Internal Controls

The Special Fund established by Longshore and Harbor Workers' Compensation encourages employers to hire disabled maritime workers by limiting an employer's liability should a disabled worker sustain a second injury. The Fund, which is financed primarily by annual assessments levied by the Labor Department on self-insured employers and insurance carriers, is audited annually. However, the audited annual 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 Special Fund, (2) whether controls exist to prevent inappropriate claims from being referred to the Special Fund, (3) whether recipient data are matched against other agencies' databases to reduce the risk of payments being made to ineligible recipients, (4) whether there are equitable distributions of assessments among the insurance carriers/self-insured employers as compared to their claim levels, and (5) the status of changes to the Longshore computer systems.

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

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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