02-A12-345-67-890 Office of Inspector General—Office of Audit 

OFFICE OF WORKERS' 

COMPENSATION PROGRAMS 

OWCP NEEDS TO IMPROVE ITS MONITORING 

AND MANAGING OF DEFENSE BASE ACT 

CLAIMS 

Date Issued: March 23, 2011 

Report Number: 03-11-001-04-430 
U.S. Department of Labor 

Office of Inspector General 

Office of Audit 

BRIEFLY... 

Highlights of Report Number 03-11-001-04-430, to the 

Acting Director of the Office of Workers’ Compensation 

Programs. 

WHY READ THE REPORT 

The Office of Inspector General (OIG) initiated an audit of the 

Defense Base Act of 1941, (DBA), Title 42, United States 

Code, Section 1651 et seq., which requires all federal 

government contractors (employers) and subcontractors to 

provide workers’ compensation insurance for their employees 

(U.S. citizens and foreign nationals) who work outside of the 

United States. DBA insurance is provided by private insurers 

or through self insurance, and is intended to be a counterpart 

to domestic workers’ compensation coverage. As such, it is 

the sole recourse for U.S. and foreign workers who suffer 

on-the-job injuries or death while engaged in work in foreign 

locations under a federal government contract. DBA is 

administered by the Department’s Office of Workers' 

Compensation Programs (OWCP), Division of Longshore and 

Harbor Workers' Compensation (DLHWC), which is 

responsible for ensuring that workers' compensation benefits 

are provided for covered employees promptly and correctly. 

Benefit payments reported by insurers in Calendar Year 2009 

totaled $242 million. 

WHY OIG CONDUCTED THE AUDIT 

The audit objective was to answer the following question: 

To what extent does OWCP ensure that employers and 

insurers are adhering to DBA claims-processing 

requirements? 

The audit covered OWCP’s oversight of the DBA claims 

process as of May 2010, excluding OWCP’s involvement in 

resolving disputes and contested cases. We reviewed a 

random statistical sample of 172 of 11,247 open cases where 

the claimant’s date of injury occurred between January 1, 

2004, and December 31, 2009. 

READ THE FULL REPORT 

To view the report, including the scope, methodology, 

and full agency response, go to: 

http://www.oig.dol.gov/public/reports/oa/2011/03-11-

001-04-430.pdf. 

March 2011 

OWCP NEEDS TO IMPROVE ITS MONITORING 

AND MANAGING OF DEFENSE BASE ACT 

CLAIMS 

WHAT OIG FOUND 

Although OWCP has been proactive in addressing DBA 

issues at the program level as well as active in resolving 

disputes, we found improvements need to be made in 

case-file management. Our testing results for the sampled 

DBA cases disclosed (1) employers did not always report 

claimant injuries in a timely manner; (2) insurers did not 

always provide timely initial compensation payments and 

OWCP did not ensure claimants received the statutory 

assessment for late payments; (3) insurers did not always 

report the notice of final payment or suspension of payment in 

a timely manner; (4) OWCP did not always notify claimants 

within the required timeframe when their claims were 

controverted (objected by the employer); (5) employers or 

insurers did not always respond in a timely manner to OWCP 

requests for information; and (6) OWCP assessed penalties in 

less than one percent of the instances in our sampled cases 

in which employers and insurers did not meet DBA reporting 

requirements. 

These conditions can be attributed to the challenges OWCP 

faced in administering DBA, a program that was enacted 

during World War II but has not been modified or adequately 

staffed to take into consideration the increased use of 

contractors and foreign nationals in the recent wars. However, 

we concluded that OWCP can improve its monitoring of DBA 

case management so that problems are identified and 

appropriate corrective action promptly taken. As a result, 

OWCP could not ensure workers injured while employed in 

dangerous war zones and supporting the U.S. military 

overseas efforts, received proper and timely workers’ 

compensation benefits under DBA. 

WHAT OIG RECOMMENDED 

OIG recommended OWCP seek changes to the DBA 

legislation to reflect the current environment and implement 

changes to its case management information system to assist 

management and claims examiners in identifying the 

problems identified in this audit. 

The OWCP Acting Director generally agreed with the 

recommendations to enhance the DBA data system and 

revise the DBA statute. While OWCP agreed that it did not 

always comply with existing regulations to enforce compliance 

with DBA requirements by using fines and penalties, OWCP 

believed that doing so would likely be counterproductive to the 

needs of the injured workers, the contractors, the insurance 

companies, and OWCP. 
 


 


 


 


 


 


 


 


 


 


 


 


 


 

U.S. Department of Labor – Office of Inspector General 

Table of Contents 

Assistant Inspector General’s Report ......................................................................... 1
 

Results in Brief.............................................................................................................. 2
 

Objective — To what extent does OWCP ensure that employers and insurers are 

adhering to DBA claims-processing requirements? ............................ 4
 

OWCP needs to improve internal controls in monitoring and managing 

DBA cases because untimely payment of compensation may pose 

economic hardship to injured workers............................................................. 4
 

Finding — OWCP ensured to a limited extent that workers' DBA benefits 

were protected.................................................................................... 5
 

Recommendations ...................................................................................................... 17
 

Exhibits 

Exhibit 1 Statistical Results and Projections for Reports, Payments, and 

Penalties ....................................................................................................... 21
 

Exhibit 2 Statistical Results and Projections for Days Late................................. 23
 

Appendices 

Appendix A Background ..................................................................................... 27
 

Appendix B Objective, Scope, Methodology, and Criteria .................................. 29
 

Appendix C Acronyms and Abbreviations .......................................................... 33
 

Appendix D OWCP Response to Draft Report ................................................... 35
 

Appendix E Acknowledgements ......................................................................... 37
 

Defense Base Act Claims 

Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

 PAGE INTENTIONALLY LEFT BLANK 

Defense Base Act Claims 

Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

U.S. Department of Labor Office of Inspector General 

Washington, D.C. 20210 

March 23, 2011 

Assistant Inspector General’s Report 

Gary Steinberg 

Acting Director 

Office of Workers’ Compensation Programs 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, D.C. 20210 

The Defense Base Act of 1941, (DBA), Title 42, United States Code (U.S.C.), Section 

1651 et seq., requires all federal government contractors (employers) and 

subcontractors to provide workers’ compensation insurance for their employees (U.S. 

citizens and foreign nationals) who work outside of the United States. Under the DBA 

provisions, overseas federal military and public works contractors are subject to the 

same workers’ compensation rules, insurance requirements, and benefit schedules as 

maritime firms covered by the Longshore and Harbor Workers’ Compensation Act 

(Longshore Act). It is intended to be a counterpart to domestic workers’ compensation 

coverage, and as such, is the sole recourse for U.S. and foreign workers who suffer 

on-the-job injuries or death while engaged in work in foreign locations under 

government prime contracts and subcontracts. DBA insurance is provided by private 

insurers or through self-insurance. The DBA is administered by the U.S. Department of 

Labor (DOL), Office of Workers' Compensation Programs (OWCP), Division of 

Longshore and Harbor Workers' Compensation (DLHWC). DLHWC is responsible for 

ensuring that workers' compensation benefits are provided for covered employees 

promptly and correctly. 

DOL reported a rapid increase in the number of DBA cases and benefits paid in 

connection with the wars in Afghanistan and Iraq. New DBA cases opened annually 

increased from 347 in Fiscal Year (FY) 2002 to 12,255 in FY 2009. Benefit payments 

reported by insurers increased from $7.6 million in Calendar Year (CY) 2002 to $242 

million during CY 2009, which is the most recent data available. It is important that 

these injured workers, many of them U.S. citizens, employed in dangerous war zones, 

receive proper and timely workers’ compensation benefits. 

The audit objective was to answer the following question: 

To what extent does OWCP ensure that employers and insurers are adhering to 

DBA claims-processing requirements? 

Defense Base Act Claims 

1 Report No. 03-11-001-04-430 
 

	 

U.S. Department of Labor – Office of Inspector General 

The audit covered OWCP’s oversight of the DBA claims process as of May 2010, but 

did not include OWCP’s involvement in resolving disputes and contested cases. We 

reviewed a random statistical sample of 172 of 11,247 open cases where the claimant’s 

date of injury occurred between January 1, 2004, and December 31, 2009. We 

analyzed whether OWCP monitored the claims to ensure employers and insurers 

complied with reporting and benefit payment requirements and assessed penalties for 

identified instances of non-compliance. 

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objective. We believe that the evidence 

obtained provides a reasonable basis for our finding and conclusions based on our audit 

objective. Our objective, scope, methodology, and criteria are detailed in Appendix B. 

RESULTS IN BRIEF 

We found that OWCP took action at the program level to address challenges associated 

with DBA but can make improvements in case-file management to ensure workers’ 

benefits under the DBA were protected. In administering DBA, OWCP faced challenges 

with managing the rapid increase in DBA cases due to the wars in Iraq and Afghanistan 

but without an increase in staff resources. OWCP provided educational seminars on 

DBA requirements to insurers, contractors, contracting agencies, and attorneys; and 

posted forms and instructions, including ones in Arabic, on its website to make 

information available about DBA and its benefits to workers around the world. OWCP 

also worked with the insurance industry leadership to address major claim-processing 

issues, and it developed new Government Performance and Results Act (GPRA) goals 

in FY 2010 to measure the timeliness of reporting injuries and making the first benefit 

payments. 

Although OWCP has been pro-active in addressing DBA issues at the program level as 

well as active in resolving disputes, we found improvements need to be made in 

case-file management. We found that 86 percent of the cases we reviewed did not meet 

one or more of the criteria used for ensuring that workers received DBA protection 

related to injury reporting, compensation payments, notification of controverted claims, 

and responses to OWCP information requests. Our testing results for the sampled DBA 

cases disclosed the following: 

•	 Employers did not always report claimant injuries in a timely manner. Based on 

our statistical sample, we are 95 percent confident that at least 61 percent, and 

no more than 74 percent, of the 11,247 cases in our universe showed the 

employer did not report claimant injuries within the required 10 days of the date 

of employer knowledge of the incident. We determined that 38 percent of the 

employers in our sample were more than 60 days late in reporting claimant 

injuries to OWCP. 

Defense Base Act Claims 

2 Report No. 03-11-001-04-430 
 

	 

	 

U.S. Department of Labor – Office of Inspector General 

• Insurers did not always provide timely initial compensation payments, and OWCP 

did not ensure claimants received the statutory 10 percent assessment for late 

payments. Based on our statistical sample, we are 95 percent confident that at 

least 15 percent, and no more than 27 percent, of the cases in our universe of 

11,247 cases showed that the first compensation payment was not paid within 

the required time frame. We determined that 44 percent of these payments in our 

sample were more than 60 days late. 

•	 Insurers did not always report the notice of final payment or suspension of 

payment in a timely manner; OWCP did not always notify claimants within the 

required timeframe when their claims were controverted (objected by the 

employer); and employers or insurers did not always respond in a timely manner 

to OWCP requests for information. Finally, DLHWC assessed penalties in less 

than one percent of the instances in our sampled cases in which employers and 

insurers were late in meeting reporting requirements and DLHWC information 

requests. 

These conditions can be attributed to the challenges OWCP faced in administering 

DBA, a program that was enacted during World War II but has not been modified or 

adequately staffed to take into consideration the current use of contractors and foreign 

nationals in the wars in Iraq and Afghanistan, and the rapid increase in DBA cases that 

have resulted from these wars. OWCP can improve its monitoring of DBA case 

management so that problems are identified and appropriate corrective action promptly 

taken. In the area of penalty assessments, we found a need for centralized guidance 

regarding when penalties should be assessed to assist with program compliance. As a 

result, OWCP cannot ensure that workers — many of them U.S. citizens — injured 

while employed in dangerous war zones and supporting the U.S. military overseas 

efforts, receive proper and timely workers’ compensation benefits under DBA. 

We recommended the Acting Director of OWCP seek changes to the DBA legislation to 

reflect the current environment and develop reports from its case management 

information system to assist management and claims examiners in identifying the 

problems identified in this audit. We also recommended that OWCP require insurers to 

report initial compensation payment within an established timeframe so that claims 

examiners can ensure it was paid timely and if not, ensure that the claimant received 

the proper late payment assessment. Finally, we recommended that OWCP establish a 

strategy that will provide the uniform use of penalty assessment at the DLHWC District 

Office level and improve employers’ and insurers’ compliance with DBA claimsprocessing requirements. 

OWCP RESPONSE 

In response to our draft report, the Acting Director of OWCP stated that the claims 

processing requirements cited in the report were enacted during World War II. He 

Defense Base Act Claims 

3 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

indicated that processing DBA claims in the current situation is completely different; 

noting that claims from American workers are complicated by various circumstances 

that did not exist previously, and information for foreign contract workers is simply not 

available to allow insurers to file reports or pay benefits within World War II era statutory 

requirements. 

The OWCP Acting Director agreed that OWCP did not always comply with existing 

regulations to enforce compliance with DBA requirements. However, OWCP believed 

that doing so would likely be counterproductive to the needs of injured workers, the 

contractors, the insurance companies, and OWCP. 

The OWCP Acting Director’s response is included in its entirety as Appendix D. 

OIG CONCLUSION 

Our report acknowledges that OWCP is operating DBA under an outdated statute that 

does not recognize the many changes that have occurred since its passage. 

Accordingly, we have included a recommendation that OWCP seek legislative changes 

to the DBA. 

We also do not dispute OWCP’s claim that enforcing compliance with existing DBA 

requirements may be counterproductive. However, regardless of the standard for 

timeliness that is used, OWCP needs to have controls in place to flag reports and 

payments that are not timely, and agency management needs to monitor the status of 

DBA claims and follow up on those judged to be untimely. 

RESULTS AND FINDINGS 

Objective — To what extent does OWCP ensure that employers and insurers are 

adhering to DBA claims-processing requirements? 

OWCP needs to improve internal controls in monitoring and managing DBA 

cases because untimely payment of compensation may pose economic hardship 

to injured workers. 

We found that OWCP has taken action at the program level to address challenges 

associated with DBA but can make improvements in case-file management to ensure 

workers’ benefits under DBA are protected. In administering DBA, OWCP faced 

challenges with managing the rapid increase in DBA cases due to the wars in Iraq and 

Afghanistan, but without an increase in staff resources. OWCP dealt with employers, 

insurers, and workers in war zones; communicated with war zone claimants in ways that 

would not cause them to be targeted and harmed by insurgents; and handled complex 

claims issues such as Post Traumatic Stress Disorder (PTSD) cases, which are 

complicated by the need for specialized evaluations, reports, and treatments all based 

Defense Base Act Claims 

4 Report No. 03-11-001-04-430 
 

 

 

	 

	 

	 

	 


 

	 

	 

	 

U.S. Department of Labor – Office of Inspector General 

on symptoms that can arise years after a traumatic experience. To address these and 

other issues, OWCP provided educational seminars on DBA requirements to insurers, 

contractors, contracting agencies, and attorneys on DBA requirements; posted forms 

and instructions, including ones in Arabic, on its website to educate workers around the 

world about DBA and its benefits; worked with the insurance industry leadership to 

address major claim process issues such as PTSD claims; developed new GPRA goals 

in FY 2010 to measure the timeliness of injury reports and first payment of benefits; and 

created a website to post “industry report cards” showing the results of these 

measurements. We also observed that DLHWC staff at its District Offices spent their 

efforts to address claimant complaints and informally and formally resolve disputes 

between claimants, employers, and insurers. 

Although OWCP has been proactive in addressing DBA issues at the program level and 

active in resolving disputes, we found improvements need to be made in case-file 

management to ensure workers’ benefits under DBA are protected. 

Finding — OWCP ensured to a limited extent that workers' DBA benefits were 

protected. 

OWCP ensured to a limited extent that workers’ benefits under DBA were protected. In 

our sample of 172 cases, we found that 86 percent (148 cases), did not meet one or 

more of the critical criteria used for ensuring that workers receive this protection. Our 

testing results for the sampled DBA cases disclosed the following: 

•	 Employers did not always report claimant injuries in a timely manner. 

•	 Insurers did not always provide timely initial compensation payments, and OWCP 

did not ensure claimants received the statutory 10 percent assessment for late 

payments. 

•	 OWCP did not always have documentation of initial compensation payments. 

•	 Insurers did not always report the notice of final payment or suspension of 

payment in a timely manner.
 

•	 OWCP did not always notify claimants within 10 days that their cases were 

controverted (objected by their employer or the insurer). 

•	 Employers or insurers did not always respond in a timely manner to OWCP for 

requests for information. 

•	 DLHWC assessed penalties in less than one percent of the instances in our 

sample, in which employers and insurers were late in meeting reporting 

requirements and DLHWC information requests. 

Defense Base Act Claims 

5 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

Although these conditions can be attributed in part to the challenges OWCP faced in 

administering DBA — a program that was enacted during World War II but has not been 

modified or adequately staffed to take into consideration the current use of contractors 

and foreign nationals in the wars in Iraq and Afghanistan, and the rapid increase in DBA 

cases that have resulted from these wars — they can also be attributed to weaknesses 

in OWCP’s ongoing monitoring of DBA case management. OWCP’s monitoring process 

did not systemically identify problems at the case-file level so that appropriate action 

could be promptly taken. While OWCP did track case workload, case inventories, status 

of disputes and informal conferences, OWCP relied on claimant complaints to initiate 

additional oversight action in managing and monitoring DBA claims. In the area of 

penalty assessments, we found a need for centralized guidance regarding when 

penalties should be assessed to assist with program compliance. As a result, OWCP 

cannot ensure that workers — many of them U.S. citizens — injured while employed in 

dangerous war zones and supporting the U.S. military overseas efforts, receive proper 

and timely workers’ compensation benefits under DBA. 

The implementing regulations for DBA are in Title 20, Code of Federal Regulations (20 

CFR), Employee Benefits, Chapter VI, Subchapter A - Longshoremen’s and Harbor 

Workers’ Compensation Act and Related Statutes. Subpart B - Claims Procedures, Part 

702 contains various requirements related to the claims process. 

The DLHWC Procedures Manual contains the procedures DLHWC District Office claims 

examiners are to follow in case initiation, evaluation, adjudication, and medical care. It 

requires claims examiners to review recently opened cases within 30 days to ensure 

compensation payments are provided on a timely basis, appropriate medical care is 

being provided, and the injured worker is promptly informed when entitlement to 

compensation is controverted by the employer or insurer. 

To determine to what extent workers’ benefits were protected under DBA, we 

statistically sampled 172 open DBA cases from a population of 11,247. The following 

provides the results for the sampled DBA cases (see Exhibits 1 and 2 for statistical 

results and the projections discussed below). 

Employers did not always report claimant injuries in a timely manner. 

We found that employers did not report claimant injuries in a timely manner for 117 of 

the 172 cases (68 percent) sampled. Based on our statistical sample results, we are 95 

percent confident that at least 6,910 (61 percent) cases and no more than 8,408 cases 

(74 percent) in our universe of 11,247 cases showed the employer did not report 

claimant injuries within the required 10-day period. Of the 117 cases in our sample in 

which the employer did not report the claimant injury timely, 43 (38 percent) were more 

than 60 days late. Based on our statistical sample results, we are 95 percent confident 

that for at least 2,343 (21 percent) cases and no more than 3,330 (30 percent) cases in 

our universe of 11,247, employers were more than 60 days late in reporting claimant 

injury. 

Defense Base Act Claims 

6 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

20 CFR, Part 702.201(a), requires employers to furnish the DLHWC District Director a 

report of an employee's injury or death within 10 days, or 10 days from the date an 

employer has knowledge of an employee's injury or death. The form normally used to 

report injuries or deaths is the LS-202, Employer’s First Report of Injury or Occupational 

Illness. 

Without timely notification of injury, OWCP is not aware of potential delays so it can take 

action necessary to ensure the injured workers receive benefits to which they are 

entitled. Additionally, untimely notification of injury to OWCP means that injured workers 

will not receive the basic information about their rights to benefits and how to file claims 

within the required time frames. 

OWCP officials told us they recognized that delays in reporting injuries — especially for 

foreign workers arising from remote war zones — are endemic, and DBA employers 

have great difficulty in meeting the 10-day requirement to submit injury reports to 

OWCP. They stated this was especially true among subcontractors and foreign 

contractors, many of whom have no idea of the reporting requirements under DBA or 

even the concept of workers’ compensation. OWCP officials explained they have 

implemented various strategies to improve employer and insurer compliance with timely 

injury reporting. OWCP management stated that they meet regularly with managers and 

executives of the major DBA insurers to show them their performance results, confront 

them in cases of extreme delays, and discuss ways to improve compliance. OWCP 

officials told us they are publishing insurer “industry report cards” online as an incentive 

for them to improve. Taking this into consideration, OWCP believed that a better 

measurement for timely reporting would be 30 days rather than the statutory 10 days. 

Therefore, for FY 2010, OWCP implemented a GPRA performance measure to focus on 

improving the percentage of injury reports submitted within 30 days. OWCP stated it 

made progress against this new GPRA goal, and by the end of June 2010, 73 percent 

of the first reports of injuries were received within 30 days. 

Our analysis used reporting standards that exist within current federal regulations — 10 

days. We do not disagree with OWCP that a better measurement for timely reporting 

would be 30 days considering the challenges that occurred in the recent wars with the 

increased use of foreign nationals and subcontractors. However, even with using a 

30-day reporting requirement, our audit results still showed a problem with timely 

reporting in that for 47 percent of the sampled cases, the injury was not reported within 

30 days. Our analysis did show a marked improvement for cases opened in FY 2009, 

which could be attributed to OWCP’s strategies to address the problem with untimely 

reporting of injuries. The following table compares our sample results using the statutory 

10-day reporting requirement to the 30-day reporting requirement preferred by OWCP, 

and the results for the years the cases were opened. 

Defense Base Act Claims 

7 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

Table 1 – Comparison of Statutory 10-Day Injury Reporting 

Requirement to OWCP’s 30-Day GPRA Measure for Injury 

Reporting 

Number of Number of 

Cases in Cases in 

Which Report Which Report 

Total of Injury of Injury 

Year Cases Exceeded Percent Exceeded Percent 

Opened Sampled 10 Days of Total 30 Days of Total 

2004 9 8 89% 5 56% 

2005 10 5 50% 4 40% 

2006 17 14 82% 13 76% 

2007 20 17 85% 14 70% 

2008 32 23 72% 18 56% 

2009 84 50 60% 26 31% 

Total 172 114 68% 80 47% 

Insurers did not always provide timely initial compensation payments, and OWCP 

did not ensure claimants received the statutory 10 percent assessment. 

Of the 172 cases sampled, with 65 involving compensation payments, we found that 36 

(55 percent) contained an LS-206 that showed the first compensation payment was 

more than 28 days from the date of knowledge of the injury. We did not consider 

payments late if the case was controverted1

 in a timely manner. If the employer or 

insurer controverts the claim, it stops the time requirement until the controversion is 

resolved. We also did not consider a payment late if there was evidence that the insurer 

or employer provided the District Director an explanation of conditions causing the 

installment to not be paid timely. Based on our statistical sample, we are 95 percent 

confident that for at least 1,737 cases (15 percent) and no more than 3,001 cases (27 

percent) in the universe, the insurers did not provide the initial compensation payment 

within 28 days from the date of knowledge. More than 44 percent of the 36 untimely 

payments in our sample were more than 60 days late. Based on our statistical sample 

results, we are 95 percent confident that for at least 602 (5 percent) cases and no more 

than 1,515 (13 percent) cases in our universe of 11,247, the untimely payments were 

more than 60 days late. 

20 CFR, Part 702.232, requires that first compensation payment is due by the 14th day 

after the employer has been notified, or has actual knowledge of the injury or death. 

Part 702.233 provides for a penalty if any installment of compensation payable is not 

paid within 14 days after it becomes due in an amount equal to 10 percent of the unpaid 

installment unless the employer files a Notice of Controversion or the employer can 

demonstrate to the DD that it had no control over conditions causing the installment not 

1

 Controverted means a formal denial of responsibility under DBA by an employer or insurer that has to be filed with 

the District Office within 14 days after the party gains knowledge of the alleged injury. 

Defense Base Act Claims 

8 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

be paid within the period prescribed. Although called a “penalty” in 20 CFR, Part 

702.233, this is actually an assessment that the insurer has to pay the claimant. 

The DLHWC Procedures Manual, Chapter 8-202, defined late payments as those after 

28 calendar days from the date the employer first obtains knowledge of the injury. The 

Procedures Manual explained that the regulations require that compensation be paid 

initially on the 14th day after the employer is notified or aware of the injury, and that all 

compensation then due shall be paid. Following the initial payment, compensation is to 

be paid bi-weekly unless the District Director determines otherwise. The usual practice 

is to pay compensation at 2-week intervals. Since the 10 percent assessment does not 

apply to the first installment until 14 days after the "due" date, this in effect allows 28 

calendar days (from the date the employer first obtains knowledge of the injury) in which 

to pay the first installment. Compensation is paid when it reaches the claimant. If 

payment is not made within 28 days, 10 percent additional compensation must be paid. 

20 CFR, Part 702.234 requires the employer to immediately report to the District 

Director the first compensation payment and the suspension of payments. The form 

normally used to notify OWCP of the first compensation payment to the claimant is the 

LS-206, Payment of Compensation Without Award. 

Untimely payment of compensation obviously poses economic hardship to injured 

workers who are unable to earn wages due to their work injuries. 

OWCP acknowledged that insurers in many cases failed to pay compensation within the 

statutorily-required timeframe. OWCP stated that delays in payment of benefits, 

especially to foreign workers in remote third world countries or in war zones, are 

generally unavoidable. The complexities of war-zone claim adjusting, including lack of 

worker identity or documentation of employment and payroll, unobtainable medical 

evidence, and lack of banking infrastructure, result in the insurers simply being unable 

to establish eligibility for benefits within 28 days. OWCP stated that, since FY 2008, it 

developed a new GPRA measure to improve the timeliness of first payment of benefits. 

The performance measure was to improve the percentage of first benefit payments 

made within 30 days of the day disability (or death benefits) begins. OWCP stated it 

made progress against this new GPRA goal, and by the end of June 2010, the program 

result was that 54 percent of the first payments were made within 30 days. 

We recognize the challenges insurers have in providing timely compensation payments 

to foreign workers; however, our audit found problems with timely payments made to 

workers living in the U.S. Of 36 untimely compensation payments identified in our 

sample, 19 (53 percent) were to workers living in the United States. 

Our analysis did show a marked improvement for cases opened in FY 2009, which 

could be attributed to OWCP’s strategies to address the timeliness of the initial 

compensation payment. The following table shows that the percent of case files with 

compensation payments in our sample that were not timely decreased from a high of 83 

percent in 2007 to 35 percent by 2009. 

Defense Base Act Claims 

9 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

Table 2 – Percent of Sampled Case files With Untimely Initial 

Compensation Payments for the Period 2004 to 2009 

Total Number of 

Number Number of Case files Percent of Case files 

of Case files With Untimely With Untimely Initial 

Cases With Initial Compensation Payments 

in Compensation Compensation to Total Case files With 

Year Sample Payments Payments Compensation Payments 

2004 9 5 2 40% 

2005 10 5 3 60% 

2006 17 9 7 78% 

2007 20 12 10 83% 

2008 32 11 8 73% 

2009 84 17 6 35% 

Total 172 59 36 40% 

OWCP disagreed that it failed to ensure that an additional 10 percent of compensation 

was assessed in all but 1 of the 36 sampled cases. OWCP stated that the DBA does not 

provide it the authority to assess an additional 10 percent compensation (erroneously 

called a “penalty”) for late payment without a controversion. OWCP stated the District 

Director may recommend payment of the additional compensation, but it does not have 

statutory authority to require payment. Only an Administrative Law Judge may order 

such payment. OWCP added that DBA permits the District Director to excuse the 

payment of the additional compensation upon showing that “owing to conditions over 

which the insurer has no control,” such installment could not be paid within the 

prescribed period. OWCP explained that when delays in payment are clearly due to 

war-zone conditions — inaccessibility to claimants, absence of medical and identity 

documents, and other obstacles — the Longshore Act permits District Directors to 

excuse the delay by not requesting that the carrier pay the additional 10 percent 

compensation. 

According to OWCP management, the New York District Director in fact made a blanket 

waiver to reduce unproductive workload early in the Iraq conflict. The New York District 

Director decided to consider all claims as controverted so the insurers would not have to 

meet the statutory timeframe for paying first benefits, which the District Director felt was 

impossible to meet because of circumstances beyond the insurers’ control. The New 

York District Director took this action because the majority of DBA claims from foreign 

workers (and many from U.S. citizens) were not immediately perfected in terms of 

needed documentation, and insurers routinely contested DBA claims, which 

overburdened the New York District Office with paperwork. 

We agree that the 10 percent compensation payment is not a penalty assessed by 

OWCP; however, OWCP does have the responsibility to make certain the insurers 

comply with DBA requirements, unless excused by the District Director. As previously 

stated, when assessing the timeliness of initial compensation payment, the audit did not 

Defense Base Act Claims 

10 Report No. 03-11-001-04-430 
 

 

	 

	 

	 

U.S. Department of Labor – Office of Inspector General 

categorize as late converted cases or cases in which evidence showed the District 

Director excused the assessment payment owing to conditions over which the insurer 

had no control. Regarding the actions taken by the New York District Director, OWCP 

implied that the audit should not have taken exception to any of the cases from this 

District Office. However, during audit field work, neither OWCP officials at the National 

Office nor the New York District Office provided us with information on the District 

Director’s actions. Therefore, the results of our analysis did not reflect an evaluation of 

the appropriateness and affect of the District Director’s actions. At face value, we 

question whether the New York District Director’s action was reasonable and fair from 

the claimants’ perspective. 

Case files did not always contain evidence of initial compensation payments. 

OWCP did not have documentation of initial compensation payments for 6 (9 percent) of 

the 65 compensation cases2 in our sample. These cases did not contain an LS-206 or 

any other documentation to support the first compensation payment. OWCP did not 

establish a required timeframe for insurers to report to OWCP the initiation of 

compensation payments. This conflicts with Title 33, U.S.C., Chapter 18, Section 

914(c), which requires immediate notification to OWCP upon the first payment of 

compensation using the form prescribed by OWCP, the LS-206. 

OWCP management told us that not every payment requires an LS-206, and neither 

DBA nor regulations impose a mandatory requirement or a time frame to file the “Notice 

of Compensation Without Award” - Form LS-206. OWCP provided the following 

situations in which the notice is not required: 

•	 Only the LS-208 is required if the compensation is paid for a short period and in 

one check; 

•	 Some insurers routinely use the LS-208 to report continuing payments in lieu of 

the LS-206 because the LS-208 allows multiple entries at different compensation 

rates; or, 

•	 The LS-208 is required in lieu of the LS-206 when a case is settled or first 

payment on a continuing award is made pursuant to a compensation order. 

OWCP stated that it never adopted a time requirement for filing the LS-206. It relied 

instead on voluntary compliance and insurer education. 

We believe that reporting the initial payment is required by Title 33, U.S.C., Chapter 18, 

Section 914(c). We acknowledge that it can be filed using either the LS-206 or other 

documentation. Obtaining documentation of first payment would assist OWCP in 

ensuring that insurers either pay claimants timely or pay the 10 percent compensation 

2

 We determined these were compensation cases because the case files contained an LS-208, Notice of Final 

Payment or Suspension of Payments. 

Defense Base Act Claims 

11 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

assessment, unless the reason for the late payment is justified. We considered all forms 

to be documentation of first payment in our audit. 

Insurers did not always report the notice of final payment or suspension of 

payment in a timely manner 

Of the 172 cases sampled, 57 had a Notice of Final Payment or Suspension of 

Payments (LS-208), we found 21 (37 percent) were not reported to OWCP within 16 

days from date of last payment. Based on our statistical sample results, we are 95 

percent confident that for at least 839 cases (7 percent) and no more than 1,919 cases 

(17 percent) in our universe of 11,247, the notice of final payment was not provided to 

OWCP within 16 days after the payment. Of the 21 notices in our sample that were not 

timely, 48 percent were more than 60 days late. Based on our statistical sample results, 

we are 95 percent confident that for at least 295 (3 percent) cases and no more than 

1,013 (9 percent) cases in our universe of 11,247, the notification of last payment was 

more than 60 days late. 

20 CFR, Part 702.235, requires the employer, insurer, or self-insured employer to report 

the final compensation payment within 16 days after it is made. The final payment is any 

of the following: (1) The last payment of compensation made in accordance with a 

compensation order awarding disability or death benefits; (2) The payment of an agreed 

settlement; (3) The last payment made pursuant to an agreement reached by the 

parties through informal proceedings; and (4) Any other payment of compensation 

which anticipates no further payments under the Act. 20 CFR, Part 702.236, provides 

that the DLHWC District Director shall asses a civil penalty in the amount of $110 to any 

employer failing to provide the final payment notification. 

Without receiving timely notification of final payment or suspension of payments, OWCP 

cannot ensure that the reason for stopping or suspending the payment was proper. Our 

determination of the number of instances in which insurers were late in meeting 

reporting requirements excluded LS-208s that were not a notice for final payment, as 

the LS-208 can be used for reasons other than reporting final payment. 

OWCP did not always notify claimants in a timely manner that their claims were 

controverted. 

Of the 172 cases sampled, 75 contained a formal denial of responsibility under DBA by 

an employer or insurer (controverted). For 58 of the 75 cases (77 percent), OWCP did 

not notify claimants (with an LS-209) within 10 days that their cases were controverted. 

Based on our statistical sample results, we are 95 percent confident that for at least 

3,039 cases (27 percent) and no more than 4,578 cases (41 percent) OWCP did not 

notify claimants in a timely manner that their cases were controverted. Notifying 

claimants that their cases were controverted is important so claimants can take timely 

action to address the dispute. 

Defense Base Act Claims 

12 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

The DLHWC Procedures Manual, Chapter 2-201.3d, requires that within 10 days after 

the receipt of the employer’s Notice of Controversion, the District Office claims examiner 

to notify the claimant of the Controversion using the LS-209, Request for Employee’s 

Reply to Employer’s Objections. 

OWCP management stated there is no statutory requirement for OWCP to serve the 

Notice of Controversion on the claimant but rather it is the DLHWC Procedures Manual 

that imposes such a requirement on the District Director. OWCP officials told us the lack 

of timely notification could be attributed to their efforts to protect the identity of foreign 

nationals who may be harmed if they were found working for U.S. contractors in war 

zones. Sending Controversion notifications to these claimants could compromise their 

safety. Additionally, OWCP stated that when new DBA cases began increasing, almost 

all the insurers routinely filed a Notice of Controversion in order to provide more time for 

them to investigate the claim. This increased the workload at the New York District 

Office, which handles all foreign work claims. Therefore, the NY District Director 

instructed the insurers to stop filing the Controversion forms (LS-207). We noted that 

DLHWC did not provide us any documentation to support the New York District 

Director’s instructions to the insurers to stop filing the LS-207s. OWCP explained that 

for DBA cases served by all other District Offices, the LS-209 was sent to claimants in 

the regular course of claims processing. OWCP stated that one point to take into 

consideration is that it may take 2 to 4 weeks for cases to be transferred from the New 

York District Office3

 to other District Offices because of the volume of cases involved. 

Sending the LS-209 to claimants within 10 days of receiving the case file from the New 

York District Office would be considered timely by DLHWC Procedures Manual 

standards. Likewise, an LS-207 submitted to the wrong District Office by the insurer is 

sent to the office handling the file, causing delays. 

We understand OWCP’s efforts to protect the identity of foreign nationals; however, our 

analysis showed a problem with timely notifying workers in the U.S. that their case was 

controverted. More than 46 percent of the cases (27 of 58) in our sample represented 

U.S workers who had an untimely notice that their case was controverted. Additionally, 

most of these cases were assigned to a District Office other than New York. 

Employers or insurers did not respond in a timely manner to OWCP requests for 

information. 

Of the 172 cases sampled, 91 contained requests for information from OWCP to the 

employer or insurer. We found that in 45 of 91 (49 percent) of these cases, the 

employers or insurers did not respond or did not respond in a timely manner to OWCP. 

Based on our statistical sample results, we are 95 percent confident that for at least 

2,204 cases (20 percent) and no more than 3,664 cases (33 percent) in our universe of 

11,247 cases, the employers or insurers did not respond or did not respond timely to 

OWCP’s request for information. Untimely responses to requests for information 

3

 All DBA cases are initiated in the New York District Office and then sent to the DLHWC District Office that has 

jurisdiction over the area in which the claimant resides. All claimants with foreign residence remain at the New York 

District Office. 

Defense Base Act Claims 

13 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

concerning medical or compensation records hamper OWCP’s ability to ensure injured 

employees are treated fairly. 

When additional information is needed for a case, the claims examiner sends an 

LS-216, Requests for Additional Reports, to employers and/or insurers; and responses 

are due within 30 days. 

OWCP stated that there is not a standard time requirement for responses to the LS-216. 

The standard procedure is for District Office staff to enter a follow up (OWCP refers to 

this as a “call-up”) of anywhere from 30 to 90 days for a response, depending on the 

information, documents, or actions requested. OWCP explained that when the call-up is 

due and the employer or insurer has not responded, the District Office staff will send a 

second request and a renewed call-up. OWCP believes this is an effective tool, and for 

the most part, non-DBA employers and insurers respond within a reasonable time to the 

Form LS-216. However, OWCP said it recognizes that DBA insurers are less 

responsive and often the District Office staff has to issue second and third requests. 

OWCP stated this is one of the biggest complaints the District Offices have against the 

insurers. OWCP believes there are several reasons for this problem, such as insurance 

claims adjusters are overwhelmed with DBA caseload and are slow to respond; some 

DBA adjusters are new to the DBA claims arena and are not aware of the need to 

respond; and others have difficulty securing the documents or information requested, 

and therefore simply do not respond. 

To address this problem, OWCP stated it consulted with the Solicitor of Labor (SOL) 

and received its endorsement that OWCP may assess a civil penalty under Section 

30(e) of the Longshore Act for “knowing and willful” failure to respond to requests for 

additional information as requested, via the LS-216 or by other correspondence. This 

practice was implemented in FY 2010. Previously, the Section 30(e) penalty had been 

construed to only apply to the delay or failure to file the Employer’s First Report of 

Injury. OWCP also stated that at industry conferences and seminars, employer and 

insurer training and workshops, and National Office meetings with the insurers DLHWC 

management in the National Office and District Offices have emphasized the need to 

respond to LS-216 requests. 

Our audit results show the call-up procedure has not been effective. Furthermore, the 

audit results indicate that OWCP’s outreach efforts with employers and insurers were 

not effective. Our trend analysis of the cases sampled that contained an LS-216 showed 

there was still a problem in FY 2009, in that 60 percent of the requests were not 

responded timely by employers or insurers. We were not able to evaluate the 

effectiveness of OWCP’s practice to assess penalties for “knowing and willful” failure to 

respond to requests since the practice was implemented in 2010 and the scope of our 

audit was for DBA cases through 2009. 

Defense Base Act Claims 

14 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

In most cases OWCP did not assess penalties for late reporting. 

DLHWC District Offices assessed penalties in less than 1 percent (2 of 211) of the 

instances in our sampled cases in which employers and insurers were late in meeting 

reporting requirements and DLHWC information requests. 

Federal laws and regulations provide authority to OWCP to assess penalties to 

employers and insurers for late reports, late payments, and lack of notification for 

suspension of payments and final payments. The following are the penalty provisions 

for DBA claims: 

Report of Injury or Death – 20 CFR, Part 702.204, provides that any employer, 

insurer, or self-insured employer who knowingly and willfully fails or refuses to 

send any report required by 20 CFR, Part 702.201, or who knowingly or willfully 

makes a false statement or misrepresentation in any report, shall be subject to a 

civil penalty not to exceed $10,000 for each such failure, refusal, false statement, 

or misrepresentation. This was raised to $11,000 for any violations occurring on 

or after November 17, 1997. The District Director has the authority and 

responsibility for assessing a civil penalty under this section. 

Penalty for Late Payment – 20 CFR, Part 702.233, provides for a penalty if any 

installment of compensation payable is not paid within 14 days after it becomes 

due an amount equal to 10 percent of the unpaid installment shall be added to 

the payment unless the employer files a Notice of Controversion or the penalty is 

excused by the District Director after a showing by the employer that, owing to 

conditions over which it had no control, the installment could not be paid within 

the period prescribed. 

The DLHWC Procedures Manual, Chapter 8-202, provides the guidelines, 

procedures, and instructions for computing and applying the 10 percent 

additional compensation due for installment payments. The DLHWC Procedures 

Manual defined late payments as those after 28 calendar days from the date the 

employer first obtains knowledge of the injury. The Procedures Manual explained 

that the regulations require that compensation be paid initially on the 14th after 

the employer is notified or aware of the injury, and that all compensation then 

due shall be paid. Following the initial payment, compensation is to be paid 

bi-weekly unless the District Director determines otherwise. The usual practice is 

to pay compensation at 2-week intervals. Since the 10 percent penalty does not 

apply to the first installment until 14 days after the "due" date, this in effect allows 

28 calendar days (from the date the employer first obtains knowledge of the 

injury) in which to pay the first installment. Compensation is paid when it reaches 

the claimant. If payment is not made within 28 days, 10 percent additional 

compensation must be paid. 

Defense Base Act Claims 

15 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

Final Payment – 20 CFR, Part 702.236, provides that the DLHWC District 

Director shall asses a civil penalty in the amount of $110 to any employer failing 

to provide the final payment notification. 

OWCP management told us that the longstanding practice among District Offices had 

been to educate employers of the required timeframes, sending warning letters to 

repeated late filers (employers) and waiving penalties unless it identified an established 

pattern of knowing and willful failure to comply. OWCP stated that in October 2009, it 

adopted a strategy to improve timeliness of first reports of injury and first payments. 

OWCP stated that the DLHWC began to enforce penalties for late filings in a more 

systematic and aggressive manner. OWCP explained that it must still show that the late 

filing or failure to file was knowing and willful. For example, OWCP stated it cannot 

assess a penalty against a foreign DBA subcontractor with no prior experience with 

Federal contracting for its failure to file injury reports. If the employer still refuses to 

comply after OWCP sends repeated requests and explanations, it could establish the 

“knowing and willful” requirement. OWCP said it has recently increased penalties both 

for late reports of injury and for failure to provide documents when requested. 

Additionally, OWCP explained that it added the capability to track penalties in the 

Longshore Case Management System (LCMS) in early 2010. OWCP stated that 

insurers said the timeliness of injury reporting has greatly improved in this fiscal year 

due largely to OWCP’s enforcement strategies. 

We concluded that OWCP needs effective monitoring controls at the management level 

to ensure reports and compensation payments are timely. OWCP does track case 

workload, case inventories, status of disputes, and informal conferences; and it recently 

implemented an initiative to track report of injury and initial payments. However, OWCP 

monitoring controls did not include identifying and tracking case files in which reports 

and payments were not timely so that OWCP and District Office management could 

monitor to ensure appropriate corrective action was taken. Increased monitoring by 

management at the case-file level can assist management and claims examiners to 

carry out their duties and responsibilities and proactively manage DBA claims. 

OWCP did not agree that it lacked effective controls to ensure reports and 

compensation payments were timely. OWCP stated that the District Office claims 

examiners use automated call-ups in LCMS to track claim status. After a new case is 

created, the staff reviews the case for disability and medical status. If no medical or 

payment reports are in the file, the staff submits a 60-day call-up for this information. If 

lost time by the employee is expected based on the LS-202 and other documents, the 

staff may elect to issue a form letter (LS-216) to request the necessary documents 

immediately. Staff tracks the progress of the case until no further disability is expected 

and then they close the case. OWCP explained that at the case level, District Office 

staffs have increased penalty assessments, especially for carriers who routinely ignore 

requests for missing forms, current medical reports, and other information. OWCP 

believed that while timeliness of first payments remains a huge challenge in foreign 

claims, most insurers now submit the LS-206/208 more promptly, allowing the District 

Offices to better monitor compensation and medical status. OWCP disagreed that 

Defense Base Act Claims 

16 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

controls are needed to ensure that DLHWC claims examiners send claimants a Request 

for Employee’s Reply to Employer’s Objections, (LS-209) when the claims examiners 

receive a formal Notice of Controversion (LS-207) from an employer or insurer. OWCP 

stated that, except for the New York District Office, almost all District Offices are set up 

to handle this by which clerical staff send the form to the claimant with the cover letter 

(LS-209) automatically and immediately on receipt of the Notice of Controversion 

(LS-207). 

OWCP agreed that enhanced claims management capabilities in the LCMS would 

improve District Office effectiveness. However, it is concerned that automated case 

management tools such as diaries and system-generated form letters will create clerical 

backlogs for its limited District Office staff, so that instead of time being spent on dispute 

resolution and claim adjudication services, the claims staff will be required to spend time 

managing an added system-generated workload. 

We believe additional management reports from OWCP’s LCMS are needed to improve 

the effectiveness of DBA case management. OWCP did not have management reports 

from the LCMS that identified DBA cases that had late reports and payments. DLHWC 

District Office management would benefit from such management reports to monitor the 

claim examiner’s progress in working with employers and insurers to ensure required 

information is obtained and payments are made timely. Identifying and taking corrective 

actions on specific cases that are significantly late in complying with reporting and 

payment requirements can assist OWCP in achieving its goal to improve the timeliness 

in filing first reports of injury and reducing the elapsed time from the fist date of injury. 

We attributed OWCP’s minimal use of penalty assessments to employers and insurers 

for their noncompliance with reporting and payment requirements to a lack of 

centralized guidance for assessing penalties. The uniform use of penalties could be an 

incentive for employers and insurers to comply with DBA claims requirements. 

Without more effective case management, OWCP cannot ensure that workers, many of 

them U.S. citizens, injured while employed in dangerous war zones and supporting the 

U.S. military efforts overseas, receive proper and timely workers’ compensation benefits 

under the DBA. 

RECOMMENDATIONS 

We recommend the Acting Director of OWCP: 

1. Seek legislative changes to the DBA reporting and payment requirement to 

reflect DBA claims processing in the current environment with the increased use 

of contractors and foreign nationals in the war conditions. 

2. Identify LCMS data fields that could be used to generate reports that would assist 

management and claims examiners in identifying the problems found by this 

audit, and require that they be used and verified for accuracy. 

Defense Base Act Claims 

17 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

3. Establish a quality control process by improving the management reporting 

capabilities in LCMS that would lead to enhanced DBA program oversight so 

management can monitor DBA case activity and identify problems and take 

appropriate corrective action. 

4. Notify the insurance industry of OWCP’s expectations for the submission of the 

LS-206, especially in claims involving a previously submitted Notice of 

Controversion. 

5. Standardize within each District Office the use of penalty assessments when 

dealing with noncompliant employers and insurers. 

We appreciate the cooperation and courtesies that OWCP personnel extended to the 

Office of Inspector General during this audit. OIG personnel who made major 

contributions to this report are listed in Appendix E. 

Elliot P. Lewis 

Assistant Inspector General 

 for Audit 

Defense Base Act Claims 

18 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

Exhibits 

Defense Base Act Claims 

19 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

 PAGE INTENTIONALLY LEFT BLANK 

Defense Base Act Claims 

20 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

Exhibit 1 

Statistical Results and Projections for Reports, Payments, and Penalties 

Condition 

Number of 

Occurrences 

from Sample 

of 172 

DBA Cases 

Point 

Estimate 

Standard 

Error 

95 Percent Confidence Limit Projected to 

a Universe of 11,247 DBA Cases 

Lower 

Limit 

Number 

of 

Cases 

Upper 

Limit 

Number 

of 

Cases 

Employer did not report 

claimant injuries in a timely 

manner (LS-202). 117 68.10% 3.40% 61.44% 6,910 74.76% 8,408 

OWCP did not assess a 

penalty for late reporting of 

injury. 116 67.55% 3.33% 61.02% 6,863 74.08% 8,332 

Insurer did not provide initial 

compensation payment in a 

timely manner (LS-206). 36 21.06% 2.87% 15.44% 1,737 26.68% 3,001 

Insurer did not report notice 

of final payment or 

suspension of payment in a 

timely manner LS-208). 21 12.26% 2.45% 7.46% 839 17.06% 1,919 

OWCP did not notify 

claimant in a timely manner 

that their claim was 

controverted (LS-209). 58 33.86% 3.49% 27.02% 3,039 40.70% 4,578 

Employer or insurer did not 

respond in a timely manner 

to OWCP request for 

information (LS-216). 45 26.09% 3.31% 19.6% 2,204 32.58% 3,664 

OWCP did not assess a 

penalty for late, or no 

response, to request for 

information. 42 24.31% 3.25% 17.49% 1,967 30.68% 3,451 

Defense Base Act Claims 

21 Report No. 03-11-001-04-430 
 


 

U.S. Department of Labor – Office of Inspector General 

 PAGE INTENTIONALLY LEFT BLANK
 

Defense Base Act Claims 

22 Report No. 03-11-001-04-430 
 

 

Statistical Results and Projections for Days Late 

Exhibit 2 

Condition 

Number of 

Occurrences 

from Sample 

of 172 

DBA Cases 

Point 

Estimate 

Standard 

Error 

95 Percent Confidence Limit Projected to 

a Universe of 11,247 DBA Cases 

Number Number 

Lower of Upper of 

Limit Cases Limit Cases 

First Report of Injury More 

Than 60 Days Late (LS-202). 43 25.22% 2.24% 20.83% 2,343 29.61% 3,330 

First Compensation Payment 

More Than 60 Days Late (LS206). 16 9.41% 2.07% 5.35% 602 13.47% 1,515 

Report of Last Payment or 

Suspension of Payment More 

Than 60 Days Late (LS-208). 10 5.82% 1.63% 2.62% 295 9.01% 1,013 

U.S. Department of Labor – Office of Inspector General 

Defense Base Act Claims 

23 Report No. 03-11-001-04-430 
 


 

U.S. Department of Labor – Office of Inspector General 

 PAGE INTENTIONALLY LEFT BLANK
 

Defense Base Act Claims 

24 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

Appendices 

Defense Base Act Claims 

25 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

 PAGE INTENTIONALLY LEFT BLANK 

Defense Base Act Claims 

26 Report No. 03-11-001-04-430 
 

	 

	 

U.S. Department of Labor – Office of Inspector General 

Appendix A 

Background 

The DBA, Title 42, U.S.C., Section 1651, et seq., requires all Federal government 

contractors (employers) and subcontractors to provide workers’ compensation 

insurance for their employees who work outside of the United States. Under provisions 

of DBA, overseas federal military and public works contractors are subject to the same 

workers’ compensation rules, insurance requirements and benefit schedules as 

maritime firms covered by the Longshore Act. It is intended to be a counterpart to 

domestic workers’ compensation coverage and, as such, is the sole recourse for U.S. 

and foreign workers who suffer on-the-job injuries or death while engaged in work in 

foreign locations under government prime contracts and subcontracts. It is important 

that these injured workers, many of them U.S. citizens, employed in dangerous war 

zones, receive proper and timely workers’ compensation benefits. 

DBA insurance is provided by private insurers or through self-insurance. DOL reported 

in its FY 2009 Performance and Accountability Report that DBA injury and death cases 

in connection with the wars in Iraq and Afghanistan have rapidly increased from 347 

cases opened in FY 2002 to 12,255 cases opened in FY 2009. DBA benefit payments 

reported by insurers increased from $7.6 million in CY 2002 to $242 million in CY 2009. 

DBA is administered by DOL, OWCP, DLHWC. DLHWC’s mission is to minimize the 

impact of employment injuries and deaths on employees and their families by ensuring 

that workers' compensation benefits provided under the Longshore Act and its 

extensions (including DBA) are paid promptly and properly, and providing information, 

technical and compliance assistance, support, and informal dispute resolution services 

to workers, employers, and insurers. Specifically, DLHWC’s objectives are to ensure 

that the provisions of the Longshore Act regarding benefits for injured employees are 

properly applied, to promptly and impartially assist in the resolution of any disputes 

which may arise, and to refer cases for a formal hearing in a timely manner when a 

dispute subject to hearing cannot be informally resolved. DOL approves insurers for 

participation in DBA, but has no authority over other business aspects of the program, 

such as, purchasing arrangements between government contractors and insurance 

companies, premium rates, or contract terms. The Federal agencies executing the 

contracts are responsible for ensuring the provisions of DBA are included in their 

contract terms and reimbursing their contractors for the cost of insurance premiums. 

OWCP uses the LCMS to maintain and manage DBA claims. The following are the 

primary reporting forms OWCP uses to manage DBA claims: 

•	 LS-202, Employer’s First Report of Injury or Occupational Illness – due to 

OWCP within 10 days from date of employer knowledge of incident. 

•	 LS-206, Payment of Compensation Without Award – notifies OWCP of the 

first compensation payment to the claimant which is due 28 days or less from 

date of employer knowledge of incident. 

Defense Base Act Claims 

27 Report No. 03-11-001-04-430 
 

 

	 

	 

	 

	 

U.S. Department of Labor – Office of Inspector General 

•	 LS-207, Notice of Controversion of Right to Compensation – filed by the 

employer or insurer to OWCP to dispute a claim. 

•	 LS-208, Notice of Final Payment or Suspension of Compensation Payments – 

notifies OWCP of the final payment or suspension of compensation and due 

16 days from date of last payment. 

•	 LS-209, Request for Employee’s Reply to Employer’s Objections – OWCP 

notifies the claimant within 10 days from receipt of LS-207, Notice of 

Controversion of Right to Compensation. 

•	 LS-216, Requests for Additional Reports – sent by OWCP to employers and 

insurers and response is due within 30 days. 

The implementing regulations for DBA are in 20 CFR, Employee Benefits, Chapter VI, 

Subchapter A - Longshoremen’s and Harbor Workers’ Compensation Act and Related 

Statutes. Subpart B - Claims Procedures, Part 702 contains various requirements 

related to the claims process. Federal regulations provide authority to OWCP to assess 

penalties to insurers and employers for late reports, late payments4

, lack of notification 

for suspension of payments, and unreasonable delays for information requests. 

DLHWC has 12 District Offices headed by District Directors and 1 Sub-District Office. 

The District Director reports to the OWCP Regional Director, for the Region in which the 

office is located. The role of the District Offices is to ensure that the provisions of the 

Longshore Act are carried out, to monitor and mediate claims made under the Act's 

provisions, and to provide outreach and educational services to program participants. 

4

 For late payment of initial compensation, insurers pay the assessment to the claimant. 

Defense Base Act Claims 

28 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

Appendix B 

Objective, Scope, Methodology, and Criteria 

Objective 

The audit objective was to answer the following question: 

To what extent does OWCP ensure that employers and insurers are adhering to 

DBA claims-processing requirements? 

Scope 

The audit covered OWCP’s oversight of DBA claims process as of May 2010 but did not 

include OWCP’s involvement in resolving disputes and contested cases. Using a 

stratified random sample, we reviewed 172 of 11,247 open cases where the claimants’ 

date of injury occurred between January 1, 2004, and December 31, 2009. We 

conducted interviews with OWCP - DLHWC officials at its National Office in 

Washington, D.C. and at the following DLHWC District Offices: Houston, Texas; 

Jacksonville, Florida; New Orleans, Louisiana; and New York, New York. 

We conducted this audit in accordance with generally accepted government auditing 

standards for performance audits. Those standards require that we plan and perform 

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objective. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions based on our 

audit objective. 

Methodology 

We reviewed DBA, implementing regulations, and DLHWC’s policies and procedures to 

determine the Federal requirements for DBA claims process. To gain further 

understanding of DLHWC’s policies and procedures, and case management process, 

we interviewed DLHWC officials at its National Office and selected District Offices. 

To answer the audit objective, we extracted DBA case data from the LCMS. 

Specifically, we identified 11,247 open cases (i.e. the claim was still active) where the 

claimants’ date of injury occurred between January 1, 2004, and December 31, 2009, 

which was the most recent data available when we started the audit field work in May 

2010. We selected the start date of January 1, 2004, because it was the year when the 

caseload started to significantly increase because of the wars in Iraq and Afghanistan. 

There were 441 open cases that we did not include in the universe. We stratified the 

universe by calendar year and created two sub-strata within each year using low and 

high-risk rating categories. We ranked the risk based on an average number of days 

from the date of knowledge compared to the receipt of the LS-202 by OWCP. The 

average number of days was 94. We assigned "high risk" to any case received more 

than 94 days from the Date of Knowledge and to any case that had insufficient 

Defense Base Act Claims 

29 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

information to determine the Date of Knowledge and/or when it was received. The 

following table provides the number and percentage of cases from the universe for each 

year. 

Table 1: Universe of Cases and Year Opened 

Year Number of Cases Percent to Total 

2004 572 5% 

2005 719 6% 

2006 1,076 10% 

2007 1,352 12% 

2008 2,059 18% 

2009 5,469 49% 

Total 11,247 100% 

We selected random samples from each sub-stratum. From the universe of 11,247 DBA 

cases, we used a single stage stratified sample design to select 172 cases. This sample 

was estimated using 95 percent confidence level with a precision of plus or minus 7 

percent. We projected the sample results to the universe of 11,247 cases. We 

presented our results with a 95 percent confidence level as shown in the report Exhibits 

1 and 2. An explanation of the audit test results and relevance of the tests to the audit's 

objective is provided in the body of the audit report. 

For each sampled case, we analyzed whether OWCP monitored the claims to ensure 

employers and insurers complied with reporting and benefit payment requirements and 

assessed penalties for identified instances of non-compliance. 

In planning and performing our audit, we considered whether internal controls significant 

to the audit were properly designed and placed in operation. This included reviewing 

OWCP’s policies and procedures related to DBA claims. We confirmed our 

understanding of these controls and procedures through interviews and documentation 

review and analysis. We evaluated internal controls used by OWCP for reasonable 

assurance that DBA claims were managed according to Federal requirements and 

guidance. Our consideration of OWCP’s internal controls for administering DBA claims 

would not necessarily disclose all matters that might be significant deficiencies. 

Because of inherent limitations in internal controls, misstatements or noncompliance 

may nevertheless occur and not be detected. 

In planning and performing the audit, we relied on computer-generated data. OWCP 

provided a data file of DBA cases in the LCMS and we compared the number of cases 

to OWCP management reports to ensure the data was complete. We determined the 

data to be sufficient and appropriate for the purpose of our audit, which was to establish 

the population of cases where the claimants’ date of injury occurred between 

January 1, 2004, and December 31, 2009. 

Defense Base Act Claims 

30 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

Criteria 

We used the following criteria to perform the audit: 

Defense Base Act, 42 U.S.C., Sections 1651-54 

Longshore and Harbor Workers’ Compensation Act, 33 U.S.C., Chapter 18, Sections 

901-50 

20 CFR, Employee Benefits, Chapter VI, Subchapter A – Longshoremen’s and Harbor 

Workers’ Compensation Act and Related Statutes 

Part 701 – General; Administering Agency; Definition and Use of Terms; 

September 26, 1973, unless otherwise noted. 

Part 702 – Administration and Procedure; September 26, 1973, unless otherwise 

noted. 

DLHWC Procedures Manual 

Defense Base Act Claims 

31 Report No. 03-11-001-04-430 
 


 

U.S. Department of Labor – Office of Inspector General 

 PAGE INTENTIONALLY LEFT BLANK
 

Defense Base Act Claims 

32 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

Appendix C 

Acronyms and Abbreviations 

CFR Code of Federal Regulations 

CY Calendar Year 

DBA Defense Base Act of 1941 

DLHWC Division of Longshore and Harbor Workers' Compensation 

DOL U.S. Department of Labor 

FY Fiscal Year 

GPRA Government Performance and Results Act 

LCMS Longshore Case Management System 

Longshore Act Longshore and Harbor Workers’ Compensation Act 

OIG Office of Inspector General 

OWCP Office of Workers’ Compensation Program 

PTSD Post Traumatic Stress Disorder 

SOL Office of the Solicitor of Labor 

U.S.C United States Code 

Defense Base Act Claims 

33 Report No. 03-11-001-04-430 
 


 

U.S. Department of Labor – Office of Inspector General 

 PAGE INTENTIONALLY LEFT BLANK
 

Defense Base Act Claims 

34 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

Appendix D 

OWCP Response to Draft Report 

Defense Base Act Claims 

35 Report No. 03-11-001-04-430 
 

U.S. Department of Labor – Office of Inspector General 

Defense Base Act Claims 

36 Report No. 03-11-001-04-430 
 

 

U.S. Department of Labor – Office of Inspector General 

Appendix E 

Acknowledgements 

Key contributors to this report were Michael Hill (Audit Director), Daniel Pompilii (Audit 

Manager), Joseph Pomianek, Eric Rann, Lawrence Alli, Christine Allen, and Ajit Buttar. 

Defense Base Act Claims 

37 Report No. 03-11-001-04-430 
 

 

 

 

 

TO REPORT FRAUD, WASTE OR ABUSE, PLEASE CONTACT: 

Online: http://www.oig.dol.gov/hotlineform.htm 

Email: hotline@oig.dol.gov 

Telephone: 1-800-347-3756 

202-693-6999 

Fax: 202-693-7020 

Address: Office of Inspector General 

U.S. Department of Labor 

200 Constitution Avenue, N.W. 

Room S-5506 

Washington, D.C. 20210