department of labor: 07

8/14/2019 Department of Labor: 07

1/112


2/112

SEMIANNUAL PEPORT

OCTOBER I, 1981 - MARCH 31, 1982OFFICF OF INSPECTOR GFNERAL

U.S. DEPARTMENT OF LABOR


3/112

TABLE OF CONTENTSPage

PREFACE .................. (i)EXECUTIVF SUMMARY ............. i

PART I - SIGNIFICANT PROBLEMS, ABUSES,OR DEFICIFNCIFS, FOR CORPECTIVF ACTION

Employment Standards Administration. . . 1

Employment & Training A_ministration 19

Mine Safety & Health Administration. . . 33

PART II - SUMMARY OF OIG ACTIVITIES

Office of Investigations ........ 38

Office of Audit ............. 46

Office of Organized Crime & Racketeering 60

Complaint Center ............ 71

PART III - MONEY OWED TO THF DEPARTMENT 73

APPENDIX

Audit Resolution Activity ........ 78

Status of Unresolved Audits ....... 80

Summary of Audit Reports Issued ..... 81

List of Audit Reports Issued ...... 82


4/112

PREFACE

This is the seventh semiannual 'report of theDepartment of Labor's Office of Inspector Generalsubmitted pursuant to the requirements of theInspector General Act of 197_. The report coversthe period October i, 1981 througb March 31, 1982.

S_nce the passage of the Comprehensive Employmentand Training Act (CETA) in 1973, tbe Departmentof Labor's audit and investigative staff has spentmost of its time detecting fraud and waste by CETAgrantees and suhgrantees. The work resulted in ahuge backlog of unresolved questioned costs. Withthe help of the Employment and Training Admlnis-tration (ETA), almost all of those were resolvedin 1981, as reported in my last semiannual report.Review of the findings of those thousands of auditand investigative reports showed some fundamentalproblems in the way the CETA program was set upand administered: the multiplicity (50,000) ofsubgrantees, the frequent absence of adequatefinancial management systems, and the ineffective-ness in correcting problems or collecting improperexpenditures by grantees and subgrantees. Assis-tant Secretary Angrisani and I discussed theseproblems and agreed that, with the CETA legisla-tion expiring this year, we should try to buildinto any new legislation safeguards to preventsome of the problems encountered in the past. Wedid that via a joint OIG/ETA working group. Itsreport, "Fraud, Waste and Mismanagement in CETA:Lessons Learned," made recommendations which havebeen incorporated in the Administration's newemployment and training legislative proposals.

This past audit and investigative preoccupationwith CETA, while necessary, given the size,

(i)


5/112

complexity and problems of the CETA program, hadthe unfortunate side effect of ignoring potentialfraud, waste, economy andefficiency problems inother major Department of Labor programs. In mylast semiannual report, I noted a significantshift of Office of Inspector General attention tothe programs of the Office of Workers' Compensa-tion (OWCP)--the Federal Employees' Compensa-tion Act, the Black Lung and the Longshore HarborWorkers. The specifics of that work are coveredin tbis report.

I have been severely critical of managementdeficiencies in OWCP and of OWCP's slowness incarrying out needed improvements. I know many inOWCP feel I have been unfairly critical, and citethe resource constraints and competing workloadpressures they confront. The Administration andmembers of Congress have proposed a number ofchanges in legislation covering the OWCP programs.Many of these proposals have great merit, but fewwill directly affect the management issuesconfronting OWCP. The problems in managing theOWCP programs are very difficult. In my view,the long-term solution requires four things: (i)improvement in the overall quality of OWCPmanagement; (2) modern, integrated computersystems to support the OWCP programs, both to paythe bills and benefits and to provide necessaryautomated controls; (3) the resources, in termsof skills and dollars, to carry out "i" and "2";and (4) responsible and continuing attention bythe Secretary of Labor and the Congress to theselong-term management requirements.

The Department of Labor has shown progress in theeffort to prevent and detect fraud and waste andensure greater economy and efficiency in theprograms and operations of tbe Department. I

(il)


6/112

want to thank Secretary Donovan and the manyother officials of the Department who have givenleadership and support to that effort. I also,particularly, want to thank the dedicated OIGauditors, investigators and support staff who areresponsible for the work described in this report.

Thomas F. McBrideInspector Genera].

(ill)


7/112

EXECUTIVE SUMMARY

Following are highlights of this report.

Significant Problems, Abuses or DeflciencJes andRecommendations for Corrective Action

- Implementation of OIG and GAO RecommendationsbY the Emp3oyment Standards AdministrationStudies conducted during th_s period continueto demonstrate serious program problems result-ing from the lack of effective implementationof past audlt recommendations. A joint effortis now underway to track and resolve outstandingOIG and GAO recommendations in the workers' com-pensation area.

- Employlng Agency Participation in the FederalEmployees' Compensation Act ProgramA serious problem in the administration of theFederal Employees' Compensation Act program hasbeen the lack of strong efforts to coDtrol costsby the federal agencies in which claimants havebeen employed. We have completed an inter-agency study on the employing agency role andresponsibilities and have recommended a numberof statutory and administrative changes toenable these agencies to do a better job ofinvestigating claims and getting claimants backto work as quickly as possible.

- Claimant Fraud in the Federal Employees'Compensation Act Program

Recent fraud investigative cases show thatunreported income by claimants continues to bea major problem. More effective verificationefforts by the program are recommended as wellas more stringent criminal penalties for making

i


8/112

false statements and concealing outsideemployment and income.

- Audit Resolution

Indicative of a continuing, strong Departmentalcommitment to the resolution of monetary auditfindings, only l0 audit reports over 6 monthsold, remain unresolved as of March 31, 1982oDuring this period, 272 reports, involving over590 million in audit exceptions, were resolved.The l0 reports over 6 months old were precludedfrom resolution, pending the conclusion ofinvestigations, or settlement of other uniqueproblems A qualitative review of auditresolution procedures is now underway and weare giving increased attention to resolvingnon-monetary audit recommendations.

- Employment and TrainingWe recently prepared a blstory of fraud andmanagement problems in the administration ofthe Comprehensive Employment and Training Actand an analysis of past OIG audit andinvestigative findings. Recommendations weremade for legislative, regulatory andadmimistrative changes in the design of a newemployment and training program

Summary of OIG Activities- There were 77 indictments and 70 convictions

based on our fraud investigations. Fines,recoveries, savings, and collections resultingfrom investigations totaled 532 million

- There were 37 indictments and 36 convictionsbased on our organized crime and laborracketeering investigations.

ii


9/112

- We issued 460 audit reports on the Department'sprograms, grants and contracts. In thesereports, audit exceptions I totaled _i03million.

1 Throughout this report, audit exceptionsinclude both questioned costs and costs recom-mended for disallowance. 0uestioned costs areexpenditures witbout sufficient documentaryevidence for the auditor to make a conclusion onallowability. Costs recommended for disallowanceare expenditures that the auditor judges, basedon available evidence, to be unauthorized underthe terms of the grant or contract.

iii


10/112

PART I

SIGNIFICANT PROBLEMS, ABUSES, OF DEFICIENCIES,AND RECOMMENDATIONS FOR CORRECTIVF ACTIONEMPLOYMENT STANDARDS AEMINISTRATION

The Employment Standards Administration (ESA),through its three component offices--the Officeof Workers' Compensation Programs (OWCP), theOffice of Federal Contract Compliance Programsand the Wage and Hour Division--administers lawsand regulations which provide workers' compensa-tion to those persons injured on their jobs,require federal contractors and subcontractors toprovide equal employment opportunity, and setemployment standards.During this reporting period, and in priorperiods as well, nearly all of the audit andinvestigative effort devoted to ESA has been inthe Office of Workers' Compensation Programs,which encompasses all three workers' compensa-tion programs--the Division of Federal Employ-ees' Compensation (FECA), the Division of CoalMine Workers' Compensation (Black Lung), and theDivision of Longshore and Harbor Workers'Compensation.

IMPLEMENTATION OF PAST OIGAND GAO FECCMMENDATIONS

Our most significant concern within ESA continuesto be inadequate controls over bill and benefitpayments in both the FECA and Black Lung programs.These controls have been the subject of a largenumber of previous OIG and GAO recommendationsfor corrective action. While some progress hasbeen made, FSA's overall responsiveness in imple-menting recommended corrective actions is inade-quate. Two examples help illustrate the problem.

-- i --


11/112

o FECA Benefit and Bill Payment ControlsIn the wake of an embezzlement in OWCP'sDistict Office 25 early in 1980, ESA managementrequested that OIG perform a survey of billpayment operations in that district office. In

this review, conducted in May of 1980, we evalu-ated the weaknesses in that office's bill pay-ment system that allowed losses due to fraud ormismanagement to occur, and proposed a numberof corrective action recommendations.

The analysis revealed significant weaknesses indata security, computer security, bill paymentprocesses and bill payment controls.

ESA commented favorably on the recommendationsin the draft report and said they planned toimplement most of the recommendations.

Nevertheless, 8 months later, during an OIGinitiated review of six district offices (oneof which was District Office 25), we noted thatnearly all the recommendations made in theearlier District Office 25 review were notimplemented.

Even more recently, in November 1981, wereviewed in one district office the adequacy ofinternal controls over financial managementwithin ESA. The district office was one of thesix district offices reviewed a few monthsearlier. During the course of this audit, twoembezzlements surfaced. These two fraud casesinvolved, respectively, the manual paymentsystem and the automated bill payment system,both of which OIG had identified as beingvulnerable to fraud and for which correctiverecommendations had been made.

Despite the prior recommendations, the reviewfound that: checks were still left unguarded

-- 2 --


12/112

overnight on top of desks; bill paying, keyingand filing dutieswere still not separated; theI0 percent statistical sampling of bills toensure bill validity was still not being per-formed; payment vouchers were not being ade-quately reviewed (resulting in the fraudulentpayments); and no statements were being providedClaimants to verify provider services.

o Black Lung Benefit and Bill Payment ControlsIn our last semiannual report, we _escribed twoBlack Lung studies that identified major defi-ciencies in the program's computer systems andinternal controls. One of these studiesassessed the amount of dollar loss resultingfrom these deflclencles. Based on our analysisof data in the program's computerized records,we concluded that unrecovered overpaymentsinvolved millions of dollars.While our loss estimates were statisticallyvalid, we felt that, to better ensure correc-tive action, we should attempt to verify ourcomputer-based estimates by conducting a reviewof the actual case files which contain billsand other documentation used to determine eligi-bility and payment level. Because of resourcelimitations, we decided to look at medical pay-ments only.This case file review, which was completedduring this reporting period, not only substan-tiated the findings of the computer based evalu-ation, but also indicated probable losses inmedical payments alone that are substantiallylarger than estimated in the earlier studies.Our assessment of 1,322 files revealed 526 witherrors in the following major categories: dup-licate payments, overpayments, payments withoutproper documentation, payments not properly

- 3 -


13/112

authorized, inappropriate payments and paymentsbased on incorrect service dates. We also foundunderpayments and payments made by Medicare andother carriers, which were not reimbursed by theBlack Lung program.Based upon a statistically valid random sampleof all Black Lung Medical Payment files, thiscase file review found that 32.6 percent of thefiles had payment-related errors as describedabove. Excluding amounts attributable to Medi-care payments and files that could not be loca-ted, and deducting all returned payments andunderpayments, we found that 19.9 percent of allpayments in tbe sample should not have been madeand may be recoverable. Projections from theactual payment amounts in the sample indicatethat _9.2 million (+ _4.7 million at the 95.4percent confidence level) in payments are esti-mated to have been made improperly and may berecoverable from the _41.9 million in medicalpayments made from Fiscal Year 1974 throughFiscal Year 1981. The minimum projected figureof _4.5 million is more than twice what we foundin the earlier evaluation of the computerizedpayment records.Also, we noted several administrative and proce-dural problems that increase the potential forerroneous payments or adversely affect thetimeliness of the payments process.In our view, the significance of this review isnot only in the identification of the multi-million dollar losses in program funds as aresult of inadequate administrative controls,but also in the existence of serious, contin-uing problems resulting from the lack of effec-tive implementation of OIG's prior recommenda-tions.

-4 -


14/112

In December, 1981, we initiated a review of ESA'simplementation of prior OIG and GAO audit recom-mendations. This review has identified 112 recom-mendations, of which ESA agreed to take action on68. For the remaining recommendations, ESA statedthat the present procedures were adequate, theproblems would be eliminated or corrected byimprovements in the present system, or theydisagreed with the recommendations.We believe that ESA traditionally has not takenaudit follow-up seriously, has not impressed onits staff the importance of taking action, and--after the audit team has departed--has continuedto function in a "business-as-usual" mode. Whilestaffing and budget constraints have placed addi-tional burdens on the program, these cannot beused as the only excuse for failure to implementbasic internal controls.

Recently, ESA sent a memorandum to all ESARegional Administrators and National OfficeProgram Heads informing them tbat the OIC wasconducting a follow-up audit and that the ESAInternal Control Unit was assisting in thiseffort by securing status reports on ESA actionsfrom the National Office and by reouesting thatthe Regional Administrators verify theimplementation and impact of these actions in thefield. As of the end of March, informationrelated to three OIG reports had been received.ESA is now in the process of assessing theinformation. We will be closely examining theresults of this review and, if necessary, willelevate certain issues for higher-levelresolution in the Department or, on a selectivebasis, conduct further verification on site.

- 5-


15/112

THE ROLE OF _MPLOYING AGENCIES IN ADMINISTERINGTHE FEDERAL EMPLOYEES' C@MPENSATION ACT

The Federal Employees' Compensation Act is theexclusive remedy for compensation to federalemployees who suffer an on-the-job injury oroccupational-related disease. Compensation maybe paid for reimbursement of lost wages, medicalcare and expenses, awards for bodily impairmentor disfigurement, and vocational rehabilitationservices.

Total expenditures for the program were _891million in 1981 and are expected to reach _972million for 1982. Of the approximately 2.8million federal employees covered by the Act,48,000 beneficiaries were receiving long-termdisability compensation, over 90,000 employeeswere compensated for short-term injuries andthere were about 26,000 new compensation claimsduring 1981. Since the 1974 amendments to theAct, costs and claims have risen dramatically.Costs have more than tripled and traumatic injuryclaims increased almost sevenfold. These in-creases occurred during a period when federalemployment has been relatively stable and in-creased emphasis has been given to safety.While OWCP has the responsibility for adminis-tering the Act, actions by all federal employingagencies, the Office of Personnel Management andthe Office of Management and Bu@get greatly influ-ence the successful implementation of the provi-sions of the Act.

On the basis of prior studies and investigationsrelated to the FECA program, we concluded thatmost agencies who have employees receiving FFCAbenefits do not actively contribute to improvingFECA program management nor to reducing progrsmcosts. While OWCP is charged with paying claims

- 6 -


16/112

under the Act, employing agencies have certainprogram responsibilities, such as forwarding toOWCP timely and complete claims, continuing payfor the first 45 days after a traumatic injuryand giving placement priority to claimants whofully recover.

A major underlying reason most employing agenciesare not aggressively working to control FECAcosts is that the system established by the Actlacks significant financial incentives to moti-vate agencies to control their costs. Under thecurrent law, compensation benefits are paid byOWCP out of the Employees' Compensation Fundestablished under the Act. Each agency must thenreimburse the Fund for its costs through an appro-priated amount contained in its next year's budgetrequest. The practical effect of this is thatagencies are reimbursed by Congressional appropri-ations for whatever their expenses are, therebyeliminating what should normally be a strongincentive to curb costs. Also, since costs arenot charged to the organizational component ofthe claimant, agency managers, who would normallybe in the best position to oppose claims or toreemploy claimants in light-duty positions, arenot effectively being held accountable for FECAcosts or provided an incentive to reduce thesecosts.

This led to our view that a strengthened role foremploying agencies would contribute to bettermanagement and cost control in the FECA program.Because of the necessary participation ofemploying agencies, we proposed to the Presi-dent's Council on Integrity and Efficiency aninter-agency project to review employingagencies' management of their FECA responsi-bilities. The Council approved the project, and,in addition to our involvement, included repre-sentatives from the Department of Transporation's

-- 7 --


17/112

OIG, the U. So Air Force Audit Agency, the UnitedStates Postal Service, the Tennessee ValleyAuthority, and the Office of Workers' Compensa-tion Programs. Participating agencies includedseveral of the largest users of the FECA program.The objective of the project was to determinewhat the Department of Labor and other federalagencies could do to curb abuse of the FECAprogram and better control its costs.The study concludes that:

-- Employing agencies do not know enougb aboutthe FECA program, including how to questionand oppose claims, to administer theirresponsibilities properly.

-- Employing agencies do not submit timely andcomplete claims information or take stepsnecessary to reemploy claimants quickly.

-- OWCP and employing agencies do not shareinformation on status of claims, notice ofawards, hearings, and appeals.

-- OWCP does not always obtain adequatemedical advice and evidence, conductsufficient reviews of claimants todetermine if their disabilities continue orwhether they earned wages, or screenclaimants and provide for enoughrehabilitation services.

-- OWCP staff is under an extremely heavyclaims workload--an average of over 700cases per examiner.

-- For key functions, such as obtainingmedical advice, contacting claimants andreemploying claimants, the Act does notspecifically assign authority, which tends

-- 8 --


18/112

to preclude active employing agencyparticipation in the program.

The agency that has been the most successful inoperating a workers' compensation program is thePostal Service. To prevent injured workers fromstaying on compensation long enough to get on thelong-term disability roll, the Postal Serviceoften controverts claims (opposes continuation ofpay) and is successful in over 37 percent of theseopposed claims. The Postal Service estimates thatits injury compensation program has saved about_13.2 million from October 1979 through October1981 by reemployment of i,i00 claimants. In addi-tion, the Postal Service has avoided another _15.6million in costs associated with the continuationof pay provisions. Between 1977 and 19_0, itscosts have increased a mere .7 percent, while itspayroll has increased 30 percent.As a result of its review, the inter-agencyproject team recommended a number of legislativeand administrative changes.Legislative recommendations include:

-- Authority and responsibility should begiven to employing agencies to establishand operate injury compensation programs toprovide early light-duty assignments toclaimants and for rapid reemployment.

-- When submitting budget requests to covercompensation and benefit expenses,employing agencies should be required toreport their efforts to rehabilitate andreemploy claimants to the AppropriationsCommittees.

-- Establishment of a system to estimatecompensation costs and pay them out of

-- 9 --


19/112

agencies operating funds should be required-- OWCP should be required to set guidelines

for implementing injury compensationprograms in agencies, to monitor agencyefforts, and to establish a viablerehabiliation program

Administrative recommendations directed atemploying agencies include:

-- Provide an adequate, well-trained staff forthe agencies' injury compensation program;-- implement an injury compensation program

with certain key elements, such as earlylight-duty assignments to claimants, reem-ployment for certain long-term disabilityclaimants, mandatory medical examinations,and utilization of medical data in moni-toring claimants; and

-- establish reporting systems at the appro-priate management level to account forcompensation costs and results of effortsto provide reemployment and rehabilitation.

Also, the team recommended that:- employing agencies be able to obtain ceiling

relief from CMB for one year for FECA claim-ants hired from the long-term roll, and

- OPM monitor the adequacy of agencies' reem-ployment efforts

We believe that implementation of the recommen-dations resulting from this study will signi-ficantly improve administration of the FECAprogram and will result in substantial dollarsavings

- i0 -


20/112

CLAIMANT FRAUD

Claimant fraud has historically been a problem inmany government benefit programs and FECA is noexception. While the number of cases of FECAclaimant fraud detected is not inordinately highfor a program providing compensation to nearly 50thousand long-term disability claimants, it ishigh enough for us to be concerned with the pro-gram's ability to adequately detect and preventsuch fraud. OIG efforts in identifying and inves-tigating claimant fraud have significantlyincreased during the past year. About 40 percentof our fraud investigative resources are pre-sently being devoted to ESA-related investiga-tions, the majority of which are FECA cases.During this 6-month reportlng period, approxi-mately 240 FECA claimant cases have been underactive investigation. In 52 cases, investigativeresults were referred to ESA for administrativeaction; and 33 FECA-related indictments and 28FECA-related convictions have _een obtained.We recently undertook a special analysis of casesworked from July i, 1981, to March 31, 1982, toidentify the types of fraudulent schemes employedand the problems within the Act or its adminis-tration that may contribute to the occurrence ofclaimant fraud.

There are two major types of FECA claimant fraud--one where the fact of injury is falsified and theother where the claimant conceals or falsifiesnon-injury information, particularly unreportedincome, that would affect benefit eligibility andpayment level. Our experience has shown that itis extremely difficult to prove and prosecutecases of the first type. Virtually all of ourcases resulting in successful pfosecutlons arethose of unreported income by claimants.

- ii -


21/112

By law, FECA claimants receiving long-term totaldisability benefits may not receive any outsideearned income. Those on long-term partial dis-ability must report any outside income earnedwhile drawing benefits. The principal vehicleused by OWCP to determine a beneficiary's outsideemployment and income is Form CA-I032, which OWCPis required to issue and receive on a yearlybasis for each recipient. This form requires theclaimant to report all employment during the past12 months and any change in dependents' status.As this process is dependent upon self-certifi-cation by claimants, fraud is, unfortunately,more likely. In tbe area of FECA fraud relatingto unreported income, we find that while someforms of fraud are relatively easy to detect andprevent, others are sufficiently difficult thatelaborate detection and prevention approaches maynot be cost-effective. In the area of unreportedincome we have found both forms.

We are particularly concerned about those casesof fraud that could have been detected and pre-vented by OWCP following its own procedures andeffectively managing the claims process. Forexample, one claimant, on FECA disability since1976, never received a Form CA-I032. Our investi-gation disclosed that he was gainfully employedand receiving welfare. Another claimant was sentonly one CA-I032 between 1972 and 1980. We foundthat, during this time, sbe was operating a retailfood market. In another case, a claimant did notreturn the 1032 forms relative to his daughter'sstatus as a student. Overpayments of 39,000could have been saved if OWCP had acted on thisfailure to file.

In other cases_ OWCP inaction on informationactually received meant that fraud was allowed tocontinue and overpayments made. This is demon-

- 12 -


22/112

strated by the following examples.- In two cases, 0WCP files contained informa-

tion that was apparently overlooked.Although one claimant reported outsideincome, and another claimant's medical reportshowed that the claimant was working, OWCPtook no action at the time these reports werereceived.

- In 1975, an OWCP office became aware of aclaimant's employment through a routine checkof Social Security Administration records.This was not reported to the 0IG until 1980.As a result of this delay, the U.S. Attorneydeclined prosecution based on 0WCP's 5-yearlapse of action. An overpayment of over_Ii,000 is involved.

- In another case under investigation, we foundpoor coordination within an OWCP districtoffice. The file maintained on a claimant bythe rehabilitation section of the districtoffice indicated that the claimant wasworking as a real estate salesperson. At thesame time, this claimant was drawingbenefits, since this employment informationwas never forwarded to his claim file.

These are certainly cases where better operatingmanagement systems could have detected andprevented a great deal of fraud, but there areother examples as well. In our last semiannualreport, we described a project conducted inAtlanta that identified unreported income andinadequate ongoing case file reviews as signif-icant problems. We now have final statistics onthe results of this work. They show that, of the1,810 FECA claimant files.reviewed, benefits to95 claimants were terminated or reduced, result-ing in yearly savings of _850,889. Considering

- 13 -


23/112

that the average claimant is on the periodicrolls 16 years, the future cost avoidance to thegovernment would be in excess of 313 million.

In September 1981, the project in Atlanta wasexpanded to a nationwide review, with the initialfile reviews completed in December 1981. Theadministrative shortcomings in the processing andmanagement of claims that surfaced in the earlierproject were again found in the nationwide review.For example, our review of over i0,000 periodicroll cases disclosed that a total of 3,498 casefiles did not contain a current Form 1032.

We also found 4,370 cases where the medicalinformation in the file, or lack of medicalinformation, was questioned by the reviewer, butbenefits continued. In each case there should bemedical justification (reports, exams, etc.)issued within the past 12 months for continuingthe claimant on the periodic rolls. Frequently,the reviewers discovered that the files containedold medical reports, conflicting medical opin-ions, and failure by OWCP to follow up ondelinquent medical reports

A total of 773 files were deemed worthy of closerscrutiny and/or investigation by the appropriateemploying agencies who are reviewing the filesand who will advise us of the number of investiga-tions opened. Although this information is notyet available, we are aware that many cases arebeing initiated For example, as a result of theNew York review, the Postal I_spection Servicehas initiated 50 criminal investigations.To date, OIG has received notification from OWCPthat they have terminated or reduced benefits inat least 150 cases that were reviewed during thenationwide project. For example, the Dallas 0WCPoffice has terminated I0 claimants, resulting in

- 14 -


24/112

a yearly savings of 5153,322; the Denver officehas terminated 5 claimants, resulting in a yearlysavings of 562,855; the Philadelphia office whichservices the Washington, D.C area, reports 6actions, resulting in a savings of 557,746; theNew York office took 19 actions, resulting in asavings of 5152,525; and the Chicago OWCP officereports 90 actions, resulting in a savings of51,022,225. Data from the other offices arestill being compiled. And, many hundreds ofnecessary corrective actions have been identifiedand are being acted upon.While these projects have helped to identifyineligible FECA beneficiaries and to serve as adeterrent, we are concerned aboutthe inadequacyof ESA's actions to implement our administrativerecommendations.Resources have been a continuing problem forFECA. Simply put, it is extremely difficult fora claims examiner to perform all of the tasksnecessary to adjudicate claims and to alsocarefully review files; search for conflicting,out-dated, inaccurate, or incomplete information;or undertake special verification reviews, par-ticularly when the top priority is to processclaims on a timely basis.However, while we recognize that staffing con-straints pose a genuine problem, we remain uncon-vinced that they can satisfactorily excuse thekinds of cases described above, or justify notimplementing some simple steps that are likely toresult in the prevention of fraud and substantialoverpayments. For example, to date OWCP has notinitiated any system to routinely identify unre-ported income. This is a compliance functionthat could be easily implemented and maintained.One obvious approach is to periodically matchFECA claimant information against state wage data.

- 15-


25/112

We do not mean to imply that more effectiveclaims management will eliminate all FECAclaimant fraud or improper payments. Ourinvestigative work has identified types of FECAclaimant fraud that would probably not bedetected by matches against wage data, betterclaims management practices, or even an extremelyalert claims examiner -- for example, FECAclaimants who are not entitled to benefitsbecause of unreported self-employment income.The area of self-employment is far more difficultto detect, investigate and prosecute thanunreported income reflected in employer wagerecords. Since we are unable to obtain IRSincome tax data, and social security wage dataare often not current, this type of unreportedincome is not readily detectable; and, whensuspected, must be investigated on a case-by-casebasis. Several examples of recent cases thatillustrate the problem of unreported income fromself-employment follow.

- A claimant had an income tax preparationbusiness, with over three hundred clients andwas advertising in the yellow pages. On thebasis of information received from some ofthese clients, we were able to establishproof of income.

- Another claimant, a former Post Office clerk,operated a private investigative agency thatwas awarded a GSA contract to providesecurity at a record depository for a fee of56,000 per month. He was recently sentencedto a 3-year prison term.

- In another case, a FECA claimant, whoreceived over 514,000 in compensationbenefits, owned and operated a health spaand did not report this income to OWCP.

- 16 -


26/112

- A pending case concerns a claimant whoapplied for retroactive benefits amounting toover _I00,000. Based on a tip from an OWPCclaims examiner, we determined that theclaimant owned a limousine business thatgrossed _44,000 in 1980.

A second problem area is the falsification ofdata on forms submitted to OWCP and to employers.Several examples of these cases follow.

- A former Post Office employee furnished falsedocuments to OWCP using the name of a ficti-tious doctor. The claimant pled guilty andwas sentenced to 9 months' probation.

- Another claimant received over _40,000 inFECA compensation while attending school tobecome a practical nurse. She received herlicense and went to work for a state agencyusing a different social security number anda slight variation in the spelling of hername.

- A Post Office employee with an alleged backinjury attempted to cover up his employmentwhile collecting disability benefits. Con-spiring with his supervisor, the individualwas issued checks and W-2 forms in his wife'sname.

In our view, one of the most cost-effectiveapproaches to preventing these types of fraud isto make the penalty for committing such fraudstringent enough to serve as a deterrent.Currently, beneficiaries who falsify data on FormCA-I032 are subject only to a misdemeanorprosecution and collection of past overpaymentsby OWCP. We have recommended that false state-ments on FECA forms be elevated to a felony

- 17 -


27/112

offense. We have also recommended that it be acriminal offense to willfully conceal earningsfrom employment, or self employment, to obtainFECA benefits. The present statute only pertainsto making false statemens on affidavits andreports.In summary, we consider FECA claimant fraud to bea major continuing problem. We believe thataction on our administrative and legislativerecommendations would significantly help detectexisting fraud and help reduce future fraud.

- 18 -


28/112

I_IPLOYMENT AND TRAINING ADMINISTRATION

The Employment and Training Administration (ETA)budget authority for Fiscal Year 1982 is 525.0billion, including the Unemployment InsuranceTrust Fund. The Unemployment Insurance TrustFund is budgeted for 521.3 billion and theComprehensive Employment and Training Act (CETA)program is budgeted for 53 billion. Theremaining funds are for other ETA activities,such as programs for Older Americans, and otherincome maintenance accounts

In light of the statutory expiration of CETA inSeptember 1982 and the Administration's interestin designing a substantially different employmertand training program, a number of bills have beenintroduced containing proposals for new programsto replace CETAo The bills vary considerablywith respect to delivery systems, participanteligibility criteria and funding levels.The Office of Inspector General is continuing toaudit and investigate current CETA programs, withparticular attention being given to phase-outproblems, such as returning to the governmentfunds remaining in program accounts, accountingfor equipment, end-of-grant spending, and theadequacy and accuracy of final grant close-outinformation. Also, we have tried to ensure thatfraud and waste concerns are raised in connectionwith designing a new employment and trainingprogram. As the nature of the successor programis clarified, we will be planning future auditand investigative actJvitles in tbe employmentand training area.

AUDIT RESOLUTION

In our previous semiannual report, we describedthe joint OIG/ETA actions taken to resolve the

- 19 -


29/112

backlog of audit reports over 6 months old and toinstall an effective and permanent system foraudit resolution. Since almost 5400 million wasresolved during the past year, we have beenconcerned about problems that may have resultedfrom the pressure to resolve such a large backlogof audit findings in such a short time. Toensure the quality of the audit resolutionprocess, we have initiated a review of auditresolution and debt collection efforts to date.In this review, we are focusing on whether ETA'sdetermination of disallowed costs adequatelyprotected the government's interests and whetherquality was maintained in the resolution processduring the period of intense pressures bymanagement to resolve all outstanding audits.At the same time, we are interested in ensuringthat the commitment to timely resolution of auditfindings continues. Tbe Department has continuedto give this priority, and policies are now inplace to ensure prompt resolution of monetaryaudit findings. As of March 31, 19_2, all auditreports over 180 days old had been resolvedexcept for I0 reports questioning 52.1 millionwhose resolution is awaiting the conclusion ofinvestigations or settlement of other uniqueproblems. Based on information from ETA, dollarsreceived during this period as a result of auditdisallowances totaled 511.3 million. Of thisamount, 56.4 million represents cash repayments;the rest represents collections througb offsetsand services provided in lieu of cash repayments.

Our past focus in the area of audit resolutionhas been almost exclusively directed to monetaryfindings. Efforts to ensure the implementationof recommendations in past audit reports toimprove CETA administrative systems and internalcontrols have tended to receive a lower priority.We are now designing a system to give resolution

- 20 -


30/112

of non-monetary findings equal priority. ThisDepartment-wide resolution process will ensurethat issues related to the resolution of auditrecommendations are elevated, when necessary, tohigher level officials, and that the implementa-tion of corrective actions is actively monitored.

PROGRAM FRAUD_ WASTE AND MISMANAGEMENTSince the inception of the CETA program, therehave been continuing problems related to programfraud, waste and abuse. These problems havecontinued to receive the bulk of OIG audit andinvestigative resources. Because of recurringproblems in CETA, and because of the pendinglegislative initiatives related to the funding ofa new employment and training program, we felt itappropriate to take a joint OIG/ETA look at thelessons learned from the CETA experience. Ourpurpose was to make recommendations for futurejob training bills that would help avoidrepetition of past fraud and waste problems.Following are examples from this reporting periodof problems in the CETA program, what the jointOIG/ETA effort determined to be the major causesof these problems, and recommendations forconsideration in designing a new job trainingprogram.Mismanagement of FundsWhile the resolution of subgrantee questionedcosts continues to be a problem found in auditscompleted during this reporting period, otherhistoric problems now appear to be less widelyfound. For example, due mainly to the eligi-bility determination and verification systems andindependent monitoring urits required by the 1978reauthorization of CETA, ineligible participantshave become less of a problem. However, as theCETA delivery system changes and grantee opera-

- 21 -


31/112

tions phase out, other problems are changing incharacter.

Following are typical problem areas identified inrecent audits, along with several examples ofaudit findings.

a. Resolution of subrecipient questioned costsPrime sponsors are responsible for resolv-ing any exceptions resulting from audits oftheir subrecipients and for collectingquestioned costs In our view, the abilityor willingness of prime sponsors to takeaction in this area is still inadequate.

During this reporting period, 33 percent ofquestioned costs, or 523.5 million, result-ed from unresolved audits of subrecipients.A portion of this amount resulted fromunified audits where both the prime sponsorand subrecipients are audited at the sametime. In these instances, resolu-tion of the subgrantee audits are notnecessarily considered untimely. Thefollowing examples from some of our recentaudits illustrate the magnitude of theproblem.

-- South Florida Employment and TrainingConsortium- Total amount questioned, 51,678,722- Amount pertaining to subgrantee

audits, 51,666,623

-- Hennepin County, Minnesota- Total amount questioned, 52,681,919- Amount pertaining to subgrantee

audits, _2,669,063-- Arizona Balance-of-State

- Total amount questioned, _2,851,596- 22 -


32/112

- Amount pertaining to subgranteeaudits, 51,480,897

-- City of St. Louis- Total amount questioned, 55,212,2_9- Amount pertaining to subgrantee

audits, 54,452,161

b. Overcharses for frinse benefitsIncorrect cost allocation plans continue tobe one of the main causes of questionedcosts in audit reports. Our audit of theCounty of Los Angeles found that the CETAprogram was overcharged 57.6 million forfringe benefit costs. The overcharge was aresult of the County including fringebenefits, which CFTA participants did notreceive, in its indirect cost rate. Thisresulted in a higher rate than was proper.It was recommended that these funds bereturned to the Department of Labor, andETA is in the process of negotiating areturn of the fringe benefits charged byLos Angeles County.

c. Purchases of unnecessary equipmentSome grantees have made large, unnecessarypurchases of audiovisual, computer, andother equipment. An audit of the losAngeles County CETA program disclosed theunnecessary purchase of 5]_.3million ofaudiovisual equipment. ETA has now takentitle to this equipment and transferred itto the ETA National Office TrainingCenter. Requests from three other primesponsors to purchase ADP equipment havebeen denied. The ETA National Office hasissued a nationwide freeze on suchpurchases by CETA sponsors. The freezealso applies to rentals and leases.

- 23 -


33/112

d. Poorly written contractsPoorly written contracts have permittedcontractors to receive more than would havebeen allowed had sound contractingpractices been followe@o

For example, an audit of EmploymentTraining Resources, Inc., a subcontractorof the CETA prime sponsor at Lowell,Massachusetts, disclosed that the companyrealized a profit of over _500,000 on itsfixed-price contract, due to lack ofspecificity in the contract language thatfailed to preclude such a large profit.The contract provided _1,568,000 fortraining and placement services over a12-week period.

Much of the equipment provided for in thecontractor's budget was not delivered untilnear the end or after the program wascompleted. It is estimated that 40 percentof the equipment had not been used. Thecontract was intended to provide servicesto more than 300 participants; however,only about 70 were actually involved in theprogram and only about 20 placements weremade. Because of the profit amount, theheavy proportion of equipment costs, andthe limited participant services, theentire amount of the subcontract wasquestioned.

Embezzlement of Program FundsThe most significant investigative casesconcerning CETA during this period relate to theembezzlement of federal funds. Following arehighlights of some recent cases.

o Because of fraudulent activities uncovered inan OIG audit of the City of Hartford CETA

- 24 -


34/112

program, in 1979 we began a special review ofthe Associated Restaurants of Connecticut,which held contracts with various CETA primesponsors for job training and placement ofparticipants in the food service industry.Through a complex and sophisticated network ofineligible and ghost participants, theparticipant counselors manufactured the falsepaperwork necessary to defraud CETA of morethan _300,000. Our report on the organizationhas been issued to ETA and to variousConnecticut CETA prime sponsors. Total costsquestioned are _1.4 million out of _2.5 millionaudited.

o The first CETA fraud prosecution in Arizonainvolving the cooperative efforts of thePhoenix Police Department, OIG, and tbe FBI,has resulted in the conviction of the directorof Career Development Resources Inc., for usingfederal funds to set up and run a secretfor-profit business. The company received over_500,000 in ETA funds. The director'sadministrative assistant was also convicted ofdefrauding the CETA program and falsifyingrecords by arranging to have his wife hired asa ghost employee and paying her for work shedid not perform. The local Assistant U.S.Attorney praised the "perfect example ofcooperative law enforcement" and said be lookedforward to more cooperative efforts like thisone "especially as we attempt to reduce fraudin government programs.

o An OIG review resulted in a civil suit beingfiled in the U.S. District Court, Philadelphia,Pennsylvania, charging the operator and partowner of the Bucks County Playhouse withhelping to prepare false claims for 15employees who collected _55,000 in CETA funds.The suit seeks to recover double damages for a

- 25 -


35/112

total of _iI0,000 plus _2,000 in punitivedamages for each false statement or claim. Thetotal potential dollar recovery isapproximately _175,000.

o The owner of the Pettiford Construction Companyand his wife were indicted on charges ofembezzlement and false claims involving _40,000in fraudulent billing of the Newark CETAProgram in New Jersey Their company was asub-contractor to the North Jersey CommunityUnion, a prime on-the-job training contractorto the City of Newark CFTA Program. ThePettiford indictment is the last resulting froma joint OIG, FBI, and United States Attorney'sOffice 3-year investigation of subcontractorsto the Newark CETA Programs To date, therehave been ii indictments with 8 defendantspleading guilty and 1 convicted after trial.

o Inadequate screening of applicants forfiduciary positions led to tbe hiring of a CETAproject director with a prior felony record forwriting false checks. The former projectdirector of the Pala Band of Mission Indians'Youth Community Conservation and ImprovementProject was indicted for allegedly embezzling_16,000 in C_TA funds. The former director wascharged with making and cashing checks payableto fictitious consultants and terminatedparticipants.

Joint Review of Fraud and Waste IssuesThe joint OIG/ETA effort identified three majorunderlying factors that have led to fraud, wasteand abuse in CFTA program management and adminis-tration: focus of ETA management on the disburse-ment of funds rather than adequate oversight, thecomplexity of CFTA legislation and regulations,and the proliferation of subgrantees within theCETA system.

- 26 -


36/112

Although in CETA more emphasis has recently beenplaced on sound program and fiscal management,the main focus of ETA in the past has beendirected toward funding and implementation ofprograms. Historically, inadequate attention wasgiven to management systems, financial controls,reporting information, and outcome analysis oneither the national or local level. As stated inthe joint report: "The pervasive attitude of ETAofficials, and, ultimately, local programmanagers, was to get the money out and worryabout program management later." The reportacknowledges that continuous changes inauthorizing legislation, which altered programemphasis and intent and which caused fluctuationsand uncertainties of funding levels, played asignificant role in directing management toward"start-up" and implementation activities.By 1980, the CETA program had operated under 5different legislative mandates and had receivedfunding under Ii continuing resolutions, 4supplemental appropriations, and 3 appropriationbills. While ETA cannot be absolved of itsmanagement reponsibility, it has traditionallybeen forced to operate in a mode that consideredspending funds more important than the financialintegrity of programs.The 1978 reauthorizing legislation mandatedfairly specific management controls to diminishsuch shortcomings in tbe program. The effect ofthis is evident in the setting up of eligibilitydetermination and verification systems, theestablishment of independent monitoring units,more stringent performance assessments, anddevelopment of more refined performancestandards. Recent emphasis on audit resolutionis another clear indication of the redirection ofpriorities towards sound fiscal and programmanagement.

- 27 -


37/112

Another cause of management-related problems hasbeen the overly complex CETA statute and regula-tions. Prime sponsor understanding of and compli-ance with complex regulatory requirements wereproblems prior to the reauthorization of CETA.The 1978 legislation, while improving internalcontrols and management systems, contributed toadministrative problems through the categori-zation of programs and stipulation of complex andoften burdensome requirements. While the intentof Congress resulted in greater attention tomonitoring and management functions, the addi-tional reporting requirements imposed by thereauthorization of CETA made good management moredifficult.

Finally, the proliferation of subgrantees overthe last several years has significantly contrib-uted to management problems in CETAo The currentCETA program has approximately 475 prime sponsorsand has operated programs with up to 50,000subgrantees and contractors. DOL cannot provideadequate management and oversight when the amountof funds subcontracted is unknown, thesubcontractors are unknown, and the number ofsubgrantees is so great that it is beyond thecapacity of any organization to provide adequatemonitoringRecommendations for New Program Structure andLegislationOIG/ETA recommendations made for consideration indesigning a new job training program includethose summarized below

ao Simplified program structureExperience shows that management capabilityin a new employment and training programcould be strengthened by avoiding an overlycomplex program structure. The "lessons

- 28 -


38/112

learned" report suggested that a newemployment and training program designshould do the following:- Use existing structures of government

rather than newly created organizationsor private non-profits for programdelivery. The audit and audit resolutionprocesses have shown that when newsystems of program delivery are imple-mented, personnel procedures and finan-cial and other management systems aremore likely to show abuses, and effectivecollection of misspent funds is moredifficult.

- Limit the number of subgrantees. Thelarge number of subgrantees in the CETAsystem has led to a variety of problems,including increased administrative coststhrough duplication of effort and reducedeconomy of scale, difficulties of programmanagement and oversight, and increasedcosts of audit coverage and problems inthe audit resolution and debt collectionprocesses.

- Centralize at the prime sponsor levelcertain areas that are vulnerable toerror or abuse. Examples of such areasin the CETA program are participanteligibility systems and systems to paywages and training allowances to partici-pants. Future legislation should requirecentralization of these functions at theprime sponsor, or local program adminis-tration level, for more effectivemonitoring and audit control and for moreefficient implementation of correctiveaction when deficiencies are identified

- 29 -


39/112

b. More effective management systemsThere is a need to simplify eligibilityrequirements, avoid fragmented financialmanagement systems, and systematicallymeasure program results. Based on theexperience of ETA and OIG, a system foreligibility determination and verifi-cation should be required either throughlegislation or regulations; and thisfunction should be independent of theoperational unit Also, eligibilityrequirements should be defined inmanageable terms and limited in number.Deficiencies in the CETA financialmanagement system disclosed in OIG auditsinclude dual or fragmented accountingsystems, poor grantee cash managementpractices, financial management systemswith no provision for reporting cashbalances, and poor internal controls. Toremedy these deficiencies in a futureemployment and training program, werecommend the following:- Future reporting requirements should be

simplified and designed to provideadequate fiscal accountability- Employment and training legislation and

regulations should require the use of thegrantee's existing accounting system forfiscally accounting for DOL fundedprograms. The use of existing systemsshould depend on the results of apre-award survey that would disclose ifthe system properly accounts for cashreceipts, cash disbursements, and cashbalances, and if it provides for adequateinternal controls.

- 30 -


40/112

c. Improved audit resolutionAlthough a number of important improvementswere recently made by ETA, the joint OIG/ETAreport made legislative and program manage-ment recommendations regarding audit resolu-tion, including:- Eliminate regulatory language requiring

audit resolution within 120 days, so thatthe 180 day time limit in 6_B CircularA-73 will apply.

- Assign officials other than those whoentered into and administered the grantor contract to resolve audit findings.

- Apply provisions similar to those now fourd in section 676.88(c) of the CETAregulations to the new legislation.These provisions give the grant officerthe authority to waive the repayment ofquestioned costs under certain specifiedconditions.

- Provide grantees clear, positive directionand incentive in rooting out subgranteemisspending, in establishing debts based onquestioned costs, and in pursuing thosedebts.

- Legislatively authorize ETA to issue policystandards or regulations governing allow-abili_ty criteria.

- Through legislation, authorize ETA toreject proposed awards to grantees andcontractors who have failed to makeadequate progress in correctingdeficiencies.

- 31 -


41/112

do Stronger administrative collection authorityThe OIG/ETA task force felt that mechanismsin the current CETA legislation were inade-quate to ensure that debts of grantees andsubgrantees are collected The task forcerecommended, as previously discussed, thatthe new employment and training legislationshould permit ETA to collect debts of anyage. Furthermore, provisions were recom-mended to add incentives so that thesefunds are returned on a timely basis.

CASH CONTROL

In our last semiannual report, we pointed out theneed for more effective cash management practiceswithin the CETA program. ETA has responded byinitiating Cash Control-82, a project designed toreduce Treasury cash outlays by more than 5100million in Fiscal Year 1982 without negativeimpact on program outcomes. Cash Control-82 hasthree basic objectives:(i) Reduce unneeded prime sponsor cash-on-hand to

the practical minimum for day-to-day opera-tions.

(2) Close all inactive contracts a_d grants tofree the cash from these contracts nowsitting Idle in local banks.

(3) Accelerate the debt collection processresulting from audit disallowances.

ETA has reported the recovery of 521 millionthrough February 1982 as a result of this project.

- 32 -


42/112

MINE SAFETY AND HEALTH AE_INISTRATION

The Federal Mine Safety and Health Act of 1977transferred authority for enforcement of healthand safety standards from the U.S. Department ofInterior to the U.S. Department of Labor. Theobjective of the Mine Safety and Health Adminis-tration (MSHA) is to achieve a safe and healthfulenvironment in the nation's mines. This involvesconducting investigations and inspections ofmetal, nonmetal, and coal mines; assessing civilmonetary penalties for violations of the Act;certifying equipment and materials for use inmines; examining, approving, and monitoringindustry plans to ensure compliance under tbeMSHA Act; promulgating standards for mine safety;and developing programs and materials to trainmine inspection and technical support personnel.The 1977 Act requires a complete inspection ofeach underground mine at least four times a yearand a complete inspection of each surface mine atleast twice a year. In addition to these regularinspections, the 1977 Act requires periodic spotinspections in those mines where excessive quanti-ties of methane gas are released; where other gasignitions or explosions have occurred during theprevious five years, resulting in death or otherserious injury; or where other hazardous condi-tions are present.MSHA has two Divisions, the Coal Division and theMetal/Nonmetal Division, which administer andimplement the enforcement effort for the respec-tive industries. These industries are comprisedof over 21,000 mines. The number of personsemployed in these mines ranges from one pers0noperators to corporate entities employing over2,000 people. MSHA's Fiscal Year 1982 appropri-ation is _148 million and the personnel ceilingis 3,186. Nearly 75 percent of its staff and 62

- 33 -


43/112

percent of available funding are directed towardenforcement activities.

ENFORCEMENT OF HEALTH AND SAFETY STANDARDSDuring this period, a review of certain aspectsof MSHA's enforcement and enforcement-relatedactivities was conducted. One of the major areasevaluated was the effectiveness of MSHA'sconference office procedures. MSHA's AssessmentField Office is responsible for conducting theinitial review of all mine safety and healthviolations, for determining the initial amount ofpenalty and for forwarding the results to themine operator, the respresentative of the minersand to the appropriate Conference Field Office.Conference Office responsibilities includeevaluating information provided by operator andminers' representative, determining the proposedpenalty for each violation and processingassessment cases for referral to the Department'sOffice of the Solicitor and to the Department ofJustice. Currently, Assessment and ConferenceFJeld Offices report to MSHA's Director ofAssessment. In our review, we also evaluated the:- Adequacy _f documentation prepared by

inspectors to support citations,- adequacy of controls to assure that citations

are properly accounted for and forwarded forassessment, and

- effectiveness of MSHA's efforts to collectcivil penalties.

The major weaknesses identified in tbe review aresummarized below.1. Elements of enforcement actions and

procedures--inspection, assessment, andconference activities--were isolated and

- 34 -


44/112

scattered and may have tended to focus onnegotiating and collecting penalty amountsrather than eliminating unsafe work practices.

2. The inspection reporting system did notprovide a positive assurance of the extent ofinspection activities, nor did it provideadequate information for assessment andconference office determinations.

3. Recordkeeping procedures and systems were notadequate to prevent destruction, diversion orloss of valid citations nor to assure thatfines for safety and health violations areenforced.

4. Enforcement of health and safety standardsrelied primarily upon the identification ofviolations and subsequent assessment of civilpenalties in accordance with the Mine Act.However, penalties were substantially reducedduring conference process, and debtsestablished were not subject to rigorous debtcollection actions.

We recommended that the Assistant Secretary forMine Safety and Health:

-- Monitor the effectiveness of MSHA's plannedreorganization to determine its impact onMSHA's ability to enforce health and safetystandards and to identify new weaknessesthat may develop.

-- Improve reporting of the scope of inspec-tion activity to provide assurance ofadequate inspection review.

-- Utilize existing reconciliation proceduresand develop additional procedures to assurethat citations are accounted for and that

- 35 -


45/112

violations are subject to assessment andcollection actions.

-- Continue efforts to automate the CoalDivision data base and explore thefeasibility of developing an integratedinspection/assessment data base.

FL,rther, the Assistant Secretary of MSHA and theSolicitor should establish a Debt Collection TaskForce to provide oversight of initiatives toimprove the collection of civil penalties thatare assessed.MSHA has planned or implemented certain organi-zational and program management changes that willaddress most of these recommendations. The plansare to:

-- Abolish the nine separate conferenceoffices and hold health and safetyconferences at the district offices;

-- include the inspector in the conference andbold conferences prior to assessing thepenalty for the citation rather than after,as in the past;

-- provide for gravity, negligence, and goodfaith to be determined by the inspector onthe citation form, rather than establishingthese factors at the time of assessment; and

-- establish new penalty amounts designed toencourage payment and reduce paperwork.

MSHA has been organizationally structured aroundthe various elements of the Mine Act: separateadministrations for coal mine safety and health,metal/nonmetal mine safety and health, aneducation and training directorate, a National

- 36 -


46/112

Mine Health and Safety Academy, a directorate oftechnical support and an assessment office. MSHAwill be reorganizing its field structure to placeunder the supervision of the District Manager alltools contributing to improved safety and healthconditions. Under the reorganization, theDistrict Managers will have education andtraining specialists assigned to their staff.These specialists will be able to identifyindividual mines with particular training needsand work with management and labor to solve theseproblems.The conference functions related to assessment ofpenalties will be moved to the District Office.Therefore, any questions or problems arising frominspections or circumstances leading to anysafety and health violations can be discussed andresolved at the district level with theindividuals most directly involved.Although MSHA's planned activities may, ifproperly implemented, alleviate many of theidentified weaknesses, we believe that concertedaction on other OIG findings is needed to makesignificant improvements in its enforcement andinspection program.

- 37 -


47/112

PART IISUMMARY OF OIG ACTIVITIES

OFFICE OF INVESTIGATIONS

Between October I, 1981, and March 31, 1982, weopened 305 cases and closed 331. We referred 95cases to the Department of Justice or otherauthorities for prosecution. In addition, 104cases were referred to DOL agencies foradministrative action.During this period, 77 individuals or entitieswere indicted and 70 convicted based on ourinvestigations. A breakdown of investigativecase activity is shown on the following pageFines, recoveries, and collection actionsresulting from our investigations during thisperiod totaled about _3,205,188. Costs avoidedas a result of our investigative recommendationsor actions totaled _2,811,754.Examples of some of our most significant casesfollow.

Employment Standards Administrationo A former Department of labor employee pied

guilty to stealing, forging and cashingapproximately _30,000 in returned FECAdisability compensation checks, and wassentenced to i0 years' imprisonment. U.S. VoSmith (W.D. Wash.)

o A former Tennessee Valley Authority employeepied guilty to charges of making false state-ments to OWCP about his employment andearnings. He had worked for about 24 employerssince he began receiving disability benefitsand had concealed his true employment status.

- 38 -


48/112

SLR_MARY OF INVESTIGATIVE ACTIVITYOctober i, 1981 - March 31, 1982

Cases Cases Individuals IndividualsOpened Closed Indicted Convicted

Bureau of LaborStatistics 1 4 4 4

Employment StandardsAdministration 137 146 40 35

Employment and TrainingAdministration 102 148 31 26

Labor-Nanagement ServicesAdministration 4 4 - -Mine Safety and Health

Administration 19 7 2 5Office of the Assistant

Secretary for Admin-istration andManagement 13 I0 - -

Occupational Safety andHealth Administration 19 9 -

Office of theSecretary 6 3 -

Office of the Solicitor IMultiple Agencies/Programs _ - - -

TOTAL_ 305 331 77 70

33-


49/112

OWCP determined that _96,225 in Compensationbenefits had been overpaid to this man. He wassentenced to a 6-month imprisonment to befollowed by 2 years' probation. U.S.v. Hayes(W.D. Ky.)

o A former fire fighter at the U.S. Naval Academy,indicted for filing false statements to receivecompensation and for mail fraud, subsequentlypied guilty and was sentenced to a 5-year sus-pended jail sentence, 5 years' probation, 300hours of community service, and ordered to makerestitution of _26,519. Because of an allegedback injury, he received total disability bene-fits and reported to OWCP that he was unable toreturn to work. An investigation conductedjointly by OIG and the Naval InvestigativeService disclosed that, while receiving FECAbenefits, the man was employed as a roofer, atruck driver, an installer for aluminum siding,and in a bowling alley. U.S.v. Medell (D. Md.)

o A postal service employee, who over a 4-yearperiod fraudulently received more than _41,000in FECA benefits, was sentenced to I year oneach of two counts of false statements and 2years on each of two additional counts of falsestatements to be served concurrently. Duringthe time of reported disability, he had ownedand operated three businesses, including aprivate investigation agency, and had a GSAcontract to provide building security in FortWorth. This was a joint OIG-U.S. PostalService investigation. U.S.v. Mattox (N.D.Tex. )

o In December, a former Veterans Administrationemployee was indicted in Spokane for failing toreport income while he was receiving FECAbenefits. While on total temporary disability,he was a self-employed tax preparer and earned

- 40 -


50/112

more than _i0,150 in unreported income. U.S.v. Jones (EoD. Wash.)

o A man who lived with a widow of a Black Lungbeneficiary, until her death in March 1979,pled guilty to fraudulently converting a BlackLung benefit check, received I years' probation

and was ordered to make restitution of _5,850to the government. Benefits had continued tothe widow through March 1981, and the mandeposited the checks in a joint account theyhad maintained and used the money for hispersonal use U.So Vo Williams (DoVa.)

o The spouse of a deceased serviceperson wassentenced to 6 months' imprisonment, 5 years'probation, and required to make restitution of_13,268 for making false statements to OWCP andfor receiving FECA funds after remarrying.U.S.v. Derringer (DoS.Co)

o A physician, who pled guilty to 42 counts ofMedicare fraud and 25 counts of FECA fraud, wassentenced to 7 years' imprisonment, 5 years'probation following the prison term, and fined_300,000. He had agreed to make restitutionand to resign from medical practice, and wasordered to make full disclosure of his assets.

He had been indicted on 96 counts in aninsurance and mail fraud scheme in which heallegedly received _2 million in payments forfalse claims, including one FECA claim for3123,000 for treating one claimant for twoon-the-job injuries between 1975 and 1979 whenthe injuries resulted in less than 5 weeks'loss from work. In December, the Department of 'Labor recovered _205,487. U.So Vo Kones (S.DoN.Y.)

- 41 -


51/112

Employment and Training Administrationo An on-golng joint OIG-FBI investigation of the

Columbus Park and Northeast Student ServicesCETA Projects in Kansas City has resulted todate in two indictments. Carl Vincent Civella,grandson of alleged Kansas City organized crimefigure Carl "Corky" Civella, waived indictment,entered a guilty plea, and was sentenced to 2years' imprisonment for knowingly and willfullysubmitting false time and attendance recordsbetween February and November 1979 when he wasdirector of the Columbus Park Project. ArthurEugene Shepard was indicted for knowingly andwillfully filing false time and attendancerecords with the Columbus Park and NortheastStudent Services CETA Projects in 1978 and 1979.U.S.v. Civella et al. (W.D. Mo.)

o A former intern of the Delaware Chamber ofCommerce Career Intern Program was sentenced to5 years' probation for fraudulently convertingapproximately 56,600 worth of phony CETA payrollchecks while in the program. She is currentlyserving, a 2-year prison term in Kentucky forembezzling 55,000 from the Census Bureau inFlorida. U.S.v. Smith (Do Del.)

o An OIG investigation has resulted in the indict-ment of a former supervisor of a CETA programat the Pala Indian Reservation in California oncharges of mail fraud, making false claims, andmisapplication of CETA funds of _34,000 fromJune 1977 to October 1979. The defendant wasalso chairman of the board of directors ofCalifornia Indian Manpower Consortium, a primesponsor for Indian and National American pro-grams in California and the funding source forthe Pala CETA program. U.S.v. Blacktooth(S.D. Calif.)

o The president of Reed Oil Company in Tennessee

- 42 -


52/112

pled guilty to embezzlement of CETA funds, andwas sentenced to 2 years suspended with 60 daysin a half-way house followed by 22 months' pro-bation and 200 hours of community service. Hewas also fined _5,000 and ordered to make resti-tution to the Department of Labor of the _10,532he embezzled. Twice in 1977 and once in 1978,he signed negotiated fixed price on-the-jobtraining CETA contracts with the TennesseeDepartment of Employment Security to hire aspecified number of individuals and to providethem with the training. An OIG investigationdisclosed that 7 of the ii participants werenot eligible since they had been employed bythe company prior to and at the time they becameCETA participants. On instructions from thepresident or his managers, the ineligibleparticipants falsified their CETAapplications. U.S.v. Reed (M.D. Tenn.)

o The former director of the Community Instituteof Human Development in Seattle was indicted on17 counts of embezzling about _14,800 of CETAfunds and 9 counts of embezzling about _2,300of Community Service Administration funds. Hewas also charged with tax evasion and filingfalse federal income tax returns. His presentwhereabouts are unknown. This jointOIG-FBI-IRS investigation was based on theallegation of a former CETA participant thather name had been kept on the payroll after herresignation. U.S.v. Rashid (W.D. Wash.)

Mine Safety and Health Administrationo A former MSHA coal mine inspector was sentencedto 3 years in prison and fined _5,000 afterbeing found guilty of extortion and bribery,and a coal mine corporation was fined _20,000for paying a bribe. The company paid theinspector for possible advance notice ofsurprise inspections planned by MSHA.

- 43 -


53/112

Initially, the inspector used his power as apublic official to extort 5800 from the mine,which he regulated The company then took theinitiative to continue the relationship andpaid an additional 5450 UoSo Vo Brown andU.So v. B & B Mining Corporation (WoDo Va.)

o To eliminate Speedy Trial Act restrictions, anMSHA sub-district manager was reindicted oncharges of obstructing justice and inducing afederal mine inspector to commit perjury Theinspector told the grand jury that the managerhad sent him to a coal company with orders torepair some of the company's equipment ongovernment time After that testimony, theindictment charges, the manager had the inspec-tor write a statement denying that he had beeninstructed by any supervisor to do such work.U.So v McManus (Do Va.)

o Kenneth, Jeffery, Kenneth Ray, and TimothyCrawford were found guilty of violatingmandatory safety standards while operating anunregistered mine in which an explosion in 1980killed three men in Corbin, Kentucky Lawrenceand Dennis Ray Crawford had pled guilty beforethe trial began Kenneth Crawford was convictedon i0 counts and the others on five counts eachOIG assisted MSHA in conducting the investiga-tiono UoS. Vo Crawford et alo (EoD. Ky.)

Bureau of Labor Statisticso Guilty pleas have been entered by six BLS em-

ployees who were charged with filing claims forovertime payments they were not entitled toAppropriate set-offs were made for amounts duethe government from last salary checks, lump-sum payments, and retirement contributions. Asa result of these false claims, a Department-wide follow-up on overtime claims is beingconducted. UoS. Vo Ward et alo (DoDoC.)

- 44 -


54/112

o A former BLS imprest fund cashier was sentencedto a 1-year probation after pleading guiltypreviously to embezzling BLS imprest funds.U.S.v. Harley (D. D.C.)

- 45 -


55/112

OFFICE OF AUDIT

During this reporting period, 460 reports onthe Department's grant, contract, and programactJvltles were issued. Of these, 47 wereperformed by OIG auditors; 326 by contractauditors under OIG's direct supervision; 72 weregrantee-procured single-audlts conducted underOMB Circular A-IS2, Attachment P provisions;and 15 were conducted by other federal auditagencies. The table below summarizes ouractivity by program and is followed by dis-cussion of the major activities by program.

SONMARYOF AUDIT ACTIVITY OF DOL PROCRAMSOctober 1, 1981 -March 31, 1982

Reports Amount of Grant/ContractAgency Issued Exceptions Amount AuditedEmployment andTrainingAdministration 419 $i02,962,696 $6,047,581,619

Mine Safety and HealthAdmln/st rat ion 18 242,921 6,036,381

Office of the AssistantSecretary forAdministration andManagement 16 4,093 544,344Occupational Safety andHealth Adm/nis traclon 6 38,444 i,751,532

Labor-ManagementServices Adm/nistration 1TOTALS 460 $103,248,154 $6,055,913,876

Employment and Training Administration

CETA Prime Sponsors

We issued 163 audit reports on CETA primesponsors. Of 53.4 billion audited, 571.1 million

- 46 -


56/112

in grant funds was questioned due to lack ofdocumentation for expenditures or non-compliancewith CETA requirements. Following is a list ofaudit exceptions, the number of reportscontaining those exceptions, and the amount ofaudit exceptions:

Number ofReports With Amount of

Audit Exception Exceptions Exceptions

Unresolved, subgranteeexceptions 72 _23,546,883Administrative/training

cost limitations 15 12,084,858Excessive fringe benefits 1 7,579,906Budget exceeded 35 6,427,093Insufficient

documentation 64 4,851,927Improper allocation of

administrative costs 17 4,565,754Ineligible participants 63 3,958,688Unresolved prior prime

sponsor audits 2 864,517Unallowable costs 32 444,499

Unqualified staff 6 180,122Other 63 6,619,203

TOTAL 371,123,450

- 47 -


57/112

The five reports described below illustrate thetypes of audits conducted and the findings identi-fied during the reporting period.

o City of St. LouisThis audit of $98 million for the 2 1/2 yearperiod ending September 30, 1980, resulted in$5.2 million in audit exceptions. Of thisamount, $45 million pertained to subgranteeactivities The City of St. Louis had notcollected from subgrantees $450,000 that theCity had determined to be unallowable as aresult of subgrantee audits The City had notresolved _4 million of audit exceptions in 137other subgrantee reports.Our audit also disclosed that the City hadincurred expenditures of $333,000 in excess ofamounts authorized under two youth grants. Wealso found that the City had awarded contractstotaling $432,000 under sole-source procurementstandards The use of such standards requiresthat prior grantor approval be obtained so thatfree and open competition will exist to theextent possible. No such prior approval wassought nor obtained; we therefore recommendedthat the costs be disallowed.

o City of ChicagoWe reviewed the CFTA monitoring activity con-ducted by the Independent Monitoring Unit ofthe City of Chicago. Our objectives were todetermine if the unit was adequately staffed,organized, and operating effectively and todetermine if self-evaluations and subgrantee/contractor monitoring visits were timely,comprehensive, and effectively performedWe found the Independent Monitoring Unit to beadequately organized and staffed, but notoperating effectively. Only two limited

- 48 -


58/112

self-evaluations had been performed, neither ofwhich addressed high risk activities, such asthe intake process of the eligibility system.Since no systematic plan for monitoring sub-grantees existed, some subgrantees receivedmultiple reviews and others received none. In30 percent of the cases, prime sponsors did notrespond to corrective action recommendationsissued by the monitoring unit; as a result,reported deficiencies at the subrecipient levelwere not improved. Recommendations were madeto strengthen the effectiveness of the Independ-ent Monitoring Unit.

o City of DetroitThe City of Detroit has used _1.6 million ofCETA funds to pay salaries and related fringebenefit costs of 125 city employees for workthat otherwise would have been provided by theCity. These work assignments included auditingpayrolls for city departments, investigatingcity employees to verify residences, inspectingrestaurants, bars, and general food stores andother such functions normally required of acity. The result has been a federal subsidy ofnormal non-CETA city administrative services.Federal regulations permit the charging ofallocable administrative expenses to grants bydeveloping an indirect cost plan or by chargingdirectly to the grant those expenses that canbe directly associated. However, the City ofDetroit _rbitrarily charged the expenses of 125city employees to CETA grants instead of deter-mining what additional administrative serviceswere being incurred by administering the CETAgrants.A second report on the City of Detroit foundthat, by a year-end journal entry, the city hadtransferred _3.1 million from its General Fund

- 49 -


59/112

to five CETA grants No detailed documentationwas provided that would support the reasonable-ness of such a transaction. The city contendsthat this amount represents direct city adminis-trative charges to the grant; however, becausewe were unable to determine the exact characterof the charges, it was recommended that thetransfer be disallowed.

o County of ErieA unified audit of Erie County, Pennsylvania,and its subsponsors disclosed that the account-ing system employed by the prime sponsor didnot furnish data necessary to conform withformal reporting requirements of the Departmentof Labor. No distinction was made between cashand accrual basis expenditures within a givengrant period. As a result, cash balances andexpenditures reported to DOL were inaccurate.Because the auditor was unable to reconciledifferences between the amounts reported to DOLand the amounts recorded in the prime sponsor'saccounting records, an opinion on the financialstatements was disclaimedIn response to our audit, the prime sponsorpromised to implement recommended improvementsto its accounting system.

Indian and Native American GranteesDuring this reporting period, 192 audit reportscovering Indian and Native American programs wereissued. Certified public accounting firms per-forming the work, under contract with DOL,collectively audited 5223.7 million of which_21.2 million was questioned. Audit exceptionsprimarily resulted from the following:

- Ineligible participants or incomplete infor-

- 50 -


60/112

mation to determine participant eligibility(58,049,569),

- insufficient documentation of costs(54,213,679),- improper or unsupported allocations of costs(_3,05!,728) , and

- ineligible expenditures (_1,918,415).Two examples are discussed below.o Yankton Sioux Tribe

An audit report on the Yankton Sioux Tribe inWagner, South Dakota, questioned costs of_555,440 out of audited costs of 51.2 million.Questioned costs primarily resulted from ineli-gible participants (5199,302) or incompleteinformation to determine participant eligi-bility (_224,543), and insufficient documenta-tion of costs (_iii,354). In addition, theaudit report contains seven procedural findingsthat cite deficiencies in financial management,intake procedures, and property management.The grantee bas been ordered to repay theentire _555,440.

o Business Committee of the Chippewa Cree TribeAn audit report on the Business Commitee of theChippewa Cree Tribe in Box Elder, Montana,questioned costs of 5314,380 out of 5727,525audited. Questioned costs primarily resultedfrom a lack of information to determine partici-pant eligibility (5245,485) and insufficientdocumentation of costs (565,881). In addition,the audit report contains i0 proceduralfindings that cite deficiencies in financialmanagement, intake procedures, and propertymanagement. A determination by ETA on theseaudit exceptions is in progress.

We also issued ii audit reports to the Departmentof the Interior covering audits of Bureau of

- 51 -


61/112

Indian Affairs grants performed in conjunctionwith DOL audits.

Migrant and Seasonal Farmworker GranteesDuring this reporting period, five financial andcompliance audit reports were issued on Migrantand Seasonal Farmworker Grantees. The auditswere performed by CPA firms under contract withDOL. The total amount audited was 518 million ofwhich 53.7 million was questioned. Costs werequestioned primarily because of:

- Ineligible participants or incomplete infor-mation to determine participant eligibility(51,359,555),

- improper or unsupported allocations of costs(5861,572),

- insufficient documentation of costs (5780,673),- lack of required approvals (5318,673),- inappropriate costs charged to the grants

(5126,476), andpayment of inappropriate allowances (557,267).

Two examples are discussed below.

o Southern Vocational CollegeAn audit report on the Southern VocationalCollege in Tuskegee, Alabama, questioned5522,625 of 5846,734 audited. Questioned costsprimarily resulted from ineligible participants(_127,178) or incomplete information todetermine participant eligibility (_29,429),unsupported allocations of costs (5110,286),material errors in the indirect cost proposal(_61,608), payment of inappropriate allowances(557,267), and salaries of instructors who didnot teach grant-related courses (535,424). Inaddition, the audit report contains 22procedural findings that cite deficiencies infinancial management, allowance payments, and

- 52 -


62/112

intake procedures. The grantee has beenordered to repay the entire 5522,625.

o Rural America, Inc.An audit report on Rural America, Inc., inWashington, D.C., questioned 52.1 million of58.6 million audited. Questioned costsprimarily resulted from ineligible participants(5624,425) or incomplete information todetermine participant eligibility (5573,892),unsupported allocations of costs (5398,016),lack of required approvals (5297,267), andinsufficient supporting documentation(5132,927). In addition, the audit reportcontains 37 procedural findings that citedeficiencies in financial management, intakeprocedures, and monitoring of subgrantees.

In addition, 13 reports on special reviews ofmigrant grantees were issued. The specialreviews were conducted to obtain current infor-mation on the grantees' financial managementcapability so that ETA could have currentinformation when making Fiscal Year 1982 fundingdecisions.

Office of National Programs (ONP)

During this period, 37 audit reports were issuedon ONP grants and contracts awarded to public andprivate agencies for administration of a varietyof special programs for youth, older workers,research and demonstration projects and otherspecial activities. Twenty of the reportscontained audit exceptions totaling 5960,233out of 514.8 million audited, as follows:

- 53 -


63/112

Number of Reports Amount ofAudit Exception With Exceptions Exceptions

Ineligibleparticipants 2 _397,866

Insufficientdocumentation 9 339,290

Overstated Costs/Budget exceeded 13 166,398

Indirect costrate exceeded 2 32,143

Costs charged towrong period 5 16,883

Costs incurredwithout approval 2 3,959

Unallowable interest,travel etc. 3 2,508

Duplicative costs 2 1,186TOTAL _960,233

Stat e Employment Security Agencies

Eight audit reports were issued

department of labor: 07

Documents