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Department of Labor
Employment Standards Administration
Office of Labor-Management Standards
Washington, D.C. 20210
April 16, 2008
Mr. Edwin D. Hill
International President
International Brotherhood of Electrical Workers, AFL-CIO
900 Seventh Street, N.W.
Washington, D.C. 20001
RE: International Compliance Audit Program (I-CAP)
International Brotherhood of Electrical
Workers, AFL-CIO (IBEW)
LM File Number 000-116
Dear President Hill:
The Office of Labor-Management Standards (OLMS) within the Department of Labor
recently completed a compliance audit of the International Brotherhood of Electrical
Workers, AFL-CIO (IBEW), to assess its compliance with the provisions of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA). The audit was
conducted under the OLMS International Compliance Audit Program.
On February 26, 2008, the I-CAP Team conducted an exit interview with you; Mr. Jon F.
Walters, International Secretary-Treasurer; Mr. Lawrence F. Neidig, Jr., Senior
Executive Assistant to the International Officers; Mr. James F. Combs, Executive
Assistant to the International Secretary-Treasurer; Mr. Steven C. Darr, outside auditor;
and Mr. Laurence J. Cohen and Mr. Robert Kurnick, outside counsel. During the exit
interview, the I-CAP Team reviewed audit findings, identified actions that the IBEW
must take to correct the deficiencies identified, and recommended actions to enhance
the union's internal controls. This letter captures the audit's civil findings as generally
discussed during the exit interview. It does not purport to be an exhaustive list of all
possible problem areas, since the audit was limited both in scope and duration.
You were advised at the exit interview that an amended Labor Organization Annual
Report, Form LM-2, for the fiscal year ending June 30, 2006 is required to be submitted
within thirty days from the date of this letter to correct reporting and other deficiencies.
Additionally, if your organization's Form LM-2 for fiscal year ending June 30,2007
contains any of the reporting deficiencies noted in this closing letter that report must
also be amended and submitted within thirty days from the date of this letter. Specific
information relating to these deficiencies is presented below.
Reporting Deficiencies - LMRDA Section 201(b)
Section 201(b) of the LMRDA requires that labor organizations file with OLMS an
annual financial report that accurately discloses the union's financial condition and
operations. The following deficiencies were noted on the IBEW Form LM-2 for the
fiscal year ending June 30, 2006. The deficiencies identified in this section must be
corrected in an amended Form LM-2 for the fiscal year 2006 reporting period. Further,
subsequent Form LM-2 filings must be prepared so as not to contain these deficiencies.
1. The IBEW recorded Item 25 (U.S. Treasury Securities) on Statement A at market
value but did not disclose in Item 69 (Additional Information) the original cost of
the U.S. Securities at the start and end of the reporting period as required by the
reporting instructions. The Form LM-2 instructions require the total value of all
U.S. Treasury securities as shown on the labor organization's books at the start
and end of the reporting period in Columns (A) and (B), respectively. If the
value reported is different from the original cost, the original cost must be
reported in Item 69. The IU indicated that it has already amended and filed its
2007 LM-2 and will also amend its 2006 LM-2 in regard to this issue.
2. In Item 17 (Contingent Liabilities), the IBEW disclosed that it is party to a
number of routine lawsuits but failed to include sufficient detail in Item 69. The
Form LM-2 instructions require that for transactions that result in contingent
liabilities, identified in Item 17, the union must describe in Item 69 the identity of
the claimant or creditor, the case number, court and caption for each lawsuit.
The IU indicated that it has already amended and filed its 2007 LM-2 and will
also amend its 2006 LM-2 in regard to this issue.
3. The IBEW reported disbursements for a Christmas party, rent, human
resources/payroll services, building security, legal retainers, household moving
and storage, investment fees, travel consultant fees, telephone, maintenance and
audit services in Schedule 15 (Representational Activities), Schedule 16 (Political
Activities and Lobbying) and Schedule 19 (Union Administration). These types
of disbursements are reportable in Schedule 18 (General Overhead) unless they
were paid for a specific expense for the activity represented by the schedule. For
example, a telephone bill for a phone bank set up to coordinate an organizing
campaign should be reported in Schedule 15. If any of these particular
disbursements were paid for the administration of a specific union function, such
as an election, membership meeting, disciplinary proceeding, apprenticeship
program, or member education program, then they can be reported in
Schedule 19. If these disbursements were not paid for specific functions, then
generally they are reportable in Schedule 18.
Regarding disbursements related to the operations of a union office, the union
can allocate those disbursements to specific Form LM-2 functions if the union
maintains adequate records that document office usage and activities occurring
in the office and such usage and activities are for or support those specific Form
LM-2 functions. To be sufficient, records should include a contemporaneously
maintained, daily log of office usage and all activities occurring in the office.
Any business day for which union records do not document any office usage or
activities, should be considered general overhead. If throughout the course of
the report period, union records document an office usage/activity allocation of
80% representational, 10% union administration, and 10 % general overhead, then
office related disbursements can be allocated to those functions according to
those percentages. As an alternative, the union may choose to report such
otherwise non-allocable disbursements as general overhead.
4. Several itemization pages in support of Schedules 15, 16, 17, 18 and 19 contain
inadequate descriptions of the transactions in Column (C). For example, several
disbursements to law firms are only described as "Legal Services" and several
disbursements to various hotels are only described as "Meeting." Each itemized
transaction must be adequately described in Column (C) of the itemization page
to: i) disclose its nature and purpose; and ii) to assess whether or not the
disbursements as reported, comply with the reporting requirements of Section
201 (b).
5. The IBEW allocated time for employees (Maid, Accounting, Mailroom, Engineers,
etc.) who perform building or general support services as "Representational
Activities," "Political Activities" and "Union Administration." There was no
time reported for these employees in "General Overhead." A review of time
allocations for a sample of individuals, disclosed that the time allocated on
Schedules 11 (All Officers and Disbursements to Officers) and 12 (Disbursements
to Employees) did not appear reasonable, in that some activities these employees
performed should have been reported under the category "General Overhead."
To be consistent with Form LM-2 requirements, there should have been a
percentage of time reported for these employees using the General Overhead
allocation category.
6. There are five employees on Schedule 12 that were not listed as last name, first
name and middle initial per the Form LM-2 instructions. The Form LM-2
instructions stipulate that the last name, first name and middle initial are all
required for each employee who during the reporting period received more than
$10,000 in gross salaries and disbursements from the labor organization.
7. In some instances, the title "International Representative" shown on Schedule 12
did not adequately describe those employees' jobs. For example, one employee
who was listed as an International Representative is Executive Assistant to the
International Secretary-Treasurer. Another employee listed as International
Representative is actually the Director of the Per-Capita Department. The Form
LM-2 instructions require that the position each listed employee holds in the
labor organization be reported. To avoid misrepresenting the position held by
each listed employee, the IBEW should report the more specific position.
8. The IBEW did not consistently or completely capitalize all purchases as required
by the stated capitalization policy; therefore, Form LM-2 Schedule 4 (Purchase of
Investments and Fixed Assets) has been underreported. In order to accurately
report purchases of fixed assets on the LM-2 report, the I-CAP Team
recommends that the IU clarify its policy and apply it uniformly.
9. Schedule 6 (Fixed Assets) of the Form LM-2, requires that the labor organization
report details of all fixed assets, such as land, buildings, automobiles and other
vehicles, and office furniture and equipment owned by the labor organization.
The I-CAP Team could not confirm the amount reported on Schedule 6 because
the IU failed to tag furniture and equipment to confirm that the item in question
was the item listed in the inventory. In addition, certain items selected for
review could not be located at all in the IU offices. In order to satisfy the
reporting requirements for fixed assets and report an accurate and verifiable
amount in Schedule 6, all office furniture and equipment must be inventoried,
tagged, located, and identified, and periodic inventory counts must be
conducted.
10. Dues amounts are not shown in Item 21 of the LM-2; instead, the "10.00 per
Month" reported on line (a) is actually the per capita tax assessment. The Form
LM-2 instructions require that regular dues, fees or other periodic payments that
a member must pay to be in good standing, including the calendar basis for the
payment, must be listed on Line (a) of Item 21.
11. The IBEW reported "Prepaid Expenses" and "Inventory" as descriptions of
assets in Column A of Schedule 7 (Other Assets). These descriptions are not
sufficient to identify the type of assets, as required. The union's other assets may
be classified by general groupings or bookkeeping categories, such as utility
deposits or inventory of supplies for resale, as long as the descriptions are
sufficient to identify the type of assets. More detailed descriptions are required.
12. The IBEW reported $786,611,046 in sales of investments in Schedule 3 (Sale of
Investments and Fixed Assets) and $711,460,095 in purchases of investments in
Schedule 4 (Purchase of Investments and Fixed Assets), but did not report any
amounts in Line 14 (Less Reinvestments) of Schedules 3 and 4. The union
reported the full amount of sales and purchases of investments as net sales and
purchases in Item 43 (Sale of Investments and Fixed Assets) and Item 60
(Purchase of Investments and Fixed Assets). The total amount from the sale or
redemption of U.S. Treasury securities, marketable securities, or other
investments that was promptly reinvested must be entered on Line 14 of
Schedules 3 and 4.
Generally, "prompt" means reinvesting (or "rolling over") the funds in a week or
less without using the funds for any other purpose during the period between
the sale of the investment and the reinvestment. The union must therefore report
the amount of "reinvestments" in Line 14 of Schedule 3 and 4 and report only the
net sales and purchases of investments in Items 43 and 60.
13. The IBEW's Form LM-2 contains two discrepancies related to relocation benefit
payments. The first is that $500.00 reported on Schedule 12, Column G for one
International Representative should have been applied to another International
Representative, and $395.00 was reported on Schedule 12, Column G for one
International Representative that should have been applied to a separate
International Representative. The discrepancies were due to coding mistakes of
employee numbers.
Inadequate Recordkeeping: - LMRDA Section 206
Pursuant to Section 206 of the LMRDA, every person required to file any report under
LMRDA Title I1 shall maintain records on the matters reported that will provide in
sufficient detail the necessary information from which the reports filed may be verified,
explained, or clarified and checked for accuracy and completeness. All required records
must be maintained for at least five years following the date the financial report is filed.
Records over five years must be maintained if they are necessary to verify reports filed
within the last five years, for example, to verify current financial activities of the union,
such as meeting minutes that note approval for officer salary increases. There were
instances noted during this audit where the IBEW did not comply with the
recordkeeping requirements of Section 206. During the exit interview, you were
informed that adequate records necessary to document all financial transactions,
regardless of the amount, must be maintained for a minimum of five years.
14. IBEW employees who were assigned leased vehicles did not maintain mileage
logs documenting the business use of vehicles to differentiate between business
and personal miles, as required. In the case of union-owned and leased vehicles,
mileage logs are required to be maintained for each vehicle documenting the
date, number of miles driven, and business purpose for each use. These mileage
logs must be maintained contemporaneously with vehicle usage.
15. The IBEW's "Rules and Instructions for Online Expense Reports," which
supplement the IU's travel policy, provide guidance to officers and employees
who incur travel and other union business-related expenses. The "Rules" advise
that " . . .the International Secretary-Treasurer (I.S.T.) is directed 1) to pay claims
for reimbursement for actual and reasonable expenses incurred directly on
business of the I.B.E.W., when not away from home as well as when away from
home, which are properly submitted, authorized and approved in accordance
with the following rules and instructions, and 2) not to pay any item(s) of any
claim for reimbursement for expenses incurred on behalf of the I.B.E.W. when
not submitted in accordance with the following rules and instructions, unless
specifically directed otherwise by the International Resident (I.P.). Authorized
expenses are limited to those essential for I.B.E.W. business purposes. Non-
I.B.E.W. business-related expenses, which are not covered in these instructions
will NOT be reimbursed."
The I-CAP Team found that the IU did not always follow its policy or the
requirements of the LMRDA with regard to travel and union business-related
expenses incurred by its officers and employees. Specifically, the IBEW did not
retain adequate documentation for all expenses incurred by its officers and
employees. Form LM-2 instructions require that labor organizations retain
original receipts, bills, and vouchers for all disbursements. In certain instances,
receipts, bills, and vouchers were not retained for meal expenses.
In some instances, IBEW records pertaining to meal expenses included no
written explanation of union business conducted or the full names and titles of
all persons incurring those meal charges. In order to comply with LMRDA Title
11, union records pertaining to meal expenses must include written explanations
of union business conducted and the full names and titles of all persons
incurring the restaurant charges.
In addition, in some instances, officers and employees did not submit itemized
receipts for meal expenses. Itemized receipts provided by restaurants to officers
and employees must be maintained by the union. These itemized receipts are
necessary to determine if such disbursements are for union business purposes
and to fulfill the recordkeeping requirement in LMRDA Section 206.
16. Some Internet charges, tolls and car washes, although permitted expenses
according to union policy, were not adequately documented. The expenses in
question either did not have receipts or the receipts lacked identifying
information to confirm that the expenses were incurred by the employee seeking
reimbursement. Pursuant to Section 206 of the LMRDA, every person required
to file any report under LMRDA Title I1 shall maintain records on the matters
reported to provide in sufficient detail the necessary information from which the
reports filed may be verified, explained, or clarified and checked for accuracy
and completeness.
17. The IBEW did not always have documentation authorizing payments for
relocation purposes. The I-CAP Team recommends that IBEW only pay
relocation benefits after written approval from the International President stating
that the named officer or employee is permitted to receive relocation benefits.
Pursuant to Section 206 of the LMRDA, every person required to file any report
under LMRDA Title I1 shall maintain records on the matters reported to provide
in sufficient detail the necessary information from which the reports filed may be
verified, explained, or clarified and checked for accuracy and completeness.
18. In some instances the IU did not have source documents for receipts but instead
disclosed receipts on a report. Without source documents, such as copies of
checks received or copies of invoices requesting payment, the receipt information
on the Form LM-2 can not be verified. Unions must retain records necessary to
verify all assets, liabilities, receipts, and disbursements reported on Form LM-2
reports.
19. The IBEW loaned $500,000 to its Committee on Political Education's Education
Fund. There is nothing in writing to document this agreement. In order to
comply with Form LM-2 instructions, the IBEW must maintain a written record
that discloses all the terms of a loan, i.e., payment due dates, interest rate, loan
period, etc.
Office Holding Prohibitions - LMRDA Section 504
Section 504 of the LMRDA prohibits persons convicted of certain offenses from holding
labor organization office or employment for a period of thirteen years from the date of
conviction or release from prison, whichever is later. It is also a violation of Section 504
for another person to willfully and knowingly hire, retain, employ or otherwise place
the barred person in a prohibited capacity.
20. The IBEW does not conduct criminal background checks of officers or employees
to determine whether any officer or employee has a disqualifying criminal
record. During the exit interview, the I-CAP Team emphasized the importance
of verifying background information to ensure that individuals do not hold office
or employment in violation of LMRDA Section 504.
Internal Controls
Adequate internal financial controls are essential to prevent the misuse of union funds
and to support financial responsibility and other obligations under Title II and Title V of
the LMRDA. Title V of the LMRDA stipulates, among other things, the fiduciary
responsibility of officers of labor organizations. As a general rule, weaknesses in
financial controls can lead to violations of Section 501 of the LMRDA.
21. A complete physical inventory count and periodic inventories thereafter as
discussed in Item #9 herein are required for the IBEW to accurately substantiate
the amounts reported on the Form LM-2. The I-CAP Team recommends that all
items that are in service are tagged for identification within the IU's inventory
listing. In addition, the inventory listing maintained by the Accounting
Department needs to be reconciled with the computer equipment listing
maintained by the Information Technology Department.
22. The I-CAP Team found one check made payable to the IBEW Petty Cash Fund
and endorsed by an IBEW employee. Checks should be made out to the petty
cash custodian or the person responsible for handling the funds for which the
checks were written.
23. The audit revealed four checks in the period from March 24, 2006 to May 30, 2006
that were still outstanding as of October 2007. The IU should follow its policy of
voiding checks that have been outstanding over one year.
24. The IBEW's relocation policies for the United States and Canada do not state who
is responsible for approving the benefits for certain categories of relocation
beneficiaries. Clarifying the current policy to identify who is responsible for
authorizing relocation benefit payments in all instances will help ensure that
these payments are properly approved. For example, relocation benefits paid to
or on behalf of the International President should be approved by the Executive
Board, and relocation benefits for others should be approved in writing by the
International President prior to effecting transactions and payments.
25. The IBEW did not consistently authorize relocation benefits in accordance with
either the IBE W Relocation Policy-USA or IBEW Relocation Policy-Canada. The I-CAP Team recommends that the IU consistently follow its policy as to how
officers and employees should submit requests for eligible expenses related to
their home when they sell it or when IBEW purchases it.
26. The IBEW's mailroom staff receives and opens envelopes that may contain
checks but does not keep a log of the incoming checks. Since there is no
assurance that all checks are being accounted for, a potential risk for the
improper use of these checks increases. Implementing additional internal
controls would strengthen IU reporting and operational compliance and ensure
accountability over the checks.
The I-CAP Team recommends that one staff member in the mailroom be
assigned to receive checks, list the checks and forward the list to the Controller.
The Controller would then reconcile canceled deposit slips to the check list to
ensure that all checks that came in were eventually deposited.
27. Despite inadequate documentation, the IBEW reimbursed employees for expense
report items such as Internet charges, tolls and car washes as discussed in Item
#16 herein. Also, one employee received reimbursements for an expense report
that she did not sign. All employee expenses should be properly documented
before the IU pays or reimburses the employee for those expenses.
28. The I-CAP Team found that the invoices from the law firm Sherman, Dunn,
Cohen, Leifer & Yellig, P.C., were not sufficiently itemized to determine the rate
per service. The bill just shows a total for all the services for that invoice. All
other law firms' invoices in the sample show the amount of time for each service
multiplied by the hourly rate. For example, reviewing a loan document may
have taken 1/2 hour at a rate of $250.00 an hour which amounts to a billable
amount of $125.00 for that service. In the interest of determining the
reasonableness of the fees charged, the IU should only pay a bill for legal services
where the law firm discloses how much time it is billing for each particular
service and the applicable rate per hour.
As discussed during the exit interview, the IBEW will submit, within thirty days from
the date of this letter, a response letter to this closing letter, an amended Form LM-2 for
the fiscal year ending June 30,2006, and, if necessary, an amended Form LM-2 for the
fiscal year ending June 30, 2007. The response letter should identify the corrective
actions implemented by the IBEW based on the results of this compliance audit. We
will schedule an on-site follow-up in approximately six months to review corrective
actions taken, to discuss the amended Form LM-2 filed by the IBEW, and to continue
cooperative efforts to prevent and correct LMRDA deficiencies.
Please accept my appreciation for the cooperation and courtesy extended by you and
your staff during this compliance audit. If you have any questions, please do not
hesitate to contact me.
Sincerely,
D. Devine, Chief
Division of International Union Audits
Last Updated: 04/16/08
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