Semi-Annual Report of the Inspector General

April 1, 1979 - September30, 1979 U.S. Departmentof Labor Office of InspectorGeneral

,_/_

SEMI-ANNUAL DEPARTMENT OF LABOR--0FFICE

REPORT OF INSPECTOR 30, 1979 GENERAL

APRIL

i, 1979 - SEPTEMBER

TABLE

OF CONTENTS PAGE

MESSAGE EXECUTIVE

FROM THE INSPECTOR SUMMARY

GENERAL

1 i0 12

INTRODUCTION CHAPTER CHAPTER CHAPTER CHAPTER CHAPTER i. 2. 3. 4. 5. ORGANIZATION AND _ESOURCES

13 17 38 49 51

AUDIT ACTIVITIES INVESTIGATIONS ADP REVIEWS FRAUD PREVENTION ACTIVITIES ....

AND DETECTION

ACTIVITIES

APPENDICES A. B. C. D. Memorandum on Organized Chart Issued April Contained i, 1979-September in ADP Reviews 30, 1979 October i, 1978Crime Program Planning

OIG Organization

List of Audit Reports

Action on Recommendations March 31, 1979 List of ADP Review Reports

E.

Issued April

i, 1979-September

30, 1979

MESSAGE Pursuant required and

FROM

THE

INSPECTOR

GENERAL of the Inspector twice This General Act of 1978, the I am

to the provisions to report to the of

Congress Office.

a year

concerning report, report

activities covers

accomplishments of April Inspector

this

particular is my first

which to the

the period Congress as

1-September General

30, 1979, of the U.S.

Department

of Labor.

As has

I discussed

during

my

confirmation traditional created

hearings, audit and

the Inspector investigative

General

Act

significantly

affected has and

activities mechanism provided /

within

this Department, waste, with fraud the

a more

powerful

organizational and has

to fight this

abuse

in Departmental basis upon which and

programs to develop

Office

statutory to promote

innovative

long-range

strategies

economy

efficiency.

Since have and

I officially been

began an

my

duties

on May

i8,

1979,

my

principal on these

objectives objectives

to establish

effective process problems

organization that will

to work

to develop

a planning systemic and

result waste,

in well-designed fraud and abuse in

attacks

on major

affecting Thenext of•these I want reflect

Departmental the Congress and The planning subsequent

programs will

operations. the fruits

semi-annual

reportto

reflect In

organization-building to describe the do not they results reflect our plans. of activities the results

efforts. sections

this message, of this report

undertaken of the

before

I arrived.

These

sections Thus,

changes

I am now

implementing.

should

be only

marginally

helpful

to the Congress

in evaluating report

the effectiveness strengthens

of

this Office.

My review audit

of the following and investigative waste, fraud

my conviction

that traditional succeed programs.

approaches

will not in themselves of Labor audit and

in controlling To have

and abuse

in Department

a real

impact,

what

is needed

is a combined attacks

investigative • problem areas.

effort

to design

and implement

strategic

on identified

I am pleased building

with

the progress although

we have made there have first

in the areas been problems.

of organizationIn the area

and planning,

of organization-building,

let me

talk about

our accomplishments.

This

Office

has had the great to fill

fortune

of having positions.

attracted Ronald

three outstanding Goldstock, the

professionals Deputy

key managerial brings

Inspector

General,

to this position area,

nationally-recognized organized 16, 1979, Crime,

expertise crime.

in the criminal Prior to beginning

investigations his duties

especially

in this Office Institute Bureau

on July

he was Director and, prior

of the Cornell

University

on Organized

to that, Office.

Head of the Rackets

in the New York District

Attorney's

Our Assistant our Office feel

Inspector

General He

for Audit,

Edward

W. Stepnick,,joined audit manager and I

on July

30, 1979.

is an outstanding

fortunate

that he decided for Audit

to leave

the position

of Assistant Education,

Inspector

General

at the Department

of Health,

- 2 -

and His

Welfare 12 years

to help with

us design were

and

build

our

audit

organization the General

at Labor. Accounting

HEW

preceded

by 15 years

with

Office.

Our most staff He has Service, Charge, in seven experience background

recent

senior 20,

level

appointee

is A.

M. Statham, General for Postal Postal mail

who

joins

our

on October had over

as Assistant experience position responsible and

Inspector with being

Investigations. Inspection Inspector in

14 years recent he was states

the U.S. Assistant

his most in which western

for managing Islands

fraud

investigations Mr. Statham's

the Trust crime

of the Pacific. and his for strong this

in white provide

collar him with

investigations

managerial position.

exceptional

credentials

new

The

recruitment However,

proces s for my strong

these belief and

top

positions our

took

longer

than needs for

I had and these

hoped. deserves jobs was

is that finding

organization people

the very worth

best

talent,

the right

the wait.

In addition organizational framework

to the

progress

made

in staffing, will this

we

have

developed

a new

structure effectively

which

I believe out

provide

the necessary responsibilities.

for

carrying

Office's

- 3-

In addition Organized Management Affairs

to an Office Crime

of Audit,

an Office

of Investigations, Staff,

an

Investigations

Program

Coordination

an Administrative an Internal OIG

Staff,

and my own front conduct

Office,

we are establishing related Prevention

Staff,

which will

investigations of Loss

to internal

activities

and personnel,

and an Office

and Analysis.

The will

creation give

and staffing

of the Office

of Loss

Prevention

and Analysis out fully

the OIG the institutional imposed make by the Inspector the kind which

base with which General

to carry

the duties

Act of 1978, systemic

and to help in program be to

the Department efficiency satisfied prevent

of long-term

improvements

and economy with exposure

the Act envisioned. we must

We can no longer develop procedures

of the wrongdoer; types

or limit

specific

of fraudulent focus

and inefficient will

behavior be on

and resultant the prevention This Office

losses.

The major

of this new Office dishonesty

of losses analyze

due to fraud, the results

and mismanagement. investigations weaknesses and other

will

of audits, generic

materials operations,

to identify policies

those

fundamental, which

in program

and management

are conducive

to waste, to overcome

fraud and abuse, those weaknesses. will have

and then work with The people

Departmental

managers

who are being

recruited

for this Office In addition to its and

both program role,

and analytical this Office

capabilities. perform

central

analytic

will

the legislative

regulations prescribed

review,

and intergovernmental coordinate

liaison

responsibilities and our

in the Act,

our hot-line

activities

- 4-

operational methodologies efforts of

surveys, and

and

perform

research I look

on new

audit

and

investigative the initial

strategies. Office

forward

to highlighting report,

this new

in my next

semi-annual

There

are

several itself as

factors quickly

which and

have

affected

the OiG's as I had

ability hoped.

to First,

organize I have actions of

as effectively involved

been and

disappointed.b_ other management not

the time matters. deliberate most of our new

in processing these have

personnel been cases

I believe nonfeasance.

systemic area and

weaknesses, that

Second, is that

a general because the short managers area. the skills

problem concept to manage supply. in this

is facing

Inspectors Offices

General are

implementation these there have

relatively

new,

effectively For example, who

enterprises few

are

in extremely

are very

top-notch in the white

investigative collar crime

country

had

experience of talent of

Also,

there

is a real although

dirth this

in the area

of

investigative be immensely and training by that in

accounting, valuable

kind The

specialization personnel

would

to our

Office. will have

entire

management

infrastructure these the

to change

significantly and

if skills

needed

new Offices

are

to be developed can collectively and

recruited.

It is my of

hope

Inspectors and

General educational

trigger Federal staffing

the kinds personnel for our

changes

training are needed

programs, more

policies, Offices.

which

to generate

effective

- 5 -

My major developing and audit

thrust

in planning

this

Office's

activities

is that of systematically investigative the

program

strategies,

and utilizing that

new and innovative new approaches,

approaches.

I believe

it is these

implementation General waste. planning to combat Although functions,

of which was made provide

possible

by passage

of the Inspector fraud, abuse and

Act, which

the best means philosophy

of minimizing which

A fundamental is that audit effectively the Inspector we have

underlying

is guiding must

much

of our together

and investigative waste, fraud

resources

be brought

and abuse

in this Department. separate problems weaknesses audit and investigative joint audit

General

Act requires

found

that sophisticated for uncovering

require

and investigative solutions.

approaches

and finding

Another goal

underlying

theme,

which

I have alluded

to before,

is that our audit and

is not the production

of statistics impact

(number

of convictions, programs

reports, the way program certainly but

etc.) but to have a real in which has been cannot they are managed. almost entirely refrain

on Departmental

This Department's to reacting

investigative to allegations. We

geared

entirely

from responding the luxury Similarly, to single

to specific

complaints, every

I do not believe

that we have activity. activities

of investigating in the audit financial

allegation no longer audits, We need and more and other

of criminal restrict

area, we can

audit

compliance audit universe. reviews audit

cyclically to broaden

scheduled our audit

on the basis program

of our annual more

to encompass

internal

efficiency/effectiveness specialized skills

audits.

And, we need to utilize complex program

in conducting

investigations.

- 6 -

We

are

undertaking objectives.

a number

of special

initiatives

to help

achieve

these

--

We are

have

isolated

a number

of recognized and

problem

areas

and

directing

teams

of auditors

investigators vulnerability

to uncover to waste,

actual fraud -We and are

instances and abuse.

of, and

potential

actively law

_t_empting enforcement and

to make agencies

arrangements to assist our

with

state in

local

efforts

investigation -We have

prosecution. and are testing a surveillance of program of using skills audit guide

developed

to aid auditors -We are actively so that

in uncovering exploring the

instances possibility

fraud. intelligence can be trends. so that we investigative upon this

analysts utilized -We are will

sophisticated complex management capability to monitor

andanalytical cases and

in unraveling enhancing an our

uncovering system audit made and

information to track improvements

have

improved and

accomplishments Office's -We are which In the a series achieve control. organized of real

based

recommendations. developing the program-oriented earlier. program, our goal is to develop projects to loss prevention operation,•

I described crime

investigations strategies area

investigative changes of

and well-designed

in the

of organized

crime/labor

racketeering units assigned for drafting the

Each

the 14 Labor Strike

Department Force

investigative

to Department a mission

of Justice and

Offices

is responsible designed

statement

developing

strategies

to achieve

- 7-

goals

articulated

in those of advancing

statements. these

Individual

cases

will be undertaken of I have

for the purpose planning met with planned

strategies. most Strike

While Force

this kind Attorneys more

has not taken are encouraged attacks

place

before,

by our initiatives crime

and welcome Attached

concerted, is

on organized which

activity.

to this report effort.

the memorandum (See Appendix

has initiated

this p!_nning

and program

A)

While

the statute

has given the fact

this Office remains

many

essential

tools

to insure success for support; to incidents as

our effectiveness, depends we upon

that often

our ultimate

the efforts

of others. program

We rely on the Secretary to alert this Office

rely on Departmental

managers

of waste, a result system

fraud and abuse, of our audit

and to implement

recommendations

developed

activities;

we rely on this Department's services and financial

management

for personnel,

administrative that

support. support

By and large, to this Office. are having fraud

I believe

the Department

has given efforts

adequate

The establishment

and initial

of our Office waste, concerns, and

an effect

on the Department's is a greater

concerns

about

and abuse.

There

sensitivity

to these

an increasing of this Office.

awareness

of, and appreciation

for the goals

and activities

In summary,

I am pleased

with

the progress

this Office

has made

in acquiring

new goals, new out effectively Long-term

staff and new planning both the letter

approaches

to enable

us to carry General Act. of

and spirit

of the Inspector within

control

over waste,

fraud

and abuse

the Department

8-

Labor will and

has not

not be in

been

accomplished

during But

the

past

six months

and

probably

the short-term. are geared

that

is the goal that goal. this

of this During goal;

Office several six

our

efforts we have

to achieving the capacity effectively

the past the next

months,

developed how

to meet this

monthslwill

determine

capacity

can be used.

MARJORIE Inspector

FINE

KNOWLES

General

- 9 -

EXECUTIVESUMMARY During the six-month General period covered by this report, of Labor the Office of

Inspector a number

(OIG), of the Department audits

(DOL), conducted The problems disclosed The

of significant in detail

and investigations. 2 through

are described highlights A. Audit --

in ChapterS

5 of this report. below.

of OIG's

accomplishments

for the period appear

206 audit period,

reports

have been

issued

during

the reporting

which

question

$78.9 million

in costs. identified by

--

The most

frequent were

and significant ineligible

problems

these audits insufficient

participants

in DOL programs, improper questioned allocations costs in

documentation charges,

of expenditures, and unresolved

of administrative subsponsor B. Investigations Grant --audits.

Fraud and Employee 777 cases are open 66 indictments been obtained

Integrity

Investigations 30, 1979. and 39 convictions have

as of September returned

have been in cases

in which

OIG has participated. of Workers' Compensation

--

a total of $441,420 benefits to claimants

in overpayments

have been detected.

Organized ---

Crime Investigations 30, 1979. ii of whom were convicted.

323 cases are open as of September 13 individuals have been indicted,

- I0 -

C.

ADP ---

Reviews 7 ADP 3 of review the reports were issued. significant problems for or the

reports and

identified made

deficiencies situations. D. Fraud -A Prevention special

recommendations

correcting

& Detection review of the

Activities Employment Program installed was and Training by Administration's OIG.

Summer -A DOL

Youth OIG on

Employment was 66

conducted the

Hotline which

during have been

reporting

period

complaints

received.

- Ii-

INTRODUCTION The Office established Public of Inspector in October General (OIG), Department of Labor (DOL), was

1978, by the Inspector of OIG is to: and waste

General

Act of 1978, policies and operations and

Law 95-452.

The purpose fraud,

(I) recommend in DOL programs

to prevent

and detect

abuse

and increase coordinate and

their economy

and efficiency;

(2) conduct,

supervise

audits

and investigations of Labor

relating

to DOL programs informed

and operations; problems and

(3) keep

the Secretary action taken

and Congress

about

and corrective operations. activities,

in the administration this, the majority and employee

of DOL programs audit

To accomplish which include Strike

of DOL's integrity

and investigative

fraud Force

invesEigations, Data

the Organized Processing

Crime

investigations

and Automated within

(ADP) reviews,

have been consolidated

the O_.

On May 18, 1979, Marjorie General of the Department and Welfare,

Fine Knowles of Labor.

was sworn

in as the Inspector of Health,

She came

from the Department General

Education,

where

she served as Assistant

Counsel

for the Inspector

General

Division.

Chapter

I of this report

briefly

reviews

our new organizational three

structure, deal

and our present with

and future

resources.

The following of OIG's

chapters

the activities

and accomplishments the reporting activities

audit,

investigations concludes with a

and ADP units during review of the special and prevent during fraud,

period.

The report

that OIG has implemented in DOL programs

to detect

abuse and waste period.

and operations

the reporting

- 12 -

CHAPTER A. OIG which

I.

ORGANIZATION Structure of

AND

RESOURCES

Organizational is in the process to

staffing and

a new

organizational waste and

structure abuse can

through be more

efforts

identify

prevent are six

fraud, major

efficiently which will

directed. report General.

There to

organizational General Office and of an_

components the Deputy Office of Crime

directly These

the

Inspector are:

Inspector

components

Audit,

Investigations, Investigations Internal approved

Office Program

of Loss

Prevention

Analysis,

Organized and

Coordination, to this (See

Administrative report Appendix is a copy B).

Management of the

Affairs. organization

Attached chart.

recently-

The

Office

of Audit

is headed who is

by

the

Assistant for of the the ten

Inspector planning audit DOL

General and is

for

Audit, the in

Edward

Stepnick, of the

responsible The bulk of

implementing performed cities who reports

audit the

program

OIG. in

work

field the

offices country

located and headed

each an

regional

across to the

by

audit for

field

supervisor

Assistant

Inspector

General

Audit.

The

Office for

of

Investigations

will A. M.

be

headed

by

the

Assistant is

Inspector for

General the There DOL

Investigations, of all program

(Mac) and

Statham,

who

responsible

conduct are

fraud

employee offices: D.C.

integrity one in

investigations. each of The the ten

eleven

investigations and of

field

regional

cities in each

a Washington, these offices

field to

office. the

supervisory Inspector

investigator General for

reports

Assistant

Investigations.

- 13

-

The Offices Special became

of Audit

and Investigations , which, by force General.

were

part of the Office General

of Act,

Investigations tbe Office

of the Inspector

of Inspector

The third major Analysis. Office This

component new unit

will will

be the Office initially

of Loss Prevention

and

be located

in the National be responsible earlier.

and will

be comprised research,

of two divisions liaison

that will work

for the analytic,

and planning

described

The fourth Staff, will

component, report

the Organized

Crime

Investigations General crime

Program

Coordination

to the Deputy

Inspector

and is responsible in organizations There the are

for conducting or programs 14 Organized Strike Forces

investigations

of organized

activities

under Crime

the jurisdiction Investigations

of the Department field offices which

of Labor. work with

of the Department by DOJ°

of Justice

(DOJ) and are located

in cities

targeted

The fifth responsible

component

is the Administrative administrative

Management

Staff

which

is to all

for providing

and management

support

OIG components.

The sixth component, inspecting action This OIG's

the Internal

Affairs

Staff, will operations,

be responsible and recommending

for

audit

and investigative

to improve

and assure

the integrity

of OIG staff

and operations.

staff will

report

directly

to the Inspector

General.

- 14 -

B

Resources (i) Current Resources positions for FY 1979. Since most of

OIG had 355 authorized these positions OIG was not able hiring were

new in the beginning

of the fiscal staff until Since

year, the

to hire many

of its needed i979.

freeze was lifted efforts

in JanuaLy,

then OIG As of technical

has made major September

to achieve

full

staffing.

30, 1979, OIG has a total staff on board:

of 336 professional, of Audit;

and clerical

158 in the Office

75 in the Office Program;

of Investigations;

81 in the Organized Msnagement Staff;

Crime

16 on the Administrative Office

and 6

in the Immediate

of the Inspector

General.

(2)

Future

Resources by Congress to increase its

In FY 1980 OIG has been authorized staff by 132 positions. performing sponsors additional OIG work will unified audits Audit

will receive

59 positions

for

of 17 complex will receive

CETA prime 37 positions. An

and Investigations 36 positions in the manner

will be used previously

to plan and coordinate These positions

described. staff

raise the total authorized

for OIG to 487 positions.

- 15 -

(3)

Contract

Funds to work performed by its own audit staff, OIG to conduct

In addition relies

on funds

to contract

with outside

auditors

a large portion $i million services,

of its audits.

In FY 1979 OIG received for audit

in its own budget and an additional Administration

for contracting $8 million

from the Employment audits performed used smaller For into

and Training

for contract of these

in the CETA program. to hire amount FY 1980 Certified provided Congress

The bulk

funds were a much

Public to state

Accountants, and local

with

audit

agencies. directly

has placed

$12.8 million

OIG's budget for audits

for audits

of the CETA program areas.

and $i million

of other program

- 16 -

CHAPTER A.

2.

AUDIT ACTIVITIES Responsibilities objectives of the OIG's to ensure audit fiscal program are to review and audit compliance,

Audit

The major

DOL programs economical programs.

and funds

accountability,

regulatory

and efficient

operations,

and to seek improvements

in DOL

The majority subgrantees audits

of OIG audits and contractors.

relate

to funds

awarded

to DOL grantees, and compliance

Generally, with

these are financial updated These audit

performed

in accordance

annually

guides financial

specifically

designed audits

for each DOL program. cover the following

external

and compliance (i)

programs. Act (CETA) dollars. 460 funds The

Comprehensive The amount

Employment

and Training

b_dgeted

for CETA for FY 1979 was $ii billion distributed who to approximately

In FY 1979, CETA

funds were

state and local prime to approximately number

sponsors

in turn distributed and contractors. increase

40,000

subsponsors will

of CETA prime

sponsors

to 473 in FY 1980. 174 Native Employed and 160 is expected audits operations.

CETA funds are also distributed American Sponsors, Program 80 Migrant Sponsors,

to approximately and other Seasonally Centers

Farmworker

76 Job Corps

other contractors. to increase are very

The number

of Job Corps 120.

Centers CETA

in FY 1980 to approximately because

complex

of the decentralized

program

- 17 -

(2)

State

Employment

Security

Agencys

(SESAs) budgeted for employment

The amount security

of federal

and state

funds

and unemployment $13 billion.

insurance These

programs were

for FY 1979 was distributed local to

approximately 54 states providing disaster operate

funds

and territories employment relief

to operate

over

2,400

offices

services,

unemployment

benefit

payments, SESAs

and trade

readjustment partnership,

allowances. with

as a state-federal basic

the DOL responsible funds and

for providing direction. (3) Occupational

standards,

and administrative

Safety

and Health

Administration grants

(OSHA) to states for

In FY 1979, OSHA performing contracts educational industries, safety

awarded

24 operational inspections;

and health

39 reimbursable and unions,

for services grants

and research;

and 86 training

to colleges

and universities, In addition, of Labor

trade

and trade associations. grants grants to the Bureau directly

OSHA awarded and safety

50 statistical 5 statistical and health (4) Mine Safety

Statistics

to states

to accumulate

data. & Health Enforcement Administration Safety (MSHA) previously a part

The Mining

Administration, was transferred Health

of the Department of Labor

of Interior, Safetyand

to the Department and

as the Mine

Administration

- 18 -

reorganized MSHA These

with

additional

responsibilities. amounted

In FY 1979 $13 million. and training

contracts contracts

and grants covered

to approximately construction for mine

supplies,

studies

conducted health

by approximately

25 states

safety and

programs.

Internal

audits

of the Department's To date,

activities 87 program

are also

the responsibility areas have

of the Office been

of Audit.

and functional

identified impact

as subjects studies

for internal

audits.

In addition, activities

nationwide are

special believed These

are conducted

of selected

which

to require address

the special compliance,

attention efficiency

of Departmental and economy.

management.

audits

B.

Audit

Universe

and Audit

Resources audit staff audit available universe. staff to provide coverage

In FY 1979 OIG had funds and of approximately half

of the annual

OIG anticipates will be available complex with

that an additional

53 auditors unified We will

and 6 support audits

in FY 1980 to perform CETA prime sponsors.

of 17 larger

and more

also have

$12.8 million

to contract

outside

auditors

to perform

audits

of the CETA program.

Table

1 is a summary Table

of the audit the audits

universe

and audits during

performed

in •

FY 1979. period

2 shows

performed

the reporting

by performance

group.

- 19 -

TABLE

1 and

Summary of OIG Audit Universe Actual Accomplishments

Universe Audit Activity Total 460 i/ Annual 230 2/

Accomplishments ist Half FY 1979 70 2nd Half FY 1979 55

CETA Title I, II, & VI Prime Sponsor Audits CETA Title Audits CETA CETA Title Title III Native American

174

174

61

104

III Migrant

Audits

80 120 40,000

80 120 20,000

2 -3,840

1 ii 9,910

IV Job Corps 3/ Report

CETA Subsponsor Reviews

ONP/OPER/Miscellaneous SESA Audits OSHA Audits BLS Audits MSHAAudits Internal Audits

Audits

85 54 55 .... 55 83

85 27 27

26 9 4/ 8 1

19 8 1 2 2 3

27 29

-2

i/

The total audit universe has audit responsibility.

represents

the total

number

of entities

for which

OIG

2/

The annual audit universe is the number of entities which OIG is required audit in a year to maintain timely audit cycles. Audit cycles vary from one to three years depending on the program being audited. The actual number of funded number for FY 1980 is 120. SESA audits allowances. Job Corps centers was 75 in FY 1979.

to

3/

The anticipated

4/

covered federal administrative State UI benefits were tested

costs and federal in one audit.

benefits

and

- 20 -

TABLE Audits

2 30, 1979

Performed April 1 - September By Performance Group

Performance DOL Auditors CPAs

Group

Number of Reports Issued 40 136 20 l0 206

Percent Reports 19% 66% 10% 5% 100%

of Issued

Dollars Audited (Millions) $1,806.6 336.5 319.2 1.9 $2,464.2

Percent Dollars Audited 73% 14% 13% -100%

of

State and Local Auditors Other TOTAL Federal Auditors

- 21-

Sisnificant -Unified

Activities Audits - The concept of a unified audit of a single in the previous operational. are expected audits of

CETA prime semi-annual As indicated for Fiscal 17 CETA presence, earlier, scarce

sponsor report,

and its subsponsors, is well on the way fifty-nine

described to becoming

earlier,

new audit be used

positions

Year

1980 which will

for unified

prime

sponsors.

This will provide that should current, help more audit

a continuous

audit problems

or residency, make audits

us to pinpoint efficiently costs.

more

utilize like

audit

resources,

and lower to additional permit. File

We would

to expand Year --

residencies

prime

sponsors

in Fiscal

1981 if resources

Maintenance established

of a Precedent consisting

- A precedent

file has been decisions

of Opinions

of the Solicitor,

by Administrative General assist with -which

Law Judges,

and Opinions

of the Comptroller This file will

impact

on DOL audit in conducting

operations. their work

OIG auditors

and in discussions exceptions. for the a

program

officials Audit

on the resolution - As stated

of audit

Surveillance period

Guide

in the report we have

October

i, 1978-March guide

31, 1979,

developed

surveillance internal internal

audit

to aid OIG personnel theft. This guide

in detecting contains an

concealed control

program survey

section complete

as well testing

as fraud

detection in

procedures. November,

We should 1979.

of the guide

- 22 -

D.

Significant

Audit

Findings

and Recommendations OIG issued 206 audit reports are on of the and which

During

the current

reporting _/

period, Since

questioned normally actual

$78.9 million.

only a sample

of all costs are based projection

audited,

the dollars

that we have questioned sampling

dollars

audited,

not on a statistical

total dollar dollars

impact.

Table 3 depicts by program; C.

the number

of reports of these

issued reports

questioned,

a detailed

listing

is contained

in Appendix

Some of the more were tion ineligible

frequent

and significant in DOL grant allocations

problems programs,

found

in D0L programs documenta-

participants

insufficient

of expenditures,

improper costs

of administrative audits.

charges were

and unresolved also

questioned

in subsponsor

Deficiencies

found in other aspects

of the administration we noted:

of DOL funds (i) weak

by grantees manage-

and contractors. ment and internal

All too frequently controls; and

financial

(2) inadequate

accounting

systems;

(3) poor

cash management; problems action

(4) lax property

management.

These,

and additional

found in DOL programs,

and our recommendations

for corrective

are set forth below.

_/

Questioned costs are those costs for which there is either a lack of documentation to support the costs' allowability, or for which the documentation showed that the cost was unallowable.

- 23 -

(i)

State and Local OIG issued which

CETA Program

Audits on state and local CETA Programs

55 audlt reports

questioned

$42.1 million.

It should

be noted for may be

that prime all CETA

sponsors

are responsible to them, subgrantees. costs even

to the Department though

funds granted through

the program

administered reasons

A summary is shown Percent

of the major

for the questioned

below: of Total Questioned 47

Audit

Exception Audit

Dollars

Unresolved Subsponsor Exceptions

Improper Allocation of Administrative Charges Insufficient Ineligible Other Documentation Participants Expenditures

12

i0 7 4 2 18 100%

Improper

Exceeding Other TOTAL

Budget

In order

to illustrate

the types

of problems CETA audit

we found, reports

several are

of the significant discussed below.

state and local

- 24 -

--

We

found that CETA funds and several

had been misappropriated outside paid vendors.

byan

employee

of a sponsor $293,000

Approximately vendors system who appear of internal

of CETA funds were involved

to selected

to have been controls priation. t his m atter.
. .. . .

in the scheme.

A proper

could have diminished The Department _.-.....

the opportunity

for misapproinvestigating _

of Justice

is currently '
.

.

--

In

one

report, level)

audit0rsquestioned and $1.5 million

approximately (subgrantee sponsor level).

$3.1

million A significant account of CETA

(prime finding

was that the CETA prime reconciled with

cash control city account that

had not been cash

a separate

transactions. reflected

The auditors $473,241

determined

the city

account recorded was made with

more disbursements

than the amounts A recommendation should be reconciled be

as disbursed

on the CETA records. control account

that the CETA cash account

the city's

at once,

and that such reconciliation

a regular -In another

monthly report,

procedure. auditors questioned $446,000 (prime level)

and $1,249,000 documentation, of the maximum subcontractor

(subcontractor ineligible allowable

level) mainly

for lack of paid in excess

participants, under

wages

CETA regulations, The auditors

and unresolved

audit reports.

issued an adverse

- 25 _

opinion lack

on the CETA financial

statements

as a result

of the

of control

over obligations and the fact

in total, and by individual were made reports by the without

subcontractors, prime sponsor

that changes expenditure

to subcontractor knowledge. of a CETA program

subcontractor -An OIG audit subgrantee costs were

questioned

$2 million

at the

level. missing

The major participant nepotism;

reasons

for these checks, approved

questioned wage records

payroll

and applications;

improperly

time cards documentation costs

for staff and participants; and failure allocated -of the contractor

lack of proper to report

source

administrative

by program

activity. questioned $655,000 forms due to and

An OIG audit insufficient notifications if salaries from

of a CETA program documentation. of employment, paid to the staff

Personnel which

action

are necessary

to determine missing

are appropriate,

were

the personnel

files of staff members. required qualifications, could

In addition, results of interviews for 42

job descriptions, or evaluation summer

of qualifications

not be located

aide positions.

- 26 -

(2)

Job Corps Prosram During were

Audits period, ii Job Corps $5.3 million. are reflected Center audit reports

the reporting

issued which

questioned examined

The questionable in the table below: of Total Questioned

items in the samples

Percent Audit Exception Staff Salaries Exceeding Unqualified and Fringes Budget 18 Ii or 6 Dollars

Contract Staff

Improper Certification Licensing of Staff Insufficient

Documentation

3

Procurement Bidding

of Goods and Services Procedures 3

Equipment,

Construction Accounts

and Rehabilitation Payable Costs

Cost 47 3

Unsupported

General and Administrative not Accurately Applied Enrollee (Corps member) of Capital

Expenses Equipment

3 2 2 1 1

Procurement Insufficient

Documentation

Lack of DOL Approval Lack of Accountability of NonExpendable Capital Equipment TOTAL

100%

- 27 -

Two of the more summarized --

significant

Job Corps

Center

audit

reports

are

below. questioned costs approximately $3,000,000 primarily and of these

A report because

reported

for equipment,

construction, The majority amended

rehabilitation dollars were

could not be verified. resolved when the grantee

the financial

statements. -Another report disclosed expenses operating in excess costs and general and in

administrative the contract; which lacked

of the amount

specified

construction, prior approval; $623,000

rehabilitation and hiring

and site consolidation staff. was

of unqualified

Approximately sent

was questioned and Training

in the report Administration

which (ETA).

to the Employment

(3)

National (a)

CETA Program of Native

Audits American Program Audits 104 audit reports for

Summary

During

the reporting American

period, Program.

OIG issued These

the Native million,

audits

questioned

$13.3 documented

either

because

the costs problem

were

insufficiently were:

or improper.

The major

areas

- 28 -

Percent Audit Exception Documentation Dollars

of Total Questioned 35 24 8 6 4 23 100%

Insufficient Improper

Allocations Over Budget Participants Expenditures

Expenditure Ineligible Other Other TOTAL

Improper

(b) Only

Summary

of Migrant

and Seasonal

Farmworkers

Program

Audit

Activity

one audit report management and complete records

was issued. system

It disclosed

that the grantee's for accurate, (2) did and

financial current,

(I) did not provide

disclosure

of the cash position; identified

not provide application

which

adequately

the source and

of funds for grant-supported effective control

activities;

(3) did not provide for all funds, grantee

over

and accountability In addition, journals the

property

and other

assets.

did not maintain

cash disbursements

for either

of the two CETA bank accounts documented plan for allocation III, Section

and did not have of the costs 303 and other $26,209

an adequately shared

of services grants

by the CETA Title by federal

funded

agencies.

As a result, that

were

questioned. because there

It was also recommended were allowance after payments

$3,604 be disallowed participants

to ineligible

and costs

incurred

the expiration

of the grant.

- 29 -

(c)

Summary of Other National Programs, Office Evaluation and Research_ and Miscellaneous the period, under work. OIG issued 19 audit reports

of Policy, Audits on grants and and

During

contracts evaluation

the Older Americans The audits

Act and for research in $304,743

resulted below.

of questioned

costs as shown

in the table

Percent Audit Exception Participants Documentation Expenditures of Administrative Dollars

of Total Questioned 47 28 7 3

Ineligible Insufficient Other

Improper

Improper Allocation Charges Exceeds Other TOTAL Budget

2 13 100%

Enrollee

costs were limits

questioned

because

their

incomes

exceeded Americans

the allowable Act; costs

for eligibility

under

the Older

were

questioned

for insufficient intake Audits Security

documentation

because (4)

of incomplete

or missing Agency

forms.

State Employment OIG issued audit eight

Security

State Employment the period.

Agency

(SESA) items in

reports

during were

The questioned

samples

examined

$17.9 million.

- 30 -

Percent Audit Exception Improper Allocation of Administrative Charges Insufficient Documentation Dollars 46•

of Total Questioned i• _

•_•

' ,•37.,,_-.•• _•_,

":7._. I_'::i/"i

'

" i:

"

TOTAL'.

:"ii!."i".":".'

:" .:."/ 'i:'i

.:'_i ':-:i_:... .i=:i: . i00%,, .

..

" )_?!':i::'::'i:ii.:):?. :./-.." :.ii;.'

.

One

SESA audit report

questioned

$2;337,000

for contractual; obtaining either

,ii " ,:_ •i_• •

service

agreements •which were made without bids or the required Administration. existed

competitive ment

prior•approval The audit

of the Employ-

and Training

also disclosed Accounting

that material System,

weaknesses

in the SESA's

and ADP

transactions

from the SESA's Recommendations

Accounting for

System were corrective

not retained. action

were made

on each of these

findings.

Another problems checks; available

SESA report

disclosed

a wide controls

variety over

of management benefit was

such as inadequate lack of procedures and actively overpayments procedures

returned

to insure work;

that the claimant little

seeking

or no effort billing employers

to collect

from claimants; for judgments also

and inadequate issued against

and collection

for contributions. Security

The report

found

that since the state

the Social to match

Administration

no longer

allowed

- 31 -

benefit files, ment (5)

payments

to wages

reported

on the Social to detect

Security unemploy-

the SESA had inadequate overpayments Audits were

controls

compensation

and payments

to ineligibles.

Special Three

Impact/Internal internal audits

completed

during

the period,

two

of which -An Act

are summarized internal

below. Employees' Compensation was performed for the Employment roll

audit of Federal

(FECA) periodic

roll case management Secretary

at the request Standards

of the Assistant (ESA).

Administration

In the 220 periodic were found

case files we examined, cases. initial Deficiencies eligibility

deficiencies

in 174

in the adjudication and in the monitoring were the principal

of claimants' of claimants' problems. A crossmatch Agency

continuing

eligibility

of 180 selected wage

claimants

to State

Employment

Security that

and unemployment

insurance

records

disclosed and 12

17 claimants claimants

had employer-reported unemployment also

earnings

had received were

insurance Federal

benefits; employees'

all 29 claimants compensation

receiving

for total disability.

We recommended Office revise

that ESA direct Compensation

improved Program

compliance requirements

with and they

of Workers' certain

procedures.

We also

recommended automated

that case

increase

utilization

of their

existing

- 32 -

management and require periodic Corrective

file, develop periodic

a definition

of "total

disability",

crossmatches

of total wage

disability records. with some of

roll cases with action was

appropriate

taken

in accordance

our recommendations. -The office review of Inspector General has completed an internal in ETA.

of contract

and grant

close-out were

procedures

The Objectives -whether

of the audit procedures with used

to determine: close-outs and A-IIO; contracts or unreported are

for handling A-f02

consistent -the number

OMB Circulars

of completed

or terminated advances

and grants with costs; -and

outstanding

the amount liquidated

of interest or returned

cost

(advances

had not been

to Treasury).

In summary -a need

we found: to revise with close-out procedures in order to

fully comply -an excessive close-out -failure

OMB Circulars; of contracts and grants pending costs;

number

with

outstanding refund

advances checks

or unreported

to deposit

on a timely

basis.

- 33 -

In order

to improve

the close-out priority priority

process,

ETA has the adequate

established backlog, controls

a short-range

to eliminate to establish

and a long-range to prevent

similar

accumulations

in the future. to clarify training

In addition, the reporting for Federal technical contractor a tracking of audit

ETA has:

(1) issued

instructions

of close-out

activity,

(2) provided

Authorized

Representatives, to prime sponsors,

(3) provided (4) hired a

assistance

to expedite system

close-outs,

and (5) implemented and for the settlement

for close-outs

questions.

E.

Audit Resolution and Significant Semi-Annual Report the period covered in the first

Recommendations

Made

in the Last

Since

semi-annual

report

of the Inspector to emphasize shortcomings.

General the need Data

(10/1/78-3/31/79), for correcting

DOL management resolution

has continued and debt

audit

collection

systems

for tracking

audits,

accounts

receivables,

and debt

collection

are under

development.

Tables and

3 and 4 depict

resolution audits

activity

in the current

reporting

period,

the age of unresolved

as of September

30, 1979.

- 34 -

The number

of unresolved

pre-CETA

categorical

audits

has been

reduced

by 57% this fiscal did not decline. established activity problem.

year but the total number The Employment program and Training includes

of unresolved Administration monthly

reports has recently of resolution resolution

an active

which

assessments audit

and a time-table The program's

for eliminating

the Department's resolution OIG will

objective

is the timely costs.

of CETA state continue to

and local as well monitor

as pre-CETA

questioned

this effort.

- 35 -

-

36 -

-

37 -

CHAPTER A. At

3.

INVESTIGATIONS

ACTIVITIES

Objectives the outset,

and Responsibilities it should be emphasized that the following describes material

relating

to the OIG's during

investigative the reporting

program period.

the organization in detail changed. begun The at an

and activities elsewhere, results earlier (i)

As described has recently

the structure

of our organization described below

of investigations time under

reflect

activities

the prior organizational Employee Integrity

structure. and Workers' Compensation of fraud in and

Grant Fraud, Grant

fraud investigations in other

deal with DOL grant administered Act).

allegations programs,

the CETA program, in various

DOL contracts

other programs

by the Department Integrity area

(e.g., Trade Readjustment encompasses Compensation made Act allegations

The Employee

made

against cover

DOL employees. involving

Workers' payments

investigations under

fraud

to claimants (FECA),

the Federal

Employees'

Compensation other related

the Black Lung Benefits

Act and various

Acts.

The majority period General Federal

of OIG investigations from complaints (GAO),

conducted

in the reporting the other

resulted

received

from Congress, the media, These

Accounting agencies

Office

the public,

and internal

DOL sources.

complaints

- 38 -

are in the form of GAO hotline complaints, Reports, reporting letters, newspaper

summaries, articles

DOL hotline

and Incident and CPA firms for

a DOL form used by DOL employees instances of suspected

fraud or abuse.

In addition specific active

to conducting

investigations

in response

to a pro-

complaint,

the OIG is now beginning in selected high-risk which

to conduct program

investigations

areas.

The Fraud and Abuse Prevention pro-active in Chapter investigative work,

Survey,

is a form of in more detail

is discussed

5 of this report.

(2)

Organized

Crime of Labor's Organized Crime INvestigations the Department in of

The Department Program Justice

was established Strike

in coordination in order unions

with

Force Activity relating

to participate and labor

investigations by DOL,

to labor

laws administered designed

and to aid in the implementation organized crime activity

of programs

to control area.

in the labor-management of both the Justice

This effort and DOL.

is a high priority

Department

- 39 -

There

are 14 Justice cities with

Department

Strike

Force

Offices

located staff the

in major assigned guidance

OIG Organized

Crime

Investigative

to each.

All investigations Department

are conducted Force

under

of the Justice

Strike

Attorneys.

B.

Case Workload

and Investigative

Resources fraud, employee were being integrity, conducted Crime

As of September and workers'

30, 1979, OIG had 777 open grant cases. These

compensation

investigations

by 44 field agents. Program had 323 open

As of September cases,

30, 1979,

the OIG Organized

being handled

by 74 investigators.

TABLE SUMMARY April OF CASES

5 AND CLOSED 30, 1979

OPENED

i, 1979 - September Complaints

Case

Type Integrity

Closed 8 137 35 9 Crime 8 197

i/

Cases

Opened 117 272 67 4 157 617

Cases

Closed 25 148 85 1 23 282

Employee Grant

Fraud Compensation

Workers' Other Organized TOTAL

i/

A complaint is defined as the original notification of an allegation. Complaints which are unsubstantiated allegations or which should be referred to other DOL program agencies (e.__, safety violations referred to OSHA) are closed. Other complaints are given case numbers and investigated.

- 40 -

Cases Because

are of

frequently staff

not

investigated and have in the the sought same

in

the

order

they

are

opened. that must be

limitations

large

geographic

areas

covered, by working

the

investigators cases from

to maximize geographic

their or

effectiveness by working by related

several stem

area

cases

which of often Strike as

a single and

investigation. within diverted

Deadlines the to the U.S. such chief

imposed Attorneys priority

statutes Offices In the

limitations require Force to which

priorities to be is

resources Offices, case or it

cases.

ultimately are to be

attorney's and

decision which are

cases

actively

investigated

to be

closed.

C.

Significant (I) -Employee An OIG

Investigative Integrity investigation of Accounting

Findings

and

Action

Taken

revealed had

that a

five

DOL of

employees $13,000 Two others being all

in by of

the

Office

received

total

manipulating employees expected

computer-generated have pleaded guilty

payroll and of pleas the

checks. on funds two is

the

are made. five employees.

shortly.

Restitution has of been

Administrative -An has was OIG led

action

initiated of an

against illegal

investigation to the

a complaint of Office an ETA of

appointment investigation and

termination with the

manager.

The

coordinated

Personnel

Management

-

41-

the Department

of Justice.

Repayment

of the manager's is currently Office. being

salary

for the term of illegal negotiated by

appointment Accounting

the General

(2)

Grant (a) --

Fraud Comprehensive Employment and Training Act (CETA) of CETA funds by plea to 18,

An OIG investigation a director two counts USC, Sec.

into the misapplication has resulted

of a subgrantee of making false

in a guilty

statements prison

in violation sentence.

of Title

i001, and a four-year funds

Approximately

$84,000 -After

in CETA

were misused. on 26 counts of CETA guilty fraud, the director of

being

indicted

of a 1978 Youth Program embezzlement funds were six-month (b) --

has pleaded

to two counts $15,000

of CETA funds. misappropriated.

Approximately This individual years

of CETA a

has received

prison

sentence Security Service

and three

probation. Insurance (SESA/UI)

State Employment A joint OIG/Postal

Agency/Unemployment investigation Readjustment

into the alleged Act payments conviction by a

fraudulent SESA

issuance

of Trade

employee

has resulted property

in a 17 count fraud

of theft of

of government 18 months had issued

and mail

and a sentence

in prison fraudulent

and 5 years checks

probation.

The employee $79,750.

for approximately

- 42 -

--

A of

joint a

OIG/FBI

investigation Security

disclosed Agency

that reported

officials false

State

Employment figures which

placement additional, of dollars and

resulted funding

in DOL of

supplying of thousands of the

unjustified to two the agency.

hundreds

The former have false ETA it is

director been

agency for

other

individuals of

indicted and notified

conspiracy, of problem

submission false and

statements has taking been

possession of this

documents. has said

corrective

action.

(3) --

Workers'

Compensation by of the of on the

Programs OIG, and by other a total agencies of with the in actual were by

Investigation assistance overpayments due to fraud

OIG,

detected
J

$441,420

benefits the part

toldlaimants. of claimants, and

Such aided

overpayments in some cases

their

physicians, to sustain the

attorneys criminal obtained of

representatives. was not to to

While obtained terminate

sufficient in benefits.

evidence many -A of As

convictions enough the future

cases,

OIG

evidence cost

conservative an average of

estimate Federal 13

the

Government is $180,000. period, the administers overpayments.

Employee

Compensation conducted and

case during furnished (OWCP),

a result

investigations was

the to which in

sufficient Office the of

information Workers' to

developed

Compensation an

Programs

program,

prevent

estimated

$2,408,475

future

-

43 -

--

The results with

of a number

of OIG initial

investigations disclosed process

, together

comments

by prosecutors

and judges, claims

that a number subject

of forms used to serious tions have Joint --

in the compensation These forms

were

abuse.

were

analyzed

by OIG and recommendaneeded.

been made

to OWCP

regarding changes was

the changes

planning

for additional

is in process. initiated in OIG's Field

A series Program personnel

of Fraud Alert Fraud from

Seminars

Investigative several

Offices

to educate

investigative and procedures of our

Federal

agencies

in the systems program.

of the Federal limited branches FECA staff,

Employees'

Compensation

Because

OIG has needed agencies staff

to rely heavily

on the investigative of fraudulent

of employing

in the investigation limitations make

claims.

Continuing to solicit

it necessary

to continue -An example

such assistance. in this area was an investigation employees were of the U.S. Navy in private total

of our activity

into an allegation Base in Charleston, while

that ten former South Carolina,

working

industry

receiving

FECA payments

for temporary one pled

disability. nolo

Of the ten people (no contest)

investigated,

contendere

and another i001

pled guilty (false

to

violations They

of Title fined

18, USC, Sec. and placed

statement). Six had

were both

on probation.

- 44 -

their FECA benefits against $85,922 the other

terminated These

and no action investigations losses

was taken detected

two.

in overpayments. dollars were

Future

of approximately

one million --

prevented

by this project. that a man who had FECA to one

An OIG investigation applied benefits

in Missouri a local

revealed

for a job with for temporarY 18, USC,

police

force was receiving He pled guilty

totaldisability. Sec. 1920

count of Title Federal

(False Statement Misdemeanor).

to Obtain He was

Employees'

Compensation--a on probation.

fined and placed

(4) --

Orsanized

Crime influential officers of a large industry relating unsecured Teamster were local

The five most that dominates

the New Jersey violations in order

garbage

convicted

for racketeering

and crimes to obtain

to the abuse bank loans, fund.

of their positions and to influence The magnitude of certain loans.

the operation

of the union's

pension

of the fraud was demonstrated involved ranged

by the collapse of the suspect

of the banks sentences

upon default

Jail

from 6 months jointly

to 7 years. Federal

The investigation agencies.

was conducted

with other

- 45 -

--

A former level were

top-ranking

Teamster

official

and reputed and three

high-

syndicate convicted

member

in New Jersey,

of his associates,_ figure was for _his !•_• "_ i•

of racketeering. in prison;

The principal terms

•sentenced associates • conducted "sweetheart" to enforce in return --

to 20 years ranged jointly from with

of imprisonment

7_to 20 years. other Federal

This•/!nVest•igation,/•il/ii_{_i•i_i_iiii• agencies,disdloSed officers agreed not the • _• •

practice contract

in which union

provisions

favorable

to their •members,

for substantial of a Laborer's

bribes union

from employees. in New Haven, Connecticut, as accomplices

An official

and a high-ranking in the embezzlement investigation.

syndicate of union

figure were funds.

indicted

This,

too, was a joint

D.

Problems --

Identified

as a Result

of Investigative by the OIG

Activity

Recovery

of Overpayments

Detected

Since OIG investigations dramatic Many increase

of OWCP began,

there has been a detected. have

in the amount involve

of overpayments

of these

cases payments

individuals

who no longer

compensation contributions

due them and do not have retirement with the Civil Service Commission.

or deposits

In tbe past, overpayments

have been

collected

by voluntary

- 46 -

payments payments, retirement measures

from claimants, or assessed

deducted

from future

compensation Civil Service

against

the claimant's

contributions. should

OIG believes within OWCP

that a system of collection so that overpayments informed of for

be implemented recovered.

OWCP

of funds are properly OIG's recommendation,

has been developed

but has not fully

a program

the recovery -Problems

of these overpayments. Insurance Program act passed Security the

in the Unemployment abuse,

Due to alleged by Congress Agencies public,

an employee

protection

and administered

by State from

Employment the media,

has received and Congress.

criticism

A committee

appointed

by the Secretary

has recommended the Act. These

changes changes

in the procedures should solve

for administering

some of the problems.

- 47 -

- 48 -

CHAPTER A.

4.

ADP REVIEWS and Functions (ADP) reviews conducted by the OIG's ADP for computer of the types

Responsibilities

The automated Division facilities

data processing

constitute

the Department's

evaluation are brief

program

and systems. conducted:

The following

descriptions

of ADP reviews --

Application

Evaluation

- An evaluation (i) whether

of a computer

system is

from three perspectives: designed according

or not the system and meets

to management

direction

legal

requirements; and economical; controls -Security

(2) whether and

the system

is effective,

efficient operational

(3) whether

the system has proper

and is auditable° Evaluation - An evaluation primarily of the security the perspective files. of the complete of viability, operation of software of

and operating unauthorized -Operational

systems, access

from data

to critical

Evaluation

- An evaluation activity in terms

of a data processing and economy. -Centralization system Review

efficiency

- A review

to determine

the relative with existing of

life-cycle

cost of centralized, of ADP operations grant programs.

as compared

and other modes cost to federal

from the perspective

- 49 -

--

ADP Cost Determination costs are reasonable,

Review allowable

- A review

to ensure

that

incurred

and equitably

recovered.

B.

Workload

and Resources of data processing installations includes either totally Employment centralized computer utilized or partially Security state facilities;

The universe funded

by the Department (SESAs),

of Labor

52 State utilize

Agencies CETA

approximately

25 of which with

state

and local prime

sponsors SESAs;

DOL-funded

installations by the Department programs

operated of Labor. designed which

in conjunction There

with

and 4 facilities 50 application

are approximately user needs) interest

systems

(computer

to satisfy

operated

at the 4 Departmental they:

installations

are of particular

to OIG because high cost; process;

(i) are national

in scope; role

(2) are of significantly

(3) play a significant or (4) affect disbursement

in the management of resources.

decision-making

or control

Six positions and reviews.

in the ADP Division

were

allocated

to these

evaluations

C.

Significant

Findings to note

and Recommendations

Made on all of the ADP D for period,

We are pleased review

that progress made

has been made report

recomrendations

in the last

(See Appendix

a list of these recommendations). OIG has issued E). reports

During

the current

reporting

on 7 ADP reviews 3 identified

(These are listed problems

in Appendix or deficiencies

Of these reviews,

significant

and are summarized

below.

- 50 -

--

A centralization a transfer Security using

review

found

that thestate control

was proposing Employment the SESA, contained was beyond systems

of administrative

of the State away from

Agency

(SESA) computer

facility

information

system consolidation A-90. OIG found

provisions

in OMB Circular the

that such a transfer state

scope of A-90

inasmuch

as neither

information

nor computer would with

facilities

would

be consolidated; grantor

the net effect associated or

be an elimination the grant agreement benefits.

of prior without

approval

any offsetting

financial

operational

OIG concluded

that the state proposal.

plan did

not constitute -An operational computer system

a valid centralization review found

that the SESA had acquired grantor approval

a major

without

prior

and had extended initially

the life of a systems acquired conduct system. -without

architecture

that had been

competition.

OIG recommended to replace

that the SESA the existing computer

a competitive

procurement

An ADP cost determination $1.4 million users. resulting

review

found

an over-recovery

of

from charges that between

to the computer 30-40%

center came

OIG estimated

of that amount that

from the Federal be returned. Welfare

grantees

and recommended of Health,

such monies and

The Department

Education, recovery.

is in the process

of effecting

_

- 51-

CHAPTER During efforts

5.

FRAUD PREVENTION

AND DETECTION

ACTIVITIES OIG has increased its is

the six months in the area

of this reporting prevention activities

period,

of fraud

and detection.

The following

a description new initiatives

of some on-going which have been

in this area and some

implemented.

A.

On-going (i)

Activities Prevention Surveys report, (FAPS) FAPS is a preventive and correct occurs. form

Fraud and Abuse As described

in the previous which

of investigation conducive undertaken an auditor assigned existence systems

is used

to identify and abuse (including with

crime-

conditions

before

fraud teams

FAPS are

by three-person and an analyst

an investigator, which for the identify are

familar

the program) check

to survey

a DOL program management

or grantee, systems changes

of necessary

and controls, in procedures.

weaknesses

and recommend

Since

the implementation of CETA prime Nation,

of the FAPS program, in Mobile,

we have completed and the in underway

surveys Cherokee Glendale, a FAPS

sponsors

Alabama

Oklahoma

and of the Wage-Hour

Office have

California.

In addition,

we presently

of a CETA

subsponsor

in Milwaukee,

Wisconsin.

- 52-

(2)

OIG Manasement It is crucial system

Information to develop satisfy portion

System and implement OIG's a management information needs. in

which will tracking

information

and reporting is currently in

The audit program Fiscal

of the new system is planned

testing; Year 1980.

implementation

for later

The investigations and planning

portion stage.

of the system

is

currently (3) Trainin$

in the research

The Inspector investigators

General

has recognized additional involving

that OIG auditors training federal

and

must have

in the detection monies if OIG is April

of fraud and other to be successful

crimes

in accomplishing 25 auditors Seminar

its purposes. and investigators

Since

1979, approximately the White Enforcement Collar

have attended Law

Crime

offered

at the Federal Georgia.

Training

Center

at Glynco,

Given

the newness

of the Offices

of Inspector meet

General,

training skills

programs

do not yet exist which needs of these

all of the unique We will which staff

and training

offices. needs

be examining improve the deal

those training skills with

and development

will

and capabilities

of our entire initiatives

to effectively will _e training months. _

the kinds

of program

this Office

undertaking. development

Our goal is to have a comprehensive plan prepared within the next several

and

- 53 -

B.

New Activities (i) Review of the Summer Youth Employment General Program devoted significant resources

The Office to reviewing summer.

of the Inspector the Summer

Youth

Employment

Program

(SYEP) this

Our decision

to allocate

resources

to this purpose 20, 1979 GAO is Needed Program) to Improve on the problems and local

was attributable, report (entitled

in part, More

to the February Management Employment

Effective Youth

the Quality 1978 with

of the Summer found

SYEP, which

that there were efforts to assure

significant that state

the Department's were

governments

operating

quality

programs.

The OIG effort audit Using

to improve

the 1979 SYEP program The audit

involved

both

and investigative both

offices.

effort was extensive. the SYEP Prime to

CPAs and DOL auditors, Sponsors. reviewed. quality, work Eighty

the OIG reviewed at each

at 29 Prime Sponsors

worksites

of these

were

The objective paying

of the review was attention to assess

asse'ss worksite or not meaningful Prime Sponsors

particular provided;

to whether whether as

was being

and subsponsors appropriate

were

monitoring work

the program

required

and doing

follow-up and payroll

on the monitoring; to determine

and to test

time, attendance any ghost participants

procedures work

if there were interviewing

employees.

Onsite

included observation,

and supervisors,

visual

- 54 -

and scrutiny paycheck promptly

of time and attendance was reviewed

procedures.

In addition, ETA was uncovered could

distribution notified

by the auditors. problems action

of specific

programmatic corrective

by the auditors be taken.

so that immediate

This

review

of the 1979 program and involved The Prime

by the Office

of Audit

was

unprecedented resources. work Prime

a significant which rural, were

allocation chosen

of our

Sponsors

for the review of State result in

included

a mix of urban, The composite

and Balance

Sponsors.

of the review report

should

a balanced Employment been

and representative Program. While

on the 1979 Summer work for the audit fully

Youth has

the onsite

completed,

the results

have not yet been

evaluated.

The Office a major Program.

of Investigations with regard

was also directed to the 1979 Summer number

to prepare Youth

for

i

effort

Employment for

We expected

a significant

of referrals

investigation, special

in part because program

ETA had planned

an extensive This special Sponsors

monitoring

for this year's its efforts were

program.

monitoring where

group was to target

on those Prime to exist.

the majority

of the problems

expected

- 55 -

All of our Field that investigation

Investigations of Summer

Supervisors Employment

were

informed cases

Youth

Program

was to be a priority. uncertain, the number fewer

However,

for reasons

that are as yet for investigation we identified

of allegations

referred

has been many processing

than expected. within ETA which complaints

At one point, resulted

problems

in a delay The Inspector in ETA

in the reporting General

of ETA's

to the OIG.

has worked

directly

with management

officials

to resolve (2) Department

this problem. of Labor OIG Whistleblower OIG Hotline Hotline is a telephone, thrust mail-

The Department in, walk-in program employees

of Labor's

complaint

program.

The main

of the Hotline from waste or

is to elicit

investigative

and audit of criminal began

leads

who ma_ have knowledge The Hotline

conduct,

mismanagement. on July alleging complaints handled

officially

its operation 66 complaints

24, 1979, and has received fraud, mismanagement

approximately

and waste.

Some of these appropriately fraud

have been

programmatic offices,

and are more while others

by the program

involve

or other wrong-doing

and have

been

investigated

by OIG.

- 56 -

(3)

OIG Follow-up

on General

Accountin 8 Office

(GAO) Hotline through

Complaints

OIG is the conduit hotline concerning

for all complaints Department of Labor

received programs.

the GAO

Upon receiving whether

summaries

of the complaints should

from GAO, OIG determines within

the complaints DOL agency. summaries from GAO.

be handled

OIG or by the appropriate receiving complaint

From April

4, 1979, when

OIG began

to August Of those,

27, 1979, 71 were

OIG had received forwarded

118 summaries DOL agency handled

to the proper are being

for administrative within OIG.

handling.

The remaining

- 57 -

U. S. Department

of Labor

InspectorGeneral Washinq,onD.C.20210 APPENDIX A

._

,_D _I MEMORANDUM

"ii'!! FOR: All and Organized Crime OC Personnel

Page i of 7 Field Offices

FROM :

RONABD GOLDSTOCK Deput;, inspector Organized Crime

?. General Prograra Planning

SUBJECT:

This memo is the first step in what I expect will be the development and implementation of a comprehensive OIG program in the area of organized crime/labor racketeering control. It is the product of my thoughts and the insights of a number of OIG personnel who have spent a considerable amount of time thinking about what we ought to be doing. I start with the premise that control of organized crime (see attachment for definition of terms) will not be achieved by the standard practices used to control other types of crime. It is not sufficient for law enforcement agencies to investigate isolated crimes, solve them, and present them to a prosecutor for formal proceedings. The concepts of investigation, prosecution, and incarceration must be employed as part of pre-determined strategies, if they are to be effective in an organized crime context. This idea is hardly new. In 1929 his classic work, O__anized Crime John Landesco in Chica__0_: concluded in

"Crusades arouse public sentiment against some existing abuse or disorder, but they are so sweeping in character that they are usually only temporarily successful and a reaction sets in against them. One reason for the failure of crusades against crime and vice is that they seek to endorse some general policy of law enforcement. They are seldom or never based on a study of the problem. What is needed is a program that will deal with the crime problem J_n detail and consecutively, thfs;:is by analyzing the crime situation into its diff.erent elements, by taking up each crime situation sep,?[rate].y, and one by one.working out 3 constructive solution." And yet, fifty years later, the virtual].y every organized crime single greatest' d.eficiency control unit in the United "in

APPENDIX Page

A

(cont'd)

2 of 7

States, is the failure to develop comprehensive to address identifiable problems in the organized area. Without the formulation and execution of

strategies crime a coherent

strategy, impact on targeted criminal activity can only be haphazard. The incarceration of an underworld figure generally disrupts an individual enterprise, only until new leadership is established. The disruption is, thus, often only minimal, and the effect on the general problem negligible. To be effective, a general strategy, designed to effect more than individuals or individual enterprises, must necessarily take into account the long-range implications of daily operational tactics. Ultimate success, if it can be achieved at all, will be the result of years of eroding the foundations of the targeted criminal activity, rather than a number of spectacular investigations ending primarily in headlines for public consumption. That is not to say that individual cases are not important. They obviously are, but given limited staffing and financial resources, we can no longer afford the luxury of conducting investigations which do not have a significant and lasting impact on organized crime activity. A nun_er of OIG investigators have indicated that there are occasions whe_L _e might well consider undertaking investigations that would not tend to advance a specific strategy. For example, offices might decide to make cases that are likely to receive substantJal publicity to demonstrate their effectiveness and to provide a basis for public and professional support. Certain matters, too, may have an important symbolic value, and they should be considered for that purpose. Indeed, one strategy to be employed might well be symbolic impact, particularly where current and likely resources preclude any realistic hope of having a real impact. Still another reason for undertaking a specific investigation, might be to cooperate with an agency to provide a basis for future mutual aid. I concur with these specific targets of opportunity. However, I feel that the bulk of our resources should be devoted to participation in pre-determined strategies which have a long-lasting and significant impact. To put these concepts into practice, I would like each field office to prepare a mission statement and strategy papers so that we can agree upon a set of realistic and concrete goals keyed to a specific timetable. These planning documents will also provide some objective standards by which we can measure our overall program effectiveness in the organized crime area.

APPENDIX Page Each office -should prepare one mission statement to

A (cont'd)

3 of 7 include:

A description of the geographic covered by the office.

jurisdiction

--

An assessment of the organized crime problem in the area including (I) a thoughtful analysis of the current and projected organized crime activity in the area, the relative strength of such activity in particular unions, industries or locations, the importance of certain individuals in maintaining or expanding organized crime influence, etc., and (2) an assessment of where OIG investigative activity can have the greatest and most lasting impact. In addition to areas in which corruption is known to exist, consideration should be given to unions or industries which orqanized crime syndicates may be attempting to infiltrate. A statement of mission in which realistic program goals are specifically stated. A goal is not an investigation, or a series of investigations; it is what is meant to be accomplished through the investigative work. These goals should be sufficiently specific and targeted so that implementation strategies can be devised and so that progress toward achieving these goals can be meaningfully tracked. For example, "elimination of labor racketeering in jurisidiction x" would be too vague. The greater the specificity of a goal, in terms of union, industry, location, etc., and of desired end results, the better.

--

Secondly, each office should prepare strategy papers for each goal identified in the mission statement. These papers should include the following information: -A discussion of alternative strategies to achieve the goals. The discussion must take into account the impact that each alternative will have on the targeted activities, syndicates, areas, etc. For example, will incarceration of an individual or group of individuals cleanse the union? Can an investigation focus on bribe-givers who corrupt large numbers of union officials? Is it possible to conduct investigations solely for the purpose of developing informants whose information would prove valuable in succeeding cases? Would public disclosure of corrupt activities foster overt dissent by honest union members?

APPENDIX A (cont'd) Page 4 of 7 -A consideration of available remedies and investi-

gative techniques. Investigation, prosecution, and incarceration are clearly the most important remedies available to law enforcement agencies. However, you should consider civil approaches as well in the development of these strategy papers. Also, this discussion of alternative strategies should include estimates of the probable reactions of the various components of the criminal justice system. For example, can we, given the specific circumstances, expect substantial sentences upon conviction? Consider, also, the investigative tools available, including the use of electronic surveillenceo -A recommended strategy and action plan covering staff resources to be utilized, projected timetable, and evaluation plan, i.e. how we will know when the program goal has been achieved. that the structure of individual field offices be

In

order

compatible with the assumption of innovative and sophisticated cases, and implementation of strategies, investigators should be assigned to teams or modules. Each module should consist of four persons headed by a senior investigator with supervisory authority over the members of the team. This would result in close supervision and guidance while giving the supervisor adequate staff to conduct the investigative work. To the extent possible, each should be composed of investigators with diverse investigative experience and should include, where feasible, an investigative accountant. In recommending an organization, the supervising agent should list the qualifications of each of the individuals and his/her area of expertise. Certain members of OIG have expressed the need for and the desirability of using the case agent method rather than the "team approach." It is my view that the establishment of these modules is not necessarily inconsistent with the use of case agents. The team supervisor can assign individual responsibility, for certain aspects of the project, to an investigator who will then become the case agent. Of course, in large investigations, it makes sense for the team supervisor to be the case agent. The agent in charge of the office must exercise supervision of each of the established modules. In addition, he/she should have direct supervision over one or two agents who can handle more limited investigations on an ad hoc basis. For the purposes stable personnel cannot undertake of the strategy papers, you resources. However, if you priority projects highlighted should assume fee] that you in your analysis,

APPENDIX A (con t'd) Page 5 of 7 please indicate resources would in be the strategy required. papers what additional

I want each supervising agent to be personally responsible for the development of these materials. However, I hope that you will consult with others in OIG and knowledgeable persons throughout the law enforcement community in planning these projects. Consultation with the Attorney-in-Charge of the Strike Force is obviously a necessity. Since the projects resulting from this planning effort will be the major focus of our program, you might consider holding an all-day brainstorming session with your agents and others to begin thinking about and developing a mission statement and strategy papers. Further, I want to emphasize that the documents resulting from this planning effort will not be set in concrete. It is clear that almost every investigation will add to the office's understanding of the structure and operations of the underworld and the labor scene within the office's jurisdiction. Indeed, as investigators add to their experience, they will add new skills, learn new methods, develop new insights, and attract knowledgeable sources of information. As a result, these papers will be periodically reviewed and if needed, revised. So that we can reach consensus soon on mission statements and

strategy papers, I am requesting that draft materials be sent to me two to three weeks after receipt of this memo. Your materials will then be reviewed in the National Office. Hopefully, by the end of October, we will have an established organized crime program. I recognize that the establishment of missions papers and the utilization of pre-determined strategies have not been traditional approaches in law enforcement. Indeed, even among those who agree that the use of a mission statement and strategy papers is ultimately a good idea, there is concern that the shortage of personnel, high caseloads, and press of operational duties make the development of these materials an unaffordable luxury. I find it difficult to concur with that position. If done properly, the use of such devices will inevitably conserve resources and manpower by focusing investigations, producing more rational selection of cases, and avoiding wasted and unnecessary investigativetime. Thus, while the drafting and establishment of mission papers and strategies are difficult, time consuming, and require, what Judge Learned Hand termed "the intolerable labor of thought," we literally can no longer afford to do without them. My goal is that we, in OIG-DOL, be, and be perceived, as the best agency in the organized crime control community. I believe the first step in achieving that position be the establishment of the mission papers and strategies, and that the second step be their implementation. give these matters priority attention. It is essential that you

APPENDIX A (cont'd) Page 6 of 7

Bob Nicholson, Stu Eder and I are available at any time to discuss or expand upon this memo. If you have comments about the memo or the efficacy of the mission s_tatetuent arid/or strategies, please don't hesitate to let _e know about thera. I am planning on receiving a draft then work out a date for discussing a consensus on the organized crime Attachment by October 19th. We can the proposals and reaching program.

APPENDIX A (cont'd) Page 7 of 7 A_j_pendix -Definition of Terms

The term "organized crime" is meanings. At the very least, an "enterprise," "syndicate,"

obviously subject it can be thought or "venture."

to of

many as being

"Enterprise" - an ; organized crime "enterprise" is a criminal • group that provldes illicit goods or services on a regular basis. An exemp]e would be a narcotics wholesaler and the cutting crew. Thus, it is a criminal firm or business organization.

"Syndicate" - an organized crime "syndicate" is a group that regulates relations between various "enterprises." It may be metropolitan, regional, national, or international in scope. It maybe concerned with only one field of endeavor, or it may be concerned with a broad range of illicit activities. A "syndicate", therefore, is a criminal cartel or business organization. It fixes prices for illicit goods and services, allocates black markets and territories, acts as a criminal legislature and court, sets criminal policy, settles disputes, levies "taxes", and offers protection from both rival groups and legalprosecution.

"Venture" - a "venture" is a criminal episode usually engaged in for profit by a group. It may be the hijacking of a truck or the robbery of a bank. It is "organized crime" when members of the "venture" have access to superior criminal resources, including capital, skilled labor, outlets for stolen property, etc.

For purposes of this memo, I emphasize syndicate crime because it _s my belief that the greater threat to society from organized, as opposed to random, crime _:esults from syndication. Simply state, syndicates provide their members with the ability to capitalize on oppo_._tunities, as a result of their connections with diverse individuals and activities, as well as providing them access to capital, corruption, and the use of force. The more sophisticated the structure and membership of the syndicate, ti_e more difficult it is for law enforcement to disrupt the criminal members and their activities.

APPENDIX • :. Page i of

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Page

1 of 2

APPENDIX Action on Recommendations October

D in ADP Reviews

Contained

i, 1978 - March

31, 1979

During

the October

I, 1978-March

31, 1979 reporting four identified

period,

OIG issued problems

seven ADP reviews. or deficiencies -During

Of these reviews,

significant

and are summarized

below: of Minnesota's proposal to consolidate Information

the centralization operations, had amassed

review

computer Division resulting

it was found over

that the Minnesota in retained center

State

$4.3 million

earnings OIG estimated grantees of

from charges

to the computer

users.

that between

25-30 percent

of that amount

came from Federal The Department

and recommended Health,

that such monies and Welfare

be returned.

Education,

is in the process

of effecting

recovery.

--

An application management deficient, Among

survey of the Black and definitions equipment

Lung ADP system were lacking,

found

that was

controls

planning

and existing

and software

were

not adequate. technical in place

other things, be assigned

it was recommended to the project,

that a senior

manager

and that the equipment Administration

be upgraded. the process

The Employment of implementing

Standards these

(ESA) is in

recommendations.

APPENDIX D (CONT'D) Page 2 of 2

--

An application

survey

of the Federal that

Employees' had been

Compensation reduced

Act

(FECA) ADP system capabilities. effectively program,

found

the system

from planned had not

The review controlled

also disclosed

ESA management

and directed

the ADP operations the total

of the FECA

and had notadequately

addressed

cost of its management and before

FECA ADP operations. require future an impact operational

OIG recommended balancing

that Departmental capital, development

analysis costs

against funding

current

operational

costs

approving

any additional

or FECA ADP system

development.

--

The OIG's ADP security and Training system (CDET)

review

of the Colorado

Division

of Employment

found

that the Unemployment

Insurance or

was vulnerable

to embezzlement

and to data destruction were unauditable. the specific subsystems risks

loss, and that OIG recommended that were CDET many

the wage various

and tax subsystems methods to minimize

identified,

and that unauditable or is in the process recommendations.

be documented.

has implemented, of the specific

of implementing,

Page APPENDIX E Reports September

1 of l

List of ADP Review Issued April i, 1979 through

30, 1979

Name of Review i. 2.

Entity of Job Service of

Type of Review ADP Operational Evaluation Report

Iowa Department West Virginia HumanResources Oregon

Department

ADP Cost Determination

Report

3.

Department

of Human

Resources

ADP Cost Determination Centralization Report ADP Cost Determination Centralization Report

and

4.

Maine

Department

of Finance

and

and

Administration 5. Alaska Department of Administration

ADP Cost Determination Report ADP Centralization Report ADP Centralization Report

and

6.

Wisconsin Department of Industry, Labor and Human Resources Optimum Systems, Inc.

7.

ADP Service Contract Management Letter

Review

-