Final Audit Report OSMRE Oversight - DOI OIG
AUDITOVERSIGHT OF ANNUAL FUND TRANSFERFOR MINER BENEFITS NEEDSIMPROVEMENTReport No.: C-IN-OSM-0044-2014A- -March 2017
OFFICE OFINSPECTOR GENERALU.S.DEPARTMENT OFTHE INTERIORMAR 29 2017MemorandumTo:Richard CardinaleActing Assistant Secretary for Land and Minerals ManagementFrom:Mary L. KendallDeputy Inspector GeneSubject:Final Audit Report - Oversight of Annual Fund Transfer for Miner BenefitsNeeds ImprovementReport No. C-IN-OSM-0044-20 I4AThis memorandum transmits the findings ofour audit ofthe Office ofSurface MiningReclamation and Enforcement's (OSMRE) oversight ofits annual funds transfer to the UnitedMine Workers ofAmerica Health and Retirement Funds (UMWAF) to provide benefits forretired miners and their families. Our audit objectives were to determine whether OSMRE hasadministered the transfer offunds to UMWAF consistent with the Federal Coal Industry RetireeHealth Benefit Act of 1992 (Coal Act), and to what extent OSMRE has provided oversight toensure that UMWAF managed the transferred funds in accordance with regulations and statutes.We make 21 recommendations to assist OSMRE in improving its oversight to ensure thatUMWAF administers federally funded benefits in-accordance with regulations and statutes. Themonetary impact ofour finding totaled S58.8 million.In response to our draft report, OSMRE concurred with I0 recommendations, did notconcur with 5 recommendations, and did not specify whether it concurred with 6recommendations. We will refer the recommendations to the Office of Policy, Management andBudget for resolution and implementation tracking.The legislation creating the Office of Inspector General requires that we report toCongress semiannually on all audit, inspection, and evaluation reports issued; actions taken toimplement our recommendations; and recommendations that have not been implemented.If you have any questions concerning this report, please do not hesitate to contact me at202-208-5745.Office or Inspector Gene l I Washington, DC
Table of ContentsResults in Brief . 1Introduction. 3Objectives. 3Background . 3Relevant Laws and Regulations . 3Health Benefit Plans . 3Federal Funding. 4Social Security Administration Assignment List . 4Results. 6OSMRE Provided Minimal Oversight of UMWAF . 6Beneficiary Enrollments and Assignments Not Verified . 8Unreconciled Information Used to Support the Annual Fund Transfer . 10Administrative Expenses Supported with Inadequate Documentation . 12Delinquent Operators Not Penalized . 13Residual Funds Not Applied to Shortfalls. 14Earned Interest Not Remitted . 15Conclusion and Recommendations. 17Conclusion. 17Management Response. 17Recommendations Summary. 18Appendix 1: Scope and Methodology. 25Scope . 25Methodology . 25Appendix 2: Additional Background . 28Appendix 3: Prior Audit Coverage . 31Appendix 4: Monetary Impact . 32Appendix 5: Response to Draft Report . 33Appendix 6: Status of Recommendations. 53
Results in BriefAs part of its mission, the Office of Surface Mining Reclamation and Enforcement(OSMRE) distributes Federal funds intended for the welfare of retired mine workers andtheir dependents. Each year, OSMRE transfers millions of dollars drawn from twoGovernment sources—the interest account of the Abandoned Mine Land ReclamationFund and the U.S. Treasury’s General Fund—to the United Mine Workers of AmericaHealth and Retirement Funds (UMWAF). From 2011 through 2015, OSMRE transferred 961.3 million in funds to UMWAF to provide benefits for retired miners and theirfamilies.Our audit objectives were to determine whether OSMRE has administered the transfer offunds to UMWAF consistent with the Federal Coal Industry Retiree Health Benefit Actof 1992 (Coal Act), and to what extent OSMRE has provided oversight to ensure thatUMWAF managed the transferred funds in accordance with regulations and statutes.We found that OSMRE has provided minimal oversight of UMWAF’s federallysupported health benefit plans, leaving the Federal Government without sufficient insightinto how UMWAF has been using the transferred funds. As a result, OSMRE has notensured that UMWAF managed the federally supported health benefit plans inaccordance with regulations and statutes.Federal regulations and statutes do not explicitly provide a mechanism for oversight byOSMRE. In addition, OSMRE personnel do not have experience with health benefitplans, leaving a large knowledge gap at all levels. Despite these limitations, OSMRE hascontinued to fund the annual transfer requests to UMWAF without obtaining andvalidating the necessary information and supporting documentation from UMWAF.Without adequate oversight and guidance from the Federal Government, UMWAF madedecisions on how to spend the funds transferred through OSMRE without considering theimpact on the Federal Government, which is responsible for a majority of the costs forproviding these benefits. As a result, OSMRE certified the annual fund transfers withoutrequiring UMWAF to provide appropriate supporting documentation. Specifically, wefound that OSMRE— did not verify beneficiary enrollments and assignments;used unreconciled information to support the fund transfers;received inadequate documentation to support administrative expenses;did not require UMWAF to report delinquent operators to the IRS;did not require UMWAF to apply residual funds to shortfalls; anddid not require UMWAF to remit interest earned on Federal funds.OSMRE’s inadequate oversight has allowed many decisions to reside with UMWAF,rather than the Federal Government. We make 21 recommendations to assist OSMRE inimproving its oversight to ensure that UMWAF administers federally funded benefits in1
accordance with regulations and statutes. With a substantial amount of Federal funding,the Federal Government should be more involved in reviewing these decisions.Specifically, OSMRE needs to provide greater oversight of how these funds are spent andUMWAF needs to be transparent in sharing transactions and information so the FederalGovernment can provide better accountability to taxpayers, who ultimately fund thesehealth benefit plans.2
IntroductionWe reviewed the Office of Surface Mining Reclamation and Enforcement’s (OSMRE)administration of the annual fund transfer to the United Mine Workers of America Healthand Retirement Funds (UMWAF) to cover federally supported health benefit plans forretired miners and their families. We also audited information about the federallysupported health benefit plans at UMWAF to determine the extent to which OSMREprovided the oversight necessary to conform to regulations and statutes.ObjectivesOur objectives were to determine—1. whether OSMRE has administered the transfer of funds to UMWAF consistentwith the Federal Coal Industry Retiree Health Benefit Act of 1992 (Coal Act); and2. to what extent OSMRE has provided oversight to ensure that UMWAF managedthe transferred funds in accordance with regulations and statutes.Details regarding our scope and methodology are included in Appendix 1.BackgroundRelevant Laws and RegulationsThe Coal Act and the Surface Mining Control and Reclamation Act of 1977 (SMCRA)are the primary statutes that authorize the federally supported health benefit plans andguide the administration of these plans and the fund transfers from OSMRE. In addition,the federally supported health benefit plans are organized under the Employee RetirementIncome Security Act of 1974 (ERISA), which protects the interests of beneficiaries inemployee benefit plans.The Coal Act states that health benefits will be provided for eligible retirees, even thosewho are without an employer providing health benefits. SMCRA supplements premiumsfor those mine workers who have been assigned to coal operators when the costsassociated with their benefits exceed the premiums collected from coal operators.Health Benefit PlansUMWAF administers a total of 16 pension and health benefit plans. Seven of these plansare for mine workers and nine are for UMWAF employees and trustees. Of the sevenplans for mine workers, three are supported by the Federal Government—the UMWACombined Benefit Fund (CBF), the UMWA 1992 Benefit Plan (1992 Plan), and theUMWA 1993 Benefit Plan (1993 Plan) (see Appendix 2). Although the FederalGovernment financially supports these plans and OSMRE facilitates the annual fundtransfers, it does not have explicit statutory oversight authority.The UMWA 1974 Pension Plan (1974 Pension Plan), which is not supported by theFederal Government and not under OSMRE’s purview, accumulates and pays for themajority of administrative costs for all plans, then allocates the expenses to the respective3
plans. In this manner, the nine plans for employees and trustees are indirectly supportedby the Federal Government because 55 percent of the total administrative expenses werecharged to the CBF, the 1992 Plan, and the 1993 Plan for the years we reviewed.Federal FundingAnnually, UMWAF receives money from the Federal Government to provide healthbenefits to retired mine workers and their dependents enrolled in the CBF, the 1992 Plan,and the 1993 Plan. Over the last 5 years, UMWAF received 961.3 million in federalfunds transferred through OSMRE, which came from the Abandoned Mine LandReclamation Fund interest account and the Treasury General Fund. This amount does notinclude other Federal monies provided to UMWAF to support the plans, includingMedicare reimbursements and benefits from the U.S. Department of Labor’s (DOL)Federal Black Lung Program. While total Federal funds constituted 88 percent of thehealth benefit plan contributions for 2015, the Federal Government is not represented inthe boards of trustees governing the federally supported health benefit plans. Specifically,the Coal Act defines the board of trustees but does not give the Federal Government theright to appoint representation.To facilitate the annual transfer of funds, UMWAF and OSMRE entered into aMemorandum of Understanding (MOU) on October 31, 1996. This MOU outlined bothparties’ responsibilities regarding the annual transfer of monies to the federally supportedhealth benefit plans. Subsequently, OSMRE and UMWAF developed an audit planagreement to improve the reliability of data provided to OSMRE by UMWAF. The auditplan agreement provides that an independent external auditor perform additional agreedupon procedures as negotiated by OSMRE and UMWAF. The audit plan agreement andthe MOU were updated on September 30, 2014.The U.S. Department of the Interior’s (DOI) 2017 proposed budget contains provisions toexpand funding for the 1993 Plan, and to begin providing payments to the 1974 PensionPlan. If enacted, the proposal would add millions of dollars in Federal appropriations.Social Security Administration Assignment ListUnder the Coal Act, as revised, the U.S. Social Security Administration (SSA) wastasked with two major roles for the CBF—assigning eligible beneficiaries to coaloperators and calculating the “per beneficiary premium” for each year (beginning in1993). SSA’s beneficiary assignments and the premium calculations are for the CBFonly—not the 1992 Plan or the 1993 Plan.In 2007, the Coal Act required SSA to remove assignments to all operators, except thoseoperators that signed a labor agreement in 1988. SSA provided a final assignment list inOctober 2009 and considers that responsibility complete.SSA calculates the per beneficiary premium annually, and the operators are thenresponsible for paying the premiums for each beneficiary assigned to them. The FederalGovernment is responsible for paying all costs for unassigned mine workers and anycosts that exceed the premiums collected from coal operators for assigned mine workers.4
SSA sends the per beneficiary premium calculation to UMWAF each year in Septemberfor the upcoming plan year. This leaves UMWAF to calculate the premium for the 1992Plan without Federal Government involvement. Like the CBF, the Federal Governmentpays for any difference between premiums collected and actual expenses. The FederalGovernment is responsible for the entire cost of providing benefits for the beneficiariesenrolled in the 1993 Plan as of December 31, 2006, while coal operators are responsiblefor any beneficiaries enrolled after that date.Additional background information is included in Appendix 2 and a summary of ourprior audit coverage is included in Appendix 3.5
ResultsOSMRE has administered the transfer of funds to UMWAF, as required by the Coal Act,but has provided minimal oversight of UMWAF’s federally supported health benefitplans. Overall, OSMRE’s ineffective oversight has left it uninformed as to how UMWAFhas been using the transferred funds. As a result, OSMRE has not ensured that UMWAFmanaged the federally supported health benefit plans in accordance with regulations andstatutes. We identified problems with UMWAF’s enrolled and assigned beneficiaries,population data, support for administrative expenses, indirect cost rate, operatordelinquencies, unused appropriations, and earned interest. OSMRE’s inadequateoversight has allowed these issues to persist and, as a result, many decisions reside withUMWAF unchecked by the Federal Government.OSMRE Provided Minimal Oversight of UMWAFFrom 2011 through 2015, UMWAF received 961.3 million from OSMRE, but theFederal Government had minimal oversight as to how these funds were spent. Thelegislative language of the Coal Act and SMCRA do not provide OSMRE with thenecessary oversight provisions to ensure that UMWAF’s federally supported healthbenefit plans conform to regulations and statutes.Neither the Coal Act nor SMCRA provide explicitoversight authority to OSMRE. In the absence ofoversight provisions in these Acts, OSMRE hasgenerally relied on its MOU with UMWAF. ThisMOU does not adequately ensure effectiveoversight of the annual fund transfers because it isfocused on the transfer process but does not addressoversight.We recommend that OSMRE: Seek express authority toprovide meaningful oversightthrough legislation. Negotiate meaningful oversightauthority within the MOU. Partner with a Federal agencythat has experience with healthbenefit plans, such as the U.S.Department of Labor’sEmployee Benefits SecurityAdministration or the PensionBenefit Guaranty Corporation,and engage specialists, such asactuaries or accountants withexpertise related to healthbenefit plans, to aid the reviewof data provided by UMWAF.Fund transfers from OSMRE accounted for 53percent of total funding for the federally supportedhealth benefit plans in 2015. Altogether, Federalfunds (including Medicare) supported 88 percent ofthe health benefit plans in 2015 (see Appendix 2).The Federal Government, however, is notrepresented on the boards of trustees responsiblefor executing the federally supported health benefitplans’ missions. Therefore, the Government ispaying for these benefits but it does not haveinvolvement in how this money is spent. For example, if the Federal Government was onthe boards of trustees, it could assist with making decisions on the management of theplans such as changing the eligibility requirements for beneficiaries to be enrolled in theplans.6
In addition, health benefit plans are outside of OSMRE’s primary mission and the fundtransfer to UMWAF for health benefit plans is the only such transfer within OSMRE’spurview. While OSMRE personnel are experienced in financial accounting, they do nothave experience with health benefit plans, leaving a large knowledge gap at all levels.OSMRE placed the responsibility of reviewing the transfer requests and supportingdocumentation on a single grants financial specialist. The review of support was minimalbecause this accounts for only a fraction of the individual’s job responsibilities.This issue was also raised in 2006, when the Secretaries of the Interior and Health andHuman Services issued a joint letter to the Secretary of Labor asking for assistance withestablishing “a unified system for financial reporting and accountability for Federal fundsexpended by [UMWAF].” The February 21, 2006 letter cited:[T]he complexities, issues and responsibilities surrounding the funding of thisprivate program are many and diverse. We believe that goals of accountabilityand efficient management would be promoted by periodic, unified reporting by[UMWAF] to an entity with expertise and an overarching interest in this area.This collaboration never came into fruition, leaving OSMRE as the sole agencyconducting any oversight of the fund transfers. Likewise, since SSA provided a finalbeneficiary assignment list in October 2009 and considers that responsibility complete,OSMRE has no assurance that necessary reassignments were completed appropriately.Further, OSMRE never obtained or reconciled SSA’s final assignment list. Correctassignment data are necessary for OSMRE to ensure the Government is only paying forbeneficiaries for which it is legitimately liable. UMWAF has been left to update theassignment list, taking bankruptcies and mergers into consideration.Further, OSMRE reported difficulty obtaining supporting documentation from UMWAFfor the yearly transfer, but has failed to take action and has continued to fund the transferrequests. OSMRE officials told us that when they asked questions about benefit costs,UMWAF personnel did not provide certain information and stated that the informationwas not within OSMRE’s purview. Knowing that many problems existed, OSMRE askedus to conduct an audit.OSMRE certified the annual fund transfers without requiring UMWAF to provideappropriate supporting documentation. As a res
Final Audit Report -Oversight ofAnnual Fund Transfer for Miner Benefits Needs Improvement Report No. C-IN-OSM-0044-20 I 4A ; This memorandum transmits the findings ofour audit ofthe Office ofSurface Mining Reclamation and Enforcement's (OSMRE) oversight ofits annual funds transfer to the United
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