ASSISTANT INSPECTOR GENERAL’S REPORT 

OIG Report No. 22-01-013-13-001 Page 1.1

U.S. Department of Labor Office of Inspector General

Washington, D.C. 20210

ASSISTANT INSPECTOR GENERAL’S REPORT

TO THE HONORABLE

ELAINE L. CHAO

SECRETARYOF LABOR

The Chief Financial Officers Act of 1990

(CFO Act) requires agencies to report annually to Congress on their financial status and

any other information needed to fairly present

the agencies’ financial position and results of

operations. To meet the CFO Act reporting

requirements, the United States Department of

Labor (DOL), a Department of the United

States Government, prepares annual financial

statements, which we audit. 

The objective of our audit is to express an

opinion on the fair presentation of DOL’s

Fiscal Year 2000 principal financial statements. Our objective also is to obtain an

understanding of the Department’s internal

control and test compliance with laws and

regulations that could have a direct and material effect on the financial statements. 

We have audited the consolidated balance

sheet of the DOL as of September 30, 2000,

and the consolidated statements of net cost,

changes in net position, budgetary resources,

financing, and custodial activity for the year

then ended. These financial statements are

the responsibility of the DOL’s management. 

Our responsibility is to express an opinion on

these financial statements based on our audit. 

We conducted our audit in accordance with

auditing standards generally accepted in the

United States; the standards applicable to

financial statements contained in Government

Auditing Standards, issued by the

Comptroller General of the United States; and

Office of Management and Budget (OMB)

Bulletin 01-02, Audit Requirements for Federal Financial Statements. These standards

require that we plan and perform the audit to

obtain reasonable assurance about whether

the financial statements are free of material

misstatements. An audit includes examining,

on a test basis, evidence supporting the

amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant

estimates made by management, as well as

evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our opinion.

RELATIONSHIP TO THE 

SINGLE AUDIT ACT

The financial statements for the year ended

September 30, 2000, include:

• costs for grants, subsidies, and contributions primarily with various state and local

governments and nonprofit organizations in

the amount of $8.1 billion;

• costs for unemployment benefits incurred

by state employment security agencies in

the amount of $21.1 billion;

• state employer tax revenue of $19.7 

billion; 

• net receivables for state unemployment

taxes, reimbursable employers and benefit

overpayments of $.7 billion; and 

• reimbursements from state, local, and

nonprofit reimbursable employers in the

amount of $1.0 billion, for unemployment

benefits paid on their behalf.
Page 1.2 OIG Report No. 22-01-013-13-001

Our audit included testing these costs, financing sources, and balances at the Federal level

only. Pursuant to a mandate by Congress, the

examination of these transactions below the

Federal level is primarily performed by various

auditors in accordance with the Single Audit

Act of 1984, as amended, and OMB Circular

A-133. The results of those audits are reported to each Federal agency which provides

direct grants, and each Federal agency is

responsible for resolving findings for its

awards.

OPINION ON FINANCIAL

STATEMENTS 

In our opinion the financial statements referred

to above present fairly, in all material respects, in conformity with generally

accepted accounting principles:

• the assets, liabilities, and net position of the

Department of Labor as of September 30, 2000; and

• the net cost, changes in net position,

budgetary resources, reconciliation of net

cost to budgetary resources, and 

custodial activity for the year ended 

September 30, 2000.

OTHER ACCOMPANYING 

INFORMATION

Our audit was conducted for the purpose of

forming an opinion on the FY 2000 principal

financial statements of the DOL. The accompanying financial information discussed below

is not a required part of the principal financial

statements:

The required supplementary information (included in the FY 2000 Annual Performance

Report and in the Management of DOL’s

Financial Resources and Required Supplementary Information sections of the Financial

Performance Report) and the Required Supplementary Stewardship Information of the

Financial Performance Report are required by

the Federal Accounting Standards Advisory

Board. We have applied certain limited procedures, which consisted principally of inquiries

of management regarding the methods of

measurement and presentation of the information. However, we did not audit the information and express no opinion on it. 

The information in the appendices of the

DOL’s Performance and Accountability Report is presented for purposes of additional

analysis. Such information has not been

subjected to the auditing procedures applied in

the audits of the consolidated financial statements and, accordingly, we express no opinion

on it.

REPORT ON INTERNAL CONTROL

In planning and performing our audit, we considered the Department’s internal control over

financial reporting by obtaining an understanding of the Department’s internal control, determined whether internal controls had been

placed in operation, assessed control risk, and

performed tests of controls in order to determine our auditing procedures for the purpose

of expressing our opinion on the financial

statements. We limited our internal control

testing to those controls necessary to achieve

the objectives described in OMB Bulletin 01-

02. We did not test all internal controls relevant to operating objectives as broadly defined

by the Federal Managers’ Financial Integrity

Act of 1982, such as those controls relevant to

ensuring efficient operations. The objective of

our audit was not to provide assurance on

internal control. Consequently, we do not

provide an opinion on internal control.

Our consideration of the internal control over

financial reporting would not necessarily disclose all matters in the internal control over

financial reporting that might be reportable

conditions. Under standards issued by the

American Institute of Certified Public Accountants, reportable conditions are matters
ASSISTANT INSPECTOR GENERAL’S REPORT 

OIG Report No. 22-01-013-13-001 Page 1.3

coming to our attention relating to significant

deficiencies in the design or operation of the

internal control that, in our judgment, could

adversely affect the agency’s ability to record,

process, summarize, and report financial data

consistent with the assertions by management

in the financial statements. Material weaknesses are reportable conditions in which the

design or operation of one or more of the

internal control components does not reduce to

a relatively low level the risk that misstatements in amounts that would be material in

relation to the financial statements being audited may occur and not be detected within a

timely period by employees in the normal

course of performing their assigned functions. 

Because of inherent limitations in internal

controls, misstatements, losses, or noncompliance may nevertheless occur and not be detected. We noted certain matters, discussed in

the following paragraphs, involving the internal

control and its operations that we consider to

be reportable conditions. However, none of

the reportable conditions is believed to be a

material weakness. 

In addition, we considered the DOL’s internal

control over Required Supplementary Stewardship Information by obtaining an understanding of the agency’s internal controls,

determining whether they had been placed in

operation, assessed control risk, and

performed tests of controls as required by

OMB Bulletin 01-02. The objective of our

audit was not to provide assurance on these

internal controls. Accordingly, we do not

provide an opinion on such controls. 

Finally, with respect to internal control relating

to performance measures included in the FY

2000 Annual Performance Report, we obtained an understanding of the design of significant internal controls relating to the existence

and completeness assertions as required by

OMB Bulletin 01-02. Our procedures were

not designed to provide assurance on internal

control over reported performance measures,

and, accordingly, we do not provide an opinion on such controls. However, we noted

certain deficiencies in internal control over

reported performance measures, discussed

below that, in our judgment, could adversely

affect the agency’s ability to collect, process,

record, and summarize performance information and report performance measures in

accordance with management’s criteria. 

REPORTABLE CONDITIONS

Current Year Reportable Conditions

Unreconciled Differences with Treasury

The Department continues to have unreconciled cash differences between the DOLAR$

general ledger and Treasury. Although the

unreconciled differences are not material to

the financial statements, they amounted to

over $44 million at year-end. The most serious reconciliation problems exist in ETA,

where approximately $7.8 billion in grant payments were made through the Department of

Health and Human Services’ Payment Management System (HHS-PMS). ETA did not

perform reconciliations at the appropriation

level throughout FY 2000 (where HHS-PMS

activity is reported). At year-end, ETA had

$13 million of net unreconciled differences at

the appropriation level. 

In addition, ineffective reconciliation procedures resulted in $31 million of the $44 million

year-end cash adjustment related to payroll

activity. We also found $10.6 million of suspended payroll transactions that had been

outstanding for more than 90 days. Because

these amounts have not been identified and

cleared, one or more appropriation accounts

are misstated.

We recommend that the Chief Financial

Officer ensures that: 1) agencies identify

and clear differences at the document

level at least monthly; 2) reconciliation

procedures effectively address departmental funds processed through non-DOL
Page 1.4 OIG Report No. 22-01-013-13-001

ALCs (e.g., HHS, USDA, Treasury, etc.);

3) reconciliation worksheets are prepared

in compliance with Treasury and OCFO

guidance; and 4) the resolution of differences is adequately supported by source

documentation. 

The Department agrees that cash reconciliations are necessary and must be performed on

a monthly, if not daily, basis. The OCFO has

formed a task force to address cash reconciliations Department-wide. This task force will

ensure that all agencies, including the OCFO,

comply with the Treasury directive on reconciling Funds with Treasury balances. Also, the

OCFO will work with the grant agencies and

HHS to refine the reports to facilitate reconciling the Department’s records with HHS’

records.

DOLAR$ Grant Transactions Not Reconciled to HHS-PMS

ETA uses the HHS-PMS to process grant

payments for the majority of their grants (approximately $7.8 billion in FY 2000). Accordingly, PMS is the initial system of record for

grant payment transactions and it is essential

that all PMS transactions are accurately recorded in the DOLAR$ general ledger, and

that the two systems reconcile. 

Our audit disclosed that ETA does not reconcile PMS transactions, by document, to those

recorded in DOLAR$. Significant differences

exist in obligation and payment amounts recorded on the two systems for ETA’s grants.

Other DOL granting agencies performed

detailed reconciliations of PMS and DOLAR$

activity during FY 2000, and noted events that

caused DOLAR$ to be misstated. For example, they noted PMS transactions that were

posted twice in DOLAR$; an entire quarter of

costs that was recorded on PMS but not on

DOLAR$; selected days of payment activity

that were recorded on PMS but not on

DOLAR$; PMS system errors which PMS

subsequently corrected but were not corrected

in DOLAR$; and transactions that suspended

during the PMS/DOLAR$ interface that were

not properly recorded when cleared from

suspense, or remained suspended. These

events indicated systemic problems that affect

all granting agencies using PMS. Accordingly,

it is critical that ETA initiate a reconciliation

process for their PMS grants to ensure that

each grant document recorded in DOLAR$

accurately reflects a complete record of payments made to the grantee. It is also critical

that ETA reconcile grant obligations to ensure

that obligational authority released in PMS is

accurate and in agreement with DOLAR$.

Differences between PMS and DOLAR$

payment activity can also indicate that

DOLAR$ Funds with Treasury accounts are

not in balance with the Treasury’s TFS 6653. 

We reported in a separate finding that there

are unreconciled differences in the Funds with

Treasury account for ETA’s appropriations,

totaling approximately $13.5 million. These

differences were calculated by management

but were not identified or corrected to the

respective grant documents. Rather, adjustments were recorded to unrelated documents

set up specifically for this purpose.

We recommend that the Chief Financial

Officer and the Assistant Secretary for

Employment and Training ensure that

ETA implement policies requiring routine

reconciliations of grant transactions recorded in DOLAR$ to those recorded in

PMS. We also recommend that the Chief

Financial Officer ensures that changes are

made to DOLAR$ and/or the Sync Report

so that the report provides a more useful

and reliable tool for management.

ETA agreed that DOLAR$ and the HHSPMS system should be in agreement and

periodically reconciled to validate that they are

in agreement. The OCFO agreed to work

with the grant agencies and HHS to refine

existing reports as well as develop new re-
ASSISTANT INSPECTOR GENERAL’S REPORT 

OIG Report No. 22-01-013-13-001 Page 1.5

ports to facilitate reconciling the Department’s

records with HHS’ records.

ETA Obligations Inappropriately Moved to

Subsequent Fiscal Year

We analyzed selected documents which reflected large differences in payment activity

between DOLAR$ and PMS grant activity,

and noted several 1993 JTPA grants where a

portion of the obligation, cost and payment

activity had been moved from one fiscal year

to the next. According to ETA, these grants

were closed (and the funds had expired) prior

to the grantee drawing down their final payment. To close the grants, ETA reduced

obligations and costs in DOLAR$ to equal the

total payments recorded (in DOLAR$) at the

time. When the grantee subsequently drew

the funds from PMS (on the 1993 grant), ETA

set up a 1994 grant obligation in DOLAR$ so

that the system would accept the draw down. 

As a result, PMS reflects the final payment

totaling over $4.5 million as an FY 1993 obligation, cost and payment but DOLAR$ reflects this as an FY 1994 obligation, cost and

payment. 

These practices are not in compliance with

appropriation law (U.S.C. Title 31, Chapter 15,

Sections 1552 and 1553). Appropriation law

allows adjustments to closed years, however,

the adjustments must be made to the current

year (in this case FY 2000). In addition, adjustments exceeding $4 million require approval from the head of the agency. ETA

inappropriately recorded the adjustments to

FY 1994 rather than FY 2000 and did not

receive the proper approvals. In addition,

ETA did not have the proper obligating documentation to support the FY 1994 obligation.

This situation was caused by the fact that

grants were not appropriately or timely closed

for FY 1993. ETA waited until the funds

canceled and adjusted the documents so that

the documents were in balance for obligations,

costs and payments. These documents

reflected more costs than payments, and actual grant costs were reduced in order to

balance the grant. Had the closeout process

been performed more timely, ETA would have

had the time to notify the grantees to draw

down the funds so that the grants would be in

balance, rather than reducing costs and obligations to an incorrect amount.

We recommend that the Chief Financial

Officer and the Assistant Secretary for

Employment and Training ensure that

ETA establish controls (including written

policies and procedures) which will ensure that adjustments to obligations for

closed accounts are posted only to current year appropriations and are properly

authorized by the head of the agency when

the amount of the adjustments exceeds

the dollar threshold established in the

regulations.

ETA is considering actions to be taken to

alleviate this concern. A decision will be

made on a course of action to be taken and

the action will be implemented during the

fourth quarter of FY 2001. 

State Unemployment Benefit Payments

Understated

ETA did not perform routine and timely reconciliations of state drawdowns reported on

ETA form 2112 and drawdowns reported by

Treasury. As a result, state advances were

overstated and benefit expenses were understated in the Department’s fiscal year ended

September 30, 1999 financial statements. Net

benefit expenses continued to be recorded and

used to adjust gross advances during FY 2000. 

During FY 2000, the OCFO reconciled state

reported drawdowns to Treasury reported

drawdowns. As a result of this reconciliation,

it was found that starting in January 1999, a

number of states underreported unemployment

benefit payments. During the FY 2000 year

end financial statement process, advances and
Page 1.6 OIG Report No. 22-01-013-13-001

benefit expense balances were adjusted by

$288 million and $403 million for FY 1999 and

FY 2000, respectively.

In the publication Standards for Internal Control in the Federal Government, the General

Accounting Office describes control activities

as policies, procedures, techniques, and mechanisms that enforce management’s directives. 

They include a wide range of diverse activities

such as approvals, authorizations, verifications,

reconciliations. . . . [Emphasis added.]

Transactions should be promptly recorded to

maintain their relevance and value to management in controlling operations and making

decisions. This applies to the entire process or

life cycle of a transaction or event from the

initiation and authorization through its final

classification in summary records. In addition,

control activities help to ensure that all transactions are completely and accurately recorded.

We recommend that the Chief Financial

Officer and the Assistant Secretary for

Employment and Training ensure that: 1)

Reconciliations using FMRS and Treasury data are performed timely and include comparisons of drawdowns for state

benefits in addition to drawdowns for

Federal benefits; 2) ETA monitors the

reconciliation process on a quarterly basis

and provides the OCFO status reports on

the results of the reconciliations; 3)

OCFO documents procedures used to

verify that state reported data recorded in

DOLAR$ through the FMRS is accurate;

and 4) OCFO evaluates analytical procedures used to verify state UI advance,

accounts payable, and benefit expense

data entering DOLAR$. 

ETA will issue instructions to the states on

proper reporting of benefit payments, monitor

and follow up on state reconciliations of

FMRS and Treasury data quarterly, provide

the OCFO quarterly status reports, and request state reconciliation of all benefits reported. The OCFO will include procedures in

their compilation guide to be followed in case

the FMRS reconciliation fails which will include analytical procedures to be used to

examine the state data. 

Prior Year Reportable Conditions 

EDP Controls

DOL Needs to Strengthen Controls to Protect Its Information

DOL's systems environment is exposed to

various weaknesses in management's procedures for assessing risks, implementing an

effective security framework, periodically

monitoring its framework, timely resolving

issues identified or reported upon, and effectively implementing and maintaining its access

controls. 

The Department has taken several key steps

in strengthening its information systems security architecture during the last year. Specifically, the Department has issued its Critical

Infrastructure Protection Plan (CIPP), the

DOL Cyber Security Program Plan and the

Computer Security Handbook (CSH). The

CSH is to provide direction and guidance for

the agencies to complete system security plans

and risk assessments for those systems identified as critical assets, major applications or

general support systems in the Department’s

CIPP. The Department is working with the

agencies to strengthen the Department’s

information systems architecture by providing

training and guidance.

DOL Needs to Fully Implement a Systems

Development Life Cycle Methodology

Changes to DOL’s systems were not properly

controlled in the areas of software change

management, software file access and system

documentation. The Department has issued

its Systems Development Life Cycle (SDLC)
ASSISTANT INSPECTOR GENERAL’S REPORT 

OIG Report No. 22-01-013-13-001 Page 1.7

Manual and agencies are updating systems to

comply with the manual. The SDLC serves

as the mechanism to ensure that developing,

modifying, or enhancing systems meet established user requirements and support DOL

critical success factors. 

DOL Needs to Complete and Fully Test Its

Plan(s) for Maintaining Continuity of Operations

DOL has several weaknesses that would

impair the Department’s ability to effectively

respond to a disruption in business operations

as a result of a disaster or another event causing an extended service interruption. The

general areas where weaknesses were noted

are in risk assessments that have not been

finalized and contingency planning.

The Department has established a multi-year

strategy and program management plan for its

Continuity of Operations (COOP). As articulated in the COOP, the Department must have

a viable capability that ensures: the emergency

delegation of authority; safekeeping of vital

resources, facilities, and records; improvisation

or emergency acquisition of the resources

necessary for business resumption; capability

to perform work at alternate work sites until

normal operations are resumed; and the ability

to be operational at alternate facilities, with or

without warning within a specified amount of

time after activation. 

Additionally, the Department must also have a

Continuity of Government (COG) Plan for

discharging its role in maintaining the integrity

of critical constitutional functions of the Government in the event of a threat to national

security. Also, the Department issued guidance to the agencies to address service continuity in its Computer Security Handbook. 

Accounting for Grants

Grant accounting has the following deficiencies:

• Transfers of JTPA funds between programs were not monitored by ETA for

compliance with the regulations, and were

not accounted for in ETA’s accounting

records.

• We continued to note unsupported adjustments recorded for ETA’s grants and

contracts.

• We continued to note delinquent grantee

cost reporting and untimely recording of

costs for ETA’s grants and contracts.

• ETA does not have sufficient procedures

for identifying and correcting grant accounting errors on a timely basis.

• ETA does not have written grant accounting procedures.

• Grant accruals were not recorded on a

periodic basis, rather, they were recorded

at year end only.

• OSHA was not consistently reconciling

grant transactions processed by PMS.

Management is in the process of completing a

new grant cost system that will resolve several

of the cost reporting issues and has agreed

that there is a need to reconcile PMS and

DOLAR$ transactions.

Wage and Hour’s Back Wage System

As we have noted for several years, the Wage

and Hour Division (WHD) does not maintain

sufficient control over information recorded in

the back wage subsidiary system (Back Wage

Collection and Disbursement System -

BCDS), and certain policies and practices

exercised by the regional offices preclude the

use of this system as a reliable subsidiary for

back wages.
Page 1.8 OIG Report No. 22-01-013-13-001

In FY 2000, management took steps to improve the financial accounting for back wages

with the design and implementation of a new

system, the BCDS 2000. Nonetheless, significant misstatements in both accounts receivable and cash balances still existed at yearend. 

Management is continuing to add functions, 

improvements, and oversight to the BCDS

2000 system on a quarterly basis. The effects

will be assessed in the FY 2001 audit.

Wage and Hour’s Civil Monetary Penalty

(CMP) System

In our FY 1993 audit, we recommended that

WHD install a CMP tracking system which

would function as a subsidiary for CMP activity and related receivable balances.

In FY 2000, we noted improvements in the

documentation supporting computed assessments and accounts receivable balances. 

However, system weaknesses continue to

exist in the areas of transaction cutoff, the

accounting period close out process and effective controls ensuring that recorded information is accurate, complete and therefore reliable. Furthermore, there has been a lack of

effective implementation of applicable accounting standards with respect to the recording of revenues as of the date the claim became valid and enforceable pursuant to

SFFAS 7 and the proper recording of interest

charges. 

Management is in the process of redesigning

portions of the CMP system and adding oversight procedures. The effects will be assessed

in the FY 2001 audit.

Performance Measures

We previously reported the need for the Unemployment Insurance Service to verify the

accuracy of non-Federal entity data reported

to DOL and used for performance measurement. A verification process has been piloted

and full implementation is planned in FY 2001.

— — — — —

We noted other matters involving the internal

control and its operations that will be reported to the management of DOL in a separate letter.

REPORT ON COMPLIANCE WITH

LAWS AND REGULATIONS

The management of the DOL is responsible

for complying with laws and regulations applicable to the Department. As part of obtaining

reasonable assurance about whether the Department’s financial statements are free of

material misstatement, we performed tests of

its compliance with certain provisions of laws

and regulations, noncompliance with which

could have a direct and material effect on the

determination of financial statement amounts

and certain laws and regulations specified in

OMB Bulletin 01-02, including the requirements referred to in the Federal Financial

Management Improvement Act of 1996

(FFMIA). We limited our tests of compliance

to these provisions and we did not test compliance with all laws and regulations applicable to

the DOL. 

The results of our tests of compliance with the

laws and regulations described in the preceding paragraph, exclusive of FFMIA, disclosed

instances of noncompliance with the following

laws and regulations that are required to be

reported under Government Auditing Standards and OMB Bulletin 01-02, which are

described below.

Adjustment to Grant Obligations

Our FY 2000 audit disclosed that ETA reduced FY 1993 grant obligations and moved

these funds into FY 1994, which was not in

accordance with appropriation law. While

appropriation law allows adjustments to closed
ASSISTANT INSPECTOR GENERAL’S REPORT 

OIG Report No. 22-01-013-13-001 Page 1.9

years, the adjustment must be made to the

current year (in this case FY 2000).

Debt Management

ESA is not in substantial compliance with the

Debt Collection Improvement Act of 1996. 

Delinquent receivables for Back Wages, Civil

Monetary Penalties and the Black Lung Disability Trust Fund were not submitted to Treasury, or were not submitted timely, as required

by the Act. 

Grant Closeout Process

JTPA grants were not closed out in

accordance with applicable regulations and

departmental policy. While ETA has improved the grant closeout processes, there is

still a large backlog of grants and contracts

which need to be closed and the JTPA closeout process remains untimely.

For laws and regulations tested, exclusive of

FFMIA, that are required to be reported under

Government Auditing Standards or OMB

Bulletin 01-02, our tests of compliance disclosed no instances of noncompliance other

than those mentioned in the preceding paragraph.

COMPLIANCE WITH FFMIA

Under FFMIA, we are required to report

whether the Department’s financial management systems substantially comply with the

Federal financial management systems

requirements, applicable Federal accounting

standards, and the United States Government

Standard General Ledger (SGL) at the transaction level. To meet this requirement, we

performed tests of compliance with FFMIA

section 803 (a) requirements. 

Our FY 1999 audit reported that five subsidiary DOL financial management systems did

not substantially comply with one or more of

the three requirements discussed in the preceding paragraph. 
Page 1.10 OIG Report No. 22-01-013-13-001

The results of the current year audit disclosed

that two systems remain in noncompliance:

C Wage and Hour’s Back Wage system,

and

C Wage and Hour’s Civil Monetary

Penalty (CMP) system.

The Back Wage and CMP systems are not in

substantial compliance with the requirements

of OMB Circular A-127, and the CMP system

is also not in substantial compliance with applicable Federal accounting standards.

Management expects the implementation of a

new Back Wage system and the redesign of

portions of the CMP system, which should

bring the systems into FFMIA compliance, to

be completed during FY 2001.

Providing an opinion on compliance with certain provisions of laws and regulations was not

an objective of our audit and, accordingly, we

do not express such an opinion. 

— — — — —

This report is intended solely for the information and use of the management of the U.S.

Department of Labor, the Office of Management and Budget, and Congress and is not

intended to be and should not be used by anyone other than these specified parties.

JOHN J. GETEK

Assistant Inspector General for Audit

February 15, 2001