Internal Controls:

Oversight of Longshore Special Fund Needs Improvement

AIMD-00-15: Published: Oct 29, 1999. Publicly Released: Oct 29, 1999.

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Pursuant to a congressional request, GAO reviewed issues concerning financial reporting and internal controls related to the Special Fund established by the Longshore and Harbor Workers' Compensation Act (LHWCA), focusing on: (1) the feasibility of actuarially calculating the unfunded liability of the LHWCA Special Fund; (2) whether controls exist to prevent inappropriate claims from being referred to the Special Fund; (3) whether recipient data are matched against other agencies' databases to reduce the risk of payments being made to ineligible recipients; (4) whether there are equitable distributions of assessments among the insurance carriers/self-insured employers as compared to their claim levels; and (5) the status of changes to the Longshore computer systems.

GAO noted that: (1) although an estimate of $2.5 billion has been characterized as the potential unfunded liability of the LHWCA Special Fund, this is not a sound actuarial estimate; (2) the Department of Labor (DOL) official who developed this estimate said that he prepared it for discussion purposes; (3) the estimate did not take into consideration expected future revenue from annual assessments, which, according to the official, would eliminate this estimated unfunded liability; (4) while it is theoretically feasible to actuarially calculate the unfunded liability of the Special Fund, the time and expense involved in performing such a calculation may not be warranted, given that: (a) there is no provision under LHWCA for financing the Special Fund with appropriated funds; (b) under LHWCA, neither the United States nor the Secretary of Labor is liable for compensation payments in the amount greater than the money deposited in or belonging to the Special Fund; and (c) participating employers and insurance carriers are now required to disclose their future liabilities related to this fund in the notes to their financial statements, acknowledging that they are responsible for any future liability of this fund; (4) internal controls have been established by DOL to prevent inappropriate cases from being referred to the Special Fund; (5) DOL management had not matched its recipient data in the Special Fund database against data in other agencies' databases; (6) however, DOL's Office of the Inspector General (OIG) officials told GAO that as part of the Special Fund's fiscal year 1999 financial statement audit, the OIG, in cooperation with the Social Security Administration (SSA), would be performing a match of the recipient data in the Special Fund database with SSA's death index to determine whether benefit payments were made to deceased individuals; (7) DOL is susceptible to the risk that the distribution of assessments among participating self-insured employers and insurance carriers will not be proportional to their claim levels as intended by LHWCA; (8) the data used as the basis for computing the annual assessment are self-reported by the self-insured employers and insurance carriers, which increases the risk of inaccurate claim information; and (9) with respect to the Longshore computer systems, DOL officials told GAO that changes to enhance accountability and functionality were planned or had recently been completed.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To reduce the risk of Special Fund payments being made to deceased or otherwise ineligible recipients, the Secretary of Labor should direct the Assistant Secretary for Employment Standards Administration to implement a regular program of matching recipient data from the Special Fund to the SSA's death index. The match should be done monthly, in conjunction with the match of the Black Lung and the Federal Employees Compensation Act recipient data match with the SSA's death index.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: SSA Death Index matches are now done monthly.

    Recommendation: To reduce the risk of Special Fund payments being made to deceased or otherwise ineligible recipients, the Secretary of Labor should direct the Assistant Secretary for Employment Standards Administration to develop and implement procedures to adequately monitor the continuing eligiblity of the orphaned cases. The monitoring techniques employed should be similar to those used by self-insured employers and insurance carriers.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: DOL hired an auditor in August 2000. The auditor's duties include auditing the entitlement of the "orphaned" cases. The auditor is verifying the entitlement of all (500)orphaned beneficiaries on a cycle basis, beginning with the oldest claimants.

    Recommendation: To help achieve the intended prorated distribution of assessments among the self-insured employers and insurance carriers, the Secretary of Labor should direct the Assistant Secretary for Employment Standards Administration to develop and implement a more comprehensive plan to expand the DOL's auditing of the LHWCA payment data submitted by self-insured employers and insurance carriers.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: DOL continues to audit selected carries/self-insurers through their contract audit firm and have put carriers and self-insurers on notice that accurate reporting is a condition of continuing authorization. An experienced senior claims examiner has been assigned to improve the audit process by working with the contract audit firm. In addition, she is working on improving the accuracy of the existing Longshore Case Management System database in order to improve the results of matching the industry Report of Payments with the Program's database of cases. Further, she is more stringently enforcing the existing requirement that employers and carriers support their Reports of Payments with a detailed list of cases. This requirement was reemphasized in a formal Notice issued in January 2001. These efforts improve the reporting, matching, and database accuracy.

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