BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON EDUCATION AND

THE WORKFORCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, SEPTEMBER 28, 1998

Printed for the use of the Committee on Education

and the Workforce

OPENING STATEMENT OF REPRESENTATIVE PETE HOEKSTRA, CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

STATEMENT OF JAMES McMULLEN, DEPUTY ASSISTANT SECRETARY, OFFICE OF THE ASSISTANT SECRETARY FOR ADMINISTRATION AND MANAGEMENT, U.S. DEPARTMENT OF LABOR *

STATEMENT OF KENNETH M. BRESNAHAN, DEPUTY CHIEF FINANCIAL OFFICER, OFFICE OF THE CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF LABOR *

STATEMENT OF PATRICIA A. DALTON, DEPUTY INSPECTOR GENERAL, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF LABOR *

STATEMENT OF CARLOTTA C. JOYNER, Ph.D., DIRECTOR, EDUCATION AND EMPLOYMENT ISSUES, U.S. GENERAL ACCOUNTING OFFICE *

RESPONSE OF BRYAN T. KEILTY, ADMINISTRATOR, OFFICE OF FINANCIAL AND ADMINISTRATIVE MANAGEMENT (ETA), U.S. DEPARTMENT OF LABOR *

RESPONSE OF SUSAN J. IRVING, ASSOCIATE DIRECTOR, FEDERAL BUDGET ISSUES, U.S. GENERAL ACCOUNTING OFFICE *

CONCLUDING REMARKS OF CHARIMAN HOESKTRA *

Appendix A – Written Statement of Chairman Pete Hoekstra *

Appendix B – Written Statement of Mr. James McMullen *

Appendix C – Written Statement of Mr. Kenneth Bresnahan *

Appendix D – Written Statement of Ms. Patricia Dalton *

Appendix E – Written Statement of Dr. Carlotta Joyner *

Appendix F – State Employment Security Agencies’ (SESAs) Unemployment Insurance (UI) Tax Performance 1988-1997 with Overview *

Appendix G – UI Performs – CY 1997 Annual Report *

Appendix H – UI Performs – CY 1996 Annual Report *

Appendix I – Unemployment Insurance (UI) Tax Performance for Fiscal Year 1994 *

Table of Indexes 939

Monday, September 28, 1998

U.S. House of Representatives

Committee on Education and the Workforce,

Subcommittee on Oversight and Investigations,

The American Worker at a Crossroads Project

Washington, D.C.

The subcommittee met, pursuant to call, at 1:30 p.m., in Room 2261, Rayburn House Office Building, Hon. Peter Hoekstra [chairman of the subcommittee] presiding.

Present: Representatives Hoekstra, Parker, and Mink.

Staff Present: Jan Faiks, Project Director

Stevan Johnson, Financial Analyst/Hearing Coordinator

William Matchneer, Chief Counsel

Stephen Settle, Counsel

Arturo Silva, Media Relations Assistant

Brian Kennedy, Labor Counsel/Coordinator

Peter Rutledge, Legislative Associate/Labor

Pat Crawford, Legislative Associate/Labor

Shannon McNulty, Staff Assistant/Labor

 

Chairman Hoekstra. A quorum being present, the Subcommittee on Oversight and Investigations of the Committee on Education and the Workforce will come to order.

The subcommittee is meeting today to hear testimony for the American Worker at a Crossroads Project. Under rule 12(b) of the committee rules, any oral opening statements at this hearing will be limited to the Chairman and the Ranking Minority Member. This allows us to hear from the witnesses sooner and help Members keep to their schedules. Therefore, if other Members have statements, they can be included in the hearing record.

Witnesses should also be advised that any additional information or testimony that they would like to have entered in the hearing records may do so through October 9. The reason being is that I have asked the DOL to answer many specific questions in writing. The questions and the answers will be inserted into the record on Friday, October 9. I am assuming the DOL is familiar with the questions and will provide its response on October 9? Great. Thank you.

With that said, I would just like to make a brief opening statement.

We have called this hearing to have this subcommittee begin to understand the complexities of management and accountability issues currently in place at the U.S. Department of Labor. I have every intention of making today’s dialogue between the administration and the independent eyes of the General Accounting Office one that is educational and informative. I want to learn. I want my colleagues to see firsthand the financial giant that oversees and manages the American workers’ dollars.

Not only will we be learning about the methodologies used by the Department in its financial accounting systems and internal tracking procedures, but I want to comprehend what role and what interagency relationships exist between the Department of Labor in their providing Congress with reliable, accurate and valid information.

This financial inquiry began back in January. What started out as – what I thought would be a simple request – to track the discretionary spending of the Department of Labor turned into more of a crash course in accounting and financial management. Many of you have helped us through that process, and I appreciate that very much, so thank you.

It has been a learning experience, and this subcommittee and I appreciate your patience and willingness to educate and help in the process to provide America and the country’s workers quality and reliable access to their taxpaying resources.

Chairman Hoekstra. I now yield to the Ranking Minority Member for her statement.

Mrs. Mink. I reserve my comments.

Mr. Hoekstra. You may reserve your comments, and we will reserve your time.

Let me introduce the panel.

We have Mr. James McMullen, who is the Deputy Assistant Secretary for Administration and Management at the U.S. Department of Labor. Welcome.

Mr. McMullen. Thank you.

Chairman Hoekstra. You were here a couple of weeks ago, right?

Mr. McMullen. Yes, sir.

Chairman Hoekstra. What were we talking about a couple of weeks ago?

Mr. McMullen. Year 2000.

Chairman Hoekstra. Year 2000. Well, you are lucky. You didn’t make the kinds of commitments that your colleague made.

Mr. McMullen. No, I did not.

Chairman Hoekstra. And he is coming back.

Mr. McMullen. I know that.

Chairman Hoekstra. Yes. I hope he is excited about that?

Mrs. Mink. He almost did.

Chairman Hoekstra. He almost did? But he wasn’t quite as explicit, so your colleague will return.

Mr. McMullen understands the day-to-day operations of the Department and knows when to go out on a limb and when not to. With his expertise on the Department’s budget, information technology as well as grant and contract policy, the subcommittee is ready to learn how his multiple hats play into the mix of GPRA, budget policies and procedures. Thank you for being back.

Sitting next to him is the distinguished Chief Financial Officer, Mr. Kenneth Bresnahan. Welcome. His experience brings to this discussion not only his tenure as budget officer for the Department of Agriculture in directing a $40 billion annual appropriation, but is currently serving as the Acting Chief Financial Officer since April of last year.

Mr. Bresnahan. Yes, sir.

Chairman Hoekstra. That’s a long-time to be acting.

Mr. Bresnahan. Went by like that.

Chairman Hoekstra. Okay.

The next two gentlemen, Mr. Bryan Keilty and Mr. David Zeigler, both are career Labor employees with decades of budget and administrative management experience. They will not be presenting testimony, but are here today to be able to answer questions regarding grants and contracts.

I thank both for being here.

Next, we have Ms. Patricia Dalton and welcome back to you also. Ms. Dalton is the Deputy Inspector General in the Office of Inspector General at the U.S. Department of Labor. Ms. Dalton’s credentials include being a Certified Public Accountant, certified management accountant, as well as a certified government financial manager.

We welcome your expertise and technical knowledge on the Consolidated Financial Statement Audit for September 30, 1997 and 1996.

And then we have Dr. Carlotta Joyner, and good to see you again. Dr. Joyner is the Director of Education Employment Issues at the at the U.S. General Accounting Office here in Washington and holds a doctorate in social psychology. She is a leading expert in education programs and employment training. She will offer her insights on ways to improve government operation specifically as it relates to the Department of Labor.

We welcome your insights, Ms. Joyner, and greatly appreciate the time and guidance you have provided to us over the last year and that GAO has provided to this committee and my staff. Thanks to all of you.

We will have roughly 5 minutes for testimony, and I think you have all been here before and know that I have a weak gavel. So let’s proceed with your information for the record, but don’t take too long.

This is a process. This is a dialogue. The Department spends billions of dollars in taxpayers’ money. This subcommittee would just like to know how the Department spends that money. We would like a general understanding of where the money is going and receive with a degree of confidence that the desired results are being achieved.

Chairman Hoekstra. Mr. McMullen, we will begin with you.

Mr. McMullen. Thank you. Good afternoon, Mr. Chairman, Mrs. Mink. It is a pleasure to appear before you again.

I would like to briefly summarize my written statement dealing with the role of the Office of the Assistant Secretary for Administration and Management, or OASAM as we call it, in the areas of budget, grant and contract policy and GPRA. OASAM serves a central policy role for the Department in various areas such as budget formulation, budget execution, granting contract policy, information technology, human resources, civil rights, administrative services and safety and health. I will be focusing today on budget contracting grant policy and GPRA.

The budget process can be described in two basic parts, budget formulation, which is the development of the administration’s budget plan or request, and budget execution, which is the management of spending of the funds available to us. OASAM is responsible for the entire budget formulation process for the Department, including preparation of a proposed budget for eventual transmittal to the Congress by the President. OASAM oversees the preparation of all Departmental budget submissions, organizes the presentation of these submissions, and in consultation with program agencies negotiates the final funding levels. Budget formulation is a year-round process requiring the extensive coordination and integration of expertise in program policy and budget analysis and is among the most critical functions in OASAM.

Following the enactment of the Department’s appropriations, we begin the steps necessary for budget execution or the spending of the resources, if you will. There are three main divisions of funds in the budget execution process, the apportionment, the allotment and the allocation. OASAM develops and issues Departmental policy and technical guidance for apportionments which are then prepared by our agencies and submitted to OASAM, which coordinates their review and approval with the Office of Management and Budget.

The next subdivision of funds is the allotment. This process delegates authority to the head of an agency to incur obligations. Responding to OASAM’s guidance, agencies prepare allotment requests. Upon completion of OASAM’s analysis and approval, allotments are then transmitted to the CFO. When the allotment is analyzed and signed by the CFO, joint approval has been reached. It is at that point OASAM completes its part in the management of the Department's budget execution process. Thereafter the CFO assumes responsibility.

OASAM is responsible for the development and evaluation of Department-wide policies, guidelines, standards and procedures used in the award and administration of grants, contracts and related agreements. In carrying out the Department's procurement responsibilities, OASAM maintains, as prescribed by the General Services Administration, the Federal Assistance Award Data System, or FAADS as it is called, and the Federal Procurement Data System, FPDS, which are, in effect, two different procurement inventory systems which maintain related but not identical procurement data. The FAADS program is to provide congressional and State government officials with comprehensive, timely information about financial assistance awards made to public and private recipients. FPDS, on the other hand, was designed to measure and assess the impact of Federal procurement activities on the Nation’s economy. Since neither of these are financial accounting systems, they cannot be used with any precision to account for the outflow of funds on a calendar, fiscal, or program year basis.

In addition to the responsibilities I have already discussed, OASAM provides leadership for the Department and strategic and performance planning as provided in the Government Performance and Results Act.

Recently we entered into consultations with OMB, GAO, and congressional committees on the revision of the Department’s strategic plan. It is our view that it is important to maintain an ongoing dialogue with all of our stakeholders.

The Department welcomed the recent review of our revised strategic plan by GAO, and we were encouraged that GAO recognized the improvements made in the plan. Many of these improvements came from ideas discussed during GAO’s review of the Department’s annual performance plan earlier this spring. However, as the GAO review indicated, there is much more that needs to be done. The Department will continue to make the desired improvements in our strategic plan as we continue to maintain an open dialogue with OMB, Congress and our numerous stakeholders.

Mr. Chairman, this is the end of my prepared statement. I thank you for the opportunity to be here and will answer any questions you may have.

Chairman Hoekstra. Thank you.

Chairman Hoekstra. Mr. Bresnahan.

Mr. Bresnahan. Thank you, Mr. Chairman, members of the committee, for the opportunity to discuss financial analysis and management accountability of the Department of Labor.

The Office of the Chief Financial Officer provides financial information, policy, services, and products in support of the Department’s mission to prepare and protect American workers. CFO is the senior financial advisor to the Secretary of Labor and is independent of the Office of the Assistant Secretary for Administration and Management.

We are proud of our record of solid performance in financial management. In fiscal year 1997, this performance continued, as the inspector general issued an unqualified or "clean" opinion on the Department’s Consolidated Financial Statements. In addition, the inspector general concluded that none of the reportable conditions listed in the report are considered material weaknesses. The report noted that the Department "made great strides this year" in resolving and closing prior year recommendations. This is the first year that the IG has issued an unqualified opinion on our Consolidated Financial Statements and reported no material weaknesses.

With this foundation we are moving quickly to resolve the remaining reportable conditions cited in the audit. In particular, the Federal Financial Management Improvement Act requires the Department to establish specific corrective action plans for several agency financial systems that were cited by the IG as noncompliant with financial and accounting standards. Our office is now working closely with affected agencies to ensure that the systems will be made compliant within the 3-year statutory requirement.

The strategic goals of the Office of the CFO aim to create an environment within which a sound fiscal management can be fully integrated into the operations of the Department. In collaboration with DOL agencies, we must assure that all legislative and policy requirements governing financial and accounting standards, transaction processing systems and reporting are implemented; that all financial information provided to the public is accurate and timely; and that all financial management staff within the Department have the skills necessary to perform their jobs. The CFO supports its customers’ financial information needs by providing products and services that enhance the effectiveness and efficiency of the Department’s operations. We also provide a focal point within the Department for the identification, discussion, and resolution of financial management issues and concerns.

We are working to meet requirements imposed by new laws regulations and policies. For example, to address requirements of the Government Performance and Results Act and the Government Management Reform Act, we have modified our core accounting system to provide the capacity for detailed cost accounting and moved to incorporate managerial cost accounting standards. We fully expect to meet new reporting requirements for fiscal year 1998 and those that are imposed beyond them.

The CFO manages and operates the Department’s core accounting system. The acronym for this system is DOLAR$. The system, which was installed in the late 1980s, is the Department’s sole system of record for accounting results and meets all current government-wide accounting standards. DOLAR$ fully complies with the guidelines for Federal financial systems set forth by the Joint Financial Management Improvement Program as well as the accounting principles and standards prescribed by the General Accounting Office, Office of Management and Budget and the Department of the Treasury.

Our direct responsibilities include establishing Departmental policies and procedures, modifying and enhancing system performance to meet new requirements and, in close cooperation with the Office of Budget, overseeing the execution of budgetary resources authorized by the Congress. We monitor the quality of information entered into the system, analyze financial trends and events for consistency with expectations, and produce a wide variety of reports including annual consolidated financial statements.

Each major agency of the Department is responsible for using the core accounting system to enter accounting events and information, reconcile their own records and adhere to Department’s policies. For complex or voluminous activities such as grants management, we build automated interfaces from agency systems to the core accounting system.

Debt collection is decentralized within the Department of Labor. The CFO develops debt collection policy and guidance for program agencies consistent with laws and regulations. DOL’s policy on debt collection provides for the timely recording of debts, accrual of interest, use of administrative offset and safeguards for the legal rights of debtors. We use a variety of techniques to collect debt, including sending out letters requesting payment, calling debtors on the phone, using collection agents, reporting debt to credit bureaus and referring debts to the Department of Justice and/or the Department of Treasury for collection.

Notwithstanding all of these steps, the Department, like other agencies, sometimes cannot collect debts due and must write off these debts. This may occur, for example, when the debtor dies or goes bankrupt; when the debt is otherwise uncollectible for all practical purposes.

For presentation on the Department's financial statements, we take a snapshot of total accounts receivable in the accounting system on September 30. Using historical data as a guide, we then estimate the portion of the total that is unlikely to be collected. This is known as the allowance for doubtful accounts. The balance is reported as net receivables. To determine the bad debt expense for the fiscal year, we calculate the difference between the allowance for doubtful accounts from 1 year to the next, after adjusting for actual debts written off during the year. Neither the allowance for doubtful accounts nor the bad debt expense are tied to specific receivables. Rather, these calculations allow the reader of financial statements to gain insight on the nature of the entire debt portfolio and its impact on the overall financial picture of the Department.

That concludes my statement, and I would be happy to answer any questions you may have.

Chairman Hoekstra. Thank you, and congratulations. You may be the first person that has ever testified in front of our committee that has represented that their books actually met generally accepted Federal Government accounting procedures.

Mr. Bresnahan. Thank you, sir. We are very proud of that.

Chairman Hoekstra. You should be. Great.

Chairman Hoekstra. Miss Dalton.

Ms. Dalton. Good afternoon, Mr. Chairman, Mrs. Mink.

I am pleased to appear before you to discuss financial management and accountability at the Department of Labor. In the mid-1980s, the OIG saw the need for the Department to implement financial management discipline in its operations. Our first audit of DOL’s financial statements disclosed that financial operations were not integrated. Controls over financial reporting were extremely weak. The accounting system was barely functioning, and the Department did not have sufficient staff capable of preparing financial reports.

Since that first audit for fiscal year 1987, DOL has made significant progress towards improving its financial operations and reporting. Some of the most significant improvements are mentioned in my full statement. Our audit of fiscal year 1997 resulted in DOL for the first time receiving an unqualified opinion. The audit disclosed that during 1997, DOL achieved a number of improvements and made substantial progress in closing six longstanding material weaknesses as well as other system weaknesses reported in prior years. In total, 28 prior year recommendations were closed last year.

However, the most significant issue addressed in 1997 was the removal of the limitation on the scope of our audit. This limitation resulted from our lack of jurisdiction to audit revenues of the Unemployment Insurance and the Black Lung Disability Trust Funds that are collected and administered by the United States Treasury. Despite financial management weaknesses identified by the OIG, it was actually this scope limitation that had prevented DOL from receiving a clean audit opinion in the last 5 years. This limitation was resolved when GAO was able to conduct the necessary audit work to determine that the revenues are presented fairly in the financial statements.

As requested in your letter of invitation, I will now explain what constitutes the Department's $656 million in bad debt expense that was reported in the 1997 financial statements. Let me begin by saying that, of course, is a very significant figure. However, it is important to keep in mind that although a Federal agency may be owed money, these sums are often not collected 100 percent. My full statement details the accounting process followed to eventually expense such debts.

Attachment 2 of my statement is a chart that details the bad debt expense reported by DOL for fiscal year 1997. As indicated by the chart, 97 percent of DOL’s bad debt expense is in the Unemployment Trust Fund.

The bad debt expense pertains to benefit overpayments and delinquent State unemployment taxes. By their very nature these amounts have a very high risk of not being collectible. Benefit overpayments are due from individuals who receive payments through fraudulent claims or UI administrative errors. State unemployment tax receivables represent those amounts that are delinquent. Additionally, these receivables may be many years old since individual State laws govern write-offs, and some State laws contain some restrictions on the write-off of this debt. Other significant source of bad debt expense for fiscal year 1997 was the Black Lung Disability Trust Fund and Wage and Hour’s Back Wage Program.

Mr. Chairman, consistent with the findings of our most recent financial statement audit, much of what remains to be done involve improvements to individual agencies’ subsidiary systems that we identified in our audit as reportable conditions. As discussed in my full statement, areas needing attention include complying with FFMIA requirements, addressing remaining issues related to ETA grant accounting, and accounting for back wages and civil money penalties.

Mr. Chairman, audited financial statements are a vital component of ensuring accountability over Federal funds. However, in order to achieve full accountability, the Department needs to recreate a fully integrated strategic management process in which program objectives in strategic plans, the resources appropriated for carrying out the programs, the costs of activities, and the performance results achieved are closely linked. To this end the Department needs to ensure the full expansion of financial accounting to include cost accounting.

Unlike the private sector where success is largely measured in terms of a bottom line, the success of government needs to be determined through both financial and performance information. By linking this type of information, the Department and Congress can determine the value and future direction of Federal programs and achieve the accountability demanded by the public.

Mr. Chairman, this concludes my oral statement. I would be happy to answer any questions.

Chairman Hoekstra. Thank you.

Chairman Hoekstra. Miss Joyner.

Ms. Joyner. Mr. Chairman and Mrs. Mink, I am very pleased to be here today to assist you in your oversight and this discussion about the Department of Labor.

With a budget of $34.6 billion and about 16,700 staff in fiscal year 1998, Labor has an extremely broad mission.

As my written statement notes, Labor describes its mission in part in terms of assisting and fostering the welfare of job seekers, wage earners and retirees in a variety of ways. Labor also includes in its own statement of its mission its responsibilities toward employers who are seeking employees and towards strengthening free collective bargaining and tracking changes in a variety of economic measures.

Given this breadth of mission, effective oversight of Labor is as challenging as it is important. To help address these challenges, the Congress passed the Government Performance and Results Act of 1993, which is intended to shift the focus of Federal management and oversight from staffing and activity levels to the results of these Federal programs. The results act requires Federal agencies to develop strategic plans that lay out their long-term goals as well as their plans for achieving these goals.

My remarks today then will focus on two main topics. The first is Labor’s progress in meeting strategic planning responsibilities under the results act, and second, its progress in addressing some of the problems with performance data that we have identified in our audit work in the past.

In summary, the Department of Labor has significantly improved the strategic plan originally submitted to the Congress in September 1997. Its revised strategic goals are more mission-focused, and they better integrate the activities of its competitive agencies. For example, two of Labor’s original six goals have been consolidated to provide a single focus for Labor’s efforts in helping people find jobs and to encompass the job training and assistance activities of several of its competitive agencies. Moreover, in comparison with its original plan, Labor now provides more information on how it plans to coordinate its activities with other departments such as HHS and Housing and Urban Development. It also provides additional information on how it has used evaluations and how it will be using them in the future. I might note as well that this revision of strategic planning is at its own choice, not that it was required to do so at this time.

Yet further planned improvements are possible and important even in areas where Labor has made some progress already. For example, it could improve a strategic plan by providing more explicit information on how it will address known performance data problems such as in Job Corps with the job placement data that it uses for that program. Also needs to explain in some instances a little more clearly what the strategies are to achieve these certain goals, and also needs to include more information about how it is addressing the year 2000 issue.

On the second topic of its progress in addressing the known data problems that we have identified in the past, we found that its success is mixed. In some areas it has corrected the problems. An example of this would be within OSHA with the integrated management information system. We had noted in the past some problems in how information is recorded there, particularly information from settlement agreements, that changes are not always reflected timely or fully capturing the full story of what happened in the settlement agreements. Since we reported on this and recommended some changes, Labor has corrected this problem.

In other areas, Labor is making some progress toward addressing some problems. For example, in gathering the information it needs to track its success in getting workers for employers when they need them through the H-2A program, the Agricultural Guestworker Program.

In other areas, however, some of those concern the Job Corps program, the problems that we point out have not yet been addressed. Specifically we found that reported information on the extent to which Job Corps participants completed vocational training and the extent to which the jobs they got were related to the training they received are inaccurate and misleading and overstate program results in certain ways. Labor still needs to address these and some other data quality problems in order to effectively manage its program and provide you the information that you need for oversight.

That concludes my prepared statement. I will be glad to answer any other questions you might have.

Chairman Hoekstra. Thank you.

Chairman Hoekstra. Mr. Bresnahan, what is DOLAR$ and how does it work? DOLAR$ is the overall system for tracking expenditures. Is that correct?

Mr. Bresnahan. That is right, sir. DOLAR$ is the Department’s central or core accounting system. As such it is the Department’s sole system of record for accounting transactions. My office maintains the system. We operate it from a system standpoint, from a functional standpoint. We set accounting policy for the system, modify the system, and enhance its functionality when necessary to meet new requirements, and monitor the quality and timeliness of information that is entered into the system.

Input to the system comes from a variety of sources throughout the Department. Agencies enter their own pieces of the accounting information responsible for doing that, reconciling their results with monitoring and oversights from my office.

As I mentioned in my statement, on occasion, the complexity or volume of accounting information that needs to be entered is such that we build automated interfaces from agency-specific financial systems to the core accounting system to facilitate that effort.

Chairman Hoekstra. To receive a nonqualified audit means that the IG has looked at the system, your maintenance of the system, and your oversight of the people who are inputting data into the system and they believe that the system has integrity. Is that correct?

Mr. Bresnahan. Essentially that is correct, sir.

Chairman Hoekstra. Great.

How many systems feed into DOLAR$?

Mr. Bresnahan. I think there are about 15 that we have identified in a chart that was prepared. 15 or 16 that we prepared for the committee that were attached to my formal statement that are subsidiary and support the core accounting system.

Chairman Hoekstra. And you maintain the integrity through oversight of all 15 or 16 of those?

Mr. Bresnahan. That is correct.

Chairman Hoekstra. Good, congratulations.

15 or 16 different computer systems are integrated with DOLAR$?

Mr. Bresnahan. That we would classify as financial systems for purposes of capturing accounting information, that is correct. There are other automated systems in the Department that may be mixed in nature or may be non-financial that are used for other purposes.

Chairman Hoekstra. All those systems are all pretty well integrated?

Mr. Bresnahan. Integration is kind of a broad term. Some of them are automatically interfaced to the core accounting system. In other cases, because the volume or complexity of the transactions don’t really warrant the effort, we will make occasional manual entries from those systems into the core accounting system, but the effect is the same.

Chairman Hoekstra. And how big is your staff ?

Mr. Bresnahan. There are about 85 of us.

Chairman Hoekstra. Okay.

How timely can we get information from you? We asked for explanations on bad debt and the allowance for bad debt, which totaled 2.4 billion. It took 36 days to receive a response. Do you close your books or at least on a quarterly basis?

Mr. Bresnahan. Well, most of the time that it took to respond to your request was time taken by my office to compile information from a variety of sources. We had to go out to several of those subsidiary systems to capture the information you wanted. Some of the systems had that information in the format that you requested it quite readily. Others, the system had the information, but either a special effort or a one-time programming change needed to be made to pull out the report in the format that you requested. That part didn’t take very long, but the information that we got was in several different formats, and we thought for the convenience of the committee it was worth the extra investment of time to put it together in a single format for you. Most of the time that it took to respond to that request was compiling information in a common format.

Chairman Hoekstra. Okay.

One of the things I think you gave us was the National Council on Aging. They received $37 million. They have bad debt. They owe the government $162,000. How does that happen?

Mr. Keilty. Employment Training Administration had the grant with the Council on Aging debt. That debt resulted originally from an audit done on the National Council on the Aging by the Inspector General’s Office and as a result of that audit process and the litigation that the NCOA chose, the Department of Labor in consultation with the inspector general entered into a settlement agreement with the Council on Aging to repay that debt. That $162,000 debt was the debt at that point in time when the financial statements were compiled last September. In point of fact, they have now paid off that entire debt. We had a repayment schedule, and the debt has been all paid off.

Chairman Hoekstra. Someone mentioned in their testimony that not only is the Department attempting to collect bad debts, but there is now in place an arrangement with the Department of Treasury for people who may be receiving additional money but may have bad debts.

Okay, good.

Mrs. Mink.

Mrs. Mink. Thank you very much. I am interested in the attachment to Ms. Dalton’s testimony, which goes to the questions that have just been asked on this bad debt expense. Maybe Mr. Bresnahan can explain, for instance, what is represented by back wages of 4 million plus dollars?

Mr. Bresnahan. The amount for back wages would most likely represent an estimate of wages that were agreed to be paid by employers.

Mrs. Mink. By whom?

Mr. Bresnahan. By employers that had not been received by the Department.

Mrs. Mink. This is in your negotiated settlements after complaints had been filed against the employers for failure to pay wages after a dispute?

Mr. Bresnahan. Yeah. I am speculating a little bit on that answer, because I don’t have all the details, and I would be happy to get it for you.

Mrs. Mink. Does anybody have the details?

Ms. Dalton. It relates to the enforcement of the Fair Labor Standards Act. When an employer is found in noncompliance at times the money is given they owe to former employees. The Department holds it in an agency function so that when those employees are found, the money is then paid to those people.

So that is what that money is. We have had a negotiation with the employer.

Mrs. Mink. These are funds that are held in trust for employees that have not been located.

Ms. Dalton. Correct.

Mrs. Mink. So it is not really a bad debt.

Ms. Dalton. Well, the employer has agreed that this is the amount that they should pay. They have not paid that amount.

Mrs. Mink. Oh, it is not actually in your hands.

Ms. Dalton. Correct.

Mrs. Mink. Now, what is the Longshore and Harbor Workers’ Trust Fund debt of 358,000 dollars?

Ms. Dalton. Primarily I believe that is from where an injured worker has received an overpayment for whatever reason, whether the claim had been subsequently denied, and then the money is owed to the Department.

Mrs. Mink. From the employee who was overpaid?

Ms. Dalton. Correct.

Mrs. Mink. Now, what about the District of Columbia Trust Fund?

Ms. Dalton. It is very similar. Both of those are workers’ compensation funds.

Mrs. Mink. Overpayments to individuals?

Ms. Dalton. Quite a bit of that would be.

Mrs. Mink. And the Black Lung?

Ms. Dalton. Black Lung can be from two sources. One is overpayments to claimants. There is also bad debt incurred when responsible mine operators are identified, and they have not made payment into the trust fund. When a Black Lung miner who has been determined to have the black lung disease, if we can identify the business that they were employed with, they become responsible for the payments. By the time we have identified the businesses, they are usually out of business or not in a position to pay.

Mrs. Mink. So of the $655 million, Mr. Bresnahan, how much of that is actual U.S. Government taxpayer liabilities versus private employer third-party liabilities?

Mr. Bresnahan. I don’t know that I could answer that without doing more research.

Mrs. Mink. Perhaps Ms. Dalton knows.

It startled me when I saw the figure, thinking that this was money that the U.S. Government was somehow responsible itself for paying out rather than employers failing to meet their obligations under various laws.

Ms. Dalton. Right. With the workers’ compensation programs, in fact, it becomes a Federal responsibility because we do pay the benefits where someone has been found entitled to them, and if an employer owes money, then, you know, we are basically paying those expenses.

With regard to the…

Mrs. Mink. Is there a statute of limitations when after so many years the government is out of the money and unable to collect?

Ms. Dalton. The bad debt expense is when we look at what the total receivables are to the Department, what the debt is, and based on historical experience or known problems with a particular debt, then we determine that this is not going to be collectible. At some point it is determined for whatever reason whether the condition of the debtor is primarily…

Mrs. Mink. Is it possible to break down from the information that the Department has, Mr. Bresnahan, how much of the employer private debt or other than Federal Government, could be State government debt, has been written off in the last 20 years as uncollectible debt that is due, but uncollectible?

Mr. Bresnahan. Twenty years might be a little bit of a stretch.

Mrs. Mink. Ten years? Five?

Ms. Dalton. Five might be possible.

Mr. Bresnahan. 5 would be quite possible.

Mrs. Mink. Does that appear anywhere in the budget documents?

Mr. Bresnahan. In the budget documents it doesn’t appear at all. The purpose of this calculation on the financial statements is to give a sense of perspective over time as to how the portfolio is changing and what impact it has on the overall financial picture for the Department. I think the best way to characterize it is that as you can see from the chart, the vast majority of what we have attributed to bad debt expense consists of unpaid unemployment taxes and overpayments of unemployment compensation to individuals. And you can…

Mrs. Mink. If you were to divide up that first figure of unemployment compensation moneys, what percentage of it would be due to the failure of employers to pay their obligations?

Mr. Bresnahan. I might have that with me. Hang on just a second.

What I am showing here in the chart that I have is delinquent employer taxes of about $176 million.

Mrs. Mink. That is this fiscal year.

Mr. Bresnahan. Just for fiscal year 1997.

Mrs. Mink. And what about last fiscal year that was not collected?

Mr. Bresnahan. I would have to get that for you.

Mrs. Mink. And do you write it off? What penalties are there, I guess is the real question, against the employers for failure to pay?

Chairman Hoekstra. Ms. Mink said they went on the Trendsetters list. That is an inside joke for only some of us. Go ahead.

Mr. Keilty. The States, as Ken and Pat pointed out, have the two problems to deal with, the delinquent taxes. I suspect in the case of the bad debts that are on this, without looking at it or seeing it, a lot of State constitutions don’t allow the States to write off debt. The result is that in the past we have carried debt unreceivibles in the Unemployment Trust Fund for taxes for years and years and years. When in all likelihood there was no possibility that it would ever be collected by the State.

Nevertheless we have an extensive program. We have a tax performance system. We work with the States extensively. We review and monitor their tax collection programs, we look at computed measures, we do some sampling of the decisions they make in this, and we do systems review. Every year, as a part of the process, the Department of Labor publishes a report called UI Performs. As a matter of fact, it is my understanding that today is the day the 1997 publication in which we list all the State activities – the results of this UI Performance – are published so we can see State by State. We make it public knowledge where the States are in terms of…

Mrs. Mink. Does this include the failures?

Mr. Keilty. Yes, it includes where they are on the tax side, collecting taxes, as well as what we are doing with the benefit overpayments.

Mrs. Mink. Mr. Chairman, could I at this point ask for that publication? Is it annual?

Mr. Keilty. It is an annual publication.

Mrs. Mink. For the last 10 years and have it inserted in the record at this point?

Thank you Mr. Chairman.

Chairman Hoekstra. Depends on how thick it is.

Mrs. Mink. No, it is one sheet. I just saw it come through.

Well, I thought maybe you had that information I am seeking all in one place. If not, we will have to…

Mr. Keilty. We will submit the report, and we will submit…as Ken said before, when you asked for 20 years’ experience, I don't know whether the publication…this goes back 10 years, but I suspect it probably does, but we will get as many…

Mrs. Mink. Are delinquencies in the report located in one specific place where that could be excerpted for the purposes of this inquiry?

Mr. Keilty. I believe so.

Chairman Hoekstra. Thanks.

We were a frustrated at the beginning of the year when we started asking some questions, and we may not have known where to go. One example was we asked the Department how much money they spent on discretionary grants and contracts, and we got a number of $7.4 billion. Then we a month later, two, we got a number that said discretionary grants and contracts were $8.4 billion. Then we received a table called the U.S. Department of Labor’s Budget Authority and Trust Fund Transfer Authority by Appropriation. In fact, the Department provided this table twice. One total was $10.6 billion and the other time it was $10.3 billion. How does that happen?

Mr. McMullen. I understand your frustration, Mr. Chairman.

Chairman Hoekstra. So, you were the one doing it to me.

Mr. McMullen. Regarding the confusion over the $7.4 billion that we gave you initially on grants, and the $8.4 billion has to do with where we got the information. When we were discussing initially the information you wanted, we thought the easiest and best place to get it would be from the FAADS that I referred to in the opening statement, which is not an accounting system, and it also has a different period of reporting time than in the fiscal year.

Upon further discussion with staff, we realized that that was not really what you were looking for, that you were looking for the data that we had in our system on the amounts that we had obligated in 1997 for all of our grants, and that is the $8.4 billion that we gave you.

I apologize for the confusion and…

Chairman Hoekstra. Where did the $7.4 billion total come from?

Mr. McMullen. From the FAADS, which is a system which all government agencies feed into, and it is run by GSA. It is information on the amount of grant awards that go out to grant recipients, and that rolls up into I believe it’s called the Catalog for Federal Domestic Assistance, and that is what we were using, thinking that you were interested in one particular arena, and we should have pursued further what it is you wanted, and we could have avoided that confusion.

The other confusion that you had between the discretionary amounts that we have being reported as $10.6 billion in one table and another one as $10.2 billion has to do with the way scorekeeping works between CBO and OMB, and we should have been consistent on what we gave you. We should not have given you one table that had CBO scorekeeping rules and another table that had OMB scorekeeping rules.

Bottom line is CBO scores one program, which is called the Advances Program, the advances appropriation, as discretionary, and OMB scores it as mandatory, and it is as simple as the scorekeeping on that one account. Once again we should have been more rigorous in making sure we were more consistent in the way we reported to you. Both numbers are correct depending on which organization you are talking with.

Chairman Hoekstra. You know, you keep that up, and you could really confuse us, which you did. It never ceases to amaze me because I am also on the Budget Committee and there exists different sets of numbers for different groups.

Thank you. Now, what this does point out is that you have a whole bunch of systems that in certain ways talk about the same kinds of numbers, but talk about them slightly differently, all with multiple or maybe many different systems, each with their own specific purpose. Why? Is it possible to integrate those systems and to simplify the process? Anyone can answer. Why do we have FAADS? Is that the system that generates a grant announcement so that we can send out a press release?

Mr. McMullen. No, sir.

Chairman Hoekstra. Okay, that is another system.

Mr. McMullen. I don’t think I can address why we have the different systems other than to say they each were originated for a purpose of some kind and have continued. It does certainly create some confusion, and I believe it is a conversation we need to have within the administration. This is not just a DOL issue we are talking about here.

Chairman Hoekstra. Miss Joyner, have you looked at that?

Ms. Joyner. I am going to defer here, if I may, to Susan Irving, who is with our budget issues group in GAO.

Ms. Irving. Mr. Chairman, I think what Mr. McMullen has been very good about explaining is the difference between the 7.4 and 8.4 and the difference between the 10.3 and 10.6, but each of those is two different numbers.

I think, as you have learned in the Budget Committee, there are lots of words that are, as I like to say, separated by a common language, and in the budget world discretionary doesn’t mean what it means in our outside world. And so if you ask Mr. McMullen for his grants numbers, he is going to give you a number that is discretionary grants, but it is not his total discretionary appropriation. In the budget world it is very important to remember that under the Budget Enforcement Act, the term "discretionary" now means for the most part money that goes through the Appropriations Committee, and therefore, it would include appropriations for salaries and expenses and for other non-grant programs. And that is the difference between the sort of 10 number and the 8 number is that one is only grants, and one includes non-grant activities that are appropriated as discretionary spending. The 800-pound gorilla, of course, in the Federal budget is that thing called mandatory, which is just…

Chairman Hoekstra. But I think we haven’t gotten at what the difference is between the 10 and the 8, because we were trying to figure out what is the difference between the 7 and the 8 and the 10.3 and the 10.6. But then you got the other one, which is the difference between the 8 and the 10.

Do you have any other questions? It is your time.

Mrs. Mink. Oh, okay.

I wanted to get back to my inquiry on the bad debt and the back wages, which I assume is obligations that private parties owe to other private parties. What sense is this in terms of the accounting processes become an item listed in the financial records of the Department of Labor? Do we pay those who are owed the back wages? Do we advance the money and then collect it from the employer? Is that what happens?

Ms. Dalton. I believe the way the process works is once we have collected it, and when we do find the employee, then we pay, pay out. Sometimes we never find that employee, and it stays within the accounts of the Department. After a certain period of time, though, because it is very unlikely that we are going to find that individual, then that money reverts to the United States Treasury.

Mrs. Mink. It reverts to the Treasury?

Ms. Dalton. Um-hum.

Mrs. Mink. That is interesting. These are private obligations to private individuals that are paid by the employer for failure to meet minimum wage or overtime or whatever.

Ms. Dalton. It is basically their wages, and that is why it is called back wages.

Mrs. Mink. So this is really an asset.

Ms. Dalton. Um-hum.

Mr. Bresnahan. I would add the fact the funds are returned to the Treasury after a certain point in time doesn’t preclude the Department from finding employees and recovering those funds and making…

Mrs. Mink. Is it ever recoverable by the employer who failed to pay the proper wages?

Mr. Bresnahan. I don’t…

Mrs. Mink. Once the moneys are turned over, it is gone?

Mr. Bresnahan. It is intended for distribution.

Mrs. Mink. So what efforts are made by the Department then to locate the proper owner of these moneys?

Ms. Dalton. The Department is supposed to be making a good faith effort to find those people that are owed.

Mrs. Mink. In your audit of this particular account, can you say that the Department is making a good faith effort to locate these individuals?

Ms. Dalton. We have had some problems in the past with the way that the back wages have been handled. The Department is making strides in this area. As our most recent one revealed, there were significant problems in the accounting for this money, and the Department has developed a corrective action plan to better handle the money and its fiduciary responsibility related to it.

Mrs. Mink. So this $4 million is an accumulation over what period of time?

Ms. Dalton. It is basically what has accumulated in there as of that date. It could date back many years. I don’t know the exact…

Mrs. Mink. At what point is it handed over to the Treasury, and what is the total amount that has gone back to the Treasury that is not now recorded in this back wages account?

Ms. Dalton. Last year the amount to Treasury for the back wages received from employers but unclaimed by employees, we required that it had to be reduced by $8.5 million.

Mrs. Mink. 8.5 million went back to the Treasury?

Ms. Dalton. That is correct.

Mrs. Mink. What does the Treasury do with it?

Mr. Bresnahan. It just becomes part of the general receipts.

Chairman Hoekstra. Those Democrats a long time ago. I don’t know how they did that.

Mrs. Mink. I have one final question on the Job Corps matter that Miss Joyner had reference to in her testimony. My question is about this determination that part of your task was to investigate whether or not the beneficiaries of the Job Corps program ultimately found through their training jobs that had been indicated in prior reports. When was this part of the record-keeping responsibilities of the Job Corps in terms of where the youngster finally ended up and whether the job they had been promised actually was promised by the private contractor?

Ms. Joyner. The Job Corps has a system of different contractors responsible for various components of its activities. It may sometimes be the same individuals, but they will, for example, have contractors responsible to assess young people and put them in the program. Others might provide the vocational training, and others would be placement contractors or people responsible to make sure that they get into jobs. In some instances those would be the same entities, or they might be others.

So a part of the record-keeping that individual centers do is to report how many of a variety of measures, and one is how many of their people who leave their program actually get jobs. And that is an example of one that is actually used in the strategic plan that flows upward for all Department of Labor is the percent of participants who leave who actually get jobs.

There are other measures that are used internally; for example, what percent of the participants leave the program, completed their additional training, and what percent got jobs that were linked to their training? What is considered even more desirable is to get a job that is linked to the training that you got. So all of this is reported – information is gathered by the contractors – and is reported as a part of the story, if you will, of that center’s performance.

Mrs. Mink. For what length of time has that measure been required as part of the mission of the contractors in the Job Corps program?

Ms. Joyner. I don’t have the answer to that question. I could get it for you. It is not a recent thing, and it may be that if someone from Labor would like to respond to that as far as how long they have been tracking the performance in that way.

Mrs. Mink. The reason for my question is that your comments indicate that the reports have been faulty and not substantiated by the actual results when you visited the centers.

Ms. Joyner. That is correct. When we visited some centers and we looked at the data reported on their placement in jobs, what we found was 15 percent of those could not be supported by our follow-up review.

Mrs. Mink. That is the employers, the actual student?

Ms. Joyner. In some instances we could not locate the employer who was recorded as having hired the person, and others, when we located the employer, they said that they hadn’t hired the person.

Mrs. Mink. Has this sort of record-keeping…I just wanted to establish whether this sort of record-keeping within the Job Corps installation has been always part of their mandate.

Mr. Keilty. It has been for years. I will have to get you the exact date when we started doing this.

Ms. Dalton. I think it was at least from the late 1980s, because the Inspector General’s Office that audited similar data in the late 1980s…

Chairman Hoekstra. Mr. McMullen, can you track for me what the grant process from appropriation to a closeout, what does that look like?

Mr. McMullen. Yes, sir. If I could, I would like to defer to Mr. Keilty, because ETA has most of the grants, and we have a nice chart that walks you through, that if we could give that to you, we could walk through the grant process.

Mr. Keilty. Mr. Chairman, I guess the general statements, you know, grants we make and the authority to provide grants comes from the enabling legislation. The first page of this chart that we have provided for you is just an explanation, a visual, of what Jim had probably given and Ken had given you in their opening statements. There was budget formulation, and they engage, and Congress appropriates money, and OMB apportions that money to the Department, and the Department allots that money to the Employment and Training Administration, and you will see at the bottom of that chart the kinds of enabling legislation that ETA has at its disposal, if you will.

The second page is the illustration of the distribution of that money. I should say the vast majority of the funds appropriated to ETA are formula-funded programs; just as an example, the Welfare to Work Program, Mr. Chairman. I guess 75 percent of that Welfare to Work Program that the Department administers is distributed to the States based on the statutory formula. Fifty percent of the money goes out based on the poverty levels, fifty percent determined pro rata based on recipients receiving TANF grants. So there is a statutory formula within the act; 75 percent of the money is distributed through formulas.

Nonformula-funded program referred to was the discussion about discretionary – we won’t call it discretionary so we will avoid confusion here…just that part of the distribution that is not formula-funded. We develop what we call the Work Force Development Investment Plan, which is approved every year by the Assistant Secretary, which breaks out how we are going to spend our resources – a detailed plan about what we are going to do with the funds that Congress gave us. That plan, once it is approved, again the vast majority of the plan, the vast majority of the money that goes out goes out through a competitive process either through announcements in the Federal Register or announcements in the Commerce Business Daily.

We make announcement that we are going to, as we did in Welfare to Work, again using that as an example in the Federal Register we said the Department of Labor has these resources appropriated by Congress for the following purposes. If you are interested and will do the following things, please apply. Using that as an example, the first round of the welfare work competitive grants, we got over 600 applications from folks who wanted to participate in that.

Anyway, we have a competitive process, and that competitive process uses panels to review, and then there is a selection and a negotiation process. There are occasionally noncompetitive awards that ETA makes, but they follow strict Departmental procedures. In fact, any sole-source awards that we make have to be reviewed by the Department’s Procurement Review Board. It goes to Mr. McMullen’s office, actually Mr. McMullen’s boss. The Assistant Secretary for Administration is the deciding official. I am trying to remember her title. She is actually the deciding official.

When the approval is made, we have an internal control process that checks on the availability of the funds, that we have them there. We notify Congress that we are about to make these awards, whether that is on the formula or the nonformula side, and then the obligation is actually made to the recipient. When the obligation is made to the recipient, then for those, you know, who are using the Treasury payment system, an account is automatically set up for them in Treasury to draw down money.

The middle part of that graph, that chart, excuse me, showing the draw-downs and payments, that is really our contractor grant administration process. We have received financial reporting, we do program performance reports we get in. We have contracting or grant officer technical reps who visit grantees who evaluate and monitor, and that review and analysis and accounting process ultimately leads to, when the contract is over, an audit and termination closeout of the grant.

All that information, too, off to the right-hand side of the chart, you know, ETA is proud of its records of program evaluation. We do a lot of it in JTPA. Congress has mandated it for years, and so that review analysis information ultimately feeds our budget – goes back to the top of the first page and feeds our budget formulation process. We also use it in reviewing nonformula programs to see if we are ever going to use them again.

Anyway, that is a quick overview of it, Mr. Chairman.

Chairman Hoekstra. Thank you. Ms. Dalton, I believe mention was made in the Consolidated Financial Statement Audit that there were seven systems that had reportable conditions?

Ms. Dalton. Correct.

Chairman Hoekstra. These problems were with data processing or using outdated forms. What is a reportable condition?

Ms. Dalton. A reportable condition is something that we – the auditors – feel is significant enough that we should bring to the readers’ attention about the financial systems of the Department. I believe the seven systems you are referring to were ones where we had found noncompliance with the Federal Financial Management Improvement Act.

Chairman Hoekstra. So, the auditors believe that these problems are severe enough that they have to be noted?

Ms. Dalton. Correct.

Chairman Hoekstra. But not severe enough that it would lead to a qualified audit.

Ms. Dalton. That is correct. What we do is we look at for the audit report, the financial report, the financial statements, we are rendering an opinion on those. We are required to qualify it, means that there has to be something that is materially wrong with the statements that will cause us to qualify it. That might result from a systems deficiency that was such materiality, though not necessarily, because if we do have a problem with the system, it may be possible for us to do sufficient audit work to correct the accounting records so that we at least can give what we consider a fair report on the financial statements. However, we still have underlying problems with the systems that in their normal processing may not result in information that we will consider reliable.

Chairman Hoekstra. And over the last number of years, as you have identified those issues to the Department of Labor, they have worked to correct those?

Ms. Dalton. Yes, they have, significantly. When we first started auditing the Department 10 years ago, basically there was no financial discipline in the system. Trial balances did not balance. The integrated accounting system at that time was 15 years old and was really not functioning.

Since then, the Department has worked tirelessly to upgrade their financial management. A new system was put in place as the central accounting system, which Mr. Bresnahan discussed, the DOLAR$ system, where we are finding deficiencies at this point in the Department, and those were the reportable conditions. So some of the subsidiary systems they are feeding into that integrated, that central core system, and even in those subsidiary systems, there has been significant progress.

Chairman Hoekstra. But even with those problems, they are not a material deficiency.

Ms. Dalton. Correct. The way that we look at materiality is from a general audit perspective. We will look at as long as it is 1 percent of the total dollars, we audit it. In addition, we factor in other things, so it is not a hard number that we are looking at, because at times it may not be just the dollar amount alone, there may be some other things that make it particularly significant to the users of the financial statements.

Chairman Hoekstra. Okay, thank you. Miss Joyner, what are the national training contractors?

Ms. Joyner. As I mentioned before in Job Corps that contractors are used to arrange entrance to the Job Corps and at the end to assist in placing. In between is actually delivering the vocational training. So one group of the people who have received these contracts of vocational training over a great many years, about 30 years, has been national organizations, and that is what we mean by the term "national training contractors."

We describe this in some reports. The national training contractors are a group of nine unions and one business organization, the Home Builders Institute. The unions have been over this period of time receiving, under sole-source contract arrangements. To go back to your chart, contracts to provide this service on vocational training, rather than in contrast, for example, a particular center might have a contract with someone in that local area to do the vocational training in that center. This is in contrast with that process.

Chairman Hoekstra. How much money goes through that process to those 9 unions and one business organization?

Ms. Joyner. About a third of the funds for vocational training. According to testimony we issued recently, it was about $46 billion in FY 1997. So about a third of the funds.

Chairman Hoekstra. Forty-six billion? No.

Ms. Joyner. Forty-six million, I am sorry.

Chairman Hoekstra. Forty-six million.

Ms. Joyner. Overshadows the entire Labor Department budget.

Chairman Hoekstra. And GAO is concerned about the awarding of these contracts as sole-source contracts?

Ms. Joyner. Yes, sir. As you heard in testimony earlier in relation to the grant and contracts process, in this instance a contract is being awarded on a sole-source basis. There are certain conditions that have to be met and certain elements that have to be covered in the justification for doing this.

For example, we reported or just to review for the one they want us establish a need for the service that can only be provided by that specific entity. Another is documenting through a market survey or other basis that no other known entity can provide. A third would be stating a plan of action that the agency is going to undertake to move this to a competitive process.

And Labor has stated, for example, that a major reason for continuing with the same contractors is their unique ability to place people in jobs throughout the country. And we have testified recently, and we have a report that we will be issuing on the 30th of this month that reports on several matters, including our contention that they have not adequately justified the basis for their doing this as a sole source. For example, they do not have data to support that these contractors are, in fact, successfully placing people in jobs nationwide in contrast with another type of contractor. If they are more successful in placing them nationwide, that is our concern.

Chairman Hoekstra. An organization like one of those organizations would be the Senior Citizens Community Service Employment Program? Would that fall under as a national contractor?

Ms. Joyner. No, that is another program that also has been awarding for a period of time to the same contractors. But that is a different type of program. I could give you the names of the recipients on the national training contractors, or I can put them in my record.

Mr. Keilty. I think we submitted the list of those national contractors.

Chairman Hoekstra. National training contractors…

Mr. Keilty. National training contractors in response to an earlier inquiry.

Mrs. Mink. Do we have this information at this point?

Ms. Joyner. I am sorry, I didn’t understand your question, Mrs. Mink. Would you like…

Mrs. Mink. I said could we have that information at this point in the record?

Ms. Joyner. Yes. I will insert that.

Mr. Keilty. On that training center, the training contractors, we have a response to GAO, which I guess we would like to put in the record, if that is all right, Mr. Chairman.

Mr. Keilty. I think that, briefly, we have been using these contractors for a number of years. We are very happy with their placement. Because they are national organizations, because of their the fact that they are national, they have, you know, wide-ranging opportunities for our graduates. Our data shows that students that are placed who have received training from a national contractor were received placements averaging 70 cents, a dollar more as an opening wage, as a beginning wage, and you know we are sensitive and want to be and make sure that we are very careful about following the rules. This spring, in February, we published a notice, a public notice in the Commerce Business Daily inviting explaining what these contracts were and inviting interest from anyone, any party, any group that felt that it could play in this field and wanted to participate in that, and we received no responses to that.

Chairman Hoekstra. This is for the Job Corps?

Mr. Keilty. For the national training contractors. We repeated that offer later in the summer in May or in late spring, but the earlier announcement was in February. We repeated it in May with more information about it; the purpose, working closely with the Department's Procurement Review Board. We wanted to make sure that we were specifically reaching out as widely as we could. There were only two responses to that second letter, and the Department’s Procurement Review Board, I guess, felt that neither one of those firms had the breadth of knowledge or experience that would form the basis of any kind of competitive acquisition, and that is why.

But I just want to mention that we have been trying, and as late as this summer, to try to find interest from other parties in participating in this effort.

Chairman Hoekstra. Okay. Dr. Joyner, what about the Senior Citizens Community Service Employment Program. That is Title V of the Older Americans Act. But you have reviewed and reported on that program in the past, and again, that is one where grants are not subject to competition as the same 10 sponsors have been awarded grants annually.

How does Labor award funds under this program?

Ms. Joyner. Right. Let me describe the purpose of this program is to provide job opportunities for disadvantaged seniors over age 55, and we have done some work on this in the past. We issued a report, I believe, in 1995. Since then we have updated this information in 1998, and as we said, there is a group of 10 national sponsors who have been receiving these awards to engage seniors in these services while dating back, some of them, to the 1960s.

And going back again to the chart that was offered, these are in some instances described as competitive grants or the noncompetitive, but the Department does not treat them in that way. Their understanding is that the appropriations process each year in awarding these funds as a specific line item funding instructs them to award these to the same sponsors each year. And so they do go through a review process each year to determine or to confirm that they will do that, but in fact, even in public announcements of the availability of these funds, a statement is made that these funds will only go to these sponsors.

And the Department believes that they are bound by the language in the Appropriations Act to continue to award to only these sponsors and also to allocate the funds in such a way that 22 percent goes to the States, and the rest gets allocated to these sponsors. And I can also, if you would like, submit for the record the names of these 10 sponsors.

Chairman Hoekstra. We will insert those 10 here.

Ms. Joyner. The total amount on that for program year 1997 and the amount I mentioned for Job Corps, by the way, was also program year rather than fiscal year. The program year amount for what is called CSEP was about $349 million.

Chairman Hoekstra. 349 million?

Ms. Joyner. Yes.

Chairman Hoekstra. Okay. The language in the appropriations bill basically instructs the Department of Labor as to who that money should go to. Is that right?

Ms. Joyner. Well, that is the position of the Department. We don’t agree with the Department in that regard, our recommendation and our full-scale report was that they should have the opportunity to submit it to the same review process.

Chairman Hoekstra. I don’t have any more questions. Do you have any other questions? You had a comment?

Mrs. Mink. No, I believe not.

Chairman Hoekstra. I feel encouraged that this is the first department, although we haven’t had every department testify before this subcommittee, when asking about financial accountability and management’s responsibility as to whether their books are auditible. One notable exception is AmeriCorps and the Corporation for National Service, which is a newer organization to which books weren’t auditible. But, for your organization to come in here, which is significantly larger and significantly older, and to have auditible books for 1997 I think is laudable.

I think that enables us to have a dialogue. I think we now can have a dialogue not about what the numbers are, but whether we are getting the kind of results for the dollars that we would like to get, and I think that is what GPRA was all about. I am glad that you are in a position where as we verify this. We can move forward and actually start taking a look and knowing that when we are talking about the success of programs, we know roughly, or if not exactly, how much money that we are talking about. So my congratulations to you on doing that.

Mrs. Mink?

Mrs. Mink. I just want to concur with the Chairman. Generally I am thoroughly bored by audits and financial statements and matters of that kind, but certainly with reference to our work in Congress, we need to know how the moneys are being expended and to be able to make proper evaluations as to whether the intended purpose of the legislation is being fulfilled. And so the information that we are seeking today I think is very important for our oversight purposes, and I thank you all for your presence here and for your testimony. Thank you very much.

Chairman Hoekstra. Thank you very much. The record will remain open for submission of the Department’s response to questions posed.

The subcommittee will be adjourned.

[Whereupon, at 3:10 p.m., the subcommittee was adjourned.]