|
Office of Inspector General
Washington, D.C. 20210
To the Honorable
Elaine L. Chao Secretary of Labor
The Chief Financial Officers Act of 1990 (CFO Act) requires agencies to
report annually to Congress on their financial status and any other information
needed to fairly present the agencies’ financial position and results of
operations. To meet the CFO Act reporting requirements, the United States
Department of Labor (DOL), a Department of the United States Government,
prepares annual financial statements, which we audit.
The objectives of our audit are to express an opinion on the fair
presentation of DOL’s Fiscal Years 2002 and 2001 principal financial
statements, obtain an understanding of the Department’s internal control,
and test compliance with laws and regulations that could have a direct and
material effect on the financial statements.
Additionally, our objectives included expressing an opinion on
DOL’s compliance with requirements of the Federal Financial Management
Improvement Act of 1996, based on our examination
We have audited the consolidated balance sheets of DOL as of September
30, 2002 and 2001 and the related consolidated statements of net cost, changes
in net position, financing, and custodial activity and the combined statements
of budgetary resources for the years then ended. These financial statements are
the responsibility of DOL’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America; the standards applicable to financial
audits contained in Government Auditing Standards, issued by the Comptroller
General of the United States; and Office of Management and Budget (OMB)
Bulletin No. 01-02, Audit Requirements for Federal Financial Statements. These
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
Relationship to the Single Audit Act
The financial statements for the year ended September 30, 2002 and
2001, include:
- costs for grants, subsidies, and contributions primarily with
various state and local governments and nonprofit organizations in the amount
of $10.0 billion for FY 2002 and $8.2 billion for FY 2001;
- costs for unemployment benefits incurred by state employment security
agencies in the amount of $50.0 billion for FY 2002 and $28.6 billion for FY
2001;
- state employer tax revenue of $19.3 billion for FY 2002 and $19.9
billion for FY 2001;
- net receivables for state unemployment taxes, reimbursable employers,
and benefit overpayments of $1.0 billion for FY 2002 and $.9 billion for FY
2001; and
- reimbursements from state, local, and nonprofit reimbursable
employers for unemployment benefits paid on their behalf, in the amount of $1.3
billion for FY 2002 and $1.0 billion for FY 2001.
Our audit included testing these costs, financing sources, and balances
at the Federal level only. Pursuant to a mandate by Congress, the examination
of these transactions below the Federal level is primarily performed by various
auditors in accordance with the Single Audit Act of 1984, as amended, and OMB
Circular A-133. The results of those audits are reported to each Federal agency
that provides direct grants, and each Federal agency is responsible for
resolving findings for its awards.
Opinion on Financial Statements
In our opinion the financial statements referred to above present
fairly, in all material respects, in conformity with accounting principles
generally accepted in the United States of America:
- the assets, liabilities, and net position of the Department of Labor
as of September 30, 2002 and 2001; and
- the net cost, changes in net position, budgetary resources,
reconciliation of net cost to budgetary resources, and custodial activity for
the year ended September 30, 2002 and 2001.
As described in Note 1 (C and D) to the financial statements, the FY
2001 financial statements have been restated to adopt a provision in OMB
Bulletin No. 01-09 that requires certain budget authority and other resources
allocated to another agency be reported by the transferor; and for an error in
the classification within equity of certain funds transferred from the
Unemployment Trust Fund to State Unemployment Insurance and Employment Service
Operations. The correction of this error for periods prior to FY 2001 has been
shown as a prior period adjustment in the statement of changes in net position
for FY 2001.
Other Accompanying Information
Our audit was conducted for the purpose of forming an opinion on the
consolidated financial statements of DOL taken as a whole. The accompanying
financial information discussed below is not a required part of the principal
financial statements.
The required supplementary information included in the Management
Discussion and Analysis and FY 2002 Financial Performance Report sections of
the Performance and Accountability Report, and the Required Supplementary
Stewardship Information are required by the Federal Accounting Standards
Advisory Board and OMB Bulletin No. 01-09. We have applied limited procedures,
which consisted principally of inquiries of management regarding the methods of
measurement and presentation of the information. However, we did not audit the
information and express no opinion on it.
The information in the Annual Performance Report and the appendices of
the DOL’s Performance and Accountability Report is presented for purposes
of additional analysis. Such information has not been subjected to the auditing
procedures applied in the audits of the consolidated financial statements and,
accordingly, we express no opinion on it.
Report on Internal Control
In planning and performing our audit, we considered DOL’s internal
control over financial reporting by obtaining an understanding of the
Department’s internal control, determined whether internal controls had
been placed in operation, assessed control risk, and performed tests of
controls in order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements. We limited our internal
control testing to those controls necessary to achieve the objectives described
in OMB Bulletin No. 01-02. We did not test all internal controls relevant to
operating objectives as broadly defined by the Federal Managers’ Financial
Integrity Act of 1982, such as those controls relevant to ensuring efficient
operations. The objective of our audit was not to provide assurance on internal
control. Consequently, we do not provide an opinion on internal control.
Our consideration of the internal control over financial reporting
would not necessarily disclose all matters in the internal control over
financial reporting that might be reportable conditions. Under standards issued
by the American Institute of Certified Public Accountants, reportable
conditions are matters coming to our attention relating to significant
deficiencies in the design or operation of the internal control that, in our
judgment, could adversely affect the agency’s ability to record, process,
summarize, and report financial data consistent with the assertions by
management in the financial statements. Material weaknesses are reportable
conditions in which the design or operation of one or more of the internal
control components does not reduce to a relatively low level the risk that
misstatements in amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a timely period
by employees in the normal course of performing their assigned functions.
Because of inherent limitations in internal controls, misstatements, losses, or
noncompliance may nevertheless occur and not be detected. We noted certain
matters, discussed in the following paragraphs, involving the internal control
and its operations that we consider to be reportable conditions. However, none
of the reportable conditions is believed to be a material weakness.
In addition, we considered DOL’s internal control over Required
Supplementary Stewardship Information by obtaining an understanding of the
agency’s internal controls, determining whether they had been placed in
operation, assessing control risk, and performing tests of controls as required
by OMB Bulletin No. 01-02. The objective of our audit was not to provide
assurance on these internal controls. Accordingly, we do not provide an opinion
on such controls.
Finally, with respect to internal control relating to performance
measures included in the Performance Report, we obtained an understanding of
the design of significant internal controls relating to the existence and
completeness assertions as required by OMB Bulletin No. 01-02. Our procedures
were not designed to provide assurance on internal control over reported
performance measures, and, accordingly, we do not provide an opinion on such
controls.
Reportable Conditions
Current Year Reportable Conditions
Job Corps Real Property Depreciation
We noted discrepancies in the
calculation of depreciation for capitalized ETA Job Corps real property
relating to 1998 and prior years. These discrepancies included:
- 13 assets that should have been fully depreciated but continued to
have a net book value of $6 million at April 30, 2002. Depreciation expense
continued to be recorded each month.
- 526 assets that should have been fully depreciated at April 30,
2002. These items have no current year depreciation expense but continued to
have a net book value of $57 million.
The assets were fully depreciated as of September 30, 2002, by
adjustment. However, Statement of Federal Financial Accounting Standards No. 6,
Accounting for Property, Plant, and Equipment, requires the calculation of
depreciation to be a systematic and rational allocation of the cost of general
property, plant and equipment over the estimated useful life of the asset. In
addition, GAO’s Standards for Internal Control in the Federal Government
require that internal controls should be designed to assure that ongoing
monitoring occurs in the course of normal operations. The depreciation
calculation for the items noted above was not adequately monitored to ensure a
systematic and rational allocation. This weakness in internal control over
assets valuation resulted in an overvaluation of property reported in
DOL’s FY 2001 financial statements.
ETA agreed that there was an oversight on its part, but believes that
this is an isolated incident not requiring additional efforts or controls.
However, we have concluded that stronger internal controls should be designed
to help prevent future oversights.
We recommend that the Chief Financial Officer ensures that property
valuations reported by the capitalized assets tracking and reporting system
(CATARS) are accurate by developing and documenting internal controls that will
include quarterly reviews of the asset cost, net book value, and depreciation
expense.
ILAB Excessive Cost Accruals
The Bureau of International
Labor Affairs (ILAB) has experienced rapid growth in its appropriations during
the last several years, with its funding more than doubling from FY 2000 to FY
2001. This rapid growth has resulted in challenges in accounting methodologies
for ILAB. Specifically, we have noted that ILAB does not have a documented
accrual methodology and that ILAB does not include subsequent verification of
the estimated accruals when actual costs become known. As a result, accrued
costs were overstated by approximately $47 million at September 30, 2002. The
cost accrual provisions of Grant Financial System Requirements, issued by the
Joint Financial Management Improvement Program (JFMIP), require subsequent
verification of estimated accruals.
We recommend that the Chief Financial Officer and the Assistant
Secretary for Administration and Management ensure that a formal written
accrual methodology is developed that satisfies all JFMIP system requirements.
The methodology should include procedures for the subsequent verification of
the accrual accuracy, and procedures for adapting the methodology as necessary
based on the verification results.
Management concurs with the recommendation made by the OIG. They will
review their current methodology and select an accrual method more in line with
the specific types of ILAB grants.
Prior Year Reportable Conditions
Information Technology (IT) Controls
While the Department has
made progress in strengthening its IT environment in the last 4 years, we noted
several areas where the Department can continue to make improvements:
The Department lacks strong logical security controls to secure the
Department’s data and information.
The Department still lacks strong logical security controls to secure
the Department’s data and information. In the performance of our internal
vulnerability assessment testing of the Department of Labor Accounting and
Related System for FY 2002, we identified significant vulnerabilities involving
general controls and security that resulted in an alert report being issued to
DOL’s Chief Information Officer and Chief Financial Officer. To address
these vulnerabilities, the Department needs to strengthen technical security
standards, administrative procedures, enforcement processes, monitoring
processes and response/recovery processes.
In response, management stated that while they believe the controls in
place during FY 2002 would have prevented a significant compromise of the data
in the DOLAR$ system, they consider any security weakness to be serious.
Management has taken additional steps to strengthen these controls.
Accountable Property
We previously reported that several
agencies did not have adequate procedures and systems to track accountable
property (general property, plant, and equipment that does not meet the
Department’s capitalization threshold). During FY 2002, DOL entered into a
contract to conduct a preliminary review of current DOL property management
operations and property management systems, develop a new property management
database, and document responsibilities. This remains in the preliminary
stages.
Further, in FY 2002, the Department raised its capitalization threshold
from $25,000 to $50,000, which will substantially decrease the number of items
requiring capitalization and tracking in the capitalized property system.
Because several agencies do not have adequate accountable property systems,
items below this new threshold will not be tracked in any system; therefore,
the potential risk of loss to the Department increases.
Management has stated that they agree with the need to improve controls
over accountable property and are working to develop a Department-wide property
system.
Capitalized Assets
We previously reported that
management’s capitalized asset tracking and reporting procedures are
inadequate to ensure that disposals of capitalized assets are reported in a
timely and accurate manner, and that assets are adequately safeguarded against
loss or theft. To adequately safeguard assets, a physical inventory should be
taken on an annual basis to determine that all of the items in CATARS exist and
are in use. A reconciliation should be performed to identify differences
between the physical inventory and CATARS. The differences should be researched
to determine why they were not located. During our FY 2002 audit, we determined
that the Department was not performing reconciliations of CATARS to the
physical inventory. Instead, the Department was comparing what was in CATARS to
what was found, and removed items from CATARS that could not be found, rather
than researching to find out the actual disposition of the missing assets.
Management concurs with the need to develop stronger controls and is
working to correct these deficiencies.
Unemployment Insurance (UI) Benefit Overpayments
We
previously reported certain deficiencies in the internal controls over
Unemployment Insurance benefit payments. We identified that UI overpayment data
collected by the Benefit Accuracy Measurement (BAM) data reflect significantly
higher overpayments than those established and reported by the states’
Benefit Payment Control (BPC) system. In FY 2002, management provided the OIG
with a detailed corrective action plan and timeline, as well as descriptions of
certain actions already put into place. While we generally concur with the
corrective actions described by management, certain actions listed on the final
timeline were not fully described in the written plan, and certain decisions
regarding the measurement of least-detectable and nonrecoverable overpayments
have yet to be finalized.
ETA agreed with the need to provide a new plan, and recently provided a
revised plan that will be reviewed during our FY 2003 audit work.
Accounting for Grants
ETA’s grant accounting has the
following deficiencies:
- While the number of grants in closeout reflects a steady decrease
since FY 2000, our audit disclosed that the ending inventory of grants in
closeout at September 30, 2002, does not include certain regional office grants
that expired but were not identified for closeout or included in the tracking
system. We also noted that the final certification process is not being
performed timely.
- Transfers of WIA funds between programs continue to be unaccounted
for in ETA’s accounting records.
- While ETA has stepped up its efforts to obtain and record delinquent
cost reports from its grantees, our FY 2002 audit continued to note delinquent
reporting.
- We continued to note data entry errors in our grants testing. Errors
were noted at both the regional offices, which are not recorded through the
EIMS system, and the national office. For example, at the national level we
identified over $250 million in negative cost entries posted. At the regional
offices, we noted errors in various Job Corps contracts selected for
testing.
- ETA continues to operate without written grant accounting
procedures, both at the regional and National offices.
ETA management has taken certain actions and is continuing to implement
improvements to address our audit findings.
Report on Compliance with Laws and Regulations Exclusive of the
Federal Financial Management Inprovement Act of 1996 (FFMIA)
The management of the DOL is responsible for complying with laws and
regulations applicable to the Department. As part of obtaining reasonable
assurance about whether the Department’s financial statements are free of
material misstatement, we performed tests of its compliance with certain
provisions of laws and regulations, noncompliance with which could have a
direct and material effect on the determination of financial statement amounts
and certain laws and regulations specified in OMB Bulletin No. 01-02, including
the requirements referred to in the Federal Financial Management Improvement
Act of 1996. We limited our tests of compliance to these provisions and we did
not test compliance with all laws and regulations applicable to the DOL .
The results of our tests of compliance with the laws and regulations
described in the preceding paragraph, exclusive of FFMIA, disclosed no
instances of noncompliance with laws and regulations that are required to be
reported under Government Auditing Standards and OMB Bulletin 01-02.
Providing an opinion on compliance with certain provisions of laws and
regulations was not an objective of our audit and, accordingly, we do not
express such an opinion.
Report on Compliance with FFMIA
We have examined DOL’s compliance with the requirements of FFMIA
as of September 30, 2002. These include implementing and maintaining financial
management systems that substantially comply with: (1) financial management
systems requirements, (2) applicable Federal accounting standards, and (3) the
United States Government Standard General Ledger (SGL) at the transaction
level. Management is responsible for DOL’s compliance with these
requirements. Our responsibility is to express an opinion on DOL’s
compliance based on our examination.
Our examination was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants;
Government Auditing Standards, issued by the Comptroller General of the United
States; and OMB Bulletin No. 01-02, Audit Requirements for Federal Financial
Statements. These standards include examining on a test basis, evidence about
DOL’s compliance with those requirements and performing such other
procedures as we considered necessary in the circumstances. We believe that our
examination provides a reasonable basis for our opinion. Our examination does
not provide a legal determination on DOL’s compliance with specified
requirements. In our opinion, as of September 30, 2002, DOL substantially
complied with the requirements of FFMIA, except for applicable Federal
accounting standards as described below:
Implementation of Managerial Cost Accounting
The Department
of Labor is not in compliance with the requirements for managerial cost
accounting contained in Statement of Federal Financial Accounting Standards
Number 4 (SFFAS No. 4), The Managerial Cost Accounting Concepts and Standards
for the Federal Government. Specifically, DOL has not defined outputs for its
operating programs nor developed the capability to routinely report the cost of
outputs at the operating program and activity levels for use in managing
program operations. Additionally, DOL does not use managerial cost information
for purposes of performance measurement, planning, budgeting or forecasting
Noncompliance with requirements for managerial cost accounting persists
primarily because DOL has not succeeded in its efforts to implement a
functional managerial cost accounting system. System implementation has not
been successful because agency and program management responsible for the vast
majority of DOL’s operating programs have not actively participated in the
implementation effort led by the Office of the Chief Financial Officer.
We recommend that the Chief Financial Officer ensures the development
of a comprehensive Department-wide managerial cost accounting system
implementation plan by June 30, 2003, that will be fully operational by January
28, 2006.
In accordance with the provisions and requirements of the Act, the
Secretary of Labor has determined that the Department of Labor’s financial
management systems are in substantial compliance with the FFMIA. However, the
OIG maintains the position that since costs are not captured and reported at
the level required and there is not in place an integrated system that can be
used by managers to manage DOL programs on a day-to-day basis, the Department
has not implemented managerial cost accounting as required by the standard.
Therefore, the OIG’s opinion is that the Department is not in substantial
compliance in this regard.
This report is intended solely for the information and use of the
management of the U.S. Department of Labor, the Office of Management and
Budget, and Congress, and is not intended to be and should not be used by
anyone other than these specified parties.
Elliot P. Lewis
Assistant Inspector General for Audit
January
6, 2003
|
