DOL Annual Report, Fiscal Year 2004
Performance and Accountability Report

Management and Performance Challenges

Inspector General's Statement

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

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 3^rd 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.