TREASURY
INSPECTOR GENERAL FOR TAX ADMINISTRATION
A More Strategic Approach Could Enhance the Workers’ Compensation Program Return-to-Work Efforts
March
12, 2008
Reference
Number: 2008-30-056
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
Phone Number |
202-927-7037
Email Address | inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
March 12, 2008
MEMORANDUM FOR CHIEF HUMAN CAPITAL OFFICER
FROM: (for) Michael R. Phillips /s/ Michael E. McKenney
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – A More Strategic Approach Could Enhance the Workers’ Compensation Program Return-to-Work Efforts (Audit # 200630IE013)
This report presents the results of our review of the
Internal Revenue Service’s (IRS) processing of workers’ compensation claims
filed by employees. The overall
objective of this review was to evaluate the effectiveness of the Workers’
Compensation Program administration in the IRS, with an emphasis on the
progress made since 2003. The review was
initiated at the request of the
President’s Council on Integrity and Efficiency.
Impact on the Taxpayer
IRS cash outlays for workers’ compensation claims continue
to increase, driven by such factors as cost-of-living increases and higher
costs for medical equipment, medications, and treatment. These outlays represent financial obligations
to care for injured employees and can be considered a cost of business. However, if costs are not properly
managed and increase significantly, obligations could ultimately affect
the amount of money the IRS has available to spend on enhancing the delivery of
service to the taxpaying public.
Synopsis
Overall, the IRS has
made notable progress in managing its Workers’ Compensation Program. Since 2003, the IRS has fully or partially
implemented our prior recommendations[1]
for enhancing case management techniques, increasing the accuracy of
performance measures, and holding IRS
managers more accountable for reducing costs associated with workers’
compensation claims. While program management has improved, we believe
additional steps need to be taken in the Workers’ Compensation Center (WCC) and
throughout the IRS to further strengthen the Program.
In the WCC, control processes need
to be established to ensure the IRS is not overpaying workers’ compensation
benefits. In 1996, the President’s Council on Integrity and
Efficiency issued a consolidated report on the Federal
Employees’ Compensation Act (FECA)[2] that summarized the results of 13 audits
conducted by participating Offices of Inspectors General. The audits found substantial overpayments and
millions of dollars in projected questionable payments because agencies were
not adequately reviewing their FECA chargeback cost reports. During our review of IRS records and its 2006
chargeback report, we identified issues similar to those surfaced by the
President’s Council on Integrity and Efficiency in 1996. Specifically, we questioned more than $1
million in charges that included benefits paid subsequent to Social Security Administration records indicating claimants[3] had died.
In one instance, the compensation payments continued for almost 2 years
after the claimant’s death.
Agencywide, the IRS needs to ensure
that required procedures are followed when claims are initiated and to implement a more
strategically oriented approach
for returning employees to work following an injury. Our review of case
files associated with 40 claims found problems in 31 of the claim cases
reviewed. For example, injury
investigations were not thoroughly conducted, and some questionable claims were
not challenged while others were improperly challenged.
Increasing from $1.4 billion in 1990 to nearly $2.4 billion
in 2005, the cost of workers’ compensation has caused concern throughout the Federal Government. We analyzed practices, (1) advocated and
implemented by agencies we identified and, (2) recommended to us by officials
from the Department of Labor Office of Workers’ Compensation Programs (OWCP) as
particularly effective at controlling costs, and found three common strategies
in their return-to-work practices.[4]
First, return-to-work programs were established with policies,
procedures, and processes that stressed taking an organizational approach to
finding productive activities for injured employees by collaborating
cross-functionally both inside and outside the agency. Second, proactive steps were taken to
establish an environment in which injured employees are expected to return to
work. Besides creating a pool of
available light-duty and modified jobs,[5] these steps
included taking advantage of telecommuting opportunities and establishing early
rehabilitation and intervention activities using contract nurses. Third, goals and performance measures were
developed and used to measure the effectiveness of return-to-work efforts.
In contrast, the IRS’ return-to-work efforts are more reactive, less
strategically oriented, and heavily reliant on its first-line managers -who can
have broad spans of control and many other administrative demands on their
time -to provide jobs commensurate with an employee’s skills and medical
limitations. Moreover, specific policies
and procedures have yet to be implemented to coordinate and collaborate across
functional lines to assist in transitioning more injured employees back to the
workplace. Considering that one injured employee can
easily cost an agency more than $1 million if he or she does not return to
work, even relatively small successes in returning individuals to work can
significantly reduce outlays for workers’ compensation benefits.
Recommendations
To ensure that the IRS is not overpaying workers’ compensation benefits, the Chief Human Capital Officer should develop and implement control processes for reviewing the accuracy of costs in chargeback reports, obtain evidence to ensure that benefits are paid only to current or former IRS employees, and seek reimbursement for the compensation paid subsequent to claimants’ deaths and on denied claims. The Chief Human Capital Officer should also coordinate with the Deputy Commissioner for Operations Support to implement a control to provide assurances that required procedures are completed in the claim process and establish a more strategic approach to enhance return-to-work efforts.
Response
The Chief Human Capital Officer agreed with our recommendations and outlined the actions the IRS has taken or would take. These actions include implementing control processes for reviewing the accuracy of the costs in chargeback reports, seeking reimbursement from the OWCP for benefits paid subsequent to claimants’ deaths, enhancing the mandatory annual safety briefing, and developing an instructional training compact disc for employees. The IRS will also develop a policy with a goal of addressing cross-functional placement for injured workers and enhance the efforts made by first-line managers and case management specialists with return-to-work procedures. Management’s complete response to the draft report is included as Appendix V.
Office of Audit Comment
We
acknowledge the actions described above will provide assurance that workers’
compensation benefits are paid to eligible IRS employees and their
beneficiaries for claims made since the centralization of the WCC. However, the IRS did not specifically agree
or disagree to obtain evidence, such as the originally filed claim documents, to
ensure that all workers’ compensation benefits are paid only to eligible IRS
employees and their beneficiaries. We
believe that, without obtaining such evidence, the IRS will remain at risk of
overpaying workers’ compensation benefits for claims arising before the WCC
centralization.
Copies of
this report are also being sent to the IRS managers affected by the report
recommendations. Please contact me at
(202) 622-6510 if you have questions or Margaret E. Begg, Acting Assistant
Inspector General for Audit (Small Business and Corporate Programs), at (202)
622-8510.
The Internal Revenue
Service Has Made Notable Progress in Managing Its Workers’ Compensation Program
Additional Steps Should
Be Taken to Ensure Required Procedures Are Followed When Initiating Claims
A More Strategic Approach
for Returning Employees to Work Following an Injury Needs to Be Explored
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix IV
– Workers’ Compensation Costs
Appendix V
– Management’s Response to the Draft Report
|
FECA |
Federal Employees’ Compensation Act |
|
IRS |
Internal Revenue Service |
|
OWCP |
Office of Workers’ Compensation Programs |
|
SHARE |
Safety, Health, and Return-to-Employment |
|
SHIMS |
Safety and Health Information Management
System |
|
WCC |
Workers’ Compensation Center |
The total
Federal Government FECA benefit costs increased from $1.4 billion in 1990 to
nearly $2.4 billion in 2005.
The Department of Labor Office of
Workers’ Compensation Programs (OWCP) is responsible for administering the
Federal Employees’ Compensation Act (FECA).[6] Enacted in 1916, with substantial
modifications over the years, the FECA is designed to provide nontaxable
payments to cover the lost wages, medical care, and survivors’ benefits of
Federal Government employees who are injured on the job. The FECA is a major benefit program that affects
the budgets of all Federal Government agencies, and its rising costs are a
concern throughout the Government. The
total Federal Government FECA benefit costs increased from $1.4 billion in 1990
to nearly $2.4 billion in 2005.
The OWCP, which administers the Workers’ Compensation Program
from 12 district offices located throughout the country, is responsible for
claim adjudication and payment of benefits.
However, the OWCP bills Federal
Government agencies for the amount of benefits paid on behalf of the agencies’
injured employees.[7] These
“chargeback billings” cover the 12-month expense period of July 1 to June 30 each
year, and agencies pay the expenses from their appropriations or operating
revenues.
Besides reimbursing
the OWCP, Federal Government agencies have other responsibilities to ensure that their
employees are properly covered under the FECA.
These other responsibilities include ensuring that personnel understand the FECA,
informing injured employees of their rights and obligations, initiating the
claim process with the OWCP, authorizing medical care, and coordinating with the
OWCP in monitoring the medical status of injured employees to help determine if
and when they can resume working.
Organizationally,
the Internal Revenue Service (IRS) Workers’ Compensation Program is located and
managed from its Workers’ Compensation Center (WCC) in
The WCC uses the Department of the Treasury
Safety and Health Information Management System (SHIMS) to process and control
workers’ compensation claims. The SHIMS
was implemented on October 1, 2001, and was designed to replace the paper
accident claim reporting process with an electronic system that would allow
claims to be submitted to the WCC and OWCP quickly. In addition, the SHIMS is designed to enable
the IRS to track its lost production days and costs.
This review was performed at the IRS WCC in
The Internal Revenue Service Has Made Notable Progress in Managing Its Workers’ Compensation Program
The IRS has improved
the process and information used to manage its workers’ compensation
claims. Since 2003, the IRS has fully or
partially implemented all eight of our prior recommendations for enhancing case
management techniques, increasing the accuracy of performance measures, and
holding IRS managers more accountable for reducing costs associated with
workers’ compensation claims.
To
improve the case management of long-term disability cases, the IRS implemented
our recommendation to establish guidelines for reviewing older cases. In September 2003,
the WCC issued detailed instructions for its personnel on what and when steps
should be taken in managing claims in process for more than 1 year. The instructions included steps that should
be taken and documented in case files when assessing a claimant’s[8] ability to return to work. The instructions were subsequently
incorporated into the WCC procedural guidelines that supplement and expand on
the instructions in the Internal Revenue Manual.
To increase the
accuracy of performance measures, the IRS implemented our two recommendations
for increasing the reliability of its cost avoidance accomplishments. In October 2003, the WCC revised how it
calculated the accomplishments by properly accounting for injured employees who
returned to work and ensuring that the amounts claimed were the result of specific
actions taken by the WCC. Although we
did not verify the accuracy of the accomplishments claimed since our last
review, we did find they are lower and the methodology for calculating them is
generally in line with those used by the other agencies we benchmarked.
To
enhance case management techniques, the IRS implemented our four recommendations related to using the SHIMS more effectively for managing key aspects of the
claim process. For example, we reported
in 2003 that the WCC was not consistently populating data fields in the SHIMS
with information that would assist in monitoring the status and timeliness of
key actions in the claims process.
Instead, the WCC relied on more cumbersome and error-prone manual
processes for monitoring. As summarized
in Figure 1, we found a marked improvement in the amount of information input
to the data fields since 2003. According
to WCC officials, the additional information is enhancing their ability to use the
SHIMS as a major analytical tool for evaluating and controlling claim
case activities.
Figure 1: Comparison of Past and Current Use of Specific Fields in the SHIMS
|
FIELDS IN THE SHIMS |
Past Use[9] |
Current
use[10] |
|
Assessment Code: Documents
the specialist’s initial assessment of the claim. |
Rarely used: Found
22 (2%) uses out of 1,044 for cases tested. |
Extensively used: Found
2,827 (94%) uses out of 3,014 for cases tested. |
|
Management Code: Gives
the current status of the case. |
Rarely used: Found
16 (2%) uses out of 1,044 for cases tested. |
Extensively used: Found 2,843 (94%) uses out of 3,014 for
cases tested. |
|
Case File Number: References
to the paper file stored in the WCC facility. |
Usually recorded: Found
|
Almost always recorded: Found
2,991 (99%) uses out of 3,014 for cases tested. |
Source: Improvements Are Needed in the Process and
Information Used to Manage Workers’ Compensation Claims
(Reference Number 2003-10-213, dated
September 2003) and a December 4, 2006, data extract from the SHIMS.
To begin holding managers more
accountable for reducing costs associated with claims, the IRS partially
implemented our recommendation to establish procedures for assigning workers’
compensation costs to its various business units. For example, the WCC implemented a process
that provides IRS executives a quarterly report outlining the workers’
compensation costs associated with injured employees in their respective
business units. While the report may be
increasing organizational awareness of the costs associated with injured
employees, it does little to hold the executives or managers in the various
business units accountable for reducing them.
Besides acting on our recommendations, the IRS is making progress in
carrying out its responsibilities under the Governmentwide Safety, Health, and
Return-to-Employment (SHARE) initiative.
The SHARE initiative was introduced in 2004 as a response to escalating
workers’ compensation costs. Under the SHARE
initiative, which is primarily aimed at newly filed claims, Federal Government agencies
are directed to (1) reduce claim rates, (2) increase the timeliness of
processing claims, (3) reduce the amount of time lost from work, and (4) reduce
the number of lost days.
While data are not available on the
precise impact the initiative is having on reducing costs, statistics from the
Department of Labor, which are reproduced in Figure 2, show the IRS has
steadily improved in key areas under the SHARE initiative. Improvement in claims processing time is
particularly important because it is the initial step in a case management
process designed to reduce workers’ compensation costs by getting workers
healthy and back to work as quickly as possible. In Fiscal Year 2007, the Department of the Treasury,
with significant contribution by the IRS, was recognized by the Department of Labor
for its performance in decreasing the number of injuries and illnesses by more
than any other Federal Government agency since the Presidential SHARE
initiative began in 2004.
|
Figure 2:
SHARE Initiative Statistics for the IRS |
|||||
|
|
Fiscal Year 2003[11] |
Fiscal Year 2004 |
Fiscal Year 2005 |
Fiscal Year 2006 |
Fiscal Year 2007[12] |
|
Number of employees |
104,945 |
102,112 |
103,805 |
98,547 |
92,902 |
|
Total cases |
1,864 |
1,583 |
1,400 |
1,204 |
635 |
|
Total case rates |
1.78 |
1.55 |
1.35 |
1.22 |
.68 |
|
Total lost time
cases |
1,269 |
1,137 |
942 |
781 |
437 |
|
Total lost time case
rate |
1.21 |
1.11 |
.91 |
.79 |
.47 |
|
Lost work days |
36 |
41 |
34 |
34 |
25 |
|
Percentage of timely
filed claims |
73% |
79% |
82% |
83% |
87% |
Source: Department of Labor OWCP statistics.
We also learned that in February 2005, the WCC independently
initiated a quality review process to evaluate adherence to selected procedures. The process involves reviewing a random
sample of claim cases and, according to WCC officials, has significantly
improved claim management practices. In
the beginning, the quality review scores were below expectations. However, the quality scores have increased
and are currently around 90 percent or more.
While the IRS has made notable progress
in improving its Workers’ Compensation Program, we believe additional steps
need to be taken within the WCC and throughout the IRS to further strengthen
the Program. Specifically, the WCC needs
to develop control processes that ensure that the IRS is not
overpaying workers’ compensation benefits.
Agencywide, the IRS needs
to ensure that required procedures are followed when claims are initiated and to
implement a more strategically oriented approach for returning employees to
work following an injury.
Control Processes Need to Be
Developed and Implemented to Ensure the Internal Revenue Service Is Not
Overpaying Workers’ Compensation Benefits
The Government Accountability Office Standards for Internal Control in the Federal Government provides an overall framework for control
processes that, in short, require establishing policies, procedures,
techniques, and mechanisms to ensure that actions are taken to minimize
risks. During the course of our review,
WCC management readily acknowledged they had not developed or implemented
control processes for thoroughly reviewing
the accuracy of the costs in the OWCP chargeback reports. The
WCC instead heavily relies upon the OWCP to ensure that the millions of dollars in
benefits it pays on behalf of the IRS are accurate. However, evidence from three sources clearly shows that, by not
thoroughly reviewing the chargeback reports, the IRS incurs considerable risk
that it may be paying more for workers’ compensation benefits than is
necessary.
First,
the OWCP recognizes that there can be errors in its chargeback billing process and
has long recommended that agency officials routinely review their chargeback
reports to identify and correct erroneous payments for compensation and medical
benefits. Additionally, the OWCP
recommends that, when officials suspect erroneous payments have been made, they
should check current personnel and payroll records, as well as the service
record file, and/or send an inquiry to the
·
Compensation
payments and survivor benefits totaling approximately $1.3 million that were paid
to 7 claimants and 27 beneficiaries (34 cases).
In 22 of the 34 cases, we found no case files or any other documentation
to support that the recipients were and continue to be eligible for the
benefits. While files were maintained
for the other 12 cases, we found key documents to verify prior IRS employment
and monitor continued eligibility for workers’ compensations benefits were
missing. The information missing from
the files included dates and description of employment with the IRS, dates and
description of claimant’s injuries, and contact information for those receiving
the benefits. Moreover, we found only 4
of the 34 original claimants’ identification numbers listed in current or
historical IRS payroll records.
·
Compensation
payments of more than $75,000 that continued to be paid subsequent to 3 claimants’
deaths. In one instance, the compensation
payments continued for almost 2 years after Social Security Administration
records indicated the claimant had died.
In addition, another claimant’s death payments were not adjusted to
reflect the correct rate payable to a surviving spouse.
·
Medical
expenses of approximately $12,700 that were paid for 3 employees after their claims
had been denied by the OWCP.
As noted above, the
majority of the questionable charges are attributable to missing or insufficient
documentation. According to WCC
officials and our observations, this problem largely stemmed from claims that
originated before the IRS centralized its Workers’ Compensation Program under
the WCC in 1994. Prior to establishment
of the WCC, claims were handled by IRS personnel located in geographically
dispersed offices that may have operated more informally and with less documentation
because each office was responsible for managing significantly fewer cases. However, we believe that, even with
significantly fewer cases to manage, the level of informality in operations that
existed when the Workers’ Compensation Program was decentralized would still expose
the IRS to risks that include overpaying workers’ compensation benefits.
Recommendations
To ensure that the IRS is not overpaying
workers’ compensation benefits, the Chief Human Capital Officer should:
Recommendation 1: Develop and implement control
processes for reviewing the accuracy of costs in OWCP chargeback reports.
Management’s Response: The Chief Human Capital Officer agreed with this recommendation. Control processes will be implemented to assure that, (1) any compensation or medical payments made after a claim has been made inactive are identified and, (2) actions are taken to validate or report any questionable charge, using routine exception reports generated from the SHIMS and the OWCP databases.
Recommendation 2: Obtain evidence, such as the
originally filed claim documents, to ensure that all workers’ compensation
benefits are paid only to eligible current or former IRS employees and their
beneficiaries.
Management’s Response: The Chief Human Capital Officer agreed with this recommendation and stated that corrective actions have been completed. Since the centralization of the WCC in 1994, each new claim received is verified to be from an IRS employee through the use of existing personnel databases, and this documentation is placed in case files.
Office
of Audit Comment:
We acknowledge the actions described above provide assurance that workers’
compensation benefits are paid to eligible IRS employees and their
beneficiaries for claims made since the centralization of the WCC. However, the IRS did not specifically agree
or disagree to obtain evidence, such as the originally filed claim documents, to
ensure that all workers’ compensation benefits are paid only to eligible IRS
employees and their beneficiaries. We
believe that, without obtaining such evidence, the IRS will remain at risk of
overpaying workers’ compensation benefits for claims arising before the WCC
centralization.
Recommendation
3:
Seek reimbursement from the OWCP for the compensation paid (1)
subsequent to claimants’ deaths and, (2) to claimants whose claims were denied.
Management’s
Response:
The Chief Human Capital Officer agreed with this
recommendation and stated that corrective actions have been completed. The IRS followed up with the OWCP regarding the
three cases for which compensation benefits were paid after the claimant had died
and determined that, in two instances, the OWCP had begun the recovery process
for the overpayments by contacting the bank into which the funds had been directly
deposited. In the other instance, the
IRS determined a spouse was appropriately receiving survivor benefits. With regard to the medical payments, the IRS
did not find any inappropriate payments made subsequent to the denial of the medical
claims but noted that occasionally payments are made after a claim denial for
bills with dates of services predating the date on which the claim was
denied.
Additional Steps Should Be Taken to Ensure Required Procedures Are Followed When Initiating Claims
One of the objectives of the OWCP is to protect the interests of Federal Government
employees by encouraging the timely and accurate submission of claims for consideration. First-line supervisors both within and
outside the IRS are responsible for ensuring that this Government-wide objective is
achieved by initiating injury investigations immediately, authorizing medical
treatment promptly, informing injured employees of their rights and
responsibilities, and submitting properly completed claim forms to the OWCP
within 10 days of receipt from the injured employees.
To assist managers throughout the IRS in meeting their responsibilities,
the WCC has focused
considerable efforts on developing and introducing products, such as a computer-based training package and a
standardized managerial checklist, intended to familiarize managers with and
provide details on the various procedures that should be completed to ensure
that claims are submitted properly and on time.
Beyond these WCC efforts, the IRS should take additional steps to better
ensure that managers follow required procedures.
We reviewed a judgmental sample of case files associated with 40 claims
and found 31 claim cases with 1 or more of the following problems:
Thorough and well-documented injury investigations are essential for
substantiating or raising doubts about the validity of claims. Although this generally involves obtaining
third-party witness statements and providing a detailed description of
the time, place, and cause of the injury, we found these elements were often
missing from case files.
By law, supervisors are required to
promptly authorize an initial medical examination for an injured employee and
ensure that he or she is aware of his or her rights and responsibilities. These requirements are further emphasized in
both the Internal Revenue Manual and the national agreement between the IRS and
the National Treasury Employees Union.
Except for a few instances, we saw little evidence in the case files that
injured employees were both promptly authorized for medical treatment and fully
advised of their rights and responsibilities.
As shown in our case reviews, many of the problems stemmed from the lack
of documentation indicating that required procedures were followed. Although we did not use statistically valid
sampling techniques in selecting the claim cases for review, we believe our
results indicate this is a nationwide concern.
The claims came from a variety of IRS operational areas and were filed
over several years from different offices across the country.
During our review,
we used several items listed on a standardized managerial checklist introduced
by the WCC in Fiscal Year 2002 to guide our evaluation of how well selected
procedures were followed. Managers can
access the checklist online to get specific, step-by-step instructions for each
of the workers’ compensation procedures.
While the checklist also provides important references to answer
procedural and process questions, we saw little evidence in the cases we
reviewed that it was used by managers.
As we have previously reported,[13] the IRS has
successfully designed and implemented mandatory checklists in other program
areas as a control to hold personnel accountable for ensuring that required procedures and processes are completed. We believe that, if the WCC managerial
checklist is similarly mandated, it would provide a cost-effective control for
resolving many of the problems identified in our case reviews. Like other successfully mandated checklists
in the IRS, it would need to solicit signatures and dates from managers and
employees certifying that the actions were completed, and be included as a permanent
part of claim case files.
Additionally, the
use of the checklist would need to be evaluated and the results of the
evaluations shared agencywide, so that needed corrective actions, if any, could be identified
and addressed. We believe this could be
accomplished by taking relatively simple steps requiring minimal amounts of
time and resources. As discussed
earlier, the WCC already has in place a quality review process that could be
modified to include evaluating the use of the checklist. Moreover, the IRS currently requires managers
and employees to participate in an annual briefing session on workplace safety
and health issues. The annual briefing includes
references for reporting workplace injuries to the WCC and could be enhanced by
sharing review results on the use of the checklist and emphasizing the
importance of following required procedures when initiating claims.
Recommendation
Recommendation
4: The Chief Human Capital Officer should
coordinate with the Deputy Commissioner for Operations Support to implement a control
to provide greater assurances that required
procedures are completed in the claim process by managers and employees throughout
the IRS.
Management’s Response: The Chief Human Capital Officer agreed with this recommendation. The IRS will enhance the mandatory annual safety briefing and will develop an instructional training compact disc for employees that will complement the one available for managers.
A More Strategic Approach
for Returning Employees to Work Following an Injury Needs to Be Explored
Returning employees to work after an injury or occupational illness continues
to present management challenges for the IRS as well as other agencies. These challenges have, in part, been
attributed to the FECA itself. As the Government
Accountability Office and others have reported, the FECA provides injured
employees with very generous benefits that critics believe create an incentive
for workers to continue receiving FECA benefits even though they may be able to
return to work. These benefits can include
tax-free payments of up to 75 percent of earnings that provide some employees with
more net income while receiving workers’ compensation than when working. Moreover, there is no mandatory retirement
age for employees collecting FECA benefits.
Consequently, those who, in effect, “retire on the FECA” will generally
receive greater amounts than career employees who retire normally.
Critics also point to the role the OWCP has in the process. By law, the OWCP is an advocate for injured
employees because it alone determines the validity of claims and when injured
employees are healthy enough to return to work, even though it has little, if
any, financial obligation if a claimant’s case is mismanaged. Because legislative actions to remove these
obstacles have been proposed but have not been acted on, agencies must establish
effective return-to-work practices for controlling workers’ compensation costs,
considering that 1 injured employee can easily cost an agency more than $1
million if he or she never returns to work.
We analyzed practices (1) advocated and implemented by agencies we
identified and (2) recommended to us by the OWCP as particularly effective at
controlling costs and found three common strategies in their return-to-work practices.[14] First, return-to-work programs were
established with policies, procedures, and other processes that stressed taking
an organizational approach to finding productive activities for injured
employees by collaborating cross-functionally both within and outside the
agency. In the Department of Defense, working
relationships were established with executives and managers in other agencies
to identify, evaluate, and deliver transitional work[15] for the injured. The transitional work helped reduce costs by
gradually returning injured workers to the workplace in less physically or
mentally demanding positions than their regular jobs. During Fiscal Years 2005 through 2007, 491
recovering Department of Defense employees were reemployed, creating a
projected lifetime cost reduction of approximately $422 million.
Second, proactive steps were taken to establish an environment in which injured
employees are expected to return to work.
Besides creating a pool of available light-duty and modified jobs,[16] these steps
included taking advantage of telecommuting opportunities and establishing early
rehabilitation and intervention activities using contract nurses. For example, the Transportation Security
Administration adopted a private industry nurse intervention program, which
resulted in a 33 percent reduction of absenteeism per injury.
Third, goals and performance measures, other than those required by the SHARE
initiative, were developed and used to measure the effectiveness of return-to-work
efforts. As we have previously reported,
performance
measures are critical for understanding what a program is accomplishing and
whether goals are being achieved. In
short, they focus on results and are a central aspect of the Government Performance
and Results Act of 1993.[17]
In contrast, the IRS’ return-to-work efforts are more reactive, less
strategically oriented, and heavily reliant on its first-line managers -who can
have broad spans of control and multiple other administrative demands on their
time -to provide jobs commensurate with an employee’s skills and medical
limitations. Moreover, specific policies
and procedures have yet to be implemented to coordinate and collaborate across
functional lines to assist in transitioning more injured employees back to the
workplace. The heavy reliance on first-line
managers and the absence of polices and procedures for working across
organizational lines in the IRS diminishes return-to-work efforts and can have a
detrimental effect on both the IRS and injured employees, as shown in the following
excerpt from a 2006 letter from the OWCP to the WCC:
This is to confirm
the conversation with a manager in which he declined the opportunity to offer
the above named employee modified employment.
He was advised that all costs associated with rehabilitation effort as
well as continued wage loss compensation at the total disability rate and
medical costs will be billed back to your agency.
The injured
employees’ potential entitlement for wage loss compensation is approximately
$1.3 million of your future appropriation, not counting the thousands spent on
vocational rehabilitation. That is over
a million dollars on just one case.
You are losing a
trained and valuable employee, who will have to accept that a career with your
agency is over. We will be challenged
with retraining and attempting to secure employment for this employee in a
difficult labor market.
The Department of [the] Treasury has expressed its concern about
the rising costs associated with workers’ compensation. Commitments have been made by your national
office to make every effort to provide partially disabled employees with
modified work. It is unfortunate that
you are unable to comply in this case.
Hopefully this case is an exception.
Small
successes in returning employees to work can significantly reduce workers’
compensation program costs
IRS cash outlays for
workers’ compensation claims continue to increase, driven by such factors as
cost-of-living increases and higher costs for medical equipment, medications,
and treatment. These outlays represent
financial obligations to care for injured employees and can be considered a
cost of business. However, if the costs
are not properly managed and they increase significantly, obligations could
ultimately affect the amount of money the IRS has available to spend on
enhancing the delivery of service to the taxpaying public.
In 2006, the IRS was charged almost $12 million for the compensation paid
to 402 employees, age 65 or under, on the periodic roll.[18] If these employees remain on the periodic
roll and do not return to work, the IRS will incur approximately $59 million[19] in charges over
the next 5 years, with the costs continuing to escalate in subsequent
years. As illustrated in Figure 3, we
estimate the IRS will pay approximately $173 million[20] in compensation
for the 402 injured employees by the time they reach age 70 and about $231
million[21] in compensation
by age 75.
Figure
3: Chargeback Costs Continually Increase
Over Time
Figure
3 was removed due to its size. To see
Figure 3, please go to the Adobe PDF version of the report on the TIGTA Public
Web Page.[22]
Many workers’
compensation program managers and others in the field, such as those who provide
worker rehabilitation services, believe the longer an individual remains away
from work the more challenging it will be for him or her to return to work. Despite the challenges, effective return-to-work
strategies, such as those discussed in this report, may provide the IRS with opportunities
to return more individuals to productive activity in the workplace, while at
the same time reducing its workers’ compensation costs. According to cost avoidance formulas for
periodic roll cases used in some Federal Workers’ Compensation Programs,[23] we estimate that, even if the IRS finds
productive activity for only 10 percent of the 402 employees not over age 65
who currently are on the Department of Labor’s periodic roll, its lifetime
benefit outlays would be reduced by more than $23 million.[24]
Recommendation
Recommendation
5: The Chief Human Capital Officer
should coordinate with the Deputy Commissioner for Operations Support to develop and establish
a more strategic approach to enhance return-to-work efforts that includes
specific policies and procedures for working across functional areas to
transition injured employees into productive activities in the workplace.
Management’s
Response:
The Chief Human Capital Officer agreed with this
recommendation, stating that the support and commitment by top leadership is
essential. The WCC will develop a proposed
policy with a goal of addressing cross-functional placement for injured workers
and enhance the efforts made by first-line managers and case management
specialists with return-to-work procedures.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to evaluate the effectiveness of the Workers’ Compensation Program administration in the IRS, with an emphasis on the progress made since 2003. During the review, we relied on databases provided by the IRS. Although we did not audit to determine the accuracy and reliability of the information in any of the databases, we checked the reasonableness of our results against source documents. Our checks are described below and did not identify any material errors in the information used from the databases. To accomplish our objective, we:
I. Reviewed a significant amount of source material to gain an understanding of workers’ compensation claims and benefits. These sources included the FECA;[25] publications and guidance issued by the Department of Labor OWCP; published research and reports on workers’ compensation; and the IRS Internal Revenue Manual, guidance documents, and training materials.
II. Evaluated the progress made in implementing the agreed-upon recommendations from the Treasury Inspector General for Tax Administration’s 2003 report.[26]
III. Identified key fields on the SHIMS[27] that the IRS uses to monitor its WCC activities and compared the information to source documents to ensure the data we used from the system were reasonable and complete.
IV. Reviewed a judgmental sample of 40 of the 20,782 workers’ compensation claims listed on the SHIMS through December 4, 2006, to determine whether required procedures were followed. We used judgmental sampling techniques to conserve time and resources. We validated the computer data by reconciling the supporting documentation for the 40 workers’ compensation claims to data on the SHIMS.
V. Used the Government Accountability Office Standards for Internal Control in the Federal Government to assess the policies, mechanisms, procedures, and techniques (management controls) the IRS established for its Workers’ Compensation Program.
VI. Evaluated the successes the IRS had achieved in implementing the SHARE initiative.[28]
VII. Reviewed the July 1, 2005, to June 30, 2006, Chargeback Report to verify the validity and accuracy of the costs charged to the IRS by the OWCP for compensation and medical expenses.
VIII.
Compared
and contrasted IRS return-to-work practices to those used by the Department of
Defense, the United States Postal Service, the Transportation Security
Administration, and the State of
Appendix II
Major Contributors to This Report
Margaret
E. Begg, Acting Assistant Inspector General for Audit (Small Business and
Corporate Programs)
Frank
Dunleavy, Director
Philip
Shropshire, Director
Robert
Jenness, Acting Audit Manager
Gwendolyn
Gilboy, Lead Auditor
Earl
Charles Burney, Senior Auditor
William
Tran, Senior Auditor
Ali
Vaezazizi, Auditor
Appendix III
Acting Commissioner C
Office of
the Commissioner – Attn: Acting Chief of
Staff C
Deputy Commissioner for Operations Support OS
Deputy Chief Human Capital Officer OS:HC
Director, Workforce Progression and Management OS:HC:WPM
Deputy Director, Workforce Progression and Management OS:HC:WPM
Associate Director, Centralized Activities OS:HC:WPM:CA
Chief, Workers’ Compensation Center OS:HC:WPM:CA:W
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Acting Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Internal Control OS:CFO:CPIC:IC
Audit
Liaison: Chief
Human Capital Officer OS:HC
Appendix IV
For Chargeback Years 1994 through 2006, the IRS workers’ compensation costs totaled more than $462 million. As shown in Figure 1, the yearly workers’ compensation costs rose from less than $36 million in 1994 to more than $42 million in 2006.
Figure 1: IRS Workers’ Compensation Chargeback Costs
for Chargeback Years 1994 – 2006
Figure 1 was removed due to its size. To see Figure 1, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.[29]
Figure 2
graphically illustrates the importance of implementing effective return-to-work
strategies and practices. The IRS paid cumulative
benefits of about $374 million for the 3,807 individuals[30] it had on the workers’ compensation rolls
through early December 2006. Medical
expenses comprised almost one-fourth of the total costs in Chargeback Year
2006, with compensation benefits accounting for the remainder. However, the cumulative compensation payments
comprise an even larger percentage of the total costs, making up about 82
percent of the $374 million the IRS has paid.
Figure 2: Medical, Compensation, and Total[31] Costs for 4,018 IRS Workers’ Compensation Claims in
Chargeback Year 2006, and the Cumulative Costs for the Same Claims As of
December 2006
Figure 2 was removed due to its
size. To see Figure 2, please go to the
Adobe PDF version of the report on the TIGTA Public Web Page.
Appendix V
Management’s Response to the Draft Report
The response was removed due to its size. To see the response, please go to the Adobe
PDF version of the report on the TIGTA Public Web Page.
[1] Improvements Are Needed in the Process and
Information Used to Manage Workers’ Compensation Claims (Reference Number
2003-10-213, dated September 2003).
[2] Ch. 458, 39 Stat. 742 (1916) (codified as amended in scattered sections of 1 U.S.C., 5 U.S.C., and 18 U.S.C.).
[3] A person who files a claim for a benefit, such as a claim for workers’ compensation.
[4] The
specific agencies included the Department of Defense, the United States Postal
Service, the Transportation Security Administration, and the State of
[5] Work in which the physical aspects of a job are adapted, altered, or removed to allow employees to perform the essential job functions of a position.
[6] Ch. 458, 39 Stat. 742 (1916) (codified as amended in scattered sections of 1 U.S.C., 5 U.S.C., and 18 U.S.C.).
[7] Agency bills can include the costs of compensation, rehabilitation, medical services, and/or death payments paid to injured employees and their survivors.
[8] A claimant is a person who files a claim for a benefit, such as a claim for workers’ compensation.
[9] As documented in our prior report Improvements Are Needed in the Process and Information Used to Manage Workers’ Compensation Claims (Reference Number 2003-10-213, dated September 2003).
[10] We determined use for claims with costs in Chargeback Year 2006 based on data in the SHIMS as of December 2006.
[11] Fiscal Year 2003 is the baseline year for the SHARE initiative measures.
[12] Figures reported for Fiscal Year 2007 are only through March 2007.
[13] The Strategy to Reemphasize Penalties in Corporate Examinations Could Be Enhanced (Reference Number 2005-30-123, dated August 2005).
[14] The
specific agencies included the Department of Defense, the United States Postal
Service, the Transportation Security Administration, and the State of
[15] Transitional work uses real job duties for a specified, limited time to help injured employees progress to their original jobs, with the Department of Defense’s requirement that the transitional positions be integrated into the base or installation workforce within a year.
[16] Work in which the physical aspects of a job are adapted, altered, or removed to allow employees to perform the essential job functions of a position.
[17] Pub. L. No. 103-62, 107 Stat. 285 (codified as amended in scattered sections of 5 U.S.C., 31 U.S.C., and 39 U.S.C.).
[18] We determined that the 402 individuals filed 404 workers’ compensation claims. We determined their age as of June 30, 2006. Employees on the periodic roll have disabilities or injuries that have lasted or are expected to last for prolonged periods (more than 1 year).
[19] We calculated $59 million by multiplying the compensation costs paid in Chargeback Year 2006 on 404 claims filed by 402 employees age 65 or under on the periodic roll by five.
[20] We calculated $173 million by multiplying the number of years until an employee reaches age 70 for the
404 claims by the compensation paid on each claim in Chargeback Year 2006.
[21] We calculated $231 million by multiplying the number of years until an employee reaches age 75 for the 404 claims by the compensation paid on each claim in Chargeback Year 2006.
[22] Actual and estimated future costs are rounded. The estimated future costs do not take into account inflation.
[23] For example, the United States Postal Service calculates cost avoidance by multiplying an individual’s annual compensation while on the periodic roll by the difference in years when removed from workers’ compensation from a life expectancy of age 70. The Department of Defense has a variation of this formula, using a life expectancy of age 75, and adds an inflation factor to the calculation.
[24] We multiplied the future compensation costs of $231 million that we estimate the IRS will pay when the 402 employees reach age 75 by 10 percent.
[25] Ch. 458, 39 Stat. 742 (1916) (codified as amended in scattered sections of 1 U.S.C., 5 U.S.C., and 18 U.S.C.).
[26] Improvements Are Needed in the Process and Information Used to Manage Workers’ Compensation Claims (Reference Number 2003-10-213, dated September 2003).
[27] The IRS uses the Department of the Treasury SHIMS to process and control workers’ compensation claims. The SHIMS was implemented on October 1, 2001, and was designed to replace the paper accident claim reporting process with an electronic system that would allow claims to be submitted to the WCC and OWCP quickly. In addition, the SHIMS is designed to enable the IRS to track its lost production days and costs.
[28] The SHARE initiative was introduced in 2004 as a response to escalating workers’ compensation costs. Under the SHARE initiative, which is primarily aimed at newly filed claims, Federal Government agencies are directed to (1) reduce claim rates, (2) increase the timeliness of processing claims, (3) reduce the amount of time lost from work, and (4) reduce the number of lost days.
[29] Total represents the sum of medical and compensation costs.
[30] The 4,018 workers’ compensation claims on the 2006 Chargeback Report were attributable to 3,807 employees. The 2006 Chargeback Report had 4,022 workers’ compensation claims. However, SHIMS data were available for only 4,018 (over 99 percent) of the 4,022 claims.
[31] Total represents the sum of medical and compensation costs.