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SEMIANNUAL REPORTAPRIL i - SEPTEMBER 30, 1982OFFICE OF INSPECTOR GENERALU.S. DEPARTMENT OF LABOR


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TABLE OF CONTENTSPage

PREFACE ................... (i)

PART I - SIGNIFICANT PROBLEMS, ABUSES,OR DEFICIENCIES, AND RECOMMENDATIONSFOR CORRECTIVE ACTION ........... 1Employment Standards Administration .... 1Employment & Training Administration . . 22Labor-Management Services Administration . 32

PART II - SUMMARY OF OIG ACTIVITIES ..... 36

Office of Investigations ......... 36Office of Audit .............. 43Office of Organized Crime & Racketeering . 53Complaint Center ............. 65

PART III - MONEY OWED TO THE DEPARTMENT. . . 68

APPENDIXSelected Statistics ............ 73

Audit Resolution Activity ......... 74Status of Unresolved Audits. . ..... 76

Summary of Audit Reports Issued ...... 77List of Audit Reports Issued ....... 78


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PREFACE

This report covers the activities of theDepartment of Labor's Office of InspectorGeneral for the period April 1 throughSeptember 30, 1982, and is submitted pursuantto the requirements of the Inspector GeneralAct of 1978.

The emphasis that OMB, the Secretary, seniormanagers within OIG, and the Congress haveplaced on fraud and waste issues has, webelieve, created an increased awarenessthroughout the Department of the need to bealert to such issues and an increased tendencyfor program managers to work cooperativelywith the Office of Inspector General toresolve not only past problems but also, moreimportantly, to prevent future problems.Indicative of these trends is the seriousnesswith which the Department is implementing 0MBCircular A-123, which calls for a system ofvulnerability assessments and internal controlreviews of program and administrative func-tions. While it is premature to assess theresults of this program, we are encouraged bythe high level of senior management involve-ment and by the strong central planning andcoordination provided by the Office of theAssistant Secretary for Administration andManagement.In addition, we have become more involved inconducting joint projects with other Depart-ment agencies. One such project, on enforce-ment of the Employee Retirement Income SecurityAct of 1974, is described in this report;another, a review of vehicle management, has

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recently been completed and will be covered ina subsequent semiannual report.

Another example of cooperation is our increasedaudit coverage of the Job Corps program. Thisparticular program has historically receivedrelatively little audit or investigativecoverage by the Office of Inspector General.Recently, however, there has been growingevidence that coverage, particularly by ourauditors, should be intensified Recognizingthis, Assistant Secretary Angrisani and hisstaff have worked closely with our office inmaking funds and personnel available for amajor catch-up effort to achieve audit cover-age of approximately 90 percent of the JobCorps program.

We are also being asked more frequently byprogram managers for advice and assistance.For example, we have reviewed numerous proposedemployment and training contracts and providedour assessment of potential problems Duringthis period, we also assisted the Employmentand Training Administration in reviewing astate's methodology in computing unemploymentfigures to determine if improper practiceswere used by the state to qualify for extendedu_employment insurance benefits. We deter-mined that the methodology indeed was improperand the Secretary requested the state torecompute its figures using an acceptablemethodology.

Nevertheless, serious fraud and waste problemspersist. Despite improvements in theEmployment and Training Administration'sfinancial management and procurement controls,we continue to question a significant amountof dollars due to ineligible CETA participantsand unresolved subgrantee audit exceptions.

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These are not new problems; they have beenfrequently cltedln previous semiannualreports.We plan to continue an active audit andinvestigative effort in the Job trainingarea. In terms of the Employment and TrainingAdministration, our challenge during theupcoming months will be to work intensively toassist the Department in making certain that,in implementing the new job training legis-lation, we correct the problems that we foundin the previous program. We believe that thiscollaboratlve effort will help ensure thatadequate management and program controls areestablished at the outset and that pastproblems are avoided.We are also going to continue our recentincreased audit and investigative coverage ofthe Unemployment Insurance program. In 1982,this program was funded by approximately 21billion dollars. In the past, OIG has pro-vided relatively little coverage of thisprogram. During this reporting period, wehave expended considerable resources on anationwide audit of the benefit payment con-trol systems for the Unemployment Insuranceprogram. While audit work is still underway,results to date suggest strongly that there ismuch room for improvement and that significantamounts of states and the Federal Governmentmoney could be saved. We have initiated asecond major nationwide project on the taxcollection systems for the UnemploymentInsurance program, since we believe that theyare also vulnerable to large dollar losses.We will also be working closely withUnemployment Insurance program personnelduring this reporting period to identify otherpotential audit issues.

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In our last semiannual report, we werecritical of management deficiencies in theOffice of Workers' Compensation Programs andof leadership by the Employment StandardsAdministration in carrying out neededimprovements on a timely basis. During thereporting period, we have seen increasedactivities by the Employment Standards Adminis-tration management aimed at resolving parti-cular problems and addressing other majorissues. We are encouraged by this, but arecautiously optimistic since much yet remainsto be done. The nature and extent of frauduncovered by the OIG in this reporting periodalone dramatize the seriousness of continuinginternal control weaknesses in OWCP programs.A matter of continuing interest to this andother Offices of Inspector General is theimplementation of C_4B's Circular A-I02,Attachment P, which calls for single audits tobe conducted of all federal funds flowing toan organization, rather than separate grant-by-grant auditing that occurred in the past. Theeffective implementation of this policy is achallenging responsibility for the Office ofInspector General. We have been assignedaudit cognlzancy by OMB for I01 of 800 stategovernment units and 134 out of the top 300local governmental units. As the cognizantaudit organization, we will be working withthese units of government to ensure that stateand local audits are conducted in accordancewith applicable audit standards, that thequality of the audit process is maintained,and that OIG and the program agencies get themaximum use from the audits. In this regard,we have worked closely with the Office ofManagement and Budget and the President'sCouncil on Integrity and Efficiency inlaunching a major evaluation effort of thls

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new policy. We believe that this effortshould provide early warning of any problemareas and thus help ensure the success of theentire program.Two major areas of OIG accomplishments deservespecial mention: the President's Council onIntegrity and Efficiency Computer MatchingProject, and our investigative accomplishmentsduring this period.We have had a major role in the ComputerMatching Project sponsored by the President'sCouncil on Integrity and Efficiency. Theproject has been co-chalred by Tom McBride andRichard Kusserow, HHS' Inspector General. Webelieve much progress has been achieved and,in my view, the project represents a signifi-cant accomplishment of the President's Councilon Integrity and Efficiency.During the past six months, the project hascontinued to pursue its overall goal ofpromoting and facilitating increased use ofcomputer matching and related techniques toprevent and detect fraud and overpayment infederally-flnanced operations.Among the practical efforts that have beenundertaken are the following:o An inventory of state agency computer

matching efforts and computer software hasbeen completed and is being published.

o To facilitate interJurlsdlctlonal matching,representatives of two states and fivefederal agencies developed draft standarddata elements and extraction formats andcirculated them to states for comments andsuggestions.

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o The Department of Health and Human Serviceshas assisted 66 state agencies in applyingprograms to upgrade the accuracy of thesocial security numbers in state data basesused in computer matching.

o A reference paper to assist agencies inapplying the revised OMB Guidelines oncomputer matching has been prepared fordistribution.

o A special task force of four state and eightfederal members is examining and developingrecommendations regarding incentives anddisincentives for state matching activities.

Second, our investigative accomplishmentsduring this reporting period have been parti-cularly outstanding. During the 6-monthperiod, our Office of Investigations, whichinvestigates program fraud and employeeintegrity matters, obtained I00 indictmentsand 70 convictions. This represents a I00percent, and 133 percent increase, respec-tively, over the same period last year. And,there have been increased efforts by programagencies to recover funds and to take adminis-trative actions. These results are attribu-table to many factors, including improvedcoordination with prosecutive authorities andbetter case selection and management.Results in our organized crime and laborracketeering investigative program have beenequally impressive. During this period, 31individuals were indicted and 44 convicted.Our investigations have included nationwideorganized crime-connected schemes, such as theunion insurance business kickback schemeinvolving the Laborers' International Union ofNorth America. We have also been involved in

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breaking organized crime's hold on lucrativeindustries, such as the wholesale fish marketin New York.

These investigative accomplishments should,however, in no way be interpreted as dimin-ishing our need for law enforcement authority.The lack of this essential law enforcementtool has often placed our Special Agents indangerous situations and has severely limitedour ability to effectively completeinvestigations.It is, therefore, essential in our view thatour Special Agents be afforded full lawenforcement authority and that legislativeaction be taken to provide this authority.

During the period, Secretary Donovan hascontinued his strong support of this office,both in providing backing on every substantiveissue in which there may have been a disagree-ment between the OIG and program officials andin providing necessary support in the budgetprocess to implement an effective OIG program.

Finally, the work and accomplishments achievedduring this reporting period reflect the strongleadership of Tom McBride who has just leftWashington, D.C., to become Associate Dean ofthe Stanford Law School. I know that OIGemployees share my view that much progress wasmade during Tom's tenure as Inspector General.He forged strong cooperative relationshipswith senior officials of the Department, yethe was always mindful of the unique role ofour office and of the need to call the shotsas he saw them He was responsible forbroadening audit and investigative coverage ofD0L programs and for establishing a number ofinternal OIG management improvements. Tom was

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an active participant in the President'sCouncil on Integrity and Efficiency and had amajor leadership role in a number of Councilprojects and committees. He will be sorelymissed.

Robert E. MageeActing Inspector General

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PART I

SIGNIFICANT PROBL_S, ABUSES OR DEFICIENCIES,AND RECOMMENDATIONS FOR CORRECTIVE ACTION

EMPLO_ENT STANDARDS ADMINISTRATION

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--administerslaws and regulations that provide workers'compensation to those persons injured on theirjobs, require federal contractors and subcon-tractors to provide equal employment oppor-tunity, and set employment standards.During this reporting period, as in priorperiods, nearly all of the audit andinvestigative effort devoted to ESA has beenin the Office of Workers' CompensationPrograms, which administers three workers'compensation programs through its NationalOffice and its District Offices. These three

.OWCP programs are the Federal EmployeesCompensation Program, which administers theFederal Employees' Compensation Act (FECA),that provides compensation and medicalbenefits to civilian employees of the UnitedStates Government who are injured on the jobor who contract disease through on-the-jobexposure; the Black Lung Program, whichprovides monthly payments and medicaltreatment benefits to former coal miners whoare totally disabled as a result ofpneumoconlosis arising from their employmentin or around the nation's coal mines and

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monthly benefits to their eligible survivingdependents; and the Longshore and HarborWorkers' Compensation Program, which providescompensation and medical benefits to injuredlongshore and harbor workers as well ascertain others covered by extensions of theenabling legislationIn our prior semiannual report, we identifieda number of serious problems in the managementand operation of OWCP programs and identifiedactions to be taken by ESA that we believednecessary to effect long-term solutionsDuring this reporting period, ESA has takensome actions to address these problems In arecent review conducted by the OIG, ESAreported that, out of 112 previously maderecommendations, 72 have been fully imple-mented and the remaining 40 partially imple-mentedo While we have not verified these data,as part of our ongoing studies, we are evalu-ating ESA's implementation of prior recommen-dations in selected areas.

Further, several important task forces havebeen established by ESA and some key manage-ment appointments have been made In addition,a consultant was hired on the immediate staffof the Deputy Under Secretary for EmploymentStandards to provide expert advice on manage-ment improvement and productivity effortswithin ESAo Finally, ESA has recently devel-oped a critical performance standard for topmanagers during Fiscal Year 1983 related toimplementation of OIG and General AccountingOffice recommendations We believe that theseactions demonstrate an increased level ofcommitment to resolving fraud and wasteproblems in OWCPo

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However, while we are mindful that theseproblems are not quickly or easily corrected,we continue to be concerned about progressmade. Our sense of urgency is intensified byrecent audit and investigative work whichdemonstrates the serious kinds of fraud whichcan occur when necessary management andprogram controls are inadequate.Following are discussions of issues which havebeen previously raised. Included are summariesof OIG work in the area and of the status ofESA's implementation of corrective actions.Bill Payment System FraudIn previous semiannual reports, we havedescribed extremely serious problems identi-fied by OIG work related to the integrity ofthe FECA bill payment system. Such problemslncluded substantial weaknesses in data

_integrity, computer security, bill paymentprocesses and bill payment controls that haveresulted in potential duplicate payments andactual claimant fraud. Yet another far moretroubling result of such significant internalcontrol weaknesses is employee fraud andembezzlement.As a result of our earlier investigations ofemployee embezzlements in two OWCP districtoffices described in previous semiannualreports, we expanded audits to other districtoffices and purposely limited the scope ofthese reviews to the detection of employeefraud. In two of the other three districtoffices reviewed, evidence of bill paymentfraud has surfaced, while in the thirddistrict office_ a kick-back scheme weinvestigated resulted in two indictments andtwo guilty pleas. Although several of the

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investigations are continuing in theseoffices, a variety of schemes has beenuncovered, primarily related to creation offictitious claims or phony medical providers.Because some fraudulent activity on the partof employees has been uncovered in each of theoffices reviewed, we intend to expand thesereviews to more district offices. Some of thecases that have resulted from our audits andinvestigations and in which ESA has cooperatedand assisted are the following:o A supervisor in the Fiscal Division of the

Office of Workers' Compensation Programs inPhiladelphia was found guilty on lO countsof theft of government property and ofconspiracy to defraud the United States.She was accused, with four otherindividuals, including two employees in heroffice, of stealing and attempting to stealabout 569,000 from the Department by creatingand approving false documents that resultedin disability compensation checks beingissued.

This supervisor was recently sentenced to 20months imprisonment, 5 years' probation andwas required to make restitution of 522,600.One of the employees, who had pled guilty toone count of illegal conversion of governmentfunds and one count of conspiracy, wassentenced to 5 years' probation and orderedto make restitution of _4,000. An associate,who also pied guilty to the same two counts,was sentenced to 3 years' probation andordered to make restitution of 5650. U.S.v. Watkins et al. (E.D. Pa.)

o Another indictment from an OIG investigationof OWCP's Fiscal Division in Philadelphiacharges a former OWCP employee with 20

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counts of theft of funds. Employed as abill payer, he prepared an4 submitted fraudu-lent FECA bill payment cover sheets author-izing payment for medical services that werenever performed. Four associates andco-defendents received payments totaling_236,955. UoS. v. Thompson et el. (E.D. Pa.)

o In Washington, D.C., a former OWCP employeepled guilty to one count of mail fraud,which involved her mailing fraudulentdisability checks to an associate while shewas employed in District Office 25; she wassentenced to 3 years' probation. Herassociate pled guilty to one count offorgery and one count of false pretenses forhis participation in the scheme in which hereceived five fraudulent checks totaling_6,213o He was sentenced to 2 years'probation U.S. Vo Lewis and U.S.v.Williams (Do D.C.)

o A contact representative in OWCP's District25 Office in Washington, D.C., pled guiltyto a two-count information charging him withbribery. He had demanded and received aportion of disability benefits from aclaimant's monthly allotment for allowingindividuals to continue to obtain disabilitybenefits after returning to work. He wassentenced to 120 days, 2 years' probation,and fined _500. A Government PrintingOffice employee, who was involved in thescheme, pied guilty to a one-countinformation of bribery. We Joined theinvestigation at the request of the FBI.U.S. Vo Cain and U.S.v. Pratt (D. D.C.)

We have continued to follow up on prior OIGrecommendations, particularly those relatingto the bill payment system. To illustrate, as


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part of a follow-up review in the PhiladelphiaDistrict Office conducted during the priorreporting period, we identified 15 recommen-dations from a previously-lssued OIG study.Despite agreement by ESA to implement most ofthe recommendations, our follow-up verifi-cation review revealed that ESA had not fullyimplemented the 15 recommendations at the timeof our review. However, recently, ESA advisedus that its Internal Control Unit had verifiedimplementation of the OIG recommendations.While we are not planning soon another reviewof the Philadelphia District Office, we arecompleting follow-up reviews of these same 15recommendations in the New York, Jacksonville,and Washington, D.C. District Offices. Ourinitial findings are that most of the 15recommendations are being implemented in thesedistrict offices, however, we still feelstrongly that full implementation of all ofthe recommendations is vitally needed.Claimant Fraud

Another major continuing problem is claimantfraud. During this 6-month reporting period,we have continued to obtain a significantnumber of indictments and convictions ofindividuals illegally collecting benefits.Many of these cases result from a project thatinitially was begun in Atlanta and a year agoexpanded nationwide. This study, described inour prior semiannual report, was designed toidentify, among other things, instances ofclaimants' unreported income, which couldresult in reduced or terminated benefits. TheFederal Employees' Compensation Programconsiders the amount and sources of incomeearned by claimants when setting or adjustinglong-term benefit levels. Since the programrelies on annual self-certiflcation of income

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by claimants, the potential for some fraud byclaimants is great.Therefore, the OIG has devoted a relativelyhigh level of resources to these types ofcases. During this period, 27 indictments and18 convictions related to FECA claimant fraudwere obtained. The continuing interest inprosecuting these cases is due, in part, tothe recognition that the indefinite nature ofthe continuing payments to beneficiaries onthe periodic roll makes the total potentialloss to the government over the entire periodextremely significant. Our nationwide FECAproject, which reviewed 10,014 claimant filesand found irregularities in 7,453 files, hasresulted in the termination or reduction inbenefits to more than 500 claimants. If theseclaimants had continued on the periodic roll,benefits totaling almost _5 million annuallywould have been paid. While final results arestill incomplete, the total number of cases inwhich benefits will be terminated or reducedwill increase.While the specifics of the incidents differ,the most significant problem causing over-payment of benefits is unreported income. Inour prior semiannual report, we discussed therelative difficulty in detecting income fromself-employment--in particular--without accessto IRS income tax data. A principal tool isusing information gathered by states or federalagencies relating to wages paid to individuals.Using computers to compare or match names,addresses, social security numbers, etc.,better assures that government benefits areprovided to only those eligible. While somematching could be performed against socialsecurity wage data, these data are often notcurrent. Thus, except in long term disability

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cases, social security data is not especiallyuseful or efficient.

With respect to claimants not self-employed,OWCP is now taking steps to match its ownrecords against wage history data collectedand maintained by the state agencies, whichare funded by the Department of Labor.Although 12 states are not wage reportingstates (i.e. states in which employersroutinely report to the state the amount ofwages paid each employee), more than three-fourths of the states do have this informationavailable and ultimately should have itaccessed by OWCP for this purpose. OIGbelieves this basic procedure must become anormal and usual screening operation by OWCPo

Some examples of recent claimant fraud casesthat illustrate the problem follow:o A former TVA employee entered a guilty plea

to four counts of making false statements,after being charged with failing to disclosehis employment and earnings while receivingdisability benefits. He was sentenced to 60days of a 2-year sentence with the balanceof the sentence suspended and 2 years _ proba-tion following his release from custody Inaddition, he is required to make restitutionin the amount of 556,116, with _20,000 to bepaid immediately and the balance within 20months of probation. OWCP has establishedan overpayment to the claimant of _88,579.U.S.v. Leathem (W.Do Ky.)

o A U.S. Department of Agriculture employeewas sentenced to i year's probation andfined _i,000 after pleading guilty to a twocount criminal information charging him withmaking false statements to obtain Federal

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Employees' Compensation Act benefits.Although claiming no employment or earnings,he was self-employed as a used car dealerand manager of an auto body and auto paintshop. OWCP has established an overpaymentto the claimant of _52,285. U.S.v. Delong(N.D. Ga. )

o A former TVA employee entered a plea of nolocontendere to an information charging himwith one count of making false statements toobtain Federal Employees' Compensation Actbenefits. He was sentenced to i0 days injail and 4 years' probation. OWCP hasestablished an overpayment to the claimantof 3145,067. U.S.v. Langley (M.D. Tenn.)

o A former Postal Service mail equipmenthandler received disability benefits fromOWCP while gainfully employed as a custodialworker for the Chicago Police Department.He pled guilty to one count of mall fraudand one count of false statements. Despitebeing 62 years old, he was sentenced to 6months in prison and 3 years' probation.U.S.v. Glenn (N.D. IIi.)

o A Joint OIG-Postal Inspection Service"investigation resulted in the conviction ofa Postal Service employee on four counts ofmail fraud, one count of obstruction ofcriminal investigation, and one count offalse claims. The charges arose from hisfailing to report income from his employmentat the Federal Credit Union in Philadelphiawhile on total disability from the U.S. PostOffice. He also attempted to influence awitness to lle to a grand jury about hisunreported employment. Sentencing ispending a probation report. U.S.v. Schultz(E.D. Pa.)

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o A San Francisco claims examiner, performingroutine checks, became suspicious whilereviewing a case. Rather than merelyaccepting a plausible explanation from theclaimant, she pursued the matter further andrecommended referral of the case to OIG.Subsequent OIG investigation, includingundercover work, disclosed that the claimant,who was actively pursuing--through the officeof one of his UoS. Senators--a retroactiveFECA disability payment of _I00,000, ownedand operated a limousine service and hadpreviously worked several years as a cabdriver. The claim itself was based on hisemployment as a naval ship painter, where hehad allegedly contracted asbestosis, despitehaving been on the payroll only I0 weeksbefore being fired for excessive absencesand for never even working one full week.The claimant was indicted and pied guilty toone count of making a false statement. Hewas given a 3-year suspended sentence,placed on 5 years' probation and fined_500o OWCP established an overpayment tothe claimant of _8,616o UoSo Vo Holmes(N.D. Califo)

ESA has been generally cooperative with ourefforts to reduce fraud and abuse within itsprograms. In addition to referring a largenumber of suspected cases to OIG for investi-gation, ESA has provided significant staffresources to assist us in our review of casefiles. Besides the OIG-initiated case filereview_ as part of its own operations, ESAannually reviews long term disability casesDuring Fiscal Year 1981, ESA reports that itreviewed 52,000 cases and terminated oradjusted benefits in about 9 percent of thecases, yielding a savings of _22 million.

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Medical Provider Fraud

Another major problem is medical providerfraud. Traditionally it has been a difficultarea in which to obtain prosecutions and con-victions, since gathering evidence is complex.While efforts are underway by OWCP to identifyfalse billings, duplicate billings, andbillings for services not provided, there areother areas, such as conflicting professionalJudgments or medical opinions, that areextremely difficult to document adequatelyenough to be able to obtain a conviction.Simply stated, a prosecutor is often reluctantto try a case before a judge and jury when aconviction may depend on demonstrating beyonda reasonable doubt that a physician wasproviding excessive or unnecessary treatmentsor services Despite these problems, the OIGhas made a strong effort to investigate fraudby some medical providers.In our prior semiannual report, we noted thattwo physicians had pled guilty to fraud forfiling false claims. During this reportingperiod, we have been able to bring some of ourother ongoing investigations of medicalproviders to the indictment or convictionstage.o A Dallas physician was recently convicted onIi counts of mail fraud and 4 counts of false

claims in a scheme that involved a network of50 businesses through which he submittedfalse medical bills of about _l million toFECA and to various insurance companiesOWCP is still calculating the DOL loss, whichis expected to be over _I00,000. This jointinvestigation with the UoS. Postal InspectionService was referred to the OIG by OWCPoU.S.v. Gifford (N.D. Tex.)

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o In Philadelphia, a physician was indicted on5 counts of filing false claims and 13counts of mail fraud A 2-year investi-gation by this OIG and the Postal InspectionService alleges that he had verified andtreated disabling, work-related injuries forseveral postal employees--including under-cover agents--who were not sick, but claimedthey wanted time off for vacations or otherreasons The indictment charged that thedoctor had instructed his patients on how tofake injuries and how to prevent theirsupervisors from catching them. UoSo VoGorham (E.D. Pao)

Fraud by Lawyers and Claims Representatives inthe Black Lung ProgramAnother OIG concern related to OWCP programsis fraud by lawyers and claims represent-atives. This is a problem in the Black LungProgram, because recent cases have shown thatsome representatives are accepting unauthor-ized fees to provide assistance in filingclaims. The law requires that fees for thisservice be approved by the OWCP DeputyCommissioner Some of the recent indictmentsobtained for unapproved fees are the following:o An attorney was indicted on nine counts of

making false statements and eight counts ofunapproved receipt of fees relating to formshe submitted to the Division of Coal MineWorkers' Compensation requesting fees forrepresenting certain Black Lung claimants;the fees requested were alleged to be falseHe had convinced the claimants to sign acontract for prepaid legal services Thefee for these services is 25 percent of anylump sum Black Lung award; he collected

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substantial unapproved fees from theclaimants. UoSo v. Clark (M.D. Ala.)

o An information filed against a Rock Springs,Wyoming, woman charged her with receivingcompensation for assisting Black Lungclaimants without submitting applicationsfor fee approval through the Black LungDistrict Office, as required. The OIGinvestigation confirmed that, during 1979and 1980, she had received _7,758 from threeseparate Black Lung claimants in connectionwith her assistance on their claims and thatshe had not requested approval of any amount.She has signed a pre-trial diversion agree-ment, taking responsibility for her acts andaccepting a 1-year probation during whichshe is not to represent nor write anycorrespondence on behalf of Black Lungclaimants. UoS. v. Doak (D. Wyo.)

o A man, who did paralegal work for theVirginia Black Lung Association, pled nolocontendere to eight counts of receipt ofunauthorized fees for representation forBlack Lung benefit claims. He allegedly hadillegally charged Black Lung claimants a i0percent fee for representing them and thenlied about his fees and representation ofclaimants to the grand jury. He was sen-tenced to 2 years' probation and fined_i000, with _500 suspended. U.S.v. Bowman(W.D.Va.)

o A recent candidate for president of theUnited Mine Workers Union was indicted on 16counts. Two were felony counts for makingfalse statements to a DOL official regardinghis representation of a Black Lung claimantand for impersonating a federal officer toget a signed statement from the claimant so

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that he could represent the claimant; 14were misdemeanor counts for Black Lungmisrepresentation. He allegedly received_21,000 in unauthorized fees from Black Lungapplicants. U.S.v. Carter (S.D.W. Va.)

Financial ManagementThree financial management reports on ESA wereissued during the reporting period. The firstof these was a review of OWCP's compliancewith the IRS requirement to issue a Form 1099to providers of medical, legal, and otherservices. The Internal Revenue Code requiresthat these forms recording earnings paid besent to both IRS and the providers so that theappropriate tax can be calculated The secondreport was issued following a review of theinternal control procedures and automated billpayment system in FECA's Philadelphia DistrictOffice. A third report was a somewhat similarreview of internal controls and cash receiptsand receivables in eight other OWCP DistrictOffices.

Collectively, and also individually, thesereports are evidence of systemic problems inOWCP's financial management systems andpractices and, they reaffirm many of theidentical problems identified during threeprevious loss vulnerability assessments of

FECA District Offices and the Black Lungbenefit payment systems and operations.The purpose of the first study, regardingOWCP's Form 1099 reporting practices, was todetermine if OWCP was complying with the IRSrequirement that Form i099's be issued on allmedical, legal or other service providers paidmore than _600 during a calendar year and ifthe information was accurate and complete.

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The review found that many of the forms issuedby the FECA and Black Lung program officeswere inaccurate and that the Longshore andHarborworkers Program did not issue the forms,as required. The audit report issued to ESArecommended that OWCP:

-- develop and implement guidelines toensure that all OWCP payments areincluded on the Form i099's, as requiredby IRS;

-- require the FECA and Black Lung providerfiles data be verified to ensure thatthere is only one file per provider;

-- require that legal providers be issued aForm 1099, as appropriate, and that theBlack Lung computerized payment systemissue Form i099's, as required.

ESA was aware of many of the problems and wasin general agreement with the findings for theperiod covered by the report--the most recentyear for which data were available. Since thereview, ESA has undertaken actions to correctmany of the deficiencies noted.Of the other two financial management reportson ESA, the first focused on internal controlprocedures within the FECA PhiladelphiaDistrict Office. This report was issuedseparately, since--as was discussed pre-viously--two separate embezzlement schemestotaling more than _300,000 were involved.Except for that situation, and the fact thatthe study in the Philadelphia District Officealso included a review of the automated billpayment systems, the second report on theeight other OWCP District Offices did notmarkedly differ from the kinds of findings--if

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not the degree--as those in the PhiladelphiaDistrict Office.In general, the studies found that there wereinadequate controls to safeguard assetsagainst fraud. Problems were found in theareas of cash receipts, accounts receivable,separation of duties, the automated billpayment systems, and the lack of supervisoryoversight during the time cash is received.Our recommendations to correct the identifiedweaknesses included the following:

-- handling of cash receipts be limited toa few officially designated employees;

-- cash receipts be secured and depositedon a timely basis;

-- mail opening be carefully supervised,daily logs be maintained, and cashtransfer receipts be utilized forintra-office transactions;

-- separation of duties be maintained;-- cash receipts and check cancellations be

prompt, with monthly reconciliations toaccounting records; and

-- accounts receivable reports beaccurately prepared, and detailedaccounting reports be reconciled andcorrected.

In the report on the Philadelphia DistrictOffice, recommendations relating to theautomated bill paying system were also made,including that the district office should:

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-- reestablish procedures for supervisoryapproval of bills in excess of the billpayment clerk's authority and requirethat only original bills be accepted forpayment;

-- establish adequate internal controlprocedures;

-- discontinue utilizing contractorpersonnel to process bills and restricttheir activities to bill keying;

-- require claim examiner approval in orderto change a case file status;

-- institute procedures to prevent billpayment clerks from obtaining computerpasswords, thereby limiting access tothe automated payment system; and

-- adhere to the i0 percent samplerequirement for verification of billsfrom medical providers.

ESA was in general agreement with the findingsand recommendations contained in these twore_orts and has indicated that many of therecommendations have been implemented. Wewill be carefully monitoring ESA's implemen-tation efforts.

Containment of Medical Costs

This area has been one of intenseCongressional attention as a result of bothperceived weaknesses in controlling costs andthe potential for significant savings. Underthe Federal Employees', Black Lung, andLongshore and Harbor Workers CompensationPrograms, payment of certain fees is

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authorized to physicians, hospitals, clinicsand other medical service providers fordiagnosis and treatment of covered injuriesand occupational diseases. Historically, as aresult of inadequate controls, these programshave been relatively easy prey to abuse andfraud by unscrupulous medical providers andclaimants.

One preliminary step toward improvement, whichhas been previously recommended by the OIG, isto develop and implement automated fee sched-ules of normal and customary medical feesagainst which medical costs billed to theprograms can be evaluated.In a letter dated August 30, 1982, to SenatorWilliam Roth, Chairman of the PermanentSubcommittee on Investigations and theCommittee on Governmental Affairs, SecretaryDonovan stated that the automated medical feeschedule would be implemented in November1982. ESA has since informed OIG that theproposed regulations will be published inNovember and that, during the comment period,OWCP will test the proposed fee schedule.After reviewing the comments received and thetest results, final regulations will bepublished and a schedule implemented beforethe end of March 1983. OIG continues tobelieve a fee schedule can be a valuable toolin helping control medical costs.

Related to the fee schedule is an ongoingpilot program in one district office wherebyhospital costs for drugs, intravenous andmedical supplies are automatically beingscreened for the amount billed and theappropriateness of the product for thecondition. Data are not yet available fromESA on this effort, nor has this new pilot

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program been reviewed by the OIG, so we arenot now in a position to provide an evaluationof it.ESA reports another effort to control medicalcosts through a joint ESA/Postal Serviceproject to ensure early reemployment foremployees who have been on FECA compensationand to emphasize recovery of payments fromthird parties who are liable for the injury ofa covered employee. With regard to reemploy-ment of FECA claimants, in our prior semiannualreport we discussed serious problems relatingto most agencies' efforts to reemploy claimantsor take other measures to help contain rapidlyescalating costs. As part of that discussion,we described an inter-agency study of the roleof employing agencies in the operation of theFederal Employees' Compensation Program. Thatinter-agency study, under the auspices of thePresident's Council on Integrity andEfficiency, identified several neededlegislative changes, including clearerdelineation of responsibility and authorityfor the operation of some aspects of theFederal Employees' Compensation Program andrecommendations for alternative funding of theprogram to provide a greater incentive to manyemploying agencies to control costs. Otherrecommendations included the allocation ofqualified staff and establishment of agencymanagement systems to better implement effec-tive injury compensation programs so thatclaimants can be expeditiously returned towork.In response to the May i0, 1982, report of theinter-agency working group and in support of arecommendation by the President's Council onIntegrity and Efficiency, Secretary Donovanannounced an inter-agency task force on

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September 13, 1982. This task force ischaired by the Deputy Under Secretary forEmployment Standards, and is responsible forfollowing up on the inter-agency study'srecommendations and developing systemsimprovements and needed administrative reforms.Representatives from the Department of Defense,Department of Transportation, the Office ofManagement and Budget, the Office of PersonnelManagement, and the U.So Postal Service havebeen invited to participate on the task forceThe first meeting has been scheduled and weare hopeful that the task force can make rapidprogress in devising and implementing theneeded improvementsDebarmentRelated to the overall cost containment issueis the capability to identify and exclude fromparticipation in government benefit programsproviders of medical services who have engagedin misconduct.

ESA reports that it has embarked on a projectto review and verify its data on medicalproviders. This system includes data providedby the Health Care Financing Administration onproviders excluded--or reinstated afterpreviously being excluded--from participationin the Medicare and Medicaid programs, inaddition to including lists provided by theFederation of Medical Boards of licensingactions against medical providers If fullyimplemented, these measures should help toflag providers who have had previous problemsESA also reports the development of utili-zation reports that provide a method toevaluate provider treatment and billingpatterns that may indicate problems orsuspicious patterns.

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OIG has previously pushed for debarment ofmedical providers who have engaged in illegalactivities so that they cannot continue tobill the program. The FECA legislativepackage forwarded to the Congress during thelast session, but which did not come to avote, contained debarment language supportedby the OIGo With regard to existing FECAlegislation, the Department's Office of theSolicitor initially interpreted it as notgranting ESA this debarment authority OIG,however, strongly believed that providerscould be prevented from being compensatedunder the general rulemaking authority grantedunder FECA. After further review, the Officeof the Solicitor concluded that the statutedid authorize ESA to issue such regulations.An option paper and the proposed regulationsare now being written by ESA to debar medicalproviders under certain specific circum-stances. At the end of this reporting period,ESA had not yet completed the drafting ofthese regulations ESA is anticipatingpublishing the draft regulations in aboutDecember 1982. This action--particularly ifcoupled with government-wide debarment fromparticipation in any federal program--couldsubstantially increase the consequences to theprovider for engaging in illegal activity,thereby providing an additional measure ofdeterrence.

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_PLO_MENT AND TRAINING ADMINISTRATION

The Employment and Training Administration(ETA) budget authority for Fiscal Year 1982was _25 billion, including _20.5 billion forthe Unemployment Insurance Trust Fund and _3billion for the Comprehensive Employment andTraining Act (CETA) program.

The nature of ETA-related OIG work during thisreporting period reflects the changes occurringwithin the agency, particularly the transitionfrom the CETA grant program to implementationof new job training legislation. We have givenattention to previously identified issues, suchas audit resolution and ineligible partici-pants. We have focused on other issues ofparticular concern in a transition period,such as program close-out operations andend-of-year spending And, we have begun workin areas that we believe have receivedinadequate OIG attention in the past.Finally, we are looking ahead to areas offuture concern, namely the implementation ofgrantee-procured single audits.

Overall, our sense is that improvements havebeen made in ETA financial management andprocurement controls. Nonetheless, there arestill problems that need to be addressed andcontinued strong commitment to improvingfinancial and program integrity needs to bemaintained in current ETA programs and builtinto new programsThe two major reviews conducted during thisreporting period--concerning audit resolutionand debt collection, and CETA property--wereissued in draft form to ETA at the very closeof this reporting period We have not yetreceived comments from ETA and, thus, do not

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- determine if audit exceptions wereproperly resolved,

- determine if debt collectionresponsibilities were properly carriedout, and

- ascertain the cause(s) for anydeficiencies noted in audit resolution anddebt collection activities.

Review work was performed in the RegionalOffices and the National Office of ETA andcovered audit resolution and debt collectionactivities during the period October i, 1980,to March 31, 1982. Our review of the qualityof findings and determination was limited to asample of 50 reports resolved in the RegionalOffices and 31 reports resolved by theNational Office of ETA

Our review shows that, while ETA has initiatedefforts to address deficiencies in its auditresolution and debt collection practices,inadequate financial management systems andlack of aggressive action continue to hamperthe collection of funds due the Department.Our review identified specific problems in theareas of appealed grant officer decisions,inadequate debt collection information,policies concerning interest charges onappealed debts, and lack of sufficientlyaggressive action to follow up on outstandingdelinquent claims.Since this review was completed, ETA hasreported a significant improvement in itsability to track debt collection actions aswell as its actual debt collection perfor-mance. ETA established an automated manage-ment information system which tracks each

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Odiscrete step in the debt collection process.The primary objective of the system is toimprove the timeliness of needed debt collec-tion actions. Since the system was begun inMay 1982, ETA has improved the timelinesspercentage on debt collection steps under itscontrol from 32 percent to 91 percent. OMBhas asked for documentation of the informationsystem for possible use by other agencies.ETA's debt collection results have improveddramatically. In Fiscal Year 1980, debtscollected totaled almost _5.9 million; inFiscal Year 1981, they totaled _14.1 million;and, in Fiscal Year 1982, over _23 million wascollected

CETA Property

One of our major concerns during CETAclose-out operations is safeguarding theFederal Government's investment in CETAproperty. This is particularly critical dueto the reduction in the number of CETA primesponsors and subgrantees.

Prior OIG audits and management reviews haveconcluded that grantees have not alwaysestablished all of the property records andacco_ntlng controls required by U.S. propertyregulations. For example:

o In response to a request for listings of allproperty purchased with CETA funds, primesponsors in the San Francisco Regionsubmitted inventories totaling _5.2million. However, regional personneladvised us that a computerized matching ofprime sponsors' requests and regionalapprovals to purchase equipment revealedover _i million in property not listed onthe submitted inventories.

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o An audit of the Inland Manpower Associationin San Bernardino, California, disclosedthat a computer system purchased for_276,000 and ii Apple computers valued at_43,000 were not listed on the primesponsor's own inventory records.

o A recent audit of the Lowell Consortium inLowell, Massachusetts, recommended that thegrantee properly tag and enter into theproperty record system all equipmentpurchased with grant funds. The report alsoquestioned a subgrantee's purchase of_i,045,489 in equipment, invoiced to theLowell Consortium at _1,459,043, repre-senting a _413,554 mark-up over cost. Thereport stated that "the subgrantee did notfollow any standard procurement policies inacquiring the equipment. Much of theequipment was delivered during the latterpart of the contract and some items ofequipment were delivered subsequent to theend date of the contract. A substantialportion of the equipment was rarely used andsome items of equipment have never beenutilized. In addition, it was noted thatsome of the equipment remains in theoriginal shipping boxes and has never beenassembled."

During this reporting period, we completed asurvey of ETA's management of the Department'sinvestment in property purchased with CETAfunds. The purpose of the survey was toevaluate implementation of ETA policies andprocedures to provide accountability andcontrol over this investment. Review work wasperformed at the ETA National Office and theBoston and San Francisco Regional Offices. Webelieve that serious property accountabilityproblems exist. These are due, in part, to

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ETA's reliance on grantee recordkeepingsystems which, according to ETA, is based onits interpretation of OMB Circular A-102,Attachment N, concerning property managementstandards for grants-in-aid to state and localgovernments. Especially due to the timelinessof this issue, we will carefully evaluateETA's comments on our survey results andclosely monitor implementation of correctiveactions. Also, we are planning to expand thesurvey to determine the disposition of certainproperty at selected CETA grantees.CETA IneligiblesIn past semiannual reports, we have noted thatone of the most prevalent problems in the CETAprogram has been the enrollment of ineligibleparticipants. There are signs that this_problem has become somewhat less prevalent.An audit performed four years ago concludedthat 11.25 percent of the participants sampledwere either ineligible or that there wasinsufficient information available to permitdetermination of their eligibility. Bycomparison, our review of eligibilityprocedures and practices used in the DallasRegion (Region VI prime sponsors) completedduring this reporting period showed an overallineligible rate of 4.2 percent.However, individual rates for ineligibles forprime sponsors ranged from 0 percent to 21.4percent. The primary causes of the problem inRegion VI are that prime sponsors enrollparticipants after the period of eligibilityhas passed and that participants provideincorrect information on their employmenthistory. (CETA legislation and regulations

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require that participants be enrolled within45 days of the application date)

We recommended that all applications note thatthey are effective until 45 days after thedate of the eligibility determination. Wealso recommended that the SESA's be contactedto eliminate any obstacles to obtaining aparticipant's wage history, and to assure thatwage histories obtained during the quarterlyverification of applications have been updatedwith the prior quarter's wage history. Thisaction alone might have lowered theineligibile rate of the cases we sampled by 25percent We hope that an increased under-standing of the causes of the problem ofineligible participants will help theDepartment build sufficient controls into thenew program to prevent its recurrence.CETA Investigations

As in our last semiannual reporting period,CETA embezzlement cases continued to comprisethe majority of ETA-related work conducted byour Office of Investigations. Aside from theimmediate need to pursue appropriate criminaland civil remedies in the specific instancesinvolved, we believe that these cases raisethe issue of adequate program oversight andfinancial controls. We are hopeful thatattention to this issue during the developmentof job training regulations will help reducethe possibility of embezzlement in the newprogram

The following are among the most significantof these cases:

o A former assistant director of the AdamsCounty Employment and Training Division in

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Colorado pled guilty to one count of theftof CETA funds and one count of filing afalse income tax return. Recently, she wassentenced to serve 6 months in prisonfollowed by 5 years' probation. Theembezzlement was discovered during an auditof federal funds by theDepartment of Healthand Human Services. Our investigation foundthat since March 1975, the Adams Countyassistant director had endorsed anddeposited into a personal account about 800checks totaling over _300,000. The Countyhas filed a civil suit in an attempt torecover the stolen money. The IRS joinedthe investigation to review the income taxevasion violations. U.S.v. Paiz (D. Colo.)

o Operators of a temporary labor contractingservice were indicted for conspiring todefraud, submitting false statements, andfraudulently obtaining _129,000 in CETAfunds. The service supplied professionalengineers and support personnel to companiesin the Southeast. The operators falselyclaimed to provide classroom instruction totheir employees. U.S.v. Sundsted andKilllngsworth (N.D. Ga.)

o A former employee of the Negro Trade UnionLeadership Council (NTULC) and an associatepled guilty in the Court of Common Pleas,Philadelphia, Pennsylvania, to embezzlingapproximately _70,000 in CETA funds fromNTULC. NTULC receives funds from severalfederal and state agencies, includingapproximately _900,000 from the Departmentof Labor. An audit by a CPA firm (M.D.Oppenheim and Company) disclosed in excessof one million dollars in questionedexpenditures, with additional informationindicating some payroll fraud. Because of

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lack of proper recordkeeping, the voluminousnumber of bank accounts, and number of stateand federal agencies involved, it was agreedthat a special fraud analysis would beconducted by M.D. Oppenheim and Company andwould be paid for jointly by the agencieswho had contributed funds to NTULCo U.S. VoMyers and Fluellen (E.D. Pa.)

o A contractor with the Clayton County CETAProgram was indicted on five counts ofmaking false statements and ten counts ofembezzlement of CETA funds. The contractwas for the provision of classroom andon-the-job training to 20 participants. Ourinvestigation alleged that, from December1979 to April 1980, some of the invoicessubmitted for reimbursement of _41,435 werefalse, and 18 checks totaling about _18,000were written by the contractor for non-CETApurposes. These checks were payments to thecontractor and to individuals and businessesto whom this individual personally owedmoney, for business expenses not related tothe CETA contract, and to make restitutionon a bad check charge that had resulted inthe contractor's arrest and sentencing.U.S.v. Watts (N.D. Ga.)

Increased Job Corps AuditsThis office had planned to increase auditcoverage of Job Corps centers during FiscalYear 1983. However, in recognition of growingevidence of the need for greater audit andinvestigative attention to this area, OIG andETA agreed that the audit effort should beaccelerated. A special CETA Audit Task Forcecomposed of OIG and ETA staff members wasrecently established to expedite auditcoverage of Job Corps and other national

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programs. To date, contracts have been let toCPA firms to provide audit coverage ofapproximately _i billion that has beenprovided to private contractors to operate 72Job Corps centers. And, other contracts arebeing executed to audit Job Corps programsupport contractors. Future plans call foraudits of the Job Corps centers operated bythe Departments of Agriculture and Interior.

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LABOR-MANAGEMENT SERVICES ADMINISTRATION

The Department vs Labor-Management ServicesAdministration (LMSA) directs programs toassist and improve labor management relationsand administers a number of employee protectionand union-management reporting laws.Among these laws is the Employee RetirementIncome Security Act of 1974 (ERISA), which wasenacted to protect pension and other benefitsof workers in private industry by requiringemployers to disclose and report certaininformation to beneficiaries and by estab-lishing standards of conduct for fiduciariesof employee benefit plans.The legislative history shows that theCongress expected the Department of Labor toestablish a strong ERISA enforcement andinvestigative program. Within the Department,LMSA's Pension and Welfare Benefit Program(PWBP) is responsible for administering theERISA enforcement program.

Several converging factors led to theestablishment of a Joint OIG-LMSA task forceto conduct an evaluation of the enforcement ofERISA's civil and criminal provisions. Sincethe passage of ERISA, there has been continuingCongressional concern about the quality ofERISA enforcement. During a January 26, 1982,hearing before the Senate Labor Subcommittee,Secretary Donovan expressed his commitment toeffective ERISA enforcement and his intent toestablish an internal group to identifymanagement problems and suggested solutions.The task force was established in March of1982; and, during the course of the study, 50interviews were conducted with OIG and LMSA

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field and National Office personnel, 148 PWBPenforcement files were reviewed, and sub-stantial documentation was collected. Thereport, issued on July 15, 1982, discusses thetask force's findings and identifies 71recommendations for corrective action.

Key issues covered in the report, along withmajor task force recommendations, arediscussed below.

- Enforcement Structure and StaffingThe task force concluded that the currentIMSA National Office and field structure andstaffing pattern have resulted in conflictingroles and responsibilities, an excessivecase review process, and an imbalance betweenfield managerial/supervlsory positions andinvestigative positions. The report outlinesa number of alternative organizational struc-tures, recommends certain ways to increasethe number of field investigative positions,and recommends a close examination ofexisting National Office staff responsi-bilitieso

- Enforcement PolicyThe task force reported a consensus thatcurrent IMSA enforcement policy is vague,ambiguous and incomplete and does not promotea balanced enforcement program. The reportrecommends that enforcement policy for ERISAbe completely reviewed and republished witha view towards broadening the mix of ERISAplans covered, greater decentralization oflitigation, and a more aggressive criminalviolation detection and case processingprogram

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- Case Management

Serious weaknesses were noted by the taskforce in this area. They includedinsufficient investigative follow-up onleads related to criminal violations,inadequate tracking of cases referred andinvestigative accomplishments, and excessivedelays in Office of Solicitor actions oncases referred. Various policy, managementand coordination recommendations were madeto address these deficiencies.

- Litigation Strategy

The task force identified a number of waysin which LMSA could more effectively protectthe financial integrity of employee benefitplans and recover plan assets lost as aresult of ERISA violations. A more aggres-sive, comprehensive and decentralized lltlga-tlon strategy; greater consideration ofcivil penalties; and increased follow-up toensure that violators fully carry outcorrective action with respect to ERISAviolations were among the recommendationsmade.

- PWBP External RelationshipsA number of deficiencies were noted in theeffectiveness of PWBP's working relation-ships with the Department's Office of theSolicitor and the Office of InspectorGeneral, the IRS and the FBI. A number ofrecommendations were made to improvecoordination, including revision of formalagreements and policies, better communi-cations and exchange of information, moreeffective referral practices, and clari-fication of litigation decision authority.

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Other findings and recommendations in thereport concern training, information systems,planning and case targeting, and annual ERISAreports.The findings and recommendations of the taskforce are now under study by the Department.

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PART IISUMMARY OF OIG ACTIVITIES

OFFICE OF INVESTIGATIONS

Between April I and September 30, 1982, weopened 269 cases and closed 324. We referred92 cases to the Department of Justice or otherauthorities for prosecution. In addition, 74cases were referred to DOL agencies for admin-istrative action that included termination ofemployment for 23 individuals and suspensionsfor 7.

During this period, i00 individuals or entitieswere indicted and 70 convicted based on ourinvestigations. A breakdown of investigativecase activity is shown on the following page.Fines, recoveries, and collection actionsresulting from our investigations during thisperiod totaled about _1,497,320. As a resultof our investigative recommendations oractions, claimant benefits that were terminatedor reduced during this period resulted in ayearly savings of _1,960,896.Some significant cases were discussed in PartI. Additional examples follow.Employment Standards Administrationo A defendant from Renton, Washington, pled

guilty to one count of fraudulently receivingtemporary total disability under theLongshoremen's and Harbor Workers _Compensation Act. An information had been

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S_I_MARY 0U INVESTIGATIVE ACTIVITYApril 1 - September 30, 1982

Cases Cases Individuals IndividualsAgency Opened Closed Indicted ConvictedBureau of Labor

Statistics 3 3 3 3Employment StandardsAdm/nlstration 126 148 46 31Employment and TrainingAdministration 105 106 47 28Labor-Management Services

Administration 3 6 - -_ine Safety and Health

Administration 2 17 I 6Office of the Assistant

Secretary for Admin-istration andManagement 1 4 1 1

Occupational Safety andHealth Administration 7 19 - -Office of Inspector

General 6 3 - -Office of the

Secretary 6 5 - -Office of the Solicitor 3 2_ultiple Agencies/

Programs 7 II 2 ITOTALS 269 ' 324 100 70

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filed against him after an investigationdisclosed that, during the time he receivedabout _30,374 in compensation and had filedforms attesting that he had not been gain-fully employed during the period of hisdisability, he had, in fact, been gainfullyemployed by the Boeing Company and earned_53,000 in wages. U.S. v. Mitchell (W.D.Wash. )

o A U.S. Army employee was found guilty ofmaking false statements and claims and ofmail fraud relating to his claim of a work-related disability for which he received_67,000 in FECA benefits since 1976. Theman, who was self-employed as an automechanic in Stafford, Virginia during theperiod of claimed disability, received a1-year suspended sentence, 3 years V proba-tion, fined _12,500, and ordered to repay_Ii,400. U.S.v. Heflin (E.D. Va.)

o An investigation of a Veterans Administrationemployee from Beaverton, Oregon, who sus-tained an on-the-job back strain in 1978,found that the employee was no longerdisabled. She was regularly participatingin numerous sports. Her FECA disabilitycompensation was reduced from _i,028 everyfour weeks to _310o In a separate case,OWCP terminated benefits to her husband,also a VA employee who sustained a backinjury. He is appealing the decision.

o A postal clerk was indicted on 18 counts ofmaking false statements to receive federaldisability compensation. While on disabilityleave, she allegedly worked as a nurse inthe New York State Kingsboro PsychiatricCenter in Brooklyn. She had originallyclaimed a job-related back injury in November

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1975 and recurrences on seven subsequentoccasions, which resulted in periodicabsences from work up to June 1981 with com-pensation totaling _39,500o During thisperiod she allegedly attended nursing schooland worked as a Licensed Practical Nurse.She also collected over _i,000 in compen-sation for job-related injuries whileallegedly employed by the KingsboroHospital. U.S.v. Vaughn (S.D.N.Y.)

o The owner of Kosmos Ltd., Painting of SanFrancisco, who had contracts with theFederal Government in northern California,was sentenced to 5 years probation, 50hours of community service, fined _i,000,and debarred for 5 years from Federal Govern-ment contracts. He pled guilty to aninformation charge of false demands againstthe government. This charge resulted whenhe presented the U.S. Navy with falsifiedsigned certified payrolls. He had not beenpaying his employees the prevailing wagerates required under Davis-Bacon provisions.When a compliance officer from the Wage andHour Division requested records, he issuednon-negotiable checks on an empty bankaccount, had the employees endorse thechecks, paid them cash far below the requiredrates, and presented copies of the fraudulentchecks to the Wage and Hour Division. Thecompliance officer referred the investi-gation to the OIG. U.So v. Tripousis (N.D.Calif.)

Employment and Training Administrationo The director of the Somerville-Cambrldge

Economic Opportunity Committee (SCEOC) inMassachusetts, was sentenced for embezzle-ment of government funds to a 3-year

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suspended sentence, 5 years _ probation anddirected to make full restitution of _33,840He was accused of stealing over _36,000 fromvarious SCEOC accounts from July to December1980 to support his cocaine habit. SCEOCreceived over _I0 million from severalfederal agencies, including the Departmentof Labor U.S.v. Sullivan (Do Mass.)

o A Chicago YMCA project director and thedirector of program operations for theMayor*s Office for Senior Citizens and theHandicapped were indicted on one count ofconspiracy and five counts of theft of CETAfunds. The investigation, which resultedfrom a complaint from officials of theChicago Metropolitan YMCA, alleges that theYMCA project director improperly obtainedover _4,900 in CETA funds through theft andnegotiation of participant payroll checks,and that the other defendant assisted her inthe forgery of payee endorsements and thenegotiation of these checks. UoS. v.Degonla and Hamilton (NDo Iiio)

o Four officials of Communities United forActlon--the executive director, the fiscalofficer, the head bookkeeper, and theprogram planning offlcer--were indicted onone count of conspiracy and five counts oftheft of CETA funds. During their employ-ment by the Taylor, Michigan, organization,which is a subgrantee of the Wayne CountyOffice of Manpower in Detroit, the fourformer officials allegedly participated In apayroll padding scheme From October toDecember 1979, about _6,480 of CETA fundswere used in possible illegal pay raises forthemselves and in participant wages thatwere issued to them when they slgned up asparticipants using variations of their names

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and false social security numbers. U.S.v.Conyers et al. (E.D. Mich.)

o A 15-count indictment has charged 12 CETAparticipants and employees of ReinforcingSteel Placers, and the company with makingfalse statements, embezzlement of CETA funds,and knowingly hiring ineligible individuals.In 1979, an officer of the company, actingon behalf of the company, contracted withthe Association of Employment Opportunitiesin Charleston, a contractor under the SouthCarolina Office of the Governor, to provideon-the-Job training. Subsequent contractswere entered into between the two parties inJanuary and April 1980. Allegedly at theofficer's direction, nine of the indivl-duals--all of Pembroke, North Carolina--traveled to South Carolina and falsely statedthat they were residents of South Carolinain order to enroll in the CETA program. Byso doing, they deprived South Carolina offunds intended, targeted and designed solelyfor its residents. Another company officialand an employee were also indicted. U.S.v.Reinforcing Steel Placers et al. (D. S.C.)

o A federal representative with ETA's IndianPrograms in Washington, D.C., pled guilty toone count of extortion for soliciting sexualfavors from a CETA grant director in the FondDu Lac Indian Reservation in Cloquet,Minnesota. U.S.v. Whitman (W.D. Mo.)

o A defendant pied guilty in Kansas City,Kansas, to making false statements inconnection with his receipt of over _3,000in Trade ReadJustment Act and UnemploymentInsurance payments from the State ofMissouri. He was sentenced to a 3-year

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suspended sentence, a 3-year probation, andordered to make full restitution to thestate. He had been working as a rooferduring the year he reported himself asunemployed. UoS. Vo Pier (WoDo MOo)

o A former fiscal officer of the Organizationfor the Forgotten American in Klamath Falls,Oregon, was indicted on 17 counts of embez-zlement of CETA funds. While employed by theorganlzatlon from February through October1981, she allegedly embezzled _17,714,including _13,194 in CETA funds, by typingin legitimate vendors v names as payees on theorganlzatlonWs checks, having the organlza-tlo_ s administrator sign the checks, andthen removing the vendor_ names and re-placing them with hers U.S. Vo Buck (D.Ore.)

Mine Safety and Health Administrationo A former MSHA inspector was indicted in

Birmingham, Alabama, for bribery. BetweenSeptember and November 1981, he allegedlysolicited and accepted gifts, including_540, from two different coal operators inthe Birmingham area. After he became awareof the allegations against him, he resignedfrom MSHAo U.So v. Price (MoD. Alao)

Occupational Safety and Health Administration

o Because they used improper hiring practices,two OSHA Regional Administrators were pre-sented with a proposal to remove them fromthe SES and their positions as RegionalAdministrators. They were offered reinstate-ment to GM-13 positions in Washington, D.C.One chose to retire; the other Is appealingthe Agency's decision

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OFFICE OF AUDIT

During this reporting period, 354 reports onthe Department's grant, contract, and programactivities were issued. Of these, 84 wereperformed by OIG auditors; 129 by contractauditors under OIG's direct supervision; 27 bystate and local government auditors; 14 weregrantee-procured single audits conducted underOMB Circular A-I02, Attachment P provisions;90 were grantee-procured audits conducted under41 CFR 29.70; and I0 were conducted by otherfederal audit agencies. The table belowsummarizes our activity by program. It is fol-lowed by discussion of the major external auditactivities by program; significant internalaudits are covered in Part I of this report.

SUNMARY OF AUDIT ACTIVITY OF OOL PROGRAN5Al_:il I - Sesteer, er _0, 1982

Reposes Amoun or GzIf_/Con_lc_ISsued Exceot lcnsi Amount AuClted

Emoloymen an" TtilntngAomlnJs f;tllt ion 322 $79,859,957 $7,065,99_, _88EmDloyment StenamtaeAaInls_rl_lon AI*lne Safet:y anO HeeltnAaminl sere tlon 7 89,022 2,307,678OccuDilonsi SeteSy insHeel tel AaMItn_sSrlt 1on Z8 J26,616 9,829,246Office Of _e AseLe_sr_

Secretary forAaministr|t Ion snG_ensgemen _ _ 2 _52TOTALS ]54 $80,278,1_7 $7,078, I_0,_12

1 Audit exceptions include both questionedcosts and costs recommended for disallowance.Questioned costs are expenditures withoutsufficient documentary evidence for the auditorto make a conclusion on allowability. Costsrecommended for disallowance are expendituresthat the auditor judges, based on availableevidence, to be unauthorized under the termsof the grant or contract.

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Employment and Training AdministrationCETA Prime Sponsors

We issued 244 audit reports on CETA primesponsors. Of _5.4 billion audited, _70 millionin grant funds was questioned due to lack ofdocumentation for expenditures or non-compli-ance with CETA requirements. Following is allst of audit exceptions, the number of reportscontaining those exceptions, and the amount ofaudit exceptions:

Reports With Amount ofAudit Exception Exceptions ExceptionsUnresolved subgrantee

exceptions 93 _37,540,263

Ineligible participants ll0 6,865,292Insufficient

documentation 61 6,522,109Financial reporting

exceptions 18 5,119,869Budget/cost limitations

exceeded 26 2,551,914No or improper

indirect cost plan 16 1,477,847Unallowable

expenditures 37 1,174,883Interest earned on DOL

advances 3 32,728Other 74 9,094,628

TOTAL _70,379,533- 44 -


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The four reports described below illustratethe types of audits conducted and the findingsidentified during the reporting period.o California State Employment Development

DepartmentOur audit of _138.5 million administered bythe California Balance of State prime sponsorfrom October 1976 through September 1979resulted in _1,703,079 of costs questionedbecause of deficiencies in the State'ssubgrant audit resolution process. In manyinstances, subgrantee questioned costs werewaived by the prime sponsor without retainingthe documentation upon which the decision towaive was based. Subgrantee questioned coststhat were sustained have not been collectedon a timely basis. Our audit disclosed_438,326 of costs sustained that should bereturned to DOL. There remains _I,067,O00in subgrant audits that have not beenresolved by the prime sponsor. This backlogis two and one-half years old.

o Massachusetts Balance of StateOur audit of _143.4 million administered bythe Massachusetts Balance of State primesponsor during Fiscal Year 1979 resulted inquestioned costs of _3,325,510. Statisticalprojections were presented in this unifiedaudit to emphasize the potential magnitudeof conditions noted and the need for prompteorrectlve action. These projections show,with 95 percent confidence, that if theentire universe of transactions had beenexamined, questioned costs would have beenat least _25.9 million, approxlmately 18percent of total expenditures.

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The audit disclosed that the prime sponsorhad filed inaccurate reports with DOL,maintained incomplete and misleadingaccounting records, and violated CETA cashmanagement policies. Further, the primesponsor performed poorly in monitoringsubgrantee activities. Over _2 million ofthe _3o3 million questioned pertained tosubgrantee activities.

o City of East St. Louis, IllinoisOur audit of _22.4 million for the periodAugust 1974 through December 1978 resultedin audit exceptions amounting to _4o3million. The audit was complicated by firedamage to and losses of prime sponsoraccounting records. The report resulted inan overall adverse opinion based on whatrecords were available to be audited. Ofthe 18 administrative findings included inthe report, the most significant dealt withfinancial management deficiencies, the primesponsor not returning remaining funds of_127,828 to the Department of Labor butusing them instead for its own purposes,enrollment of ineligible participants due tonepotism, and hiring of additional partici-pants for political purposes. In 1978, ajudge ordered that the City of East St.Louis no longer be considered a primesponsor. Now, with a completely new staff,the City serves as a subgrantee under theSt. Clair County CETA Program.

o City of DuluthOur audit of the Social Employment Fund,which administers the CETA program inDuluth, Minnesota, resulted in all costsincurred from December 1974 through

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September 1981 (_1,229,600) beingrecommended for disallowance. Of thistotal, _872,112 pertains to the sameenrollee wages being billed to St. LouisCounty and the Department of Labor becauseof an irregular billing practice thatexisted for 6 years. The remaining _357,488pertained to revenues collected throughreimbursements that were not used to benefitthe CETA program. The audit found thatsignificant weaknesses in the internalcontrol system existed, which resulted in aserious potential for program abuse.

Indian and Native American Grantees

During this reporting period, 6 audit reportscovering Indian and Native American programswere issued. Certified public accountingfirms performing the work, under contract withDOL, collectively audited _4.5 million ofwhich _441,183 was questioned. Auditexceptions primarily resulted from thefollowing:

- Improper or unsupported allocations ofcosts (_169,181),- insufficient documentation of costs(_90,901),

- ineligible participants or incompleteinformation to determine participanteligibility (_74,673),

- ineligible expenditures (_2,548), andother (_I03,880) o

Two examples are discussed below.

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o San Bernardino Indian Center

An audit report on the San Bernardino IndianCenter in California questioned costs of_141,517 out of audited costs of _313,227.Questioned costs primarily resulted fromlack of documentation to support allocationof costs (_I16,182), insufficient documen-tation on intake forms to determine thewelfare status of participants (_22,382),ineligible participants (_1,656) and impropercharges to the CETA program (_1,297). Inaddition, the audit report contains eightprocedural findings that cite deficienciesin financial management and intake proce-dures.

o White Mountain Apache TribeAn audit report on the White Mountain ApacheTribe in White River, Arizona, questioned_47,905 out of audited costs of _1.4million. Questioned costs resulted fromineligible participants (_23,003) andinsufficient documentation to support costsclaimed (_24,902). In addition, the auditreport contains seven procedural findingsthat cite deficiencies in financial manage-ment, and property and intake procedures.Migrant and Seasonal Farmworker Grantees

During this reporting period, 21 financial andcompliance audit reports were issued on Migrantand Seasonal Farmworker grantees. The auditswere performed by CPA firms under contractwith DOL. The total amount audited was _71o4million of which _6.3 million was questionedCosts were questioned primarily because of:

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- Insufficient documentation of costs(_2,951,782),

- ineligible participants or incompleteinformation to determine participanteligibility (_i,145,637),

- ineligible expenditures (_i,i04,088),- improper or unsupported allocations of

costs (_439,128), andother (_672,922).

Two examples are discussed below.o La Raze Unida de Ohio

An audit report on La Raze Unida de Ohio inBowling Green, Ohio, questioned all_2,864,464 of the costs audited. The auditdisclosed that the grantee's systems ofinternal controls were not adequate toadminister CETA funds. Staff salaries wereallocated on an estimated basis rather thanactual charges, funds were commingled,excess cash balances were maintained, and apoor property management system wasmaintained.

o Ca%ifornla Human Development CorporationAn audit report on the California HumanDevelopment Corporation in Windon,California, questioned _212,556 of _18.2million audited. Questioned costs mainlyconsisted of indirect cost charges in excessof the approved plan (_80,469), adminis-trative costs above the maximum allowableamount (_59,021), expenditures made withoutrequired prior approvals (_34,001), and

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claims by training contractors that areunder current investigation (_20,499)o

Office of National Programs (0NP)During this period, 38 audit reports wereissued on ONP grants and contracts awarded topublic and private agencies for administrationof a variety of special programs for youth,older workers, research and demonstrationprojects and other special activitiesTwenty-two of the reports contained auditexceptions totaling _1,578,872 out of _253.5million audited, as follows:

Reports With Amount ofAudit Exception Exceptions ExceptionsUnallowable indirect

costs 8 _ 568,210Insufficient

documentation 17 548,668Exceeded budget 5 222,917Unallowable expenses 8 114,588Ineligible participants 4 93,907Costs incurred without

approval 3 "27,642Posting errors 1 2,940

TOTAL _1,578,872

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State Employment Security Agencies

Thirteen audit reports were issued on StateEmployment Security Agencies during thisreporting period. Of the _2.2 billionaudited, _l.1 million in exceptions were notedas follows:

Reports With Amount ofAudit Exception Exceptions Exceptions

Insufficientdocumentation 4 _ 607,482

Exceeded budget 2 342,930Unallowable costs 3 149,007Improper transfer

between grants 1 47,393TOTAL _I,146,812

Mine Safety and Health AdministrationDuring this reporting period, six audit reportswere issued on MSHA grants to states totaling_2.3 million. Audit exceptions totaling_89,022 were noted as follows:

Reports With Amount ofAudit Exception Exceptions ExceptionsInsufficient

documentation 3 _45,421Unallowable expenses 2 39,449Unallowable indirect

costs i 4,152

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OccupationalSafety and Health AdministrationSeventeen audit reports of OSHA grants tostates and public organizations covering _9.8million were issued during this reportingperiod. Seven of these reports containedexceptions listed below totaling _326,616.

Reports With Amount ofAudit Exception Exceptions ExceptionsUnauthorized

procurement 3 _167,274Exceeded indirect

cost rate 2 151,405

Unallowable costs 2 4,431Exceeded budget 3 1,485Costs charged to

wrong period 1 1,438Unallowable earned

interest 1 583TOTAL _326,616

Departmental ManagementWe issued 3 audit reports on contracts issuedby the Office of the Assistant Secretary forAdministration and Management. Auditexceptions totaled _2,552 from one report foroverbilling.

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OFFICE OF ORGANIZED CRIME AND RACKETEERING

From April i, to September 30, 1982, theOffice of Organized Crlme and Racketeeringopened 27 cases. Twenty-slx cases are beingconsidered for prosecution by either theDepartment of Justice or other authorities.There were 19 indictments Involving 31individuals during thls reporting period. Asa result of trials or pleadings, 44 indivi-duals were convicted. Also there were twoconsent Judgments entered. They relate to thecomplaint, based on the civil provisions ofthe Racketeer Influenced and Corrupt Organi-zations (RICO) statute, filed against thepresent and former officers of InternationalBrotherhood of Teamsters Local 560. Anthony"Tony Pro" Provenzano and Nunzio Provenzanohave agreed to remove themselves from anyfurther union or fund actlvity. The complaint,which resulted from a joint OIG-FBI investi-gation and which was discussed in detail inthe last semiannual report, seeks injunctiverelief to prevent associates of Provenzanofamily and friends from committing furtherracketeering violations and seeks the appoint-ment of one or more trustees to control andaudit the assets of the union and benefitfunds and to conduct a general election forofficers under free and democratic conditions.

Two of our cases--U.S.v. Romano et al. (S.D.N.Y.) and U.S.v. Cusmano (E.D. Mich.)--Involved novel applications of law in theprosecution of labor crimes. They arediscussed in detail in the examples of some ofour most significant cases that follow.o In the continuing investigation in New York

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crime activities in the Fulton Fish Market,to date, 32 of 44 defendants have beenconvicted or pled guilty to charges; 9 awaittrial, 2 were acquitted, and 1 is a fugitive.Included among those entering guilty pleasis Vincent Romano, brother of Carmine andPeter Romano who were sentenced in February.Vincent Romano pled guilty to conspiracy andwas sentenced to 1 year and 1 day in prison.He had also been charged with making falsestatements to the Chemical Bank to inducethe extension of more than _260,000 in loansto the Major Fish Company, a wholesale fishcompany formerly located in the Fulton FishMarket. Romano, the president and solestockholder in the company, inflated itsassets to obtain the loans and then defaultedon over 3110,000. In a Fatico Hearing (inwhich the government presents evidence oforganized crime connections to influence thesentencing) in February for Carmine and PeterRomano's sentencing, the judge found thatVincent Romano had been conducting theaffairs of the United Seafood Workers UnionLocal 359 for his brother Carmine Romano,now serving a 12-year sentence and who ranthe Market and the local for the Genoveseorganized crime family.Carmine and Peter Romano, who were convictedon racketeering charges of extortion, receiptof illegal payments, obstruction of justice,and misuse of the union's pension and welfarefunds, appealed the latter charge. Thecharge of misuse of the unio_ s welfare andpension funds stemmed from the Romanos'having the funds transferred from a Califor-nia bank to a New York bank that was offeringgifts for new deposits. Using the

Documents

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