Federal Employees' Compensation Act: Case Examples Illustrate Vulnerabilities That Could Result in Improper Payments or Overlapping Benefits
Released: 2013-05-03T00:00:00

Letter

Background

Within Labor, the Division of Federal Employees’ Compensation in the OWCP administers the FECA program, which provides wage replacement and medical benefits to federal employees who suffer partial or total disabilities resulting from work-related injuries and occupational diseases. OWCP is the central point where FECA claims are processed and eligibility and benefit decisions are made. Claims examiners (CE) at OWCP’s 12 FECA district offices determine applicants’ eligibility for FECA benefits and process claims for wage-loss payments.

FECA laws and regulations specify criteria for computing compensation payments. Using information provided by the employing agency and the claimant on a claims form, OWCP calculates compensation on the basis of a number of factors, including the claimant’s rate of pay, the claimant’s marital status, and whether or not the claimant has dependents. Eligible disabled employees generally receive 66-2/3 percent (or 75 percent if married or with dependents) of their basic salary, tax-free, plus medical- related expenses. When an injury results in partial disability, and the employee suffers a wage loss because of the disability, the claimant is entitled to monthly monetary compensation equal to 66-2/3 percent (or 75 percent if married or with dependents) of the difference between the claimant’s monthly pay and his or her monthly wage-earning capacity (WEC).

According to OWCP officials, initial claims received from employing federal agencies are reviewed by claims examiners to assess the existence of key elements. (See fig. 1.) The elements include evidence that the claim was filed within FECA’s statutory time requirements; that the employee was, at the time of injury, disease, or death, an employee of the United States; that the employee was injured while on duty; and that the condition resulted from the work-related injury. If the key elements are in place, OWCP will approve a claim and begin processing bills for medical costs. After initial claim approval, additional reviews are done while a claim remains active to determine whether the claimant can continue to receive wage-loss compensation. Once a claim is approved, payments are sent directly to the claimant or provider. An employee can continue to receive wage-loss compensation for as long as medical evidence shows that the employee is totally or partially disabled and that the disability is related to the accepted injury or condition. Specifically, a medical review is required annually for employees receiving temporary total-disability payments, every 2 years for claimants earning loss of WEC payments, and every 3 years for claimants on the periodic rolls who have been determined to not have any WEC. Employees receiving compensation for partial or total disability must advise OWCP immediately if they return to work, either part-time or full-time.

Claimants are required to self-report all employment wages, whether salaried or not, and self-employment. OWCP requires that all individuals on the periodic roll (both partial and total disability) complete Form CA- 1032 on a yearly basis stating their income or whether their dependent status has changed. A new employer may also be requested to provide information regarding a claimant’s employment and earnings. Labor can use this form to adjust the amount of FECA compensation. Employees must report even those earnings that do not seem likely to affect their level of benefits, such as concurrent income that an employee was receiving prior to his or her injury that was not directly related to the employee’s federal employment. While earning income will not necessarily result in a reduced compensation, the FECA statute and implementing regulations stipulate that failure to report income may result in forfeiture of all benefits paid during the reporting period. To help verify income levels, Labor requests that FECA claimants provide it with their consent to access their Social Security Administration (SSA) earnings file; however, claimants are not required to provide Labor with their consent, and authorization to obtain such information is not required to receive compensation. In instances where Labor is authorized to collect earnings information from SSA by claimants, according to OWCP officials, SSA’s earnings data may be as much as 2 years old,may hinder timely adjustments to compensation benefits.

FECA and UI Benefits

Established by the Social Security Act of 1935, the federal-state UI program generally temporarily and partially replaces the lost earnings of those who become unemployed through no fault of their own. To be eligible for UI benefits, unemployed workers must meet eligibility requirements established by state laws that conform to federal law, including that they have worked recently, are involuntarily unemployed, and are able and available for work. Whereas federal statutes and regulations provide broad guidelines on UI eligibility, the specifics of UI eligibility are determined by each state. According to Labor’s Employment and Training Agency, all states require that a claimant must have earned a specified amount of wages, worked a certain number of weeks in covered employment, or must have met some combination of the wage and employment requirements within his or her base period. To be eligible for benefits, claimants must also be free from disqualification for acts such as voluntarily leaving without good cause, discharge for misconduct connected with the work, and refusal of suitable work.

However, the specific eligibility requirements regarding an applicant being “able and available for work” vary among the states. For example, a few states specify that a worker must be physically able, or mentally and physically able, to work. Likewise, while some states require that a worker must be available for work, other states require that a worker must be available for suitable work; still other states may find an individual able and available for work so long as any limitation due to illness, injury, or presence in the usual labor market does not constitute a withdrawal from the labor market. In addition to being able and available for work, all states require by law or by practice that a worker be actively seeking work or making a reasonable effort to obtain work. According to ETA, some states permit payment of benefits to sick or disabled individuals under certain circumstances, but there is nothing in their laws that prohibit a denial of benefits in those circumstances.

Examples of Improper Payments, Overlapping Benefits, and Potential Fraud Highlight the Importance of Data Sharing to Verify Benefit Eligibility

We found examples of improper payments, overlapping benefits, and potential fraud in the FECA program, which could be attributed, in part, to factors such as oversight and data-access issues. OWCP has taken some steps to enhance oversight of the FECA program; however, Labor lacks authority to directly access wage data, which limits its ability to verify self-reported wage information. In addition, OWCP does not have a process to access data needed to identify the extent that claimants are receiving overlapping FECA and UI benefits and does not report FECA claimant information to states, which increases the risk that FECA claimants are receiving overlapping benefits improperly.

Labor Is Taking Steps That Could Enhance Oversight of Eligibility Information

OWCP has designed additional oversight mechanisms to better monitor claimants’ eligibility, which could help identify improper payments and potential fraud. To determine a claimant’s eligibility for FECA, claimants who suffer partial or total disabilities resulting from work-related injuries are required to submit medical evidence to OWCP so it can determine the nature and extent of disability resulting from this condition and any changes to their condition that could affect continuing entitlement. Specifically, a CE is required to conduct a medical review annually for claimants on total disability receiving long-term compensation who are on the program’s periodic rolls, every 2 years for claimants earning loss of WEC payments, and every 3 years for claimants who have been determined to not have any WEC. OWCP bears the burden of justifying the termination or modification of compensation benefits. Accordingly, OWCP must have medical evidence in order to support any change in compensation to a claimant. Without up-to-date medical reports for claimants, OWCP lacks the necessary evidence to change compensation levels.

In addition, claimants are also required to submit an annual form (Form CA-1032) stating whether their income or dependent status has changed. The form must be signed to acknowledge evidence of benefit eligibility and to acknowledge that criminal prosecution may result from deliberate falsehood. OWCP’s review of this annual form is especially important for claimants who are deemed to not have any WEC and, therefore, have less frequent medical reviews.

Our review of a nongeneralizable sample of 32 individual cases identified four claimants who were on partial disability, receiving payments for loss of WEC, but did not have evidence that OWCP obtained or reviewed the required medical reports every 2 years, as required. These individuals continued to receive FECA compensation benefits without evidence that their medical condition has not improved, which potentially could result in an improper payment.

For the 28 cases that had medical reports, we found that 14 cases did not include the Work Capacity Evaluation (OWCP-5c) form, which is not a mandatory form but is to be completed by a medical professional. According to OWCP, a narrative medical report may be more informative than the OWCP-5c and more helpful in determining a claimant’s ability to earn wages. The purpose of the OWCP-5c form is to help clarify whether a claimant is capable of fulfilling his employment duties by identifying a claimant’s specific work-tolerance limitation, where the accepted condition is musculoskeletal in nature. Without this form, it can be difficult to determine whether the claimant is capable of performing the job and whether employers can readily accommodate the medical condition. For all 14 cases, the claimant did suffer a musculoskeletal injury.

Our review identified 2 out of our sample of 32 FECA claimants who did not have evidence in their FECA file that OWCP reviewed their employment activity annually, as required. These two claimants continued to improperly receive higher FECA compensation benefits than warranted during our period of review because a timely adjustment was not made to their disability compensation. In addition, one claimant failed to submit the income certification, and OWCP did not promptly terminate benefits.

Labor and IGs from employing departments and agencies have consistently reported similar FECA program-management challenges and have linked increased program costs to improper payments. For example, Labor’s oversight of the FECA program has been identified as a management challenge in prior work. beginning with its 2004 Performance and Accountability Report, and every year since, Labor has indicated that adequately overseeing the FECA program was one of its chief management challenges, citing verifying beneficiaries’ eligibility as one of the oversight difficulties that it faces. Moreover, IGs from employing agencies that participate in FECA have reported that certain policies and procedures did not exist, or when they did exist, they were not always followed by employing agencies. Most often these deficiencies were related to a lack of controls that would have enabled staff to verify beneficiaries’ continued eligibility.

For example, see U.S. Department of Labor, Office of Inspector General–Office of Audit, Mechanisms Used to Identify Changes in Eligibility Are Inadequate at the FECA District Office in Jacksonville, Florida. performance measures. Finally, OWCP officials stated that they are in the process of establishing quality-assurance reviews of PER processing. As such, Labor will convene Accountability Review teams of program specialists to evaluate the quality of workload processing in its district operations. These evaluations are to scrutinize processed work, such as elements relating to fiscal and operational integrity. Accountability Review findings are to be reviewed by the relevant OWCP program director and corrective action plans will be developed, as necessary. In addition, according to OWCP officials, two new Quality Measures have been implemented in fiscal year 2013 to rate the accuracy of compensation benefit payments, and whether the factual and medical evidence of record supports the current level of benefits provided. According to Labor officials, OWCP plans to start conducting these reviews by the end of fiscal year 2013. In 2012, we reported that periodic reviews of FECA case files are a promising practice and can be used to help increase program officials’ awareness of potential fraudulent activities. Further, these controls are consistent with the detection and monitoring component of GAO’s fraud-prevention framework, and could help to validate claimants’ eligibility including medical conditions and income information. If implemented properly, these steps will assist OWCP in identifying cases for return-to-work potential and referral to vocational rehabilitation. In addition, verification of proper and accurate benefit levels will also support FECA program fiscal integrity.

Labor Lacks Authority to Directly Access Wage Data, Which Limits Its Ability to Identify Improper Payments and Potential Fraud

As we have previously reported, because Labor does not have statutory authority to directly access private or public wage data that is reported to SSA and the Department of Health and Human Services’ (HHS) National Directory of New Hires (NDNH) database, OWCP relies heavily on claimants’ self-reporting of earnings on the annual Form CA-1032 to identify potential fraud. For example, while OWCP requests that FECA claimants provide it with consent to access their SSA earnings file, claimants are not required to provide OWCP with consent, and authorization to obtain such information is not required to receive compensation.

Our review of a nongeneralizable sample of 32 individual cases identified eight FECA claimants who had significantly underreported employment wages in comparison to the wages reported in the state’s QW reports for the same period. We also found that three claimants did not provide authorization to OWCP to access their SSA earnings file.

GAO-12-402. the SSA.that they studied whether to use NDNH and communicated with HHS, but determined that this would not be an effective solution because of cost issues, limited participation by employers in NDNH, and the likelihood that unreported earnings would not be listed. For example, OWCP officials stated that it would cost about $1 million to implement an automated process for verifying wage information with NDNH. To help address the issue, OWCP officials reported ongoing negotiations over several years with SSA to develop a formal agreement that includes regular data matching to verify wage data so that Labor does not have to rely on obtaining consent to access SSA wage data from the claimant. A current agreement is being developed, though officials stated that these negotiations were still in the early stages.

In response to our recommendation, OWCP officials stated Labor has also proposed legislative reforms to FECA that would enhance its ability to assist FECA beneficiaries and also enhance program oversight. As part of this reform, OWCP sought authority to match SSA wage data directly with FECA files. According to Labor OIG officials, to enhance its FECA program oversight, Labor OIG has also requested changes to legislation that would allow Labor to easily and expeditiously access NDNH wage records, so that its investigations can be more efficient and effective. However, at this time, Labor does not have direct access to the NDNH or SSA wage data. Having access to these data sources would allow Labor to verify claimants’ self-reported employment income and better position the agency to identify potential fraud.

Some FECA Program Regulations and Policies Introduce Challenges to Identifying and Mitigating Potential Fraud and Waste

FECA Program Requirements Allow Claimants to Receive Earnings and Earnings Increases without Necessarily Resulting in Adjustment of FECA Compensation

Because of case law and regulatory requirements, once OWCP calculates an individual’s WEC, it remains in place unless the evidence establishes that there is a material change in the nature and extent of the injury-related condition; the claimant has been retrained, or otherwise vocationally rehabilitated; or it is established that OWCP’s original determination was erroneous. As a result, claimants could be earning more money than they were originally determined capable of earning but never have the WEC adjusted to account for the increase in wage earning capacity. According to program procedures, OWCP can modify the WEC if the claimant is earning 25 percent more than the current pay of the job for which the beneficiary was originally rated. However, to adjust the WEC, OWCP must demonstrate that customary criteria for modification is met such as the claimant is rehabilitated or self-rehabilitated, or evidence shows that the claimant was retrained for a different job. Of the 32 cases we reviewed, we found five instances where an individual’s WEC was not adjusted even though the individual earned substantially more (at least 25 percent) than what was originally calculated as their WEC. While this situation is allowable under FECA program requirements, it could be an indicator of potential waste in the FECA program.

In addition, two FECA total-disability claimants continued to receive private-employment salaries that were not subject to the WEC. Earnings received from dissimilar private employment at the time of injury may not be used by Labor when determining an injured employee’s pay rate for compensation purposes, and earnings from that same employment cannot be considered in determining the employee’s WEC. Thus, claimants are allowed to receive income, in some cases substantial income, while also receiving FECA compensation benefits.

The FECA program statute allows claimants to select their own physician, which we reported in 2012 to be a potential vulnerability. The regulation also requires examination by a physician employed or selected by the government only when a second opinion is deemed necessary by the government. As a result, as we previously reported, essential processes within the FECA program could be operating without a review conducted by a physician selected by the government. This potential vulnerability affects key control processes outlined in GAO’s fraud- prevention framework in two areas: first, the lack of reviews when assessing validity of initial claims, and second, the lack of the same when monitoring the duration of the injury. Out of the 32 individual cases that we reviewed, 12 did not have a second opinion from a medical professional assessing the injury and possible work restrictions, and a physician selected by the government was not involved in making the disability determination. Without a second opinion, the federal government must rely on the physician of the claimant’s choosing, which is a potential vulnerability in assessing the validity of the claim.

Labor Lacks a Process to Identify Overlapping FECA and UI Benefits and Does Not Report FECA Claimant Information to States

Overlapping Benefits

While FECA claimants can be eligible to receive state UI benefits in addition to FECA benefits, Labor lacks a process to share the necessary data with states to determine whether FECA claimants may be improperly receiving overlapping benefits. Individuals may be eligible for both FECA and UI depending on the applicable state laws regarding UI eligibility, and federal law does not authorize an automatic reduction or potential elimination of benefits if a claimant receives both. For example, under FECA, an individual is encouraged to return to work. Upon returning to work, the individual’s FECA compensation payment is supposed to be reduced or terminated. In certain circumstances these individuals may have returned to the workforce, for example, with partial disability, and subsequently been involuntarily terminated. These individuals may also meet the states’ “able and available for work” criteria and thus also be eligible for UI benefits. As a result, some individuals may have a disability under federal law but still be able and available for work under state law, and thus are eligible to receive concurrent UI and FECA benefits.

However, claimants may be not eligible to receive both types of payments because their disability, especially for those receiving compensation for total disability, may render them unable and unavailable to work. In February 2012, the Middle Class Tax Relief and Job Creation Act was enacted, which amended federal law and included a requirement that individuals claiming UI benefits be actively seeking work as a condition of some eligibility. In addition, certain states, for example four of the five selected states in our review, require the offset of UI benefits against certain workers’ compensation payments, including FECA.

Labor officials acknowledged that they do not have a process to share the necessary data to identify overlapping payments, which would help the ETA and the states identify the extent to which overlapping payments are not being offset. As previously reported, we have found that processes that rely heavily on self-reported data by claimants create potential vulnerabilities within the program. Without the ability to verify self-reported information on the receipt of other benefits, Labor may make overlapping payments contrary to the regulations governing the program.

Our review of a nongeneralizable sample of 19 individual cases identified claimants who received overlapping UI and FECA benefits totaling over $1.3 million from January 2008 to June 2012. Four claimants who resided in states that require UI payments to be offset received more income from the combined UI and FECA benefits than they would have received from their federal salary alone. Some of these claimants were former FECA claimants who attempted to return to the federal agency to perform work within their medical restrictions. However, the claimants were subsequently discharged because they did not meet the federal agency requirements for continuing employment. As such, these claimants were entitled to their FECA benefits and they also applied for and received UI benefits that were not offset by their respective states.

According to OWCP officials, Labor does not systematically report information on claimants receiving FECA benefits to states, which would help states identify overlapping FECA and UI payments as well as UI payments that might need to be offset. Currently, states must rely on obtaining this information either directly from the UI applicant or UI applicant’s recent employers. As previously discussed, certain states use the workers’ compensation amount, such as FECA, to reduce or eliminate the UI benefit amount. States utilize this information to determine whether the individual is actually “able and available for work.” As such, all states must require claimants to certify that they are still meeting all UI eligibility criteria such as changes in employment status.

Labor is not required to and thus does not report FECA payments to NDNH, which is a primary mechanism that some states use to verify employee wage levels, because NDNH was established as a depository for wage reporting that, among other things, enables state child-support agencies to be more effective in enforcing child-support orders. Were Labor to report FECA payments to this database, states would more easily be able to identify such payments in their review. Our review of a nongeneralizable sample of 19 individual cases identified nine claimants who potentially committed fraud or improperly obtained UI benefits because they did not properly disclose their FECA benefits to the state on their UI application, which could have potentially reduced or eliminated the UI benefit amount.

As previously discussed, limited access to necessary information is a potential vulnerability. Without information on individuals who are receiving federal workers’ compensation payments, it is difficult for the states to identify those individuals and reduce or terminate the UI payments to them. As a promising practice we previously reported, Labor provides quarterly data extracts to employing agencies on wage- compensation payments, medical billing payments, and case- management data. Similarly, if OWCP reported FECA compensation data to the states (either directly or through NDNH), this could help federal and state agencies coordinate benefits and reduce the risk of overlapping payments.

We have previously reported on the importance of interagency collaborative mechanisms, such as sharing information across organizational boundaries, to achieve crosscutting program goals. Further, although not a requirement, the value of greater information sharing between federal and state entities is demonstrated by the actions of some states that check the NDNH to determine if an applicant is working. For example, by cross-matching UI claims against NDNH data, states can better detect overpayments to UI claimants who have gone back to work. While our sample of individuals who have received overlapping FECA and UI benefits cannot be generalized to the entire population of FECA claimants, we did identify some claimants who potentially committed fraud or improperly obtained UI benefits because they did not properly disclose their FECA benefits to the state on their UI application. Thus, establishing a mechanism to share FECA compensation information with states to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments, to the extent that it is cost-effective, could help provide ETA with greater assurance that individuals are receiving benefits in accordance with statute. We discussed this proposal with OWCP program officials in January 2013 and they agreed that sharing compensation data with the states may be beneficial, although they stated that they have never been asked to provide FECA compensation information previously.

Conclusions

With estimated future actuarial liabilities for government-wide FECA compensation payments at over $34 billion as of fiscal year 2012, and in an era of scarce government resources, it is vital that Labor ensures effective stewardship of those resources. FECA and UI provide an important safety net for workers who have lost their income because of workplace injuries or unemployment. However, Labor and the states must continually monitor these claimants to ensure that they continue to be entitled to these benefits and that the benefits are adjusted to account for changes in claimants’ wage earnings and for overlapping state UI payments. While in certain circumstances receiving concurrent UI and FECA benefits may be allowable, the cases we identified where claimants received concurrent UI and FECA benefits without Labor’s knowledge could be an indicator of improper payments. A cost-effective mechanism to share FECA compensation information with states to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments could help determine the extent that improper payments or potential fraud are occurring, which could help save taxpayer dollars. In addition, without the authority to access wage data, which both OWCP and Labor’s OIG have sought, Labor’s reliance on claimants’ self-reported employment information limits the agency’s ability to identify potential fraud.

Matter for Congressional Consideration

Congress should consider granting Labor the additional authority it is seeking to access wage data to help verify claimants’ reported income and help ensure the proper payment of benefits.

Recommendation for Executive Action

We recommend that the Secretary of Labor assess the feasibility of developing a cost-effective mechanism to share FECA compensation information with states, such as reporting information to NDNH, to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments.

Agency Comments and Our Evaluation

We provided a draft of this report to Labor for comment on February 28, 2013. Labor provided written comments on the draft, which can be found in appendix I. Labor agreed with the recommendation to assess the feasibility of developing a cost-effective mechanism to share FECA compensation information with the states, such as reporting information to NDNH, to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments. Labor stated that it will undertake a review to determine whether such data sharing and reporting is feasible. However, Labor expressed concerns regarding the cost-effectiveness of such an approach. We agree that it will be important for Labor to assess the cost-effectiveness of such an approach when conducting its review. As stated in the report, some states check the NDNH database to verify employee wage levels. Thus, establishing a mechanism, such as reporting FECA compensation to NDNH, could provide a cost-effective way for states to identify whether claimants are inappropriately receiving overlapping UI and FECA payments, and could help provide ETA with greater assurance that individuals are receiving benefits in accordance with statute.

In its response, Labor also stated that since FECA contains no offset for UI benefits, a claimant may be entitled to receive both FECA and UI benefits under a particular state law, which would not be classified as receiving improper payments. We recognize, as stated in this report, that there may be certain situations where individuals are entitled to the concurrent receipt of FECA and UI benefits. However, it is also important to note that, as discussed in the report, claimants may not be eligible to receive both types of payments in some cases. For example, some claimants are not able to meet the “able and available” requirement for UI benefits because their disability, especially for those receiving compensation for total disability, may render them unable and unavailable to work. In addition, certain states, such as four of the five selected states in our review, require the offset of UI benefits against certain workers’ compensation payments, including FECA. In addition, Labor stated that one of our examples cited in our report—example 5—should not be classified as an improper payment because FECA program procedures allow a claimant to receive wages from two different employers and not have those wages affect the claimant’s WEC or ability to receive FECA benefits. We agree that this is not an improper payment and did not classify it as such. As stated in the report, claimants are allowed to receive such income, in some cases substantial income, while also receiving FECA compensation benefits.

Labor also provided technical comments, which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Labor, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff has questions about this report, please contact me at 202-512-4379 or LordS@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report.

Appendix I: Comments from the Department of Labor