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Audit Report
This report reflects the findings of the Office of Inspector General at the time that the audit report was issued. More current information may be available as a result of the resolution of this audit by the Department of Labor program agency and the auditee. For further information concerning the resolution of this report's findings, please contact the program agency.
Report Number: 12-98-002-13-001
Issue Date: February 27, 1998
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 Department prepares annual financial statements, which we audit. The Department has additional financial management reporting requirements under the Federal Managers' Financial Integrity Act (FMFIA) and the Federal Financial Management Improvement Act of 1996 (FFMIA). The OIG considers compliance under these Acts as a part of our audit of the financial statements.
FY 1997 Financial Statements
The Department's financial statements for FY 1997 reflect $33.6 billion in expenses, of which approximately 81 percent are "pass through" funds, or funds actually expended by state and local governments. Of the total, $20.2 billion was expended by the states for unemployment insurance benefit payments, and another $7.3 billion by state and local governments that operate state unemployment insurance, employment service, and JTPA programs. The balance of the expenses were for benefit payments and services provided directly by the Department.
Assistant Inspector General's Report on the Financial Statements
Since the OIG began auditing the Department's financial statements in 1990, our opinion has been qualified due to a limitation on the scope of our audit related to the tax revenues for the Unemployment Trust Fund and Black Lung Disability Trust Fund. The scope restriction was due to the lack of audit assurance over these taxes, which are collected by Treasury. Although GAO has conducted financial statement audits of the Internal Revenue Service for several years, they have previously been unable to perform sufficient audit work on these taxes to provide the assurances we needed to satisfy ourselves as to the fair presentation of these revenues. For FY 1997, GAO was able to complete this work. Therefore, we are pleased to report that the Department has received its first "clean" opinion on its consolidated financial statements and the financial statements of these two funds. Further, our report on internal control reflects no material weaknesses, although we continue to note many reportable conditions that need management's attention. Finally, our report on compliance with laws and regulations reflects seven subsidiary systems that do not meet one or more of the criteria for Federal accounting systems referenced in the FFMIA. The more significant of these reportable conditions and instances of noncompliance are identified below.
As in the previous year, we issued an opinion on the consolidated financial statements taken as a whole and the individual financial statements of the Federal Employees Workers' Compensation Special Benefit Fund and the Unemployment, Black Lung Disability, Longshore and Harbor Workers' and District of Columbia Compensation Act Trust Funds.
Report on Internal Control
As previously stated, our report on internal control did not disclose any material weaknesses; however, we did note several reportable conditions, most of which were initially identified in prior years. The more significant of these are:
Wage and Hour's Back Wage and System
As reported since 1993, the Wage and Hour Division (WHD) does not maintain sufficient control over information recorded in the back wage subsidiary system, and certain policies and practices exercised by the regional offices preclude the use of this system as a reliable subsidiary for back wages. We continue to identify weaknesses with recording transactions in an accurate, timely, and complete manner.
Wage and Hour's Civil Monetary Penalties (CMP) System
As recommended since 1993, WHD has now installed a CMP tracking system which will function as a subsidiary for CMP activities and receivable balances. However, WHD has not yet completed the system reports or general ledger interface, and our audit of the new system detected misstatements in the CMP accounts receivable balances, caused primarily by incorrect or incomplete data entry.
EDP Controls
To gain assurance that information relevant to financial management produced by the Department is reliable, we reviewed security and general controls for five significant financial EDP systems at the Department. We found improvements needed for each system in one or more of the following types of controls: documentation, user access, computer security plans, termination procedures, security clearances, separation of duties, and disaster recovery plans.
FECA and Job Corps systems need improved documentation. For both the
Black Lung and ETA grant systems, user access is not appropriately restricted.
Subsequent to our audit, ETA implemented a security system which we have
not yet verified. With regard to computer security plans, we found: Job
Corps did not have a formal policy covering key elements of fundamental
computer security; FECA's host data center did not have a security plan;
and the DOLAR$ general ledger system security plan was incomplete. With
regard to the DOLAR$ system, we found certain key personnel did not have
security clearances and separation of duties over input to the master vendor
file needed improvement. Finally, several systems, including FECA, lacked
disaster recovery plans.
ETA Grant Accounting
Internal control procedures over ETA grant accounting need improvement as follows:
Since 1988, we have reported that ETA does not maintain sufficient accountability over real property purchased with SESA grant funds in which the Department maintains a reversionary interest.
ETA has recently improved its accountability by establishing a position to monitor and develop written guidance for recording of SESA real property. However, ETA still cannot provide a complete and up-to-date SESA inventory list or state certifications of SESA real property.
FECA Continuing Eligibility - Social Security Administration (SSA) Earnings
Confirmation
SSA earnings statements are compared to earnings information reported to FECA in order to determine claimants continued eligibility. Each time ESA requests earnings statements from the SSA, ESA must obtain a signed release form from the claimant. ESA is pursuing an alternative method of obtaining earnings verifications from SSA in an automated format. We support this effort, but as reported in our FY 1995 and FY 1996 audits, in the interim ESA needs to enforce the current policy of soliciting the SSA earnings statements every 3 years.
Longshore Program
Weaknesses were identified in the internal controls for District Office submission of rehabilitation service provider bills and National Office authorization of payments to such providers. These weaknesses resulted in fraudulent payments to fictitious vendors. ESA is developing an automated system which should improve controls over these payments.
Interest on Advances to the Black Lung Disability Trust Fund
The rates of interest charged on advances to the Trust Fund are not in compliance with the Black Lung Benefits Revenue Act of 1977, as amended. The Act requires interest rates based on the average rate borne by obligations of the United States. For advances after 1981, the average rate should be based only on obligations whose remaining period to maturity is comparable to the anticipated maturity for the Black Lung advances.
In our FY 1995 audit, we noted interest rates used both before and after the 1981 amendments were based on the rate charged for 15-year obligations. The interest rate for post-1981 advances should have been limited to those obligations with comparable maturity periods, which we believe to be 30-year obligations, since the program will not be in a position to repay the loans in less than 30 years. ESA disagrees with our position and plans no further action.
Report on Compliance With Laws and Regulations
To obtain reasonable assurance that the financial statements are free of material misstatement, we performed tests of DOL's compliance with certain provisions of laws and regulations, because noncompliance could have a direct and material effect on the determination of financial statement amounts. We also performed tests of 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).
FFMIA
Under FFMIA, we are required to report whether DOL's financial management systems substantially comply with: (1) the Federal financial management systems requirements; (2) applicable accounting standards; and (3) the United States Standard General Ledger (SGL) 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.
Our tests showed that the following subsidiary DOL financial management systems did not substantially comply with one or more of the three requirements listed in the preceding paragraph:
FFMIA requires the Department to establish remediation plans that will identify, develop and implement solutions for noncompliant systems within 3 years. The Department has established plans for ETA's debt management and MSHA's penalty tracking systems. Plans must be established for the remaining noncompliant systems.
Wage and Hour's Back Wage System
Under the provisions of various labor standards laws, back wages are determined and collected by ESA for remittance to the affected employees or, if the employees cannot be located, to the U.S. Treasury. Back wages collected are held in a special deposit account for a period of time prescribed by law, after which they revert to Treasury.
Although WHD has revised its policies on the period of time before reverting funds to Treasury, as of September 30, 1997, there was approximately $4.3 million on deposit that has not been distributed to employees (primarily from the San Francisco and Philadelphia regions), and should have been reverted to the U.S. Treasury.
ETA Debt Management
ETA does not charge administrative costs and penalties to its debtors, as required by the Debt Collection Act of 1982, and has not documented the circumstances under which administrative costs and penalties should not be charged.
Establishment of Advisory Council by UTF
During FY 1997, we noted that the Advisory Council on Unemployment Compensation (ACUC), required by the Social Security Act, has not been reestablished. The function of the ACUC is to evaluate the unemployment compensation program, including the purpose, goals, counter cyclical effectiveness, coverage, benefit adequacy, trust fund solvency, funding of state administrative costs, administrative efficiency, and any other aspects of the program, and to make recommendations for improvement. Management determined that a new Council would not be established because of the ongoing analysis of the final report of the prior ACUC that ended January 1996, and the need to determine the focus/direction that a new Council would pursue. However, the Social Security Act makes no provision for delaying the establishment of a new Advisory Council and the issues for which the Council is responsible are significant to the UI program.