICPA and the Financial Accounting Standards Board (FASB) to
develop accounting guidance for employee benefit plans and additional
technical materials for CPAs to use in conducting audits of employee benefit
plans.
Pension Plan Fraud
During the past few years, EBSA has stepped up its criminal enforcement
program. During FY 2004, EBSA's criminal investigations led to the indictment
of 121 individuals for crimes related to employee benefit plans. EBSA
will continue to target criminal cases in various ways that have yielded
successful results in the past (e.g., analyzing computer data, gathering
information through civil investigations, leads from plan participants,
plan officials, informants, and media sources, and information gained
from other government agencies). EBSA also maintains close working relationships
with other law enforcement agencies such as the U.S. Attorneys, the FBI,
Postal Inspectors, and OIG.
For employer-sponsored 401(k) plans, including multi-employer 401(k)
plans, EBSA has had a national enforcement project since 1995 focusing
on the failure of employers to timely remit employee contributions to
401(k) plans. From the project's inception, EBSA has closed over 9,400
civil investigations (over 72% with violations and monetary results).
EBSA has achieved monetary results of over $337 million nationwide through
this project and criminally prosecuted 137 persons.
Finally, while not all violations can be prevented, EBSA is proactive
in the early detection and prevention of wrongdoing by, among other things,
aggressive outreach and education campaigns. Education campaigns create
knowledgeable consumers who can assist in identifying issues within their
own benefit plans. EBSA also seeks to leverage its enforcement resources.
In its Strategic Enforcement Plan, published in April 2000, EBSA identified
plan service providers as a national investigative priority. Investigations
of plan service providers offer the opportunity to address abusive practices
that may affect more than one plan. By focusing investigative resources
on plan service providers, EBSA can address violations involving many
plans.
EBSA's Voluntary Fiduciary Correction Program (VFCP) continues to enhance
the security of pension assets. Through the VFCP, plan sponsors self-correct
delinquent participant contributions and other ERISA violations. Sponsors
that meet the conditions of the VFCP and a related Class Exemption receive
relief from civil enforcement action and any applicable penalties and
excise taxes. EBSA received 474 VFCP applications during FY 2004, and
verified approximately $264 million in corrections. In FY 2004, EBSA contacted
hundreds of 401(k) sponsors regarding delinquent contributions reported
on the Form 5500 Annual Report. That initiative resulted in additional
correction of losses and increased participation in the VFCP.
Cash Balance Pension Plans
The Department's regulatory and enforcement
authority in this area is limited. DOL cannot take any enforcement action
or begin working with the IRS on additional guidance until the IRS determines
whether or not there were violations of Internal Revenue Code and ERISA.
Consequently, the Department forwarded a copy of the OIG report and supporting
work papers to the IRS for its review and comments. We await IRS' response,
and will provide assistance in developing new guidance if IRS determines
this action is warranted. However, Treasury appropriations law includes
a provision prohibiting Treasury/IRS from spending funds to take action
with respect to implementing rules or regulations concerning cash balance
plans.
Corrupt Multiple Employer Welfare Arrangements (MEWAs)
Stopping the abusive
practices of corrupt Multiple Employer Welfare Arrangements (MEWAs) and
their operators is one of EBSA's top priorities. EBSA is fully committed
to putting an end to the fraudulent and abusive practices of those individuals
preying on the American worker, using a three-pronged approach.
First, we focus on prevention by educating employers and consumers. Secretary
Chao released detailed guidance to over 80 leaders of America's small
business community outlining steps they can take to avoid being taken
in and asking them to inform their membership. EBSA has also published
and distributed educational materials, including a booklet explaining
Federal and State regulation of MEWAs, and guidance for workers on what
to do when claims aren't paid or coverage is lost. All these materials
are available on our website and are distributed in outreach sessions
we hold with consumers, small employers, and service providers throughout
the country. Second, EBSA aggressively pursues civil and criminal enforcement
actions to shut down scams. By conducting parallel civil and criminal
investigations, EBSA has battled hard to stem this abuse both by shutting
down corrupt MEWAs through civil court orders and by criminally prosecuting
those responsible for operating the illegal enterprises. Third, the Administration
strongly supports legislation to establish a secure and affordable alternative
for small businesses looking to purchase health insurance for their workers
- Association Health Plans (AHPs). The AHP legislation contains strong
provisions to combat fraud, including mandatory certification of all AHPs,
solvency standards for both insured and self-insured arrangements, and
rigorous State and Federal oversight. With AHPs, small employers and their
workers will be assured that their health insurance is secure.
EBSA is well aware that corrupt MEWAs are not a federal issue alone but
one where the states also have jurisdictional interest. In many instances,
the states have filed cease and desist orders to shut down a corrupt MEWA
before it causes significant harm. In other cases, the states have been
able to revoke or suspend the licenses of insurance agents. EBSA has worked
very closely with state insurance departments and the National Association
of Insurance Commissioners (NAIC) to coordinate our enforcement efforts.
NAIC coordinates the sharing of information regarding potential corrupt
MEWAs with EBSA contacts in each of the regions, as well as with State
department of insurance contacts. The NAIC also coordinates on-going MEWA
activity through an e-mail contact list which allows EBSA and various
State departments of insurance representatives to communicate about on-going
and emerging problems.
More recently, EBSA has encouraged the Department of Justice to prosecute
these complex financial, white-collar crimes. EBSA has worked closely
with the Department of Justice in identifying corrupt MEWAs as an emerging
area of health care fraud. In April 2004 EBSA spoke with a number of United
States Attorneys regarding corrupt MEWAs, educating U.S. Attorneys about
the problem, and encouraging them to emphasize the prosecution of these
MEWA operators. EBSA has also participated in the Department of Justice's
national Health Care Fraud Working Group meetings to bring attention to
the problem. The Department of Justice recently issued an advisory memorandum
to all U.S. Attorneys emphasizing the need for increased prosecution of
corrupt MEWA operators. EBSA assisted in preparing and coordinating the
memorandum.
Accounting for Real Property
Job Corps Real Property
ETA completed its first annual (physical) inventory of Job Corp capitalized
real property in January 2004. This effort served to resolve differences
between the Job Corp site survey data and the CATARS, and reconciliation
of CATARS to DOLAR$ for land has been completed. Procedures are in place
to ensure that future Job Corp land acquisitions are entered in the CATARS,
and that all additions and dispositions are processed timely.
State Workforce Agency Real Property
ETA is in general agreement with
the OIG's concerns about the need to: (1) maintain an accurate, up-to-date
inventory and valuation of State Workforce Agency (SWA) real property;
and (2) insure that states properly handle the proceeds resulting from
the disposition of real property with federal equity. Currently, ETA sends
a letter to SWA Administrators every two years asking them to review and
update the information in our property records. ETA then updates its inventory
records with state-provided information. ETA acknowledge s that, although
this is the best information available, these records are not always current
or accurate. ETA has a Training and Employment Guidance Letter (TEGL)
on SWA real property in the final clearance process. This guidance requires
states to report changes and/or updates to their real property data by
November 30, 2004 and re-emphasizes the requirement that states must remit
the proceeds from real property sales to DOL. ETA is working on issuing
a Field Memorandum (FM) which requires ETA regional offices to follow-up
and ensure that states promptly update their property inventory records.
Workforce Investment Act Reauthorization
As of September 2004, the House
and Senate WIA reauthorization bills that were passed in 2003 are still
awaiting conference. DOL has taken numerous steps to address the concerns
outlined in the OIG findings, even while we await further action on WIA
reauthorization. In
addition to the specific steps referenced above, ETA convened two Federal/State
Policy Forums in 2004 to discuss high-level policy issues such as those
identified by the OIG. The continued implementation of the President's
High-Growth Job Training Initiative is also helping to address these key
issues by funding innovative partnerships between the workforce investment
system, business and training providers to train adults and young people
for jobs that are in demand.
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