Mr. Chairman and members of the Committee, my name is Rod DeArment. I am the Deputy Secretary of Labor. I am pleased to appear before you today to discuss areas of concern in the management of the Department of Labor and in certain enforcement programs that the Department administers.

Mr. Chairman, I would like at this time to submit a written statement and ask permission that this full statement may be included in the record.1

Chairman GLENN. Without objection, the entire statement will be included in the record.

Mr. DEARMENT. Mr. Chairman, let me first say that Secretary Dole and I welcome this Committee's interest and concern in the Department's management and enforcement. Having had the privilege of working for the Senate for 7 years, I know how seriously this Committee takes its oversight responsibilities. I want to assure you that we at the Department of Labor take management and enforcement responsibilities equally seriously.

One example of this commitment is our Financial Managers Financial Integrity Act process. The Department's Internal Control Policy Board has been successful in identifying management control problems, formulating corrective actions, and tracking their implementation. Indeed, most of the issues discussed today were targeted in this process. The Department's Inspector General serves on the Board, and I am pleased to report that the IG has always been able to sign off on Board activity and reports. Since Secretary Dole and I took office, I have requested that our Assistant Secretary for Administration and Management, Thomas Komarek, and the IG meet with me each quarter to ensure that corrective actions formulated by the Internal Control Policy Board are on track. I also directed that each new Assistant Secretary of Labor that took office in this new Administration meet with the Inspector General to review past and current management problems so they can be avoided and corrected.

After our first year at the Department, Secretary Dole and I have concluded that while on the whole the Department does very well in enforcement and management matters, as with any organization, improvements can be made.

I will address the enforcement issues first. To fulfill commitments she made during her confirmation hearings, Secretary Dole has commissioned a comprehensive department-wide review of all enforcement policies, strategies and procedures. I have been directing this effort and I can report that significant progress has been made. The initial review of agency enforcement activities has been completed and the agencies' assessments and recommendations are being analyzed by the Offices of the Solicitor of Labor and of the Assistant Secretary for Policy. I expect to receive a final report, including final recommendations and enforcement strategies for each program enforcement agency, by late spring or early summer.

This enforcement review will include an evaluation of civil and criminal enforcement priorities, including strategies for utilizing the deterrent effect of criminal referrals and prosecutions; the co

ordination among enforcement agencies and with the Department's Inspector General; relationships with the Justice Department, including United States Attorneys; the measurement of enforcement efforts; and other aspects of civil and criminal enforcement.

A subpart of this review-relating specifically to ERISA enforcement-will be completed within the next few weeks. This ERISA review will include proposals to address all recommendations of the Inspector General in his reports on ERISA enforcement, including the elimination of the limited scope audit exception, peer review for pension plan accountants, and ensuring that financial audits are designed to detect and disclose violations of ERISA. I will, of course, promptly provide this Committee with copies of this ERISA enforcement review.

I want to say at this point that we at the Department of Labor have found no evidence to support allegations in the press and elsewhere that there is a crisis in America's pension system. I want to reassure the Nation's workers and retirees that the pension system is fundamentally sound. By any objective measure, our pension system has never been healthier.

Nevertheless, no system is perfect, and experience indicates that there are those who are indifferent, negligent, or worse in performing their fiduciary duty to ensure the maintenance of plan assets. These wrongdoers find newer and more sophisticated ways to commit fraud and abuse, and the Labor Department must remain vigilant and implement new and more effective ways to protect plan assets.

In this connection, the Department's Pension and Welfare Benefits Administration, which we refer to as PWBA, has designed and is in the process of implementing a new computerized system to "read," analyze and select for further review and possible investigation-in accordance with 90 selected enforcement criteria-all annual reports submitted by ERISA-covered plans. Further, PWBA has established an Office of Chief Accountant to work with the accounting profession to improve employee benefit plan accounting and audit practices. Finally, the Department has developed a process to refer substandard accounting work to the AICPA and state Boards of Accountancy for disciplinary action.

More recently, the Administration submitted to Congress, as part of the President's proposed fiscal year 1991 budget, a request for 100 new PWBA enforcement positions, a 33 percent increase in the PWBA enforcement staff. This represents the largest annual increase in PWBA enforcement positions since ERISA's enactment in 1974, and it will greatly enhance our ability to enforce ERISA. The Department is also seeking a substantial corresponding increase in legal staff in the Office of the Solicitor of Labor to litigate the additional enforcement cases that should result from these increased PWBA enforcement efforts. This request for a major increase in ERISA enforcement and legal staff is concrete evidence of this Administration's commitment to strong and effective ERISA enforce

ment.

I will turn now to briefly discuss the management issues with which I understand the Committee is primarily concerned. First, there are two management issues arising under the Job Training Partnership Act, which is referred to as JTPA. That Act, passed in

1982, replaced the old CETA job training programs. It increased state and local control of Federally funded job training, and emphasizes linkages with the private sector and community organizations, including businesses, schools and labor organizations. The JTPA program is funded at $3.9 billion, about three-fourths of which is provided to the states in grants. It services approximately 1.7 million individuals. I have described the JTPA program in more detail in my written submission.

Last year the Department took action to address the use of fixed unit price performance-based contracts that caused JTPA cost accountability problems. To attack this cost accounting issue, the Department responded promptly, revising and disseminating new JTPA contracting guidelines in March of 1989. It also provided new training for Federal and grantee staff, and increased Federal monitoring of JTPA accounting.

To address this problem on a long-term basis, the Department included corrective provisions in the JTPA amendments which were submitted to Congress in July of 1989. These corrective provisions are part of S. 543, the JTPA Amendments bill, that we hope the Senate will take up this month. These provisions will require more explicit accounting for training, administrative and other grantee costs in strict compliance with statutory standards and cost limitations. We have been working diligently to ensure passage of the JTPA Amendments and we hope that they will be passed soon by Congress, so that these needed reforms can be permanently implemented.

Another JTPA management problem concerns adequate audit coverage of JTPA funds under the Single Audit Act, which provides that state and local jurisdictions which receive and expend a significant portion of Federal JTPA funds will generally be subject to only one Federal audit. The problem for JTPA is that a single audit, part of a larger Federal program audit, sometimes results in the JTPA programs not even being addressed. The Department brought this problem to the attention of OMB last July and OMB responded in October 1989, listing the Single Audit Act issue as a high-risk area for the Department of Labor.

To improve the audit coverage of JTPA funds, we are developing a full list of deficiencies. As a first step in the process, the Department's Inspector General will be completing a review of this issue in June. At the conclusion of that review, we will determine what actions should be taken to address this issue and forward any needed recommendations to OMB for action.

The second area of management issues involves inadequate financial accounting systems. Both the Comptroller General and the Administration have placed a high priority on replacing outmoded agency financial accounting systems. Moreover, our Inspector General pointed out a number of significant accounting and internal control gaps in DOL's old Integrated Accounting System. As a result, the Department has decided to implement an entirely new financial accounting system for its own accounts known as the Department of Labor Accounting and Related Systems, or "DOLAR$" for short. It is a commercially developed accounting system previously implemented successfully at ACTION, and at the Secret Serv

Health and Human Services is also planning to use this basic system.

After testing DOLAR$ last year, the Department began implementing the system this year. Obviously with the installation of any new complex system there are a number of unanticipated difficulties that have to be overcome. We have successfully produced interim DOLAR$ reports for the first quarter of fiscal year 1990 on the Department's salary and expense, or "S&E" accounts. We hope to have useable DOLAR$ reports for our grant accounts by April 30th. When all subsystems are completed, the Department will have a vastly improved accounting system for its own accounts that will exceed all applicable GAO and Treasury Department accounting requirements. The Department's Office of Administration and Management is working closely with the Inspector General to develop the DOLARS system as promptly as possible.

Finally, Mr. Chairman, there were two other areas of management that I covered in my written statement, that is, management problems relating to the unemployment compensation system, and the Department's purchase of automated data processing systems, but in the interest of time and at the suggestion of your Committee staff, I will refer the Committee to my written statement on those two matters.

In conclusion, Mr. Chairman, let me reiterate that Secretary Dole and I and our new management team at the Department of Labor will continue to work with our Inspector General to identify and resolve high-risk management and enforcement matters, including those discussed this morning. We are pleased that our FMFIA process has identified certain of these problems and we are committed to continue this process vigorously. We are working aggressively to address each of these issues. We are tracking our progress, and with continued efforts of our enforcement agencies and our Inspector General, we feel confident that we will minimize and eventually eliminate these problems.

Mr. Chairman, I am ready to answer questions. As you noted, we have here a number of the Assistant Secretaries and the Solicitor of Labor who have direct management control over some of the areas that I have touched on, and we welcome your questions.

Chairman GLENN. Fine, thank you very much, and you may want to have them join you at the table, or however you wish to handle it. It makes no difference to me.

I do have a question I think that would relate to Mr. Davis, so if he wanted to come to the table.

Mr. Davis, as Solicitor of the Labor Department, do you view the Office of Legal Counsel's March 1989 legal opinion as binding on the Department of Labor?

Mr. DAVIS. Yes, I do, Mr. Chairman.

Chairman GLENN. Now, is that a change of policy of the Department?

Mr. DAVIS. I can't speak before January of 1989, but it is my general impression, Mr. Chairman, that it is long established in the Executive Branch that Office of Legal Counsel opinions are controlling as a matter of law.

Chairman GLENN. Well, that was not the opinion out of your department earlier, because there was a November 24, 1986 letter

from your predecessor, George Salem, to the Justice Department, and I read from it in part, "Thank you for notifying us of OLC's views on the matter involving the Comprehensive Crime Control Act of 1984, but as the Department's representative stated at the July 11 meeting, we view the memorandum as an internal Justice Department opinion which has no binding effect on the Department of Labor."

Now, what you just said this morning would be, obviously, diametrically opposed to that. Which policy prevails, now?

Mr. DAVIS. Two reactions, Mr. Chairman. First of all, I am not familiar with the letter. I do have a copy in front of me. I would like to read it and respond more fully for the record. Second, I will note that the letter is addressed, apparently, from Mr. Salem to the Deputy Assistant Attorney General for the Criminal Division, and I am not aware of any precedent where Criminal Division opinion is given controlling effect in the Executive Branch.

Chairman GLENN. Okay. We would appreciate your additional comment on that, because it was our opinion that Mr Salem's letter expressed the view of the Department with regard to the limitations that DOJ had placed on you.

Mr. DeArment, the IG testified before us last October, and I quote from some of his testimony: "During meetings with the Inspector General, Wage and Hour and Solicitor officials told us they did not believe in criminal investigations and they said that their primary and only objective was the recovery of back wages. Their refusal to cooperate resulted in a premature termination of the undercover operation and precluded the collection of evidence needed to document certain violations, including fraud against HUD and various lending institutions, fraud against HHS by virtue of inflated nursing home construction costs and reimbursement for services provided to patients, public corruption in the form of bribery, labor corruption in the form of payoffs and other Davis-Bacon viola

tions.

What has been done to correct this?

Mr. DEARMENT. Well, Mr. Chairman, I can't speak for the Department officials in the past, but I can tell you that the current management of the Department of Labor believes in effective criminal enforcement. I think that particular case demonstrates one of the problems with independent Inspector General criminal enforcement that is not coordinated with the rest of the Department. In that particular case, as I understand the facts, and I have heard both sides of the story, we had a Wage and Hour Division investigator, who felt that he was offered bribes in his conduct of an investigation. That apparent attempted bribe was reported to the Inspector General. The Inspector General, without coordinating fully with the Wage and Hour Division, commenced an undercover criminal investigation.

The Wage and Hour Division continued its efforts to recover the unpaid back wages, and asked HUD to withhold those back wages from a Federal contract payment HUD was to make to the employer. At this point, after the Department had written to HUD asking for the wages to be deducted from the contract payments, the Inspector General then emerged, and asked that the Department