Internal Control and Compliance Assessment Arkansas Legislative Audit

Department of Labor

For the Fiscal Year Ended June 30, 2015

INTRODUCTION This report is issued to inform the Legislative Joint Auditing Committee of compliance with state fiscal laws and regulations as well as deficiencies in internal controls for the Department of Labor. As discussed in the Results of Assessment section below, our procedures disclosed that the Director did not properly report and record leave usage in the Arkansas Administrative Statewide Information System (AASIS; Finding 1), and the Agency did not have adequate internal controls regarding authorization for the Director’s out-of-state travel, resulting in noncompliance with state travel regulations (Finding 2).

SCOPE AND METHODOLOGY We performed an internal control and compliance assessment of the Department of Labor, a department of Arkansas state government, as of and for the year ended June 30, 2015, and have issued our report dated September 30, 2016. Management of the Agency is responsible for establishing and maintaining internal controls and complying with applicable laws and regulations. The assessment included cash on deposit, cash receipts, accounts receivable, expenditures, liabilities, capital assets, and data entry to AASIS. The assessment consisted principally of inquiries, observations, analytical procedures, and selected tests of internal control policies and procedures, accounting records, and other relevant documents. We relied on financial data in AASIS recorded by the Agency and audit work conducted in the fiscal year 2015 State Comprehensive Annual Financial Report (CAFR) and Single Audit Report. The methodology used in conducting this assessment was developed uniquely for this engagement and, therefore, was more limited in scope than an audit or attestation engagement performed in accordance with Government Auditing Standards issued by the Comptroller General of the United States.

RESULTS OF ASSESSMENT Assessment procedures disclosed the following internal control or compliance matters that were discussed with Agency officials during the assessment and at the exit conference: Finding 1: Office of Personnel Management (OPM) policy 50.01 states that " leave must be earned before it can be used." This policy also states that "the establishment of leave records and internal procedures, such as requesting leave, approving leave, and leave use, are the responsibility of each agency and institution." The Director, whose employment began January 13, 2015, did not properly record leave usage in AASIS or on his timesheet. The Director had earned 140 hours each of annual and sick leave as of June 30, 2016. The first record of leave usage (120 hours of annual leave and 32 hours of sick leave) occurred on June 27, 2016, via a quota correction in AASIS, after we inquired as to why the Director had not recorded any leave usage.

ARKANSAS LEGISLATIVE AUDIT 500 Woodlane Street, Suite 172, Little Rock, AR 72201 Phone: 501-683-8600 Fax: 501-683-8605 www.arklegaudit.gov Report ID: SR2180015

Report Date: September 30, 2016

Department of Labor

Our review of the Director’s calendar and emails revealed the Director had actually taken 208 hours of annual leave and 60 hours of sick leave during this time of employment. If properly reported and recorded, the unrecorded leave taken would have resulted in a deficit annual leave balance of 68 hours and a sick leave balance of 80 hours. Our review also indicated the Director was absent from work for an additional 57 hours; however, based on available documentation, we were unable to determine if the absences were for a business purpose or should have been recorded as annual or sick leave. We recommend the Agency establish procedures to ensure the Director’s leave usage is in compliance with OPM policy and is reported and recorded accurately and timely. In addition, the Agency should contact the Department of Finance and Administration (DFA) to determine the corrective action process for time taken but unearned by the Director. Management response: The Agency has taken steps to correct the deficit and establish internal controls to prevent a recurrence, specifically: 

A claim has been established within the payroll portion of AASIS to recoup 68 hours of annual leave. Eighteen payments of $236.36 will be deducted prior to the end of fiscal year 2017. The corrective action was recommended by DFA.



The Director will submit leave requests in advance or immediately thereafter in the event of unplanned sick leave. The Director’s leave requests will be approved by the Agency’s General Counsel.



The Agency maintains computer logs of both log-in and log-out times on its computer system that indicates activity was from the office or remotely. Unfortunately, for the period at issue, logs were only maintained for 30 days. As of September 1, 2016, the logs will be maintained for 3 years.



On September 29, 2016, the Director completed an OPM training course entitled HRkansas for Supervisors, which included training in leave compliance.

Finding 2: The Agency did not have adequate internal controls regarding authorization for the Director’s out-of-state travel. As a result, authorization and business purpose were not documented for the five out-of-state trips taken by the Director: four costing $5,258 in fiscal year 2016 and one costing $660 in fiscal year 2017. We recommend the Agency establish procedures to ensure the Director obtains appropriate authorization for all travel, in accordance with Ark. Code Ann. § 19-4-902. In addition, noncompliance with state travel regulations occurred for these five out-of-state trips, as noted below: Trip #1: Travel cost: $1,817 – Sunday, July 26, 2015 through Wednesday, July 29, 2015 – National Association of Governmental Labor Officials Conference in Minneapolis, MN 

$105 in unallowable hotel costs. Although the Director informed staff on May 13, 2015, that he would be attending a conference, he failed to book a room by the deadline to receive the conference hotel rate.



$107 in unallowable mileage reimbursement. In accordance with state travel regulations, when driving is elected over flying, the reimbursement is the lesser of coach class airfare or the established rate of private car

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Arkansas Legislative Audit

mileage based on map mileage. In addition, travel regulations state that commercial airline tickets should be purchased at least 14 days prior to travel, if possible. Although a staff member received an airfare quote of $499 on May 13, 2015, the Director informed the staff member that he would inquire about flight cost. On Wednesday, July 22, 2015 (four days prior to travel), the Director emailed staff an airfare estimate acquired that day, which totaled $606. Trip #2: Travel cost: $773 – Thursday, September 24, 2015 through Tuesday, September 29, 2015 – Washington, DC, and Richmond, VA – Meetings with various officials regarding labor issues 

$550 in questionable travel costs. The Director purchased airfare on August 20, 2015, prior to establishing meetings with area officials and, as documented in an email, was not willing to change the travel dates to accommodate timing conflicts with some of the officials. Travel reimbursement form (TR-1) indicated the Director lodged with relatives. Over a six-day period, only three one-hour meetings occurred, two of which were scheduled two days prior to the Director’s departure, giving the appearance that the Director scheduled a personal trip and subsequently scheduled businessrelated meetings.



$96 in unallowable meal costs incurred on weekend days.



$78 in unallowable taxi costs. Most of the trips originated or ended between 10 p.m. and 4 a.m.

Trip #3: Travel cost: $1,006 – Wednesday, March 2, 2016 through Sunday, March 6, 2016 – Oakland, CA, and San Jose, CA – Meetings with various labor-related personnel 

$748 in questionable travel costs. A confirmation of airfare purchased was received on February 1, 2016, again, prior to establishing meetings with area officials or registering for conferences. According to an email to the California Division of Labor Standards Enforcement, dated January 27, 2016, the Director had made plans to travel to California in early March and requested to meet with an official, while also inquiring about possible conferences in the area during that time. On February 2, 2016, the Director received an email from a California official stating that she would “keep an eye out for useful conferences….” According to a staff member, the Director lodged with friends. Over a five-day period, only three meetings occurred that were scheduled nine days or less before the Director’s departure, giving the appearance that the Director scheduled a personal trip and subsequently scheduled business-related meetings.



$129 in unallowable reimbursement for a rental car. According to the Director’s emails, his meetings occurred on Thursday and Friday, and the meeting locations were approximately 120 miles (round trip) from the airport. However, the car rental invoice indicated that 429 miles were driven and that the car was used on Saturday and Sunday; therefore, it appears the car rental was unnecessary for the three business meetings. State travel regulations require authorization in writing that the use of a rental vehicle was more economical than other modes of transportation or that other modes of transportation were unavailable.

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Department of Labor

Trip #4: Travel cost: $1,662 – Wednesday, April 6, 2016 through Sunday, April 10, 2016 – Washington, DC – American Bar Association National Symposium on Technology in Labor and Employment Law 

$97 in unallowable meal costs. Meals were provided at the conference.



$54 in unallowable taxi costs for nonbusiness purposes.

Trip #5: Travel cost: $660 – Monday, August 29, 2016 through Thursday, September 1, 2016 – Kissimmee, FL – Voluntary Protection Programs Participants Association Conference 

$660 in questionable travel costs. The Director only attended one day of a four-day conference. According to the Director, his schedule only allowed for one day of attendance, and he went to specifically meet with “certain people.” The names of these individuals were not provided, and the business purpose for meeting with them was not documented. According to the Director, the conference fee of $700 was waived because he was a “first time guest.”

In summary, for a total cost of $5,918, the Director traveled out-of state five times without prior authorization during the period January 13, 2015 through September 1, 2016. Of this amount, the Director was reimbursed $666 for nonbusiness purposes, and $1,958 was expended for questionable business purposes. Lastly, the Director purchased for $365 an airline ticket to Washington, DC, in August 2016 for travel on Thursday, October 20, 2016 through Sunday, October 23, 2016. According to a staff member, the Director had planned two one-hour meetings. After we requested, on September 14, 2016, documentation for the business purpose of the trip, the Director decided, on September 20, 2016, to cancel the trip and attempt to obtain a refund from the travel vendor; otherwise, the Director would reimburse the Agency. However, on September 26, 2016, the Director decided to proceed with the trip and completed an in-house form (application for out-of-state travel) that indicated he had meetings with staff of the Wage and Hour Division (WHD) and the Occupational Safety and Health Administration (OSHA), both departments of the U.S. Department of Labor as well as the Labor Senior Officer of the Taipei Economic and Cultural Representative Office. The travel form was approved on September 27, 2016, by the Agency’s Legal Counsel, after the airline tickets were purchased in August. We recommend the Agency establish procedures to ensure all travel reimbursements are for approved business purposes and are in compliance with state travel regulations in accordance with Ark. Code Ann. §§ 19-4-901 – 19-4-907. The Agency also should contact DFA to determine the process for recouping unallowable travel costs. Management response: The Governor has been informed of these findings. The Director will obtain written approval from the Governor’s Office before confirming any out-of-state travel. The Agency response included this statement from the Director: “As the Director, newly appointed in 2015, I acknowledge mistakes were made regarding out-of-state travel. I relied on the expertise an advice of the Administrative Services Manager (ASM), a 40-year employee, to guide me through the travel processes and act as my Travel Supervisor. However, I absolutely acknowledge that I have final responsibility to ensure compliance. I had no intention to fail to comply with state travel regulations.

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Arkansas Legislative Audit

The Agency has taken the following steps to establish internal controls to prevent a recurrence and recover unallowable expenses. Specifically, on October 28, 2016, I will repay the Agency $666 in travel expenses that are considered unallowable. The Agency’s internal policies and procedures manual did not address, in writing, the in-practice procedures for advance approval of out-of-state travel. These existing controls have been reduced to writing, not only for the Director’s office, but for all Agency employees. These written procedures require completion of an out-of-state travel request form that itemizes anticipated expenses and includes an itinerary or conference brochure. Once approval is obtained, the trip will be reviewed by the Fiscal Manager, who has the responsibility to monitor the Agency budget and all bookings, reservations, registrations or other arrangements to be made by the finance division to ensure rooms are booked timely to receive conference rates and airline tickets are purchased or estimates obtained at least 14 days prior to travel. Finally, I want to express my appreciation to the Legislative Audit staff for catching these mistakes and working with the Agency to make sure they are properly corrected.”

ENABLING LEGISLATION AND ORGANIZATIONAL STRUCTURE The Department of Labor was created in 1937 to promote the welfare of Arkansas wage earners, improve working conditions, and advance opportunities for profitable employment. The Agency is responsible for enforcing laws relating to minimum wage, overtime, child labor, equal pay, and health and safety in the workplace; intervening in labor disputes; promoting harmony in employer/employee relations; inspecting boilers and pressure vessels and licensing their inspectors, operators, installers, and repairmen; licensing and testing all elevators, escalators, and dumbwaiters; testing and licensing master journeymen and industrial maintenance electricians and electrical contractors; and enforcing the Arkansas Prevailing Wage Law. As illustrated in Exhibit I on page 6, the Agency is currently comprised of four divisions: 1. Administrative Services provides support services such as accounting, personnel, information technology, legal, planning, and publications for the entire Agency. 2. Occupational Safety and Health, the largest division, enforces and promotes worker safety through consultations, inspections, training classes, safety awards, accident investigations, and amusement ride inspections. This division also annually reports workplace fatalities, injuries, and illnesses. 3. Code Enforcement is responsible for licensing members of the boiler, electrical, and elevator occupations; enforcing code; completing inspections; and issuing permits. 4. Labor Standards administers and enforces issues relating to wage and hour laws, wage claims, child labor, and prevailing wage. This division is also authorized to license and regulate private employment agencies. When necessary, the Mediation and Conciliation Division of Labor Standards intervenes in labor disputes to help both parties reach an equitable agreement.

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Department of Labor

Exhibit I Department of Labor Organizational Chart

Director

Department of Labor Deputy Director

Leon Jones, Jr. , Director 10421 West Markham Little Rock, AR 72205

Administrative Services

Occupational Safety and Health

Code Enforcement

Labor Standards

Telephone: 501-682-4541 www.arkansas.gov/labor

Source: Department of Labor

FISCAL ANALYSIS Revenues, Expenditures, and Transfers Agency revenues, expenditures, and transfers for fiscal years 2011 through 2015 are presented in Exhibit II on page 7. The Agency reported $3.2 million in total revenues for the fiscal year ending June 30, 2015. The primary sources of these funds were electrical, boiler, and elevator license fees and permits. Another significant revenue source was federal grants and reimbursements. Agency expenditures totaled $6.5 million for the fiscal year ended June 30, 2015. The majority of expenditures were for salaries, which comprised 82% of total expenditures. The Agency reported net transfers of $3.2 million, which represent the general revenue distribution. Assets and Liabilities Agency asset and liability balances at year-end for fiscal years 2011 through 2015 are presented in Exhibit III on page 7. Assets and liabilities totaled $3.3 million and $652,114 respectively, at June 30, 2015. Cash and cash equivalents comprised 64% of total assets, and fixed assets comprised 31%.

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Arkansas Legislative Audit

Exhibit II Department of Labor Revenues, Expenditures, and Transfers For the Years Ended June 30, 2011 through 2015

2015 Revenues Special revenues: Elevator safety fees Boiler license and inspection fees Electrical licenses and fees Safety inspection and training fees Federal grants and reimbursements Other income (net) Total Revenues Expenditures Salaries Travel and subsistence Utilities and rent Other expenses Total Expenditures Net Transfers In (Out)

$

407,574 807,316 415,803 227,895 1,306,193 75,780 3,240,561

$

$

$

5,306,988 366,797 358,902 455,846 6,488,533

$

3,183,534

$ $

Fiscal Year 2013

2014

397,038 886,319 455,145 233,040 1,253,091 194,832 3,419,465

$

$

$

5,368,976 393,055 359,908 455,423 6,577,362

$

2,995,981

$

2012

415,806 806,629 448,783 214,295 1,358,373 145,478 3,389,364

$

$

$

5,315,043 416,676 360,163 511,100 6,602,982

$

3,023,422

$

2011

421,609 802,264 455,618 189,922 1,276,304 267,152 3,412,869

$

$

$

5,178,554 442,557 391,579 522,440 6,535,130

$

5,132,913 459,038 379,445 523,933 6,495,329

$

3,190,220

$

2,917,684

$

417,923 774,610 290,052 164,070 1,235,627 202,292 3,084,574

$

Source: Arkansas Administrative Statewide Information System Trial Balance (unaudited by Arkansas Legislative Audit)

Exhibit III Department of Labor Assets and Liabilities For the Years Ended June 30, 2011 through 2015

Assets Cash and cash equivalents Fixed assets Prepaid expenses Other assets Total Assets Liabilities Accounts payable Payroll liability Unearned income Other liabilities Total Liabilities

2015

2014

Fiscal Year 2013

$ 2,122,139 1,017,664 22,851 142,579 $ 3,305,233

$ 1,973,554 1,088,312 3,737 209,603 $ 3,275,206

$ 1,914,775 1,077,256 4,080 138,007 $ 3,134,118

$ 2,254,638 1,096,466 26,821 112,895 $ 3,490,820

$ 2,423,123 1,119,359 20,298 114,936 $ 3,677,716

$

$

$

$

$

$

5,073 123,564 437,375 86,102 652,114

$

1,818 122,059 336,342 26,774 486,993

$

1,826 95,004 89,663 8,497 194,990

$

2012

2011

1,438 87,806 222,563 30,479 342,286

Source: Arkansas Administrative Statewide Information System Trial Balance (unaudited by Arkansas Legislative Audit)

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$

1,761 255,312 292,829 24,346 574,248

Department of Labor

ELECTRICAL LICENSES In accordance with Ark. Code Ann. § 17-28-202, the Agency is responsible for administering Arkansas laws governing the licensing of electricians. Such responsibilities include, but are not limited to, the issuance of electrical licenses and collection of the license fees. For fiscal year 2015, 10,914 electrical licenses were issued with license fees totaling $478,360 as illustrated in Schedule 1. Schedule 1 Department of Labor Electrical Licenses Issued For the Year Ended June 30, 2015

License Type

Amount Receipted

Total Issued

Temporary Master Air Conditioning Temporary Journeyman Specialty Sign Residential Journeyman Electrical Contractor Electrical Inspector Residential Master Industrial Maintenance Electrical Apprentice Journeyman Master Electrician Totals

10 51 137 104 174 39 239 230 562 2,696 3,333 3,339 10,914

$

$

500 2,210 3,425 4,215 5,895 6,800 11,910 15,780 20,850 27,960 124,035 254,780 478,360

Source: Department of Labor FOCUS System data (unaudited by Arkansas Legislative Audit)

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