EMPLOYMENT STANDARDS ADMINISTRATION
LONGSHORE AND HARBOR WORKERS'
COMPENSATION ACT SPECIAL FUND
FINANCIAL STATEMENTS AND
RELATED REPORTS
SEPTEMBER 30, 1997 AND 1996
Office of Management, Administration and Planning
Division of Financial Management
LONGSHORE AND HARBOR WORKERS'
COMPENSATION ACT
SPECIAL FUND
FINANCIAL STATEMENTS
AND RELATED REPORTS
SEPTEMBER 30, 1997
AND 1996
MEMORANDUM FOR:
BERNARD ANDERSON
Assistant Secretary
for Employment Standards
FROM:
JOHN J. GETEK
Assistant Inspector General
for Audit
SUBJECT:
Final Audit Report No. 12-98-004-04-432
Longshore and Harbor Workers' Compensation Act
Special Fund Financial Statements and Related Reports; and
Final Audit Report No. 12-98-005-04-432
District of Columbia Workmen's Compensation Act
Special Fund Financial Statements and Related Reports
September 30, 1997 and 1996
Attached are copies of the referenced audit reports which cover Fiscal Years 1997 and 1996 financial statements of each Special Fund.
The Assistant Inspector General's Reports on these two special funds state that the financial statements present fairly, in all material respects, the financial position of the Longshore and Harbor Workers' Compensation Act Special Fund and the District of Columbia Workmen's Compensation Act Special Fund.
The Longshore report includes a single recommendation that ESA strengthen internal controls over rehabilitation service costs by automating the rehabilitation payment system. This recommendation was brought to management's attention in the report on the audit of the Department of Labor's FY 1997 Consolidated Financial Statements (12-98-002-13-001) and will be tracked for audit resolution under that report. Therefore, a response to this report is not necessary.
The District of Columbia report does not contain any recommendations.
We appreciate the cooperation of all ESA staff involved in this year's audit. If you have any questions, please contact Elliot Lewis, Director, Office of Financial Management Audits, at 219-5906.
Attachments
CONTENTS
PAGE
ASSISTANT INSPECTOR GENERAL'S REPORT 1.1
LONGSHORE
AND HARBOR WORKERS' COMPENSATION ACT
2.1
SPECIAL
FUND FINANCIAL STATEMENTS
Introduction 2.5
Financial highlights 2.5
Program performance 2.6
Limitations on financial statements 2.6
Statements of financial position 2.8
Statements of operations and changes in net positi 2.9
Statements of cash flows 2.10
Notes to financial statements 2.11
Findings & Recommendations
3.1
DCCA District of Columbia Workmens' Compensation Act Special Fund
DOL Department of Labor
DLHWC Division of Longshore and Harbor Workers Compensation
ESA Employment Standards Administration
FASAB Federal Accounting Standards Advisory Board
FMFIA Federal Managers' Financial Integrity Act
FY Fiscal Year
JFMIP Joint Financial Management Improvement Project
LCMS Longshore Case Management System
LHWCP Longshore and Harbor Workers Compensation Program
OMB Office of Management and Budget
OWCP Office
of Workers' Compensation Programs
U.S. Department of Labor
Office of Inspector General
Washington, D.C. 20210
| Mr. Bernard Anderson
Assistant Secretary for Employment Standards U.S. Department 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. The District of Columbia Workmen's Compensation Act Special Fund (Fund) is included in the United States Department of Labor (DOL) annual financial statements issued to meet the CFO Act reporting requirements. The objective of our audit is to express an opinion on the fair presentation of the Fund's Fiscal Years (FYs) 1997 and 1996 financial statements. Our objective also is to obtain an understanding of the Fund's internal control and test its compliance with laws and regulations that could have a material effect on the financial statements. We conducted our audit in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Bulletin 93-06, Audit Requirements for Federal Financial Statements, as amended. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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.
As required by OMB Bulletin 94-01, Form and Content of Agency Financial Statements, Note 1 to the financial statements describes the accounting policies used by the Fund to prepare the financial statements, which is a comprehensive basis of accounting other than generally accepted accounting principles. Opinion on
We have audited the accompanying statements of financial position of
the District of Columbia Workmen's Compensation Act Special Fund as of
September 30, 1997 and 1996, and the related statements of operations and
changes in net position, and cash flows for the years then ended. In our
opinion, the financial statements referred to above present fairly, in
all material respects, in conformity with the accounting policies described
in Note 1:
|
| Overview of the Reporting Entity
Our audit was conducted for the purpose of forming an opinion on the 1997 and 1996 financial statements of the Fund taken as a whole. The information in the Overview of the Reporting Entity is presented for purposes of additional analysis and is not a required part of the principal financial statements. This additional information has not been subjected to the auditing procedures applied in the audit of the Fund's financial statements and, accordingly, we express no opinion on it. Report on
In planning and performing our audit of the aforementioned financial statements, we obtained an understanding of the internal control over financial reporting, compliance with laws and regulations, and the existence and completeness assertions over performance reporting. The objective was to determine our auditing procedures for the purpose of expressing an opinion on the financial statements, and not to provide assurance on internal control over financial and performance reporting. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses(1). Report on Compliance With Laws and Regulations As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed
1. A material weakness is a condition 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 or performance measurement information being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.
|
tests of the Fund's 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
other laws and regulations specified in OMB Bulletin
93-06, as amended, including the requirements referred to in the Federal Financial Management Improvement Act of 1996 (FFMIA). However, the objective of our audit of the financial statements was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Under FFMIA, we are required to report whether the Fund's financial management systems substantially comply with the Federal financial management systems requirements, applicable accounting standards, and the United States Standard General Ledger at the transaction level. To meet this requirement, we performed tests of compliance using the implementation guidance for FFMIA issued by OMB on September 9, 1997. The results of our tests disclosed no instances in which the Fund's financial management systems did not substantially comply with the three requirements discussed above. Management's Responsibilities Management is responsible for:
|
The objectives of internal control are to provide management with reasonable, but not absolute, assurance that:
- funds, property, and other assets are safeguarded against waste, loss, and unauthorized use or misappropriation; - transactions are executed in accordance with management's uathorization; - assets, liabilities, revenues, and expenditures applicable to the Fund operations are properly recorded in order to maintain accountability and to permit the preparation of a) reliable financial statements, and b) other financial and statistical reports; and - data that support related performance measures are properly recorded and accounted for to permit preparation of reliable and complete performance information. Our responsibilities are to:
|
considered to be reportable conditions, as defined above.
To fulfill these responsibilities, we:
|
/ s /
February 6, 1998
2. Control risk assesses the likelihood that a material misstatement would occur (inherent risk) and not be prevented or detected on a timely basis by the Department's internal controls.
|
ACRONYMS ii
OVERVIEW OF THE REPORTING ENTITY
Introduction I - 1FINANCIAL STATEMENTS
Financial highlights I - 1
Program performance I - 2
Limitations on financial statements I - 2
Statements of financial position II - 1NOTES TO FINANCIAL STATEMENTS
Statements of operations and changes in net position II - 2
Statements of cash flows II - 3
Note 1 - Summary of Significant Accounting Policies III - 1This report has been prepared pursuant to the Chief Financial Officers Act of 1990 (P.L. 101-576) for the Director of the Office of Management and Budget (OMB) under the direction of OMB Bulletin 94-01 and pursuant to the Longshore and Harbor Workers' Compensation Act Amendments of 1984 (P.L. 98-426)
Note 2 - Fund Balances With U.S. Treasury III - 3
Note 3 - Investments III - 4
Note 4 - Accounts Receivable, Net III - 5
Note 5 - Liabilities Not covered By Budgetary Resources III - 5
Note 6 - Net Position III - 6
Note 7 - Program Operating Expenses III - 6
Note 8 - Related Party Transactions III - 6
i
CFO Chief Financial Officer
DCCA District of Columbia Workmens' Compensation Act Special Fund
DLHWC Division of Longshore and Harbor Workers Compensation
DOL Department of Labor
ESA Employment Standards Administration
FASAB Federal Accounting Standards Advisory Board
FMFIA Federal Managers' Financial Integrity Act
FUND Longshore and Harbor Workers' Compensation Act Special Fund
FY Fiscal Year
JFMIP Joint Financial Management Improvement Project
LCMS Longshore Case Management System
LHWCP Longshore and Harbor Workers Compensation Program
OCFO Office of the Chief Financial Officer
OMB Office of Management and Budget
OWCP Office
of Workers' Compensation Programs
ii
SECTION I
OVERVIEW TO THE
REPORTING ENTITY
Fiscal Year 1997
Financial Statements
LONGSHORE AND HARBOR WORKERS'
COMPENSATION ACT SPECIAL FUND
OVERVIEW TO THE REPORTING ENTITY
SEPTEMBER 30, 1997
The reporting entity is the Longshore and Harbor Workers' Compensation Act Special Fund (Fund). The Fund is administered by the Employment Standards Administration (ESA) which is an agency within the United States Department of Labor. Within ESA, the Division of Longshore and Harbor Workers' Compensation has direct responsibility for administration of the Fund. The Fund provides compensation, and in certain cases, medical care payments to employees disabled from injuries which occurred on the navigable waters of the United States, or in adjoining areas used for loading, unloading, repairing, or building a vessel. The Fund also extends benefits to dependents if any injury resulted in the employee's death.
Administrative services for operating the Fund are provided by the Division of Longshore and Harbor Workers' Compensation through direct Federal Appropriations. Appropriated funding for administrative services is not reflected in the accompanying statements.
Additionally, the Longshore and Harbor Workers' Compensation Act [Section 10(h)] provides annual wage increase compensation (cost of living adjustments). Fifty percent of this annual wage increase for pre-1972 compensation cases is paid by Federal appropriated funds, and fifty percent is paid by the Fund through the annual assessment. Appropriated funding for 10(h) is not reflected in the accompanying financial statements.
Approximately 95 percent of the revenue of the Fund during FY 1997 ($110.1 million out of a total of $115.6 million) is generated through annual recurring assessments paid by self-insured employers and insurance carriers. This compares with 93 percent ($113.3 million out of a total of $121.2 million) for FY 1996. During FY 1997 and FY 1996, substantial recoveries were made for the Fund due to activities involving audits of Forms LS-513, Report of Payments (used in the calculation of the annual assessment), and negotiation/collection of past due assessments. Equally important, the audits have uncovered common reporting errors and other record-keeping mistakes which, when discovered, are being eliminated. The on-going audit program recovered $3,068,854 in FY 1997 and $5,108,274 in FY 1996 for the Fund.. These recoveries have and will continue to reduce carrier assessments.
Investment income into the Fund decreased to $2.3 million for FY 1997 from $2.6 million for FY 1996. The main reasons for the change are due to a decrease in investments of 15.20 percent during FY 1997 and the falling yield on investments which decreased by approximately 0.07 percent during FY 1997. The average interest rate earned during FY 1997 was 5.08 percent compared to 5.15 percent for FY 1996.
Total expenditures for FY 1997 were $125.0 million compared to $119.0
million for FY 1996. The increase of $6.0 million is primarily due to the
increase in second injury compensation, [Section 8(f)], expenditures for
FY 1997. Other expenses of the Fund remained relatively stable.
I - 1
The Longshore and Harbor Workers' Compensation Act Special Fund has two programmatic responsibilities which can be quantitatively measured. This section displays these two selected standards for 1997 and 1996.
Selected Longshore Performance Measures:
- Timeliness of Processing
Second Injury Fund Applications:
FY
FY
The program's goal for this measure is to process Second
1997
1996
Injury Fund applications within 45 days of receipt.
Percentage of applications processed within 45 days 92.1% 90.7%
- Vocational Rehabilitation
- Positive Outcome by Service Dollars:
This standard measures the cost effectiveness of the Longshore
rehabilitation program in producing successful rehabilitations.
Cost per positive outcome by service dollars
$ 10,554 $8,703
LIMITATIONS ON FINANCIAL STATEMENTS
The following statements of limitations on the financial statements are a required part of the accompanying overview.
SECTION II
FINANCIAL STATEMENTS
Fiscal Year 1997
Financial Statements
Page 2.7
1997
1996
ASSETS
Entity assets
Intragovernmental
Fund balance with Treasury (Note 2)
$ 572,234
$ 54,456
Investments (Note 3)
61,192,077
72,162,279
Governmental assets
Accounts receivable, net (Note 4)
2,410,877
2,599,932
Total assets $ 64,175,188 $ 74,816,667
LIABILITIES
Liabilities covered by budgetary resources
Intragovernmental liabilities
Other liabilities
$
- $
21,395
Governmental liabilities
Accrued benefits payable
4,402,985
4,292,640
Total liabilities covered
by budgetary resources
4,402,985
4,314,035
Liabilities not covered by budgetary resources (Note
5)
Governmental liabilities
Deferred revenue
26,961,304
27,855,817
Other liabilities
1,663,569
2,128,618
Total
liabilities not covered by budgetary resources
28,624,873
29,984,435
Total liabilities 33,027,858 34,298,470
NET POSITION (Note 6)
Cumulative results of operations
57,022,776
67,530,035
Future funding sources
2,749,427
2,972,597
Future funding requirements
(28,624,873) (29,984,435)
Total net position 31,147,330 40,518,197
Total liabilities and net position
$ 64,175,188 $ 74,816,667
The Notes to Financial Statements are an integral part of these statements.
II - 1
1997 1996
REVENUES AND FINANCING SOURCES
Interest and penalties, non-federal
$ 81,300
$ 46,850
Interest, federal
2,344,416
2,647,248
Assessment recoveries
3,068,854
5,108,274
Other revenue and financing sources - assessments
110,085,657
113,348,966
Total revenues and financing sources 115,580,227 121,151,338
EXPENSES
Program operating expenses (Note 7)
124,951,094 119,043,277
Excess (shortage) of revenue and financing
sources over expenses
$ (9,370,867) $ 2,108,061
NET POSITION
Beginning balance $ 40,518,197 $ 38,410,136
Excess (shortage) of revenues and financing
sources over expenses
(9,370,867)
2,108,061
Ending balance $ 31,147,330 $ 40,518,197
The Notes to Financial Statements are an integral part of these
statements.
II - 2
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES
Excess (shortage) of revenues and financing sources
over expenses
$ (9,370,867)
$ 2,108,061
ADJUSTMENTS AFFECTING CASH FLOW
Decrease in accounts receivable
189,055
182,428
Increase in accrued benefits payable
110,344
749,453
Other liabilities:
Increase (decrease) in defaulted employer liability
(34,777)
99,633
Decrease in other governmental liabilities
(430,272)
(155,005)
Decrease (increase) in other intragovernmental liabilities
(21,395)
21,395
Decrease in deferred revenue
(894,513)
(1,651,252)
Total adjustments (1,081,558) (753,348)
Net cash provided (used) by operating activities (10,452,425) 1,354,713
CASH FLOWS FROM NON-OPERATING ACTIVITIES
Proceeds from sale of investments
134,532,104
140,139,554
Purchase of investments
(123,561,901)
(142,197,058)
Net cash provided (used) by non-operating activities 10,970,203 (2,057,504)
Net cash provided (used) by operating and
non-operating activities
517,778
(702,791)
Fund balance with Treasury, beginning 54,456 757,247
Fund balance with Treasury, ending $ 572,234 $ 54,456
The Notes to Financial Statements are an integral part of these
statements.
II - 3
SECTION III
NOTES TO THE
FINANCIAL STATEMENTS
Fiscal Year 1997
Financial Statements
Page 2.11
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies which have been followed by the Fund in preparing the accompanying financial statements are set forth below.
A. Basis of Presentation
These financial statements have been prepared to report the financial position and results of operations of the Longshore and Harbor Workers' Compensation Act Special Fund (Fund), as required by the CFO Act of 1990, and the Government Management Reform Act of 1994. They have been prepared from the books and records of the Fund in accordance with the form and content for entity financial statements specified by the Office of Management and Budget (OMB) in OMB Bulletin 94-01, certain supplemental provisions of OMB Bulletin 97-01 applicable to 1997 and 1996, and Department of Labor accounting policies which are summarized in Note 1. These statements are, therefore, different from the financial reports, also prepared by DOL pursuant to OMB directives, that are used to monitor and control the Funds' use of budgetary resources.
OMB Bulletin 94-01 requires that assets and liabilities be classified on the Statement of Financial Position as follows:
B. Basis of Accounting
Under the authority of the CFO Act of 1990, the Federal Accounting Standards
Advisory Board (FASAB) was established to recommend Federal accounting
standards to the Secretary of the Treasury, the Director of the Office
of Management and Budget and the Comptroller General, co-principals of
the Joint Financial Management Improvement Project (JFMIP). Specific standards
agreed upon by the three principals will be issued by the Director of OMB
and the Comptroller General. Pending issuance of final accounting standards,
FASAB has recommended and the JFMIP principals have agreed that agencies
adopt for use in preparing financial statements an other comprehensive
basis of accounting constituted by (1) individual standards agreed to and
published by the JFMIP principals, (2) form and content requirements in
OMB Bulletin 94-01 and certain provisions of OMB Bulletin 97-01 applicable
to 1997 and 1996, (3) accounting standards contained in agency accounting
policy, procedures manuals or related guidance, and (4) accounting principles
published by authoritative standard setting bodies and other authoritative
sources, (a) in the absence of other guidance in the first three parts
of this hierarchy, and (b) if the use of such accounting standards improves
the meaningfulness of the financial statements. ESA has adopted this other
comprehensive basis of accounting for preparation of these financial statements.
III - 1
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
B. Basis of Accounting - Continued
Transactions are recorded on an accrual accounting basis and a budgetary basis. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates compliance with legal constraints and controls over the use of federal funds. All interfund balances and transactions have been eliminated.
C. Reporting Entity
The reporting entity is the Longshore and Harbor Workers' Compensation Act Special Fund (Fund). The Fund is administered by the Employment Standards Administration (ESA) which is an agency within the United States Department of Labor. Within ESA, the Division of Longshore and Harbor Workers' Compensation has direct responsibility for administration of the Fund. The Fund offers compensation, and in certain cases, medical care payments to employees disabled from injuries which occurred on the navigable waters of the United States, or in adjoining areas used for loading, unloading, repairing, or building a vessel. The Fund also extends benefits to dependents if any injury resulted in the employee's death.
Additionally, the Longshore and Harbor Workers' Compensation Act [Section 10(h)] provides annual wage increase compensation (cost of living adjustments). Fifty percent of this annual wage increase for pre-1972 compensation cases is paid by Federal appropriated funds and fifty percent is paid by the Fund through the annual assessment. Appropriated funding for 10(h) is not reflected in the accompanying financial statements.
The financial statements of the Fund do not include the salaries and expenses associated with operating the Fund. Administrative services for operating the Fund are provided by the Division of Longshore and Harbor Workers' Compensation at no cost to the Fund as these expenses are paid by Federal appropriation.
D. Budgets and Budgetary Accounting
Budgetary accounting measures the appropriation and consumption of budget authority and other budgetary resources and facilitates compliance with legal constraints and controls over the use of Federal funds including those held in trust.
A fundamental principal of budgetary accounting is that budgetary resources are consumed at the time of purchase. Additionally, assets and liabilities which do not produce or consume current budgetary resources are not reported, and those liabilities for which a valid obligation has been established are considered to consume budgetary resources.
The Fund is a trust fund that has no direct appropriation, but the Budget Authority for the Fund is based on the receipts obtained through assessments, interest on investments, and fines and penalties. The largest single source of money for the Fund is the annual assessment. The annual appropriation for the Fund, which is available on a permanent, indefinite basis, represents the estimated receipts of the fund obtained through fines, penalties, interest on investments, and assessments.
E. Revenues and Other Financing Sources
The Fund's primary source of revenues is annual assessments of insurance
carriers and self-insured employers. Included in revenues are recoveries
of amounts reassessed to carriers relating to prior years. These reassessments
primarily result from audits of reported carrier payment data. During 1997
and 1996 these recoveries amounted to $3,068,854 and $5,108,274, respectively.
Other sources of revenues are interest income, fines and penalties, and
death
III - 2
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
A. Revenues and Other Financing Sources - Continued
benefit proceeds. Other revenues are recognized when earned, i.e., goods have been delivered or services rendered.
F. Funds with the U.S. Treasury and Cash
The Fund does not maintain cash in commercial bank accounts. Cash receipts and disbursements are processed by the U.S. Treasury. The Funds with U.S. Treasury are trust funds that are available to pay current liabilities and finance authorized purchase commitments.
G. Investments in U.S. Government Securities
Investments in U.S. Government securities are reported at cost, net of unamortized premiums or discounts, which approximates market value. Premiums or discounts are amortized into interest income over the term of the investment. The Fund's intent is to hold investments to maturity, unless they are needed to finance claims or otherwise sustain the operations of the Fund. No provision is made for unrealized gains or losses on these securities because, in the majority of cases, they are held to maturity.
H. Liabilities
Liabilities represent the amount of monies or other resources that are likely to be paid by the Fund as the result of a transaction or event that has already occurred.
I. Contingencies and Commitments
In the opinion of the management of the Fund and its legal counsel, there is no pending of threatened litigation which has a reasonable possibility of materially affecting the financial position or results of operations of the fund.
Section 39(c)(2) of the Longshore and Harbor Workers' Compensation Act authorizes vocational rehabilitation of disabled employees and Section 8(g) provides additional compensation to disabled employees while undergoing rehabilitation training. Rehabilitation services paid from the Fund are mainly provided by private counselors and private training facilities. The rehabilitation agreements are funded by future assessments from the insurance carriers and self-insured employers. The amount of the outstanding rehabilitation agreements at September 30, 1997, is $3,306,382.
J. Reclassification
Certain amounts for 1996 have been reclassified to conform with the 1997 presentation of those amounts.
NOTE 2 - FUND BALANCE WITH TREASURY
The detail of fund balance with Treasury, for the Fund at September 30, 1997 and 1996 is as follows:
September 30, 1997
Obligated Unobligated
Available Restricted
Total
Trust Funds
$ -
$ 572,234 $
- $572,234
III - 3
NOTE 2 - FUND BALANCE WITH TREASURY - Continued
September 30, 1997
Obligated Unobligated
Available Restricted Total
Trust Funds $ - $ 54,456 $ - $54,456
Funds with the U.S. Treasury at September 30, 1997 and 1996, include $125,001 and $13,330 respectively, which is being held as security by authority of Section 32 of the Longshore and Harbor Workers' Compensation Act. These funds relate to the default of self-insured employers. These funds are available for payment of compensation and medical benefits to covered employees of the defaulted companies.
NOTE 3 - INVESTMENTS
The detail of investments, for the Fund at September 30, 1997 and 1996, are as follows:
September 30, 1997
Market
Face
Value
Discount
Net
Intragovernmental securities
Marketable
$ 61,865,000 $ 61,192,077
$ (672,923) $61,192,077
September 30, 1997
Market
Face
Value
Discount
Net
Intragovernmental securities
Marketable
$ 73,145,000 $ 72,162,279
$ (982,721) $ 72,162,279
Investments of $ 1,245,649 and $ 1,392,097 for 1997 and 1996, respectively,
are being held as security by authority of Section 32 of the Longshore
and Harbor Workers' Compensation Act. These held investments relate to
the default of self-insured employers and are restricted. These investments
are available for payment of compensation and medical benefits to covered
employees of the defaulted companies. Management estimates that the investments
held will be sufficient to cover the future benefit associated with these
covered employees. Investments at September 30, 1997 and 1996, consist
of short-term U.S. Treasury Bills and are stated at amortized cost which
approximates market. Investments at September 30, 1997, bear interest rates
varying from 4.40% to 5.35% compared to rates varying from 4.93% to 5.24%
for 1996.
III - 4
LONGSHORE AND HARBOR WORKERS'
COMPENSATION ACT SPECIAL FUND
NOTES TO THE FINANICAL STATEMENTS
September 30, 1997 AND 1996
NOTE 4 - ACCOUNTS RECEIVABLE, NET
The detail of accounts receivable for the Fund at September 30, 1997 and 1996, is as follows:
1997 1996
Entity
Governmental
Assessments receivable
$ 2,562,521
$ 2,347,789
Claimant overpayments
941,356
987,143
Less: allowance for doubtful accounts
(1,093,000)
(735,000)
Total accounts receivable, net $ 2,410,877 $ 2,599,932
Assessments receivable represent the unpaid annual assessments from the current and prior years. Accounts receivable from overpayments to claimants arise primarily from amended compensation orders and corrections of payment computations. These receivables are being primarily recovered by partial and total withholding of benefit payments.
NOTE 5 - LIABILITIES NOT COVERED BY BUDGETARY RESOURCES
The detail of liabilities not covered by budgetary resources, for the Fund at September 30, 1997 and 1996, is as follows:
1997
1996
Current Current
Liabilities Liabilities
Governmental liabilities
Deferred revenue
$ 26,961,304
$ 27,855,817
Other liabilities
Assessment overpayments by carriers
292,919
723,191
Defaulted employer liability
Held in investments
1,245,649
1,392,097
Held in cash
125,001
13,330
1,370,650
1,405,427
Total other liabilities 1,663,569 2,128,618
Total liabilities not covered by budgetary resources $ 28,624,873 $ 29,984,435
Assessment overpayments are to be refunded upon request or applied to reduce future assessments.
Defaulted employer liability relates to funds and investments held by the Longshore Special Fund which are being held as security by authority of Section 32 of the Act. These funds and investments are available for compensation and medical benefits to covered employees of the defaulted companies. Management estimates that these funds and investments held will be sufficient to cover the future benefits associated with the covered employees.
Deferred revenues represent the unearned assessment revenues as of September
30, the Fund's accounting year end. The annual assessments cover a calendar
year and, accordingly, the portion extending beyond September 30 has been
deferred.
III - 5
LONGSHORE AND HARBOR WORKERS'
COMPENSATION ACT SPECIAL FUND
NOTES TO THE FINANICAL STATEMENTS
September 30, 1997 AND 1996
NOTE 6 - NET POSITION
The detail of net position for the Fund at September 30, 1997 and 1996, is as follows:
1997 1996
Cumulative results of operations
$ 57,022,776 $ 67,530,035
Future funding sources
Accounts receivable
2,410,877
2,599,932
Accumulated accretion of discount
on investments
338,550
372,665
Total future funding sources
2,749,427
2,972,597
Future funding requirements
Deferred revenue and other governmental liabilities
(28,624,873) (29,984,435)
Total net position $ 31,147,330 $ 40,518,197
NOTE 7 - PROGRAM OPERATING EXPENSES
The detail of program operating expenses, for the Fund at September 30, 1997 and 1996, is as follows:
1997
1996
Operating Expenses by Object Classification:
Insurance claims, indemnities, and other benefits
Second injury compensation, Section 8(f)
$ 113,366,058 $ 107,081,013
Wage increase compensation, Section 10(h)
2,573,160
2,640,419
Compensation payment for self-insurer in default,
Section 18(b) 4,481,428
4,692,363
Rehabilitation services 39 (c) (Note 8)
4,055,170
3,997,713
Rehabilitation maintenance, Section 8(g)
115,260
113,440
Medical services, Section 7(e)
2,018
7,109
124,593,094
118,532,057
Bad debts and write-offs
358,000
511,220
Total program operating expenses
$ 124,951,094 $ 119,043,277
NOTE 8 - RELATED PARTY TRANSACTIONS
The Fund reimburses the Office of Workers' Compensation Programs (OWCP)
(a related entity within the Employment Standards Administration) for rehabilitation
services provided to eligible claimants and certain direct expenses associated
with administrative support of the Fund. Amounts paid to the OWCP were
$ 983,000 in 1997 and $ 1,003,000 in 1996.
III - 6
Rehabilitation payment process
This finding, as well as our recommendation and management's response, was included in it's entirety in OIG's FY 1997 consolidated financial statement audit report number 12-98-002-13-001, Appendix A, page 3.74.
During our FY 1997 audit of the Longshore and Harbor Workers' Compensation
Act (LHWCA) special fund, weaknesses were identified in the internal controls
for the reporting and authorization of payments to rehabilitation service
providers. The weaknesses identified pertain to the controls between the
District Offices' submission of bills and the National office final authorization
for payment. Specifically:
We agree that an automated system would increase existing controls, and we are developing such a system. It will provide a secure record of the amounts obligated by the Rehabilitation Specialist in the district office, against which bills submitted for payment can be compared.
The system will permit payment only to authorized payment providers and on behalf of eligible claimants with adequate controls over entry of vendors and claimants. Procedures will be developed to ensure timeliness of entry and payment.
We expect to have the system in place by the end of FY 1998. We welcome continuing review and comment from your office on the system which is being developed, and invite the OIG to review the system specifications and test the application software prior to full implementation.
OIG's Conclusion
We agree with management that the proposed corrective actions will increase
existing controls. OIG commends the efforts Longshore management has taken
so far to provide corrective measures. OIG welcomes management's invitation
to review and comment on the development of this system, and will make
every effort to provide timely feedback.
Page 3.2
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