GAO

United States General Accounting Office

Report to the Chairman of the 

Subcommittee on Workforce Protections, 

Committee on Education and the 

Workforce, House of Representatives

October 1999 INTERNAL 

CONTROLS

Oversight of 

Longshore Special 

Fund Needs 

Improvement

GAO/AIMD-00-15

Page 1 GAO/AIMD-00-15 Oversight of Longshore Special Fund

United States General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-283563 Leter

October 29, 1999

The Honorable Cass Ballenger

Chairman, Subcommittee on Workforce Protections

Committee on Education and the Workforce

House of Representatives

Dear Mr. Chairman:

On February 24, 1999, you requested that we review certain issues 

concerning financial reporting and internal controls related to the Special 

Fund established by the Longshore and Harbor Workers’ Compensation Act 

(LHWCA). This Special Fund was designed to encourage employers to hire 

disabled maritime workers by limiting an employer’s liability should a 

disabled worker sustain a second injury. Funded primarily by annual 

assessments levied by the Department of Labor (DOL) on self-insured 

employers and insurance carriers subject to LHWCA, the Special Fund is 

audited annually. However, the audited financial statements do not address 

the potential unfunded liability faced by this program, which has been 

estimated to be as high as $2.5 billion. 

This report addresses (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.

Results in Brief 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. The DOL official who developed this estimate said that he 

prepared it for discussion purposes. It was a simple arithmetic projection 

based on the benefits paid as of December 1998 and did not include all of 

the elements of an actuarial projection, such as cases reported but not yet 

paid, historical payment trends, established mortality assumptions, and 

cost-of-living adjustments. In addition, the estimate did not take into 

consideration expected future revenue from annual assessments, which, 
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according to the official, would eliminate this estimated unfunded liability. 

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 (1) there is no 

provision under LHWCA for financing the Special Fund with appropriated 

funds, (2) 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 (3) 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. 

Internal controls have been established by DOL to prevent inappropriate 

cases from being referred to the Special Fund. For example, DOL has 

procedures that require each case be reviewed by various levels of DOL 

officials who are knowledgeable about the requirements of LHWCA to 

ensure that, prior to the case’s acceptance into the Special Fund, (1) the 

recipient had a preexisting permanent impairment, (2) the second injury 

was job related, and (3) the combination of the two injuries/disabilities 

worsened the initial impairment. 

At the time of our review, DOL management had not matched its recipient 

data in the Special Fund database against data in other agencies’ databases, 

such as the Social Security Administration’s (SSA) death index. However, 

DOL’s Office of the Inspector General (OIG) officials told us that as part of 

the Special Fund’s fiscal year 1999 financial statement audit, the OIG, in 

cooperation with 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. Regularly performing 

matches with this database should reduce the risk of paying benefits to 

deceased individuals. 

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. The formula used 

to calculate the Special Fund’s annual assessment is prescribed by statute, 

with the intention of arriving at prorated assessments. However, 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. Inaccurate reporting of claim information 

would lead to the distribution of the assessments not reflecting the true 

prorated activities of the participating companies. Beginning in fiscal year 
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1992, DOL annually performed a limited number of audits of the selfreported data. These audits disclosed instances of underreporting that 

resulted in disproportionate distributions of assessments among the selfinsured employers and insurance carriers. In addition, we found that cases 

in which a recipient’s former employer (the employer who referred the case 

to the Special Fund) became insolvent and was no longer in existence were 

not monitored, therefore presenting the risk that benefit payments could be 

made to ineligible recipients. 

With respect to the Longshore computer systems, DOL officials told us that 

changes to enhance accountability and functionality were planned or had 

recently been completed. At the time of our review, DOL was developing a 

new automated system to address an OIG recommendation related to 

internal control weaknesses1

 regarding the reporting and authorization of 

payments to rehabilitation service providers. According to DOL, the system 

was implemented in September 1999. In addition, since July 1998, two of 

DOL’s computer systems used for the LHWCA program were upgraded in 

order to comply with requirements related to the Year 2000 (Y2K) 

computing problem and to provide user-friendly enhancements such as 

drop-down menus and icons.

In order to reduce the risk of Special Fund payments being made to 

deceased or otherwise ineligible recipients and of assessments being 

disproportionally distributed among participating self-insured employers 

and insurance carriers, we are recommending that DOL (1) implement a 

regular program of matching recipient data from the Special Fund to SSA’s 

death index, (2) develop and implement procedures to adequately monitor 

the continuing eligibility of certain cases, and (3) develop and implement a 

more comprehensive plan to provide increased audit coverage of LHWCA 

payment data submitted by self-insured employers and insurance carriers. 

We made recommendations to the Secretary of Labor to reduce the risk of 

(1) Special Fund payments being made to deceased or otherwise ineligible 

recipients and (2) disproportionate distribution of assessments among the 

self-insured employers and insurance carriers. In commenting on a draft of 

this report, DOL generally agreed with our findings and recommendations.

1

The internal control weaknesses and related recommendations were initially cited in 

DOL/OIG’s fiscal year 1997 consolidated financial statement audit report.
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Background LHWCA, which was enacted in 1927, established a federal compensation 

system for longshore and other specific classes of workers whose injuries 

occur upon navigable waters of the United States or adjoining facilities 

such as piers and dry docks. Section 44 of LHWCA established the Special 

Fund. The National Office of the Longshore Programs (NOLP), which is 

administered by the Office of Workers’ Compensation Programs (OWCP), 

within the Employment Standards Administration of DOL, has 

administrative responsibility for the Special Fund. The Special Fund 

encourages employers to hire workers who have suffered a previous partial 

permanent disability by limiting the employers’ liability in the event of a 

second injury. The Special Fund is used primarily for these “second-injury” 

payments, whereas, the self-insured employer and/or insurance carrier is 

responsible for the first injury payments. The Special Fund also extends 

benefits to dependents if any work related injury results in an employee’s 

death. 

When eligible workers sustain a second injury, employers are responsible 

for the first 104 weeks of compensation payments, before payments can be 

made from the Special Fund. The Special Fund is primarily (approximately 

98 percent during fiscal year 1998) funded by annual assessments levied by 

the Secretary of Labor on self-insured employers and insurance carriers 

subject to LHWCA. Other funding, about $2 million, is generated annually 

from investments in short-term U.S. Treasury bills. Miscellaneous fines and 

penalties provide additional sources of revenue; however, these are not 

material to the operation of the fund. DOL’s OIG annually audits the Special 

Fund. 

According to DOL officials, there are approximately 850 self-insured 

employers and insurance carriers authorized to participate in the LHWCA 

Special Fund program. Of those, 27 companies are responsible for 70 

percent of the annual assessments for the Special Fund. Furthermore, the 

three largest self-insured employers are responsible for 15 percent of the 

Special Fund’s annual assessment.

In calendar year 1998, DOL officials calculated a total assessment of

$119 million that they allocated to 483 of the 850 authorized self-insured 

employers and insurance carriers. The companies’ total prior year LHWCA 

benefit payments are used as the basis for the allocation of the annual 

assessment. If a company reports that it did not make any LHWCA 

payments in the prior year, and no second injury payments were made from 
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the Special Fund on its behalf in the same year, the company is excluded 

from the current year’s annual assessment.

According to DOL’s fiscal year 1998 audited financial statements, the 

Special Fund had assets consisting of $50 million in U.S. Treasury bills as of 

September 30, 1998. In addition, the fund collected approximately 

$117 million in revenue during fiscal year 1998, $115 million from the 

assessments and about $2 million from interest on investments. The 

financial statements also indicated an accounts receivable balance of

$2 million, which represented unpaid annual assessments and 

overpayments to recipients. Administrative services for operating the 

Special Fund are funded through direct federal appropriations. 

Scope and 

Methodology

To determine the feasibility of actuarially calculating the unfunded liability 

of the Special Fund, we reviewed relevant statutes and regulations and 

interviewed DOL officials, including the Chief Actuary. In addition, we 

reviewed the components of actuarial liabilities for other programs, such 

as DOL’s federal employees’ compensation and the Department of Veterans 

Affairs’ future compensation disability benefits. To determine what 

controls exist to prevent inappropriate cases from being referred to the 

Special Fund, we interviewed DOL officials and an insurance company 

president. We also reviewed DOL’s procedures related to the referral of 

cases to the Special Fund. To determine whether recipient data are 

matched against other agencies’ databases, we interviewed DOL officials. 

To determine if the assessments were distributed on a pro-rata basis, we 

reviewed the mandated formula and DOL’s most recent calculation of the 

annual assessment. We also discussed this issue with managers of selfinsured employers, an insurance company president, and an attorney who 

represents employers affected by LHWCA. To determine the status of 

changes to the Longshore computer systems, we discussed the changes 

with a DOL official. In addition, we examined DOL’s audited consolidated 

financial statements for fiscal years 1997 and 1998, and the Special Fund’s 

audited financial statements for fiscal years 1996 and 1997.2

We did not (1) audit the data underlying DOL’s calculation of the annual 

assessment or (2) test the controls that prevent inappropriate cases from 

2

The Special Fund’s fiscal years 1996 and 1997 audit report was the most recent audit report 

issued, as of August 1999. DOL/OIG conducted an audit of the Special Fund for fiscal year 

1998; however, the report had not been issued as of August 30, 1999.
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being referred to the Special Fund. We performed our work from April 1999 

through September 1999 in accordance with generally accepted 

government audit standards. We requested written comments from the 

Secretary or her designee. The Assistant Secretary for Employment 

Standards at Labor provided us with written comments, which are 

discussed in the “Agency Comments” section and are reprinted in

appendix I.

Calculation of the 

Unfunded Liability

In an effort to determine the cumulative amount of future Special Fund 

benefit payments of self-insured employers and insurance carriers over the 

average life expectancy of current recipients, a DOL official developed a 

simple arithmetic projection based on the benefits paid as of December 

1998. Although the resulting estimate of $2.5 billion has been characterized 

as the estimated unfunded liability of the LHWCA Special Fund, it does not 

include all of the elements of an actuarial projection, such as cases 

reported but not yet paid, historical payment trends, established mortality 

assumptions, or cost-of-living adjustments. In addition, it does not take into 

consideration estimated future revenue from annual assessments, which, 

according to the official, will eliminate the liability. 

While it would be theoretically feasible to calculate the unfunded liability 

of the Special Fund using an actuarially sound methodology, the time and 

expense involved in performing such a calculation may not be warranted 

given that (1) there is no provision under LHWCA for financing the Special 

Fund with appropriated funds, (2) 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 (3) self-insured employers and insurance carriers are required to 

disclose their future liabilities for second injury fund assessments in their 

annual financial statements, acknowledging that they are responsible for 

any future liability of the fund.3

The $2.5 billion estimate described above was developed for discussion 

purposes by the NOLP official responsible for the day-to-day 

administration of the Special Fund. The estimate was a projection of future 

3

American Institute of Certified Public Accountants Statement of Position 97-3, “Accounting 

by Insurance and Other Enterprises for Insurance-Related Assessments.” This Statement of 

Position was issued on December 10, 1997, and is effective for fiscal years beginning after 

December 15, 1998.
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Special Fund payments based on the workers’ compensation benefits paid 

as of December 1998, which resulted in a $2.5 billion estimate of the Special 

Fund’s future obligations. This estimate was not developed for financial 

reporting purposes because the NOLP official understood that there was no 

unfunded liability for the federal government related to the Special Fund. 

Rather, his interest arose after the American Institute of Certified Public 

Accountants issued Statement of Position 97-3, which requires the Special 

Fund’s self-insured employers and insurance companies to disclose their 

unfunded liability related to the Special Fund. To determine how much 

these companies might cumulatively disclose, the official created a 

projection of current payments using arbitrary life expectancies of 21 years 

for post-1972 cases and 11 years for the pre-1972 cases to estimate the 

Special Fund’s future obligations. The official also determined that the 

expected future revenue from assessments, related to these December 

1998 cases, would offset the estimated future obligations. 

Although DOL has the expertise necessary to calculate the unfunded 

liability, it does not have an actuarial model developed for this calculation. 

According to DOL’s Chief Actuary, the process of developing an actuarially 

sound estimate could take up to 9 months and the cost would be in excess 

of $150,000. He stated that the process would require an actuary to create 

experience tables using at least 12 years of data on the payments already 

made from the Special Fund, including (1) the ages of the injured workers, 

(2) the nature of the injuries, and (3) the dates of death or cessation of 

payments by the fund. The actuary would then use the experience tables to 

develop the actuarial model that would calculate the estimated unfunded 

liability.

Pursuant to enactment of authorizing legislation, the federal government 

may assume liabilities for which it has no prior legal responsibility in order 

to provide for the public’s general welfare. Statement of Federal Financial 

Accounting Standards (SFFAS) No. 5 refers to these actions as 

“government-acknowledged events.” Although the costs of governmentacknowledged events may ultimately become the responsibility of the 

federal government, according to SFFAS No. 5, the cost should not be 

reported on the face of the financial statements until the criteria for 
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recognizing the liability have been met.4 Since, at this time, the criteria have 

not been met, no unfunded liability should be recorded on the Special 

Fund’s financial statements.

If, in the future, either (1) the federal government assumes responsibility 

for liabilities over and above the Special Fund’s assets, thereby meeting 

SFFAS No. 5 criteria for reporting the liability, or (2) it is determined that 

calculating the unfunded liability would assist the Congress in overseeing 

the soundness of the Special Fund, an actuarial estimate of the unfunded 

liability may be warranted.

Controls Over Referral 

of Cases

The Department of Labor has established controls over the referral of cases 

to the Special Fund. These controls include several levels of review for 

each case referred to the Special Fund to ensure that the cases meet the 

mandated criteria. To be accepted into the Special Fund, a case must meet 

three conditions: (1) there must have been a preexisting permanent 

impairment, not necessarily work related, (2) the second injury must have 

occurred on the job, and (3) the combination of the two injuries/disabilities 

must have worsened the initial impairment. Employers can apply to the 

Director of their district office to have the injured workers’ cases 

transferred to the Special Fund, after the employers have paid 104 weeks of 

compensation payments to the injured workers. Eligibility for the Special 

Fund is determined first by a DOL District Director or, in cases of dispute, 

an Administrative Law Judge. If the Director or Judge determines that the 

case is eligible, a Compensation Order is issued, which requires that the 

Special Fund assume responsibility for future payments to the injured 

worker. Compensation Orders issued by the District Director are 

forwarded to the national office for final approval by a Claims Examiner. If 

the application is denied, the self-insured employer or insurance carrier 

may appeal.

The NOLP official told us there is a strong incentive for companies not to 

submit invalid claims since annual assessments are calculated, in part, 

based on the number of cases that each company has in the Special Fund. 

4

According to SFFAS No. 5, the federal entity should not record the liability and expense 

until the following two criteria have been met: (1) the Congress has appropriated or 

authorized (i.e., through authorizing legislation) resources and (2) an exchange occurs or 

nonexchange amounts are unpaid as of the reporting date (e.g., payments to beneficiaries), 

whichever applies.
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In addition, since self-insured employers and insurance carriers must pay 

the first 104 weeks of benefits prior to referring the cases to the Special 

Fund, they take steps to detect fraudulent claims through monitoring 

efforts such as surveillance, reevaluation, and verification of the status of 

the beneficiary’s condition.

Data Matching At the time of our review, DOL’s management was not matching the Special 

Fund’s recipient information with any other federal agency’s databases. 

However, plans were underway to perform a match with SSA’s death index, 

which will reduce the risk of deceased individuals being issued benefit 

payments from the Special Fund. This kind of matching procedure is used 

in the DOL/OWCP Black Lung Program, which has an agreement with SSA 

to provide the death index database to DOL on a monthly basis. DOL 

matches the death index against Black Lung recipient data to determine 

whether any of the Black Lung recipients are deceased. Once the match has 

been completed, Black Lung officials provide the database to officials of 

the Federal Employees Compensation Act (FECA) program, who then 

perform a comparison of FECA recipient data to the death index. 

According to the OWCP official responsible for ensuring that the 

comparison is performed for FECA, the matching procedure produces 

about 30 matches each time. 

We were told by the OIG that prior year financial statement audits of the 

Longshore Special Fund uncovered payments made to deceased 

individuals. Accordingly, the OIG added a new procedure to the fiscal year 

1999 audit program to detect such payments. The OIG provided SSA a data 

file containing Special Fund recipient information that SSA will match 

against its death index. 

Calculation of 

Assessments

The formula for calculating the annual assessments against insurance 

carriers and self-insured employers is prescribed by statute.5

 The formula 

requires DOL to (1) estimate the probable expenses of the Special Fund for 

the upcoming calendar year and the amount of payments required to 

maintain adequate reserves in the fund and (2) allocate a portion of the 

annual assessments to the individual insurance carriers and self-insured 

employers based on each company’s share of the prior year’s total LHWCA 

5

33 U.S.C. § 944 (c) (2).
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related payments made by all employers subject to LHWCA, and each 

company’s share of the prior year’s second injury payments made by the 

Special Fund. The allocation process was designed to result in a prorated 

distribution of the annual assessment to the individual companies based on 

their activities under LHWCA. However, inaccurate reporting by companies 

has resulted in disproportionate distributions of assessments among the 

insurance carriers and self-insured employers. In addition, inadequate 

monitoring of certain Special Fund cases by DOL may have contributed to 

some companies paying more than their true prorated share of the annual 

assessments. 

Underreporting was disclosed by DOL audits conducted during fiscal years 

1992 through 1998. The process for allocating the annual assessment to the 

applicable self-insured employers and insurance carriers relies on the 

accuracy of LHWCA payment information obtained from these companies. 

However, the lesser the amount of LHWCA payments a company reports, 

the lower that company’s portion of the assessments will be. 

DOL contracts with an Independent Public Accounting firm (IPA) to 

perform a few audits (seven to eight audits a year) of the data reported on 

the Report of Payments (Form LS-513)6

 submitted by the self-insured 

employers and insurance carriers. During fiscal years 1992 through 1997, 

the audits performed by the IPA generated $27 million in collected 

reassessments due to underreporting. According to a DOL official, an 

additional $4 million in assessments was recovered as a result of the fiscal 

year 1998 audits. The overall annual assessments are reduced by the 

amount of the reassessment collections received in the same year, which 

results in lower assessments for the individual self-insured employers and 

insurance carriers. Broader audit coverage (for example, covering the 27 

companies that represent 70 percent of the assessments) would most likely 

generate more reassessments due to identification of underreporting, 

resulting in lower future assessments. In addition, as self-insured 

employers and insurance carriers become aware of these audits, they are 

likely to report their payment data more accurately, which should result in 

future distributions of assessments more accurately reflecting prorated 

activity under LHWCA. 

6

All self-insured employers and insurance carriers authorized to participate in the Special 

Fund are required to submit a Form LS-513 “Report of Payments” annually, indicating the 

total amount of payments they made related to LHWCA. During fiscal year 1998, 483 

companies were assessed.
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The NOLP official told us that the self-insured employers and insurance 

carriers are primarily responsible for monitoring the continued eligibility of 

the Special Fund beneficiaries. As previously discussed, these companies 

have an incentive to monitor the cases that they submit to the Special Fund 

because they must pay the first 104 weeks of benefits, and the payments 

related to their cases in the Special Fund are directly proportional to their 

share of the annual assessment. Their monitoring efforts include 

surveillance, reevaluation, and verification of the status of the beneficiary’s 

condition. The self-insured employers and insurance carrier we spoke with 

stated that such monitoring takes place. According to DOL regulations, if a 

change in the recipient’s condition is disclosed and a self-insured employer 

or insurance carrier intends to pursue a modification of the award of 

compensation, the company must involve DOL. The NOLP official stated 

that compensation awards have been reduced based on the review of 

evidence submitted by the self-insured employers and insurance carriers; 

however, this rarely occurs. 

Because DOL relies on the monitoring activities of the self-insured 

employers and insurance carriers, DOL performs only minimal monitoring 

of the Special Fund’s active cases. According to a NOLP official, all Special 

Fund recipients are required to submit a Report of Earnings (LS-200) to 

DOL annually. Recipients are required to report all earnings during the 

period specified on the LS-200. The NOLP official stated that although DOL 

does not verify the accuracy of the information submitted, it does enforce 

the requirement for each recipient to report. If the LS-200 is not completed 

and returned, DOL suspends the recipient’s benefit payments. When 

requested, DOL will provide the self-insured employers and insurance 

carriers copies of the LS-200 forms. 

The officials we spoke to expressed concern regarding the lack of adequate 

monitoring of the “orphaned” cases.7

 There are about 500 of these 

“orphaned” cases, which, according to DOL officials, account for about

$10 million to $12 million in benefits annually. Since the companies that 

referred these cases to the Special Fund are no longer in existence, the only 

monitoring of the “orphaned” cases occurs when DOL verifies that each 

recipient submitted an LS-200. This lack of adequate monitoring increases 

the likelihood of payments being made to ineligible recipients. The cost of 

7

“Orphaned” cases are those in which the former employer (company that referred the case 

to the Special Fund) has become insolvent or is no longer in existence, and beneficiaries 

continue to receive payments. 
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any resulting improper payments becomes an additional burden to the 

companies responsible for contributing to the annual assessment because 

these payments are included in the total annual assessment and allocated 

to the self-insured employers and insurance carriers. The NOLP official 

recognized the need for additional monitoring of “orphaned” cases, but 

stated that DOL does not have the resources to do so.

Changes to Longshore 

Computer Systems

In addition to paying the second injury benefits, the Special Fund is 

available for paying the costs of certain rehabilitation services. DOL is 

currently developing an automated computer system to strengthen existing 

controls over the reporting and authorization of payments made from the 

Special Fund to rehabilitation service providers in response to DOL/OIG 

reported weaknesses identified in the Special Fund’s fiscal year 1997 

financial statement audit report, dated May 14, 1998. The reported 

weaknesses pertain to the controls over the national office’s final 

authorization for payment when bills are submitted by the district offices. 

Specifically, the weaknesses identified were (1) bills submitted for payment 

to the national office were not compared to a list of valid recipients or 

authorized service providers, (2) the total amount of rehabilitation bills 

submitted by the district offices was not compared to the total amount of 

rehabilitation bills paid by the national office, and (3) bills paid were not 

compared to the available amounts obligated by the Rehabilitation 

Specialist. According to the OIG’s audit report, these weaknesses may have 

contributed to the fraudulent payment of more than $500,000 to fictitious 

rehabilitation vendors over a 4-year period.

The OIG recommended strengthening internal controls for recording, 

authorizing, and paying for rehabilitation service costs by implementing an 

automated rehabilitation payment system. The recommendation stated that 

at a minimum, the system should include the following controls: 

(1) compare bills submitted to a centralized list of eligible recipients and 

authorized service providers, with adequate controls over the ability to add 

recipients/vendors to the list, (2) compare the amount of bills submitted by 

the district offices to the amount paid by the national office, and (3) ensure 

that amounts obligated and accounts payable are timely and accurately 

reported and that payments do not exceed amounts obligated.

DOL management, in its response to the audit report, agreed with the OIG’s 

recommendation. DOL is currently developing a computer system to be 

used by NOLP, which we were told will allow the national office to view 

amounts approved and obligated by the district offices for rehabilitation 
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services before payments are authorized. We were also told that the system 

will compare bills submitted for payment to a list of eligible providers. 

According to DOL, the system was implemented in September 1999. 

The Longshore and Harbor Workers’ Compensation Program currently uses 

two computer systems: (1) the Longshore Special Fund System (LSFS) and 

(2) the Longshore Case Management System (LCMS). These systems were 

originally developed and implemented in 1985. In response to changing 

technology and the Y2K problem, DOL has instituted changes to both 

systems. LSFS is a benefit payments system, which is also used to allocate 

the annual assessments to the applicable insurance carriers and selfinsured employers. LCMS is a management case tracking system. 

Employers are required to report all LHWCA claims to a district office 

within 10 days of the date of an employee’s injury or death, or within 10 

days of the date the employer becomes aware of the injury or death. Once 

reported, the case is entered into LCMS. The district offices use the LCMS 

to monitor the timeliness of the insurance carriers’ and self-insured 

employers’ compensation payments to beneficiaries. 

Both of these systems were upgraded to mitigate Y2K problems and 

accommodate new, user-friendly technology. The upgraded LSFS was 

placed in service in July 1998 and the upgraded LCMS was implemented in 

March 1999. These upgraded systems serve the same purposes as the old 

systems, with the added advantages of modern hardware and software in 

order to comply with requirements related to the Y2K computing problem. 

Additionally, these systems were upgraded with new, user-friendly 

enhancements, such as drop-down menus, icons, and toolbars.

Conclusions While DOL has procedures related to reducing the risk of inappropriate 

cases being referred to the Special Fund, DOL has not developed and 

implemented adequate procedures to reduce the risk of improper payments 

being made to deceased or otherwise ineligible recipients. However, DOL 

plans to match Special Fund recipient data with SSA’s death index to 

identify payments being made to deceased recipients. Until DOL 

establishes sufficient monitoring of “orphaned” cases and expands its 

auditing of payment data submitted by self-insured employers and 

insurance carriers to detect underreporting, DOL cannot guarantee that the 

distribution of assessments among employers and carriers will accurately 

reflect their activity under LHWCA. 
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Recommendations We are making recommendations to the Secretary of Labor to reduce the 

risk of (1) Special Fund payments being made to deceased or otherwise 

ineligible recipients and (2) disproportionate distribution of assessments 

among the self-insured employers and insurance carriers.

To reduce the risk of Special Fund payments being made to deceased or 

otherwise ineligible recipients, we recommend that the Secretary of Labor 

direct the Assistant Secretary for Employment Standards Administration to 

take the following actions.

• 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 FECA 

recipient data match with SSA’s death index.

• Develop and implement procedures to adequately monitor the 

continuing eligibility of the “orphaned” cases. The monitoring 

techniques employed should be similar to those used by self-insured 

employers and insurance carriers.

To help achieve the intended prorated distribution of assessments among 

the self-insured employers and insurance carriers, we recommend that the 

Secretary of Labor direct the Assistant Secretary for Employment 

Standards Administration to develop and implement a more 

comprehensive plan to expand DOL’s auditing of LHWCA payment data 

submitted by self-insured employers and insurance carriers. 

Agency Comments and 

Our Evaluation

In written comments on a draft of this report, DOL generally agreed with 

our observations and recommendations for improving the internal controls 

over the Special Fund. DOL plans to implement matching procedures in 

October 1999 in concurrence with our recommendation. DOL supports the 

recommendation for expansion of the auditing of LHWCA payments. While 

DOL views additional monitoring of “orphaned” cases as a challenge, it said 

it will look for ways to increase monitoring efforts in this area.

We are sending copies of this report to Senator James M. Jeffords and 

Senator Edward M. Kennedy, and to Representative William L. Clay, 

Representative William F. Goodling, and Representative Major R. Owens in 

their capacities as Chairmen or Ranking Minority Members of Senate and 

House Committees. We are also sending copies to the Honorable Alexis M. 

Herman, Secretary of Labor; the Honorable Jacob J. Lew, Director of the 
B-283563

Page 15 GAO/AIMD-00-15 Oversight of Longshore Special Fund

Office of Management and Budget; and the Honorable Bernard E. 

Anderson, Assistant Secretary of the Employment Standards 

Administration of the Department of Labor. Copies will be made available 

to others upon request. If you have any questions or wish to discuss the 

issues in this report, please contact me at (202) 512-4476. Key contributors 

to this report are listed in appendix II.

Sincerely yours,

Gloria L. Jarmon

Director, Health, Education, and Human

 Services Accounting and Financial Management Issues
Page 16 GAO/AIMD-00-15 Oversight of Longshore Special Fund

Appendix I

Comments From the Department of Labor AAppenendxdieixIs
Appendix I

Comments From the Department of Labor

Page 17 GAO/AIMD-00-15 Oversight of Longshore Special Fund
Page 18 GAO/AIMD-00-15 Oversight of Longshore Special Fund

Appendix II

GAO Contact and Staff Acknowledgements ApendixI

GAO Contact Gloria L. Jarmon, (202) 512-4476

Acknowledgments In addition to the contact named above, Alana Stanfield, Bonnie Derby, 

Suzanne Lightman, and David Engstrom made key contributions to this 

report.

(916291) Letr
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