GAO: Federal workers’ compensation program mismanaged millions of dollars

A program managed by the Labor Department to compensate employees for on-the-job injuries issued $13.3 million in improper payments in 2006, according to a new report the from the Government Accountability Office.

GAO cited Labor's reliance on self-reported data from claimants without verification, failure to collect information on improper payments to federal employees injured on the job, and lack of performance goals related to preventing over- and underpayments as the main reasons for the department's poor management of the Federal Employees' Compensation Act program.

"The agency does not sufficiently emphasize preventing, detecting and recovering improper payments," the report (GAO-08-284) said. "None of the performance goals for the program addresses improper payments."

The Labor Department disagreed with GAO's findings, saying the report inflated the number of errors it identified and ignored a range of improvements the agency made in administrating the program.

"OWCP [Office of Workers' Compensation] is committed to continual improvement in payment accuracy and overpayment collection, while recognizing our priority of prompt payment of wage loss compensation to avoid hardship," wrote Victoria Lipnic, assistant secretary for employment standards at Labor, in the department's response. "We believe we have effective systems in place and enhancements being developed to ensure an even higher degree of payment accuracy."

The GAO report found that none of the five national performance goals, or the 21 district office performance goals, directly addressed the issue of over- or underpayments. Rather, the goals emphasized customer service and quick processing of claims. GAO said Labor's performance goals must strike a balance between accurate payments and prompt, helpful customer service.

Lipnic said several office procedures -- including staff training and internal accountability reviews -- emphasized the importance of precision, and that performance goals were not the only measure of the office's dedication to accuracy. "The [division of federal employees' compensation] operational plan for 2008 did include a new measure of the timely processing of identified overpayments," she said.

The report said that Labor understated the extent of the problem, in part, because the data it used to measure errors did not include every type of improper payment.

The department estimated that it paid out $703,000 improperly in fiscal 2006. But "this estimate does not capture all types of improper payments and it does not include the improper payments that OWCP identified during the year, which we estimated to be $13.3 million for 2006 -- $7.1 million in overpayments and $6.2 million in underpayments," GAO said.

Lipnic said GAO didn't take into account that Labor was launching a compensation tracking system during the payment periods the investigators reviewed. That launch created some delays in identifying and tracking overpayments, but she said the new system was processing payments faster and making it easier to uncover errors.

Lipnic also said a district office was experimenting with a new type of audit that could be adopted nationally, if it lowers error rates.

GAO and the Labor also disagreed on the causes of certain mistakes and the department's progress in reducing those errors.

GAO said 11 percent of overpayments were made simply because the recipients did not inform OWCP when they returned to work. In 1999, the report noted, OWCP stopped requiring agencies to submit a form upon an employee's return, making it harder to track when payments should end.

Lipnic said the federal employees' compensation division was working on an electronic notification system to replace the discontinued paper form and reduce processing time.

GAO said a report by the Social Security Administration inspector general found that the agency had wages on record in 2004 for nearly 7 percent of payment recipients who OWCP determined did not earn wages that year. In addition, the SSA inspector general determined that OWCP investigators only checked earning statements provided by claimants against SSA data in 22 percent of overpayment cases since 2002.

Lipnic said those figures stemmed from problems in an information sharing agreement with SSA that have since been resolved, and that the office used SSA data to verify claims filed while the agreement was lapsed.

GAO also faulted the workers' compensation program for failing to stop payments when claimants or eligible dependents died. The report said 6 percent of overpayments occurred when OWCP did not receive prompt notifications of claimant deaths, while 17 percent of overpayments resulted when OWCP was notified of a death, but did not stop payments promptly. The report attributed 26 percent of overpayments in 2006 to limitations in OWCP's payment systems, which prevent the office from quickly halting payments. The agency does not collect certain kinds of relevant information, including the Social Security numbers of claimants' spouses or other eligible dependents who collect survivor benefits, which can create notification issues, GAO said.

Human error was also to blame for the office's problems processing workers' compensation claims, said GAO. A 2006 internal audit conducted by the office found that employees made calculation errors in 14 percent of sampled payments and did not include information justifying their calculations in another 14 percent of claimants. GAO's review said that 15 percent of overpayments could be traced to miscalculations.

Lipnic said the agency overemphasized the error rate from the internal audit. "The accountability review definition of errors is not comparable to the GAO's, thus the GAO's interpretation of the accountability review error rate is inaccurate," she wrote. "In the accountability review, an error is not only an incorrect payment, but also a procedural error."