Management and
Performance Challenges
OFFICE OF INSPECTOR GENERAL TOP MANAGEMENT ISSUES AT THE
U.S. DEPARTMENT OF LABOR JANUARY 2002
The following are the areas that the Office of Inspector General
considers to be the most serious management challenges currently facing the
Department:
- Effectiveness of Employment and Training Programs
- Financial Performance
- Accountability: Budget and Performance Integration
- Security of Pension Assets
- Protection of Worker Benefit Funds
- Information Technology and Electronic Government Challenges
- Integrity of Foreign Labor Certification Programs
- Effectiveness of Mine Safety and Health Programs
- Rapid Expansion of the Bureau of International Labor Affairs
Program
- Human Capital Management
Effectiveness of Employment and Training Programs
After three decades, the Department continues to face challenges in
effectively administering a number of key employment and training programs.
Recent OIG audits highlight our concerns about the efficient and effective
administration of programs designed to address the needs of hard-to-serve
welfare recipients, as well as skilled individuals who lose their jobs as a
result of plant closings, imports and other layoffs.
Events such as those of September 11, 2001, and their aftermath,
demonstrate the need for Department programs to be ready to assist workers who
experience layoffs and other employment interruptions. In such cases, the quick
mobilization of funding and other resources must be tempered with the
establishment of controls to assure the integrity of funds, the delivery of
services, and the accuracy of reporting on how well the programs achieve the
desired results. The following examples illustrate our concerns with the
effectiveness of such programs.
Welfare-to-Work Competitive Grant Program:Arecent audit
disclosed that the Welfare-to-Work (WtW) competitive grant program, which is
designed to provide services to the hardest-to-serve populations, falls short
in keeping individuals in lasting unsubsidized employment. For example, our
work disclosed that only 25% of our sample of 765 participants were
continuously employed for more than six months. We also found that the numbers
of competitive grant participants reported as placed in unsubsidized full-time
and part-time employment were overstated by 27% and 43%, respectively. This
example illustrates the challenges faced by the Employment and Training
Administration (ETA) in obtaining quality performance data from its grantees.
Trade Programs:Another example involves the
Department’s Trade Adjustment Assistance and North American Free Trade
Agreement-Transitional Adjustment Assistance Programs (collectively called the
Trade Programs), which are designed to assist individuals who have become
unemployed or whose earnings have been reduced as a result of increased imports
to return to suitable employment (i.e., work of an equal to or higher than
skill level than the former employment, and that pays at least 80% of the
former wage). A recent OIG audit of the Trade Programs found that only 34% of
program participants found suitable employment and that the programs’
unified reporting system was incomplete and contained inaccurate data.
Dislocated Worker Program:The OIG remains concerned about
the extent to which the Department’s Dislocated Worker Program, funded at
nearly $1.6 billion, is providing retraining and support services to eligible
dislocated workers. An OIG audit report issued in June 2000 on the Job Training
Partnership Act (JTPA) Dislocated Worker Program found that 35% of our sample
participants were ineligible or that documentation was insufficient to
establish their eligibility. We also raised concerns that the program’s
allocation process may not have distributed funds to areas where they were most
needed. The JTPA Dislocated Worker Program was incorporated, with some
modifications, into the new Workforce Investment Act (WIA) Program. Since the
WIA Dislocated Worker Program is a key component of the Department’s
response to layoffs after September 11, a legislative change is needed to
deploy funds to the right localities and beneficiaries, as this will be
critical to the success of the response.
Assistance to Trade-affected Dislocated Workers in El Paso,
Texas:Thousands of dislocated workers in the El Paso area who were
certified as having been laid off as a result of foreign trade became entitled
to benefit under the Trade Programs, in addition to regular Unemployment
Insurance (UI). Substantial funding was also provided to supplement the
services and benefits provided under UI and the Trade Programs. In total,
approximately $106 million, or about $25,000 per participant, was expended on
services provided to 4,275 El Paso dislocated workers. Despite this large
infusion of funds, a recent OIG audit found that over 50% of those who entered
employment had placement wage rates of less than $6.00 per hour, and 16% earned
only the minimum hourly wage $5.15. Also, using the official definitions and
reporting criteria applicable to the program, we verified a placement rate of
36.2% as of April 30, 2001, as opposed to the 81% captured in the program
operator’s management information system. This audit illustrates the risk
of placing great emphasis on quickly dispersing funds in response to a need,
without a corresponding emphasis on monitoring the results achieved in helping
participants obtain lasting employment at livable wages.
Financial Performance
One of the Administration’s five government-wide goals is improved
financial performance. The Department has made great strides in financial
reporting and has received clean audit opinions on its financial statements
since FY 1997. The Department, however, does face significant challenges in
producing timely financial information that can be used in its day-to-day
management. Therefore, the Department needs to change its focus from financial
statement preparation to proactive management of its financial records.
Financial events and transactions need to be recorded when they occur rather
than at year-end. Key to the proactive management of its financial records is
vesting the necessary authority in the Department’s Chief Financial
Officer (CFO) to provide direct oversight of all financial management
operations of the various DOL agencies. Historically, the CFO has not had this
authority.
Another issue of concern in this area is the adequacy of information
being provided to the Department via audit reports conducted by independent
public accountants under the Single Audit Act. Over 90% of the
Department’s expenditures are audited under the Single Audit Act by scores
of audit organizations throughout the country. The Department relies on the
Single Audit Act to provide audits for grant costs as well as for UI benefit
costs and employer tax receipts at each of the States. These audits are
performed on an annual basis. In addition to the Single Audit Act reports, the
Department relies on the Benefits Accuracy Management (BAM) system, which is
operated by DOL in conjunction with the states, to oversee the states’
benefit payments and employer tax receipts. This system, which estimates the
overpayments of UI benefits to claimants on a state by state basis has
identified approximately $1.6 billion in overpayments. The Single Audit
Compliance Supplement requires that the Single Audit Act auditor evaluate the
results of the BAM overpayment calculations. Recent OIG visits to two states
found that auditors under the Single Audit Act were not familiar with BAM and
were not evaluating BAM results. In addition, the OIG found that the testing by
the auditors of benefits payments and employer receipts are inadequate because
the sample sizes were too small. Also, although one auditor found an
overpayment due to ineligible claimants which projected to approximately $60
million in questioned costs, no mention was made in the Single Audit Report.
In coordination with OMB, the OIG has begun a multi-year review of these
Single Audit reports to determine the adequacy of the audit coverage and
whether DOL can continue relying on them for financial management purposes.
Accountability: Budget and Performance Integration
A major goal of the Administration is the integration of budget and
performance to ensure that the government is results-oriented and guided by
performance rather than process. Key to this is the Department’s success
in capitalizing on a number of statutory initiatives designed to improve the
quality of program and cost data that serve as the basis for determining the
results achieved by Federal programs and operations. With the passage of the
Government Performance and Results Act (GPRA), Congress created a management
process whereby Federal agencies develop strategic plans, articulate program
goals, allocate Federal resources to meet desired performance levels, and
measure and report program results. The quality and accessibility of such data,
including data reported by entities below the Federal level, are of critical
importance to the Department’s GPRA reporting. Similarly, the Federal
Accounting Standards Advisory Board’s Statement of Federal Financial
Accounting Standard Number 4, which became effective in FY 1998, is aimed at
providing reliable and timely accounting for the full cost of Federal programs
and activities.
Quality of Program Data:The Department is limited in its
ability to access and control the quality of program results data used to
determine the attainment of its strategic plan goals. This includes
difficulties associated with ensuring the quality of the myriad data provided
by states and other sources below the Federal level, where 90% of the
Department’s budget is actually spent. Recent OIG audits of the WtW,
Dislocated Worker, and Trade Programs continue to disclose high error rates in
performance data reported to the Department by its state partners and other
grantees. The errors affect performance measures, including participants’
wages, training activities, and successes in obtaining jobs, that serve as key
indicators in determining the outcomes and success of the program. ETA has
initiated a data validation project to create more precise programming
specifications and standards for use in validating that the state data
concerning WtW, WIA, and other ETA programs are correctly reported to ETA.
However, this project does not verify the accuracy of data contained in the
state databases.
Access to Data: Two important tenets of GPRA are that
agencies must evaluate program effectiveness and validate performance data. In
the employment and training area, it is particularly important to know whether
programs have resulted in individuals becoming self-sufficient by obtaining
long-term unsubsidized employment at livable wages. Two important tools that
may be used to this end are UI and Social Security Administration (SSA) wage
records of individual program participants. However, the Department is limited
in its ability to obtain such data for program evaluation and validation
purposes. To enhance its ability to conduct program evaluation and validation
in this and other equally important areas, the Department needs to have
statutory authority to easily obtain and utilize these types of records,
including the information contained in the National Directory of New Hires,
which is administered by the Department of Health and Human Services.
Managerial Cost Accounting: Once performance data are
determined to be reliable, managerial cost accounting, which matches cost
information with program results, is the next step in managing for results.
During FY 1999, the Department began implementing the managerial cost
accounting standard through agency pilot programs. It was planned that the
low-level structures developed in the pilot studies would ultimately be
aggregated to result in an integrated agency-wide cost accounting system.
However, the Department recently abandoned this “bottom-up” approach
and is presently focusing on initiating a “top-down” alternative
approach to the implementation of managerial cost accounting. This new effort
will be defined by disaggregating high-level agency activities into their
components. The OIG will review the revised plans for the implementation of
cost accounting and specific agency or program implementation efforts and will
continue our internal cost accounting efforts. An important element for
matching the full cost of program activity to program results (cost
effectiveness) is the ability to identify employee time to specific activities.
The Department is currently revising its payroll system and has indicated that
there are no plans to include activities-based costing in the new system. In
order for DOL’s GPRA reporting to be credible, it is important that DOL
ensure that performance and cost information generated are accurate, accessible
and auditable.
Security of Pension Assets
The security of pension assets is a priority of the Department and of
the OIG. This includes ensuring that weaknesses, vulnerabilities, and criminal
activity are identified and addressed.
Pensions Plan Audits: Over the past several years, the OIG
has raised concerns regarding the way pension plans are audited under the
Employee Retirement Income Security Act (ERISA). ERISA contains a limited-scope
provision that results in inadequate auditing of pension plan assets because it
exempts from audit all pension plan funds that have been invested in
institutions such as savings and loans, banks, or insurance companies regulated
by Federal or State governments. At the time ERISA was passed two decades ago,
it was assumed that all of the funds invested in those regulated institutions
were being adequately reviewed. Currently, because of this provision,
independent public accountants (IPAs) conducting audits of pension plans cannot
render an opinion on the plans’ financial statements in accordance with
professional auditing standards. These “no opinion” audits provide no
substantive assurance of asset integrity to benefit participants or the
Department.
Pension Plan Security: Another area of concern involves
private pension plans, which serve as an attractive target to organized crime
elements, corrupt pension plan officials, and individuals who influence the
investment activity of pension assets. Labor racketeering investigations of
pension plan monies that are jointly administered by labor union
representatives and management representatives (Taft-Hartley plans) have
elevated the OIG’s concern over the security of the assets in this segment
of the pension plan universe.
OIG pension plan investigations have uncovered multi-million dollar
fraud enterprises by financial and investment service providers. These
investigations continue to reveal abuses by sophisticated investment advisors
and pension plan administrators who have the opportunity and ability to
structure complex financial schemes to conceal their criminal activity. The OIG
is concerned about abuses by financial investment service providers because of
the potential for multi-million dollar losses, since they typically provide
investment or financial advice for more than one plan.
Based on recent investigative results and the fact that service
providers typically control the investment of hundreds of millions of dollars
of pension funds, the OIG has identified this area of the pension arena as
especially vulnerable to organized crime activity and abuse.
Protection of Worker Benefit Funds
The Department administers several programs and statutes designed to
provide and protect the benefits of workers. Protection of such benefits is
critically important because they affect the lives of millions of workers and
retirees and involve billions of taxpayer dollars. The OIG has identified
vulnerabilities involving the financial stability and program integrity within
four of the Department’s major worker benefit programs.
FUNDING CONCERNS
Unemployment Trust Fund: The unemployment trust fund (UTF)
was created in 1935 to protect workers during temporary periods of unemployment
by providing income maintenance benefits. These benefits replace part of the
unemployed worker’s lost wages and, in so doing, help to stabilize the
economy during periods of recession.
After several years of decreasing unemployment rates, the numbers of
unemployment claims have recently increased. The Department has estimated that
if a severe recession should occur, UTF net assets would decline by $60.2
billion, or 69%, over four years. We are concerned that during FY 2000, while
in an extended period of economic expansion, the Department reported that 19
states were considered minimally solvent and, therefore, vulnerable to
exhausting their unemployment trust funds in a recession. The recent economic
slowdown, exacerbated by the events of September 11, heightens our concern that
states may not have adequate reserves to meet the demands on their trust funds.
This could in turn result in states needing to borrow from the U.S. Treasury to
fund unemployment benefit entitlements.
Another issue affecting the assets of the UTF relates to the Department
of the Treasury’s charges to the UTF for its work in collecting and
processing unemployment taxes and administering the fund. In a 1999 audit, the
OIG determined that the Treasury had overcharged the UTF $48 million during FYs
1996, 1997, and 1998. Subsequent to the OIG’s report, the Treasury
reviewed its records and credited back to the UTF $71 million for prior
years’ overcharges. The 1999 audit found that Treasury’s method of
charging for administrative costs was fragmented, cumbersome, and unreliable,
and the OIG recommended that the Departments of Labor and Treasury negotiate an
alternative method for charging administrative costs. To date, this alternative
method has not been established, thus we are concerned that the Treasury
continues to overcharge DOL millions of dollars in administrative fees.
Black Lung Trust Fund Deficit:DOL administers the Black
Lung Trust Fund to provide disability benefits and medical services to eligible
workers in the coal mining industry, when a mine operator cannot be determined
liable for providing such benefits. The OIG is concerned with the escalating
indebtedness of the trust fund. The Department’s consolidated financial
statements for FY 2001 reflect that the trust fund was in debt $7.3 billion to
the U.S. Treasury. This debt resulted from advances provided to the program,
which have become an annual necessity for the trust fund. Currently, the excise
taxes are sufficient to pay benefits and administrative costs; however, the
trust fund must continue to borrow from the Treasury to pay the interest due on
past advances.
DOL’s annual projections of future receipts and outlays indicate
that cumulative borrowings from Treasury could total $32.3 billion (unaudited)
or more by 2040. According to DOL’s estimates, the excise tax collections
by 2040 would cover less than 30% of the interest that is accruing and annual
advances will exceed $1.2 billion per year. The Department has acknowledged
that, if current operating conditions continue, a change in the statutory
operating structure of the trust fund will be necessary to meet its
obligations.
Energy Employees’ Occupational Illness Compensation Programs:
The Energy Employees’ Occupational Illness Compensation Program
Act of 2000 authorized compensation for certain illnesses suffered by employees
of the Department of Energy, its predecessor agencies, and contractors who
performed work for the nuclear weapons program. Presently, the Fund is in the
developmental stages with payments expected to increase dramatically over the
next several years. While the Department is relying on OMB’s initial PAYGO
cost estimate for its calculation of the actuarial liability for the current
year, it needs to develop it own actuarial model for future use.
PROGRAM INTEGRITY
Unemployment Insurance: The integrity of the UI Program
was cited by Congress as one of the ten worst management issues in government.
As with any multi-billion dollar benefit payment program, there are those who
benefit from the UI program illegally. Through oversight of this program, we
have identified a number of schemes used to defraud the program including
fraudulent employer schemes, internal embezzlement schemes, fraudulent
interstate claims, and the fraudulent collection of UI benefits by illegal
aliens and others through the use of counterfeit or unissued Social Security
numbers. Further, our investigations have disclosed that the ability to file
electronic and mail claims has presented individuals with the opportunity to
defraud multiple states from a single location. The OIG is very concerned about
the continued proliferation of these types of schemes against the UI Program,
as they have resulted in substantial losses to the UTF.
We believe that there is a need for increased training of state
employees in fraud detection techniques, improved internal program controls,
and improved enforcement. In addition, systemic weaknesses pose problems for
the UI system, including loss of contributions due to the inability of states
to search for hidden wages paid by employers who misclassify workers as
independent contractors, employers who fail to report all wages paid, or
employers who misrepresent their claims experience.
Federal Employees Compensation Act: The Federal
Employees’ Compensation Act (FECA) provides compensation and medical care
for Federal employees who suffer job-related injuries, diseases or deaths. The
OIG has been working with the Department to improve the cost-efficiency of the
FECA Program. For example, one audit concluded the Department could save
millions each year by utilizing commercial code manipulation detection packages
to screen for improper billings. In addition, we found that granting the Office
of Workers’ Compensation Programs (OWCP) routine access to IRS wage data
through the SSA could provide a cost-effective tool to identify claimants who
failed to report wages. We estimated that, if an automated SSA crossmatch were
conducted annually (as opposed to the current system of once every three
years), OWCP’s savings would total $3.6 million in reduced administrative
expenses over 10 years. An annual crossmatch would also enable OWCP to better
identify, and remove from the disability rolls, claimants who fraudulently
conceal earnings.
Finally, OIG investigations continue to disclose the vulnerability of
this program to fraud. Fraudulent activities include medical providers who bill
the Government for services that were not rendered, charge multiple times for
the same procedure, bill for non-existent illnesses or injuries, or overcharge
for services; and claimants who defraud the program by reporting false
injuries, recover but continue claiming benefits, or do not report or under
report their outside employment income to OWCP.
Information Technology and Electronic Government
Challenges
One of the Administration’s goals is the expansion of electronic
government. This presents challenges for the Department in ensuring the
security of its information technology (IT) assets, the seamless implementation
of its new IT architecture, and the integrity of its benefits program in an
electronic government environment.
Security of IT Assets: DOL currently operates 67
mission-critical information systems. The Department relies on these critical
information systems to monitor and analyze the nation’s labor market and
economic activities, manage workforce services, and protect and compensate
American workers. Recent OIG audits revealed specific vulnerabilities in
computer security and protection of assets. Further, the Department is also
implementing new IT architecture and is modernizing its IT systems. Although
the Department has been proactive in moving to correct weaknesses as they are
identified, the Department needs to be more vigilant and to secure its major
systems against threats and loss of assets. This requires a chief information
officer (CIO) with sufficient authority and organizational independence from
other agencies within the Department. Currently, the CIO is the Assistant
Secretary for Administration and Management, who is also responsible for
numerous administrative functions of the Department that may either divert
attention from, or conflict with, IT responsibilities.
Program Integrity in an Electronic Environment: The
Department of Labor and its program partners, like many organizations, are
moving from a paper environment to an electronic one for the delivery of
services, benefits, and program administration. The use of automated procedures
and Internet communications has the potential to broaden the range of services,
increase hours of operation, and reduce administrative costs. However, this
move also brings new and increased risk of misuse, fraud, and monetary loss.
This has been evidenced in recent OIG casework in worker benefits programs.
Therefore, to ensure program integrity, the Department must assess the risks
involved and utilize a comprehensive, integrated approach of oversight and
enforcement.
The OIG is also adapting its audit plan to assist the Department in
addressing the challenges it faces in this new environment. For example, State
Workforce Agencies are currently upgrading and modernizing their operations to
offer customers telephone and Internet access to selected services. These
services include UI claims filing, employer registration, employer wage and tax
reporting, and appeals filing. The OIG will conduct audits in four to seven
states in FY 2002 to determine the effectiveness of system security.
Integrity of Foreign Labor Certification Programs
The Department of Labor’s foreign labor certification programs are
designed to provide employers access to foreign workers in areas in which there
is a shortage of workers. The program is supposed to ensure that the admission
of aliens to work in the United States on a permanent or temporary basis does
not adversely affect the job opportunities, wages, and working conditions of
American workers or legal resident aliens.
The H-1B Visa Specialty Workers program is intended to provide employers
with access to highly qualified individuals in speciality occupations to allow
them to compete in a global market. It requires employers who intend to
temporarily employ foreign specialty-occupation workers to file labor condition
applications with the Department stating that appropriate wage rates will be
paid and workplace guidelines followed. The Department is required to certify
applications unless it determines the applications to be “incomplete or
obviously inaccurate.” Under the current law, the Department’s role
in reviewing labor condition applications amounts to nothing more than a rubber
stamp in the process.
The OIG has found that individuals allowed into the United States under
this program often lack the specialized skills necessary for meeting the
requirements for H-1B visas. We continue to identify fraud in the foreign labor
certification programs, with the majority of cases involving the H-1B program.
These cases involve fraudulent petitions that are filed with DOL on behalf of
fictitious companies and corporations, individuals who file petitions using the
names of legitimate companies and corporations without their knowledge or
permission, and immigration attorneys and labor brokers who collect fees and
file fraudulent applications on behalf of aliens.
The OIG believes that if the Department is to have a meaningful role in
the labor certification process, it should have corresponding authority to
ensure the integrity of the process. To do this, the Department needs to have
the authority to ensure the validity of information provided on labor condition
applications.
Effectiveness of Mine Safety and Health Programs
The Mine Safety and Health Administration (MSHA) is responsible for
ensuring the safety and health of miners. OIG reviews have identified a number
of areas needing DOL’s attention to ensure the effectiveness and
efficiency of the programs designed to protect miners from injury or death.
For example, in a recent OIG evaluation, we found that MSHA is unable to
complete statutorily mandated inspections of Metal/Nonmetal mine operations
because of the rapid growth in mine operations, reductions in the numbers of
inspectors, and shifts toward compliance assistance. Chief among our
recommendations is the need for MSHA to study the allocation and geographic
distribution of enforcement and compliance assistance resources to determine
what combination of activities and inspections will produce the greatest effect
on mine safety.
We have made a number of recommendations to address the various
deficiencies that we have identified. For example, other OIG evaluations have
disclosed that MSHA needs to do more to protect miners and their families from
exposure to asbestos; improve the intake, management, tracking, and analysis of
complaints; and improve educational, engineering and enforcement tools to more
effectively contend with risk-taking behavior in the area of personal
protective equipment.
Rapid Expansion of the Bureau of International Labor
Affairs Program
The Bureau of International Labor Affairs (ILAB) assists in formulating
international economic, trade, and immigration policies affecting American
workers. ILAB is also responsible for spotlighting significant international
child labor issues and contributing to the development and implementation of
U.S. policy on international child labor. The increasing concern over child
labor issues resulted, in part, in an almost sevenfold increase in ILAB’s
appropriations during the last two fiscal years. However, the OIG’s
evaluation and audit work have raised concerns over ILAB’s management
structure, managerial controls over grant programs, program results, evaluation
methods, and the roles and responsibilities of individual staff to account for
this increased level of funding adequately.
Human Capital Management
In January 2001, the General Accounting Office added strategic human
capital management to its list of federal programs and operations identified as
high risk. The OIG agrees that no management issue facing federal agencies
could be more critical to their ability to serve the public than the ability to
attract, retain, and motivate a highly-qualified workforce. The OIG is
concerned about the human capital challenges that the Department faces in the
next decade, particularly since the Department projects that over 27% of its
entire workforce, as well as 47% of its supervisors, are eligible to retire in
the next five years.
Management of human resources has been a priority for the Department of
Labor. For example, DOL has instituted a number of policies to attract and
retain a quality workforce. These include polices such as flexible work
schedules, telecommuting, payment of student loans, transportation and child
care subsidies, and training and professional development. Moreover, in its
recent Score Card Report, the Office of Management and Budget has acknowledged
that DOL is using tools such as succession planning, and retention and
recruitment bonuses. DOL has indicated its plans to implement a Department wide
strategy to address succession planning, core competency analysis and training,
and the further use of personnel flexibilities.
Given the challenges it faces, DOL needs to ensure the consistent and
full utilization of current personnel flexibilities and DOL policies. In
addition to these proactive efforts, there are a number of specific
legislative, regulatory, and policy changes that would be helpful to Federal
agencies like DOL, in more effectively competing with private industry for
highly-skilled personnel and in retaining qualified employees. Flexibilities
are needed in the areas of: salary levels, recruitment bonuses, and promotions,
as well as a number of hiring rules such as the number of selected qualified
candidates who may be considered from a certification list. With such
flexibilities, however, come an even greater responsibility for DOL management
to ensure that any new authorities are applied appropriately.
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