WASHINGTON, D.C. | June 2, 2011
Six months ago, under the leadership of Mr. Andrews, this subcommittee examined an independent audit of the Department of Labor’s financial records. It was our first look at the department’s new financial management system, a system implemented at great cost to taxpayers with the understanding it would improve the department’s ability to track the money it spends.
At the time, a number of challenges surrounding implementation of the new system meant Congress and taxpayers were unable to receive a full evaluation of the department’s financial management. For the first time in more than a dozen years, the department could not issue an “unqualified report.” In other words, the department failed to produce enough information for independent auditors to make an informed judgment on the department’s finances.
As I noted in December, anytime an organization replaces a records system responsible for tracking billions of dollars, errors are unfortunately not uncommon. However, it is up to an organization’s executive management to take responsibility for the mistakes and work to prevent them in the future.
It appears this was the course the Department of Labor planned to take last winter. James Taylor, the department’s chief financial officer who was with us in December and is with us again today, stated the department was undertaking “many steps to overcome the problems” that caused last year’s incomplete report. Mr. Taylor testified, “We are confident these actions will prove the 2010 disclaimer a temporary hiccup in what has been, and will again be, a long record of unqualified opinions and sound financial management at the Department.”
We are here today to examine whether the department has lived up to this promise. Regrettably, the answer is no. The challenges plaguing the Department of Labor’s financial management still persist. The most recent audit found the same material weaknesses and significant deficiencies identified in last year’s report. The Department of Labor is the only executive agency to have multiple new material weaknesses in its financial management system.
According to the independent audit by KPMG, certified by the department’s Office of Inspector General, the department does not have sufficient controls over financial reporting and budgetary accounting, it lacks adequate controls over access to key financial systems, and improvements are required in how the department prepares and reviews journal entries.
The problems I have just described only relate to the four material weaknesses identified in the report. The department also has significant deficiencies over its payroll and does not prevent untimely and inaccurate processing of certain transactions. Last, but certainly not least, the department is in violation of two federal laws intended to promote the integrity of financial management in the federal government.
Despite having roughly six additional months to improve its record, the department’s finances have failed to receive clean bill of health for the first time since fiscal year 1997. Some may argue the report we are discussing today signifies a “clean” audit. According to this logic, simply completing the report – albeit six months behind schedule – results in a passing grade, despite the numerous instances of financial mismanagement. However, such logic is neither supported by standard accounting practices or commonsense. We should deal with the facts as presented by the professionals at KPMG, and avoid understating the seriousness of this report.
The department oversees a number of federal efforts aimed at assisting the nation’s workforce, including unemployment insurance, workers’ compensation, and various job training programs. At a time when the national debt exceeds $14 trillion and more than 13 million individuals are searching for work, every dollar counts. Any misallocation of scarce resources is a disservice to taxpayers and workers. The department’s financial mismanagement, as evidenced by the recent independent audit, is unacceptable. I hope the administration can explain the disturbing findings of the recent audit, and provide a concrete plan to ensure this doesn’t happen again.
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