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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. They involve compliance, accountability and delivery of
services and benefits.
- Improving the Integrity of the Procurement System
- Reducing Improper Payments
- Safeguarding Unemployment Insurance
- Maintaining the Integrity of Foreign Labor Certification Programs
- Improving Financial and Performance Accountability
- Improving Systems Planning and Development
- Ensuring Security of Employee Benefit Plan Assets
- Improving Management of Real Property Assets
- Pursuing Reauthorization of the Workforce Investment Act
Improving Integrity of the Procurement System
Ensuring controls are in place to properly award and manage procurements
is a challenge to the Department. The current organizational structure lacks
separation of duties between procurement and program functions, which
facilitates noncompliance with procurement requirements and may result in
procurement decisions that are not in the best operating or financial interests
of DOL. In addition, our audits have demonstrated that file documentation has
not been adequate to support the validity and rationale of procurement
decisions and actions. The OIG believes that, until procurement and
programmatic responsibilities are properly separated and effective controls put
in place, DOL continues to be at risk for wasteful and abusive procurement
practices.
The OIG recently completed two audits involving procurement at two DOL
agencies, which were conducted as a result of hotline complaints. These audits
have shown that problems arise when the procurement function is not independent
of program functions. This scenario may result in program officials, instead of
contracting experts, driving procurement policy and decisions as our audits
identified.
An audit of a contract for encryption software disclosed that the award
to a sole-source contractor was not adequately justified. Furthermore, the
contract included two additional products that were added without the
Department's Procurement Review Board's review and approval. These unapproved
modifications significantly changed the contract's scope and cost. The
Department ultimately did not use $3.8 million worth of purchases of encryption
products and could not justify its reasons for abandoning the investment.
In another audit, we found that one specific agency's procurement
procedures exhibited a pattern of disregard for acquisition requirements and
did not adhere to the principle of full and open competition. By operating in
such an environment, management was unable to ensure that contracts were in the
best interest of the Government, and that all eligible contractors were given
the opportunity to compete for the agency's contracts.
Several audits involving procurement by the Department also have
demonstrated that procurement files did not contain adequate documentation to
support the validity or rationale of procurement decisions and actions. Also,
cognizant officials with oversight responsibility for both the program and
procurement functions could not demonstrate that their decisions were
sound.
The Service Acquisition Reform Act of 2003 addresses a number of issues
aimed at improving procurement management, including the requirement for each
Federal agency head to establish a Chief Acquisition Officer (CAO) position, to
be filled by a non-career employee whose primary responsibility is acquisition
management. The Department is taking steps to address the lack of separation of
duties in its procurement function with a recent draft Secretary's Order
establishing the position of CAO. To adequately address the OIG's
recommendations regarding separation of duties, day-to-day procurement duties
should be under the direction of the new CAO, with acquisition being the CAO's
primary responsibility.
Reducing Improper Payments
Reducing improper payments in DOL-administered programs, such as
Unemployment Insurance (UI) and the Federal Employee Compensation Act (FECA),
remains an ongoing challenge for the Department. Improper payments include
those made in the wrong amount, 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. Calendar year (CY) 2004 UI
overpayments by the states are projected by the Department at $3.4 billion. The
Department estimates FECA overpayments in FY 2004 at $6.4 million.
Unemployment Insurance and the Use of New Hire Data
The UI program, a Federal-state partnership, is DOL's largest income
maintenance program with outlays almost doubling in the past 6 years: from
$24.9 billion in FY 1999 to $48.9 billion in FY 2004. Benefits for individuals
are dependent on state law and administered by State Workforce Agencies, but
the program framework is determined by Federal law. In recent years, the OIG
has raised concerns about the magnitude and consistency of the overpayment rate
in the UI program.
A 2004 OIG audit determined that, although implementing a state new hire
directory cross-match was more effective in identifying overpayments than
cross-matching against employer wage records, 12 states were not using new hire
data at the time. According to ETA, 8 of the 12 states still have not connected
to their respective state's new hire database; however, 4 states are expected
to implement in the near future. We continue to recommend that the Department
provide technical assistance and resources to state UI programs currently not
using new hire detection to quickly initiate and/or complete plans for
implementation.
The OIG had also recommended that DOL encourage state UI agencies to
access the National Directory of New Hires. Access to this database provides
states with additional data not available in state directories of new hires,
such as new hire information from multi-state employers who report to a single
state and new hire information from the Federal government. Last year's passage
of the SUTA Dumping Prevention Act enabled states to access the National
Directory.
The Department is currently working closely with the Department of
Health and Human Services, the Social Security Administration, and the states
to determine technical and operational aspects of access to the National
Directory. DOL is currently performing a 3-state pilot study to determine if
the benefits of using the National Directory to reduce overpayments would
exceed the cost of implementation. The Department plans to have the study
completed and issue a final report to all 50 states in the fall of 2005.
The OIG urges the Department to continue to offer assistance to the
states on the use of both the state and National Directories.
Federal Employees' Compensation Act Program Controls
The OIG considers the risk of FECA overpayments a Departmental
challenge. The DOL-administered FECA program impacts the employees and budgets
of all Federal agencies. FECA provides income and medical cost protection to
covered Federal civilian employees injured on the job, employees who have
incurred work-related occupational diseases, and beneficiaries of employees
whose deaths are attributable to job-related injuries or occupational
diseases.
In previous years, the OIG reported that the Department needs to obtain
and review medical evidence on a periodic basis in order to justify continued
eligibility for FECA compensation payments. This was due to the fact that the
Office of Workers' Compensation Programs did not establish effective controls
to ensure that current medical evidence was requested and received in a timely
manner, increasing the risk of improper payments. In March
2005, DOL completed the roll-out of its new benefit payment system, iFECS
(Integrated Federal Employee Compensation System). This system automatically
tracks the due dates of medical evaluations. Management expects to have an
enhanced iFECS system fully operational by March 2006.
Safeguarding Unemployment Insurance
Improving the integrity of the UI program to provide income maintenance
to qualified individuals again remains a challenge for the Department. In FY
2004, the UI program paid $35 billion in temporary income support. Recurring
issues faced by the UI program are the adequacy of Unemployment Trust Fund
(UTF) resources and identity theft and organized crime activity in the UI
program.
Unemployment Trust Fund Resources
Overcharging for
UTF administration by the Internal Revenue Service (IRS) poses a major
challenge for the Department. Earlier OIG audits demonstrated the UTF was being
improperly charged for hundreds of millions of dollars over several years in
administrative expenses. The OIG previously recommended that the ETA work with
the IRS to adopt an alternative method to allocate costs and seek reimbursement
for overcharges. The IRS subsequently reduced the amount of UTF FY 2002
administrative charges.
In FY 2003, the Treasury Inspector General for Tax Administration
(TIGTA) reported that the IRS needed to establish an effective process for
determining UTF administrative expenses. Based on TIGTA's recommendation, the
IRS implemented a new cost methodology in October 2004. Even with this change,
the administrative charges for UTF exceeded $75 million for the first 3
quarters of FY 2005, and at the current rate, the OIG estimates charges will
exceed $100 million for FY 2005. ETA has expressed concern about the complexity
of the IRS's new methodology and the magnitude of the administrative charges.
The OIG recently requested that TIGTA audit the new methodology's adequacy for
charging UTF administrative expenses. We understand that TIGTA is planning an
audit in FY 2006.
Identity Theft and Organized Crime Activity in Unemployment
Insurance Program
OIG investigations have found increasingly
complex, costly and pervasive UI fraud schemes resulting in program losses in
the millions of dollars. Many of these schemes include both identity theft and
the involvement of multinational non-traditional organized crime groups. For
example, a significant OIG investigation revealed the crime group had
controlled more than 4,000 check-mailing addresses and used more than 15,000
identities in several states. The defendants were ordered to pay $59 million
for their role in the scheme. In a recent case, several members of a California
family were sentenced for various crimes. In this case, one defendant was
ordered to pay more than $7.5 million in restitution for her role in the UI
identity theft scheme.
Maintaining the Integrity of Foreign Labor Certification
Programs
Reducing the susceptibility of DOL Foreign Labor Certification (FLC)
programs to abuse remains a challenge for the Department. These programs permit
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. In FY 2004, DOL received approximately 466,000 foreign worker
applications for the FLC programs from employers. Abuse of the FLC programs may
cause unlawful admission of foreign nationals and incur economic hardship for
American workers.
Problems with the Labor Certification Process
The
responsibility for approving employers' labor certification applications falls
under the jurisdiction of ETA, which is the initial step in the process by
which foreign nationals obtain work visas. Unfortunately, a recurring concern
of the OIG is the integrity of the foreign labor certification process.
New regulations, which were effective March 2005, provide for the
electronic submission of new permanent applications to Federal Processing
Centers located in Atlanta and Chicago. The OIG cautions that an electronic
approval, rather than human review of applications by State Workforce Agencies,
could potentially increase fraud.
In 2004, the OIG also expressed concerns over both the high volume of
backlogged applications and the associated risk of approving questionable
applications. Unprocessed applications submitted before March 28, 2005, to ETA
regional offices or State Workforce Agencies have been transferred to the ETA
Backlog Elimination Centers located in Philadelphia and Dallas. As of August
2005, the Backlog Elimination Centers had 312,438 applications pending. ETA
expects to eliminate the backlog by CY 2007. The OIG continues to recommend the
Department ensure the processing of backlogged applications does not result in
the certification of unqualified applications.
Labor Certification Fraud
Labor certification
fraud remains a major OIG concern. Recent OIG investigations have revealed
corrupt employers, labor brokers, and lawyers who file fraudulent applications.
The prevalence of these cases consistently demonstrates the susceptibility of
the program to fraud. For example, one such broker recently submitted more than
900 labor certifications on behalf of Chinese nationals seeking entry into the
United States. In this instance, the labor broker had charged foreign workers
up to $90,000 per labor certification.
Improving 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, which cover 90% of
its expenditures.
Managerial Cost Accounting
A cooperative effort
between the Department's Office of the Chief Financial Officer (OCFO) and the
program agencies resulted in the successful development of cost models for most
of DOL's major agencies and programs during the latter part of FY 2004. These
cost models provide capabilities to integrate program activities, outputs,
costs, and non-financial data to provide the basis for reporting useful
managerial cost accounting information. Additionally, OCFO, the Office of the
Assistant Secretary for Administration and Management (OASAM), and the program
agencies are continuing to improve the cost models and related capabilities for
integration of cost and performance information.
The Department received high marks on the PMA the past few years for its
financial management. To fully realize the benefits of cost accounting, the
Department now needs to turn attention to refining its cost models and their
related capabilities for integration of financial and programmatic data, and
successfully institutionalizing the use of cost accounting information to
improve program operations and routinely report program results.
Quality Performance Data
Three recent OIG reviews
of the validity of DOL program data identified the need for improvement in the
way DOL ensures completeness and reliability of program results data. Also,
much of the 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. The OIG plans to audit ETA's data
validation system in FY 2006.
Single Audit
The Department relies on audits
conducted under the Single Audit Act to provide oversight of more than 90% of
its expenditures. The 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. OIG quality control reviews since
2002 have revealed serious deficiencies in single audits, including inadequate
sampling, which would make the audits unreliable. The OIG is currently
participating in the National Single Audit Sampling Project. This project is
designed to: determine the quality of Single Audits by providing a
statistically reliable estimate of the extent that Single Audits conform to
applicable requirements and standards; and make recommendations to address any
noted audit quality issues.
Management Controls
In FY 2005, Office of
Management and Budget (OMB) Circular A-123 was amended to provide updated
internal control standards applicable to all Federal agencies. The amendment
also included new specific requirements for conducting agency management's
assessment of the effectiveness of internal controls over financial reporting.
Appendix A of A-123 requires that documentation be maintained, not only of the
controls in place, but also of the assessment process and methodology that
management used to support its assertion as to the effectiveness of the
internal control over financial reporting. In addition, Federal agencies will
be required to perform monitoring activities that include direct testing of the
controls as part of the assessment process. With implementation set at the end
of FY 2006, all Federal agencies, including DOL, will be challenged to
establish procedures and mechanisms to assess, test, document, and certify that
their internal controls are in place and operating effectively.
Improving Systems Planning and Development
Developing efficient and effective systems to perform daily activities
remains a significant challenge for the Department. OIG audits have identified
that DOL Information Technology (IT) system development life-cycle activities
need strengthening in the areas of planning, project management, and decision
making. Current system development plans should be structured to include timely
reviews of initiatives progress in relation to planned project activities, and
significant milestones, especially at 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 activities
and are providing adequate project management. The Department's agencies should
assess their progress in having sufficient numbers of IT and business line
personnel obtain certification in the field of project management. These
resources will help to assure the future success of DOL IT initiatives and can
be leveraged throughout DOL, as warranted, given the importance, size, and
complexity of an initiative.
Department of Labor Core Financial System Replacement
The New Core Financial Management System (NCFMS) is an enterprise-wide
initiative that will enhance the Department's ability to integrate financial
and performance information. By replacing DOL's legacy mainframe based core
accounting system (DOLAR$) with a commercial-off-the-shelf financial management
information system, program managers and decision makers throughout the
Department will receive more timely, accurate, and useful information to
improve results delivered by the programs they administer. DOL will be
challenged to develop a system that meets PMA and OMB Requirements. In
addition, the NCFMS project will affect all organizations in the Department
that currently utilize DOLAR$, or have systems that interface into DOLAR$.
Emerging Technologies
DOL is reviewing new
technologies to better manage and provide services to the public. In doing so,
it is likely to experience new security threats and other events as these new
technologies' vulnerabilities are exploited. The Department is currently
embracing the new technologies of wireless local-area networks and personal
electronic devices, and has started using wireless technology to better serve
the needs of the organization. To meet the new challenges that these
technologies bring, the Department should have acquisition and implementation
plans consistent with protecting informational assets and confidential and
sensitive information, while providing the highest level of quality of service
and access to needed information. These new technologies will require updated
policies and procedures to maintain a high level of operational effectiveness.
Close monitoring will be key to ensuring that the promised benefits of these
technologies are achieved.
Homeland Security Presidential Directive (HSPD) — 12
The Department, as well as all other Federal agencies, must implement
a standard system for identifying Federal employees and contractors. This
system must implement a secure and reliable method of identification, which has
the capability to coordinate access with other Federal agencies and sites. The
HSPD-12 has an aggressive implementation date of September 2006. Under this
system, agencies will need to provide employees identification cards that will
be used to validate and monitor Federal employees and contractors. The General
Services Administration is responsible for reviewing and approving third
party-solutions available for agencies to procure. However, the HSPD-12 allows
agencies to develop or procure non-approved services, which will challenge DOL
to implement the new Personal Identity Verification cards ( i.e.,
Smart Cards) that are: secure and reliable forms of identification; issued
based on sound and recognized criteria; rapidly authenticated; and strongly
resistant to identity fraud, tampering, counterfeiting, and terrorist
exploitation. In addition to the challenge of providing this new technology,
DOL will also be challenged in managing the implementation, distribution, and
maintenance of the Smart Cards.
Implementation of Public Key Infrastructure (PKI)
Despite working the last several years on implementing a PKI solution
to secure and authenticate electronic documents within the Department, DOL has
yet to identify a PKI solution. During the same period, DOL has twice procured
encryption products that need PKI to achieve maximum benefit from these
products. Because the use of keys to encrypt, decrypt, and authenticate
documents is a complex process, agencies and public organizations may
experience difficulties implementing an integrated and effective PKI program.
DOL has been challenged to implement a Department-wide PKI system and manage
the underlying infrastructure, and is currently exploring other avenues to find
the best fit for the Department's needs and environment.
Ensuring Security of Employee Benefit Plan Assets
A major challenge confronting the Department is protecting the benefits
of American workers, which includes pensions and health care. The Employment
Benefits Security Administration (EBSA) oversees the administration and
enforcement of the fiduciary, reporting, and disclosure provisions of Title I
of the Employee Retirement Income Security Act (ERISA). Under ERISA, the
Secretary of Labor is responsible for the rights and financial security of
participants in approximately 730,000 private pension plans and 6 million
health and welfare plans covered by ERISA. These pension plans hold over $4.5
trillion in assets and cover more than 150 million American 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
Improving the
process through which employee benefit plans are audited is a serious challenge
faced by DOL. As a result of an earlier OIG audit, and on its own initiative,
the Department made several improvements to its processes for identifying and
correcting deficient employee benefit plan audits. EBSA now reviews the audit
quality processes of those firms performing the greatest number of employee
benefit plan audits. In addition, it will continue to review individual audits
of smaller firms on a sample basis, allowing for more coverage. For those
deficiencies identified, the Department has agreed to obtain more corrective
action. As for the smaller firms where EBSA will review individual plan audits,
the Department implemented procedures ensuring review of the most current work
available.
For the audits that the OIG found to be deficient, EBSA has begun a
process of reviewing more current audit work of these firms. If the Department
finds current work to be deficient, EBSA has agreed to obtain greater
documentation of corrective actions from the firms involved.
Pension Plan Fraud
Ensuring the security of
employee benefit plan assets, which are attractive targets to organized-crime
groups, remains a challenge for the Department. Recent OIG labor racketeering
investigations and the increased activity of EBSA's criminal enforcement
program consistently identify the vulnerability of pension assets. The OIG has
continued to monitor the integrity of Taft-Hartley plans, which are jointly
administered by labor union and management representatives and have been
previously identified as at risk. A typical labor-management case often evolves
from the collaboration of management representatives and corrupt union
officials. One such case recently led to the 53-count indictment of 32 members
and associates of a well-known organized-crime family. Defendants included both
a president and a trustee of a local union.
Cash Balance Pension Plans
A 2002 OIG audit found
that some cash balance pension plan participants, who had collected the lump
sum payments before normal retirement age, were being underpaid benefits. The
OIG again raises the issue regarding the methodology used to calculate the
benefits. The OIG continues to recommend that EBSA increase the Department's
oversight of cash balance pension plans. However, the first step in this
direction requires the guidance of the IRS regarding the calculation of
participant-accrued benefits on this matter. Disparate interpretations of how
accrued benefits are calculated will result in some plan participants
continuing to be paid incorrectly. The OIG urges the Department to press the
IRS for the necessary guidance to ensure cash balance pension plan recipients
receive the benefits they are owed.
Corrupt Multiple Employer Welfare Arrangements
(MEWAs)
MEWAs are typically marketed to small
businesses as a means of obtaining inexpensive health coverage for their
employees. Fraudulent MEWAs, which default on their benefit obligations, are
often misrepresented by plan promoters as being maintained under a bona-fide
collective bargaining agreement. The OIG continues to recommend EBSA
investigate unscrupulous health insurers who are burdening Americans with an
increasing number of unpaid medical claims. Therefore, the OIG recommends that
the Department continue its efforts to decrease the number of fraudulent MEWAs,
in particular by seeking legislative changes to increase its authority to
obtain reliable plan information and assess penalties.
Improving Management of Real Property Assets
Improving the accountability for and management of real property is an
ongoing challenge for the Department. A Government Accountability Office (GAO)
report released in June 2005 noted that the Department has taken actions in
response to last year's Executive Order 13327 which addresses the Federal Asset
Management initiative to the PMA. A senior real property officer has been
designated to, among other things, monitor the real property assets of the
Department. However, the GAO report raises the government-wide issue of the
lack of reliable and useful property data that are needed for strategic
decision making.
Job Corps Real Property
In our FY 2004 report on
the Department's internal controls over financial reporting, the OIG noted that
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. In FY 2004, Job Corps real property was valued at $770
million. ETA is in the process of taking action to ensure the Job Corps real
property is accurately reported and restructuring its existing processes 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
higher priority. ETA has begun to review its existing processes and
restructure them to strengthen the property management system.
For example, ETA will no longer approve new grantee amortization plans, and
will review and renegotiate existing plans on a case-by-case basis.
Pursuing Reauthorization of the Workforce Investment Act
(WIA)
WIA authorization expired in 2003, and Congressional reauthorization is
still pending. Both the revision and improvement of WIA programs by the
Department via the reauthorization process will continue to be a challenge. OIG
audits identified areas in which WIA could be improved through 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 our current
recommendations, but it is waiting for reauthorization to implement them.
Changes From Last Year
In identifying the most critical Management Challenges faced by the
Department each year, the OIG recognizes matters meriting the continued
attention of the Department may be omitted from the list. Changes from the Top
Management Challenges Facing the Department of Labor from FY 2004 are the
addition of Improving the Integrity of the Procurement System and the inclusion
of last year's challenge of Information Technology Security Controls within the
Challenge of Improving Systems Planning and Development.
E-payroll conversion, one of last year's concerns, was addressed when
the Department transferred its payroll system to the National Finance Center in
April 2005. The delay in the conversion due to issues raised by the OIG
significantly contributed to the Department having only minor issues when the
conversion was completed.
One of last year's issues regarding the solvency of Unemployment Trust
Fund resources within the challenge of Safeguarding Unemployment Insurance has
also been eliminated. When the OIG initially raised this issue, the Trust Fund
balance was in steady decline and benefit payments were on the rise. The
concern was that the balance could reach a point where Federal money would not
be able to cover state shortfalls. But this is no longer the case, because,
during the recent recession, the Trust Fund remained solvent and covered state
shortfalls as needed.
In the areas of grant accountability, ETA has undertaken a grants
management initiative, the results of which the OIG is currently reviewing.
While it is not included in this year's Management Challenges, accountability
over DOL-awarded grants will continue to merit diligent attention.
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