February 19, 1998
 
 

MEMORANDUM FOR:             BERNARD ANDERSON
                                                      Assistant Secretary
                                                            for Employment Standards
 

FROM:                                         JOHN J. GETEK
                                                      Assistant Inspector General
                                                            for Audit

SUBJECT:                                 Review of Davis-Bacon Modernization Funding
                                                      Final Report No. 04-98-003-04-420

Attached is the final compilation report prepared by the Office of Inspector General (OIG) on uses made of Fiscal Years 1997 and 1998 appropriations received by the Employment Standards Administration, Wage and Hour Division, for Davis-Bacon improvements. The compilation was requested by the House Appropriations Committee. The objective of the compilation was to obtain a detailed summary of all expenditures related to the Davis-Bacon modernization project. We were specifically asked to obtain detailed information regarding the amount and purpose of all funding that had been allocated, any grants which may have been released, and any funding allocated to the Bureau of Labor Statistics.

Our compilation was limited solely to obtaining, compiling, and summarizing obligations and expenditures related to the Davis-Bacon modernization project. Our work did not constitute an audit in accordance with Government Auditing Standards. Work was conducted during the period January 20 through 30, 1998.

Attached to this final report is your response to our draft report along with your suggested inserts. We considered your annotations to our draft report and made changes where appropriate.

As requested, we are providing this report to the House Appropriations Committee. We are also providing the Committee copies of the three BLS agreements we reviewed.

If you have any questions regarding this report, please contact Robert Wallace, Regional Inspector General for Audit, in Atlanta at (404) 562-2341.
 
 

Attachment
 

Congress appropriated $3.75 million in Fiscal Year (FY) 1997 to the Wage and Hour Division for the express purpose of developing and implementing Davis-Bacon wage survey/determination system improvements. According to the Conference Committee Report on the FY 1997 Labor-HHS Appropriation Bill, the $3.75 million was to be used ". . . to test and implement process improvements either through the use of alternative wage data sources or, if not feasible or cost-effective, by improving the capacity of the existing wage survey system to promote participation and data reliability, primarily through investment in technology." In its report on the FY 1998 appropriations bill, the House Appropriations Committee added, ". . . the Department should ensure that an appropriate portion of the funds appropriated for the Davis-Bacon wage survey program is expended to randomly sample all data submissions to verify their accuracy. In addition, a sample of all data submissions should be selected for on-site data verification against actual payroll records." Wage and Hour obligated $3,752,038 during FY 1997 for various projects designed to address this purpose.

According to Wage and Hour, the $3.75 million funding they received in FY 1997 for Davis-Bacon improvements became part of their base funding in FY 1998. Therefore, through their base funding, they received $3.75 million for Davis-Bacon improvements in FY 1998. Wage and Hour asked for an additional $2 million, but the request was not approved by Congress. FY 1998 funding is further discussed on page 16 of this report.

Details of the FY 1997 obligations of the $3.75 million follow.

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Data Verification. Wage and Hour obligated $512,389 for a public accounting firm to verify the accuracy of information on WD-10 forms by reviewing onsite contractor payroll records.

BLS Surveys. In FY 1997 Wage and Hour obligated and spent $313,950 in startup costs to conduct fringe benefits surveys. An additional $1,479,000 has been obligated in FY 1998, and $1,177,600 is expected to be obligated in FY 1999. Also, another $149,700 has been obligated in FY 1998 for a union status survey.

Computer Systems Reengineering. In FY 1997 Wage and Hour obligated $620,595 for reengineering requirements analysis. Wage and Hour's FY 1998 operating plan shows an additional $2 million for ADP services.
 

LAN Managers. Wage and Hour obligated and spent $117,513 for its pro rata share of one computer system manager and nine LAN managers.

As of January 30, 1998 (the last day of our fieldwork), Wage and Hour had paid $3,453,420 of the FY 1997 obligations. A total of $298,618 remained unpaid. Following is a summary schedule of amounts obligated and amounts paid for the $3.75 million in FY 1997 funding.
 
 

Of the $3.75 million that Wage and Hour received in FY 1997 for Davis-Bacon improvements, $512,389 (14 percent) was obligated for Form WD-10 [Report of Construction Contractor's Wage Rates] data verification. As of January 20, 1998, a total of $305,455 had been paid to a firm that is providing the data verification services. Payments made were for services provided and billed through November 30, 1997.

The data verification is being performed by a public accounting firm under contract with the OIG. Wage and Hour entered into a Memorandum of Understanding (MOU) with the OIG on April 2, 1997, to obtain services of the firm under the OIG contract. Wage and Hour then initiated a Task Order with the firm on April 23, 1997, to perform the data verification services. Under the MOU terms, OIG processes and pays the contractor's invoices, and Wage and Hour provides the funding and supervises the work.

The task order has been modified twice to increase the funding for data verification services. The second modification, initiated on September 17, 1997 (13 days before the end of FY 1997), increased the funding by $180,000, from $332,389 to $512,389.

According to the task order, the firm was to verify the accuracy of information on WD-10 forms. The WD-10s are the source documents for construction workers' wages and fringe benefits.

WD-10s may be prepared by contractors or interested third parties such as labor unions. Wage and Hour compiles data reported on WD-10 forms and publishes Wage Decisions specifying minimum wages and fringe benefit rates to be paid workers in various construction crafts employed on federally funded construction projects.

The objective of the data verification work, as stated in the task order, was as follows:

The purpose of this project is to review on-site contractor payroll records to verify forms WD-10, and to obtain information that will assist the Wage and Hour Division in improving the Davis-Bacon wage survey process.

The firm was to check construction contractors' payroll and related records to verify the accuracy of information reported on WD-10 forms. Also, in order to gather information to assist Wage and Hour in improving the wage survey process, the firm was to ask each
 

Wage and Hour did not instruct the firm to report on who completed the WD-10 (i.e., contractor or labor union). Also, according to the firm, the "Submitted By" block of the WD-10 was blanked out by Wage and Hour for those WD-10s prepared by third parties. Therefore, the reports do not disclose who submitted the WD-10s.

Wage and Hour provided us a status report prepared by the firm on December 17, 1997, showing the status of 22 reviews as follows:

• Two final draft reports had been submitted to Wage and Hour for review.

 
• Draft reports were to be completed by mid-January 1998 for another nine surveys.

 
• Workpaper reviews and followup were in progress for two surveys.

 
• Fieldwork was scheduled for four surveys.

 
• Information had been set up in project workpapers for five additional surveys to be performed.

 

The public accounting firm told us that they attempted to persuade contractors to let them in to review the payroll records. However, if a contractor refused to cooperate, the firm was instructed by Wage and Hour to not pursue the matter. Wage and Hour believes it is not appropriate to use its subpoena authority under the Fair Labor Standards Act to force employers to allow examination of payroll records for WD-10 verification purposes. If asked by contractors, the firm will acknowledge that contractor cooperation is voluntary. Upon
 

Wage and Hour provided us a copy of the two final draft reports they had received from the firm. The reports enumerate the agreed upon procedures performed, and provide schedules showing contractors visited, discrepancies found in WD-10 data, contractors' responses to questions about difficulties in completing the WD-10 forms, suggestions for improvement, and willingness and ability of contractors to submit WD-10s on the Internet. Also provided was a facsimile of each WD-10 form verified. The reports make clear that the procedures performed by the firm did not constitute an audit in accordance with generally accepted auditing standards.

Summary details of the two final draft reports are as follows:

Calhoun, Gulf, Holmes, Jackson, Walton, and Washington Counties, Florida.

Survey Period: February 1, 1996 - January 31, 1997.

The public accounting firm was to review a total of 21 WD-10s. The firm was able to review 18 WD-10s at 10 contractors. A review of one WD-10 was limited to contract information because the firm was denied access to the office where payroll data was located. One WD-10 was not reviewed because the construction period was outside the survey period. Finally, one WD-10 could not be verified because the contractor would not allow the firm access to records.

The firm found numerous differences between WD-10 information and payroll information. The differences included peak number of employees, hourly wage rates and fringe benefit rates, as well as additional crafts not reported on the WD-10s. After reviewing the draft report, Wage and Hour concluded that any changes to the wage rates would be minimal. The report does not disclose who submitted the WD-10s (i.e., contractor or labor union).

Lawrence and Greene Counties, Pennsylvania.

Survey Period: July 1, 1995 - June 30, 1996.

The public accounting firm was to review a total of 95 WD-10 forms. Sixty-two forms were examined at 10 contractors. Three additional forms were found to be duplicates. Nine forms were not examined because records were not available to verify the information. One WD-10 could not be verified because of incomplete information. The remaining 20 forms could not be validated because 5 contractors would not allow the firm access to their records.
 

The firm told us that during their reviews to date, they have found several instances where the contractors' payroll records showed more employees working on the construction project than were listed on the WD-10. The firm believes this may be due to the WD-10s prepared by third parties (labor unions) showing only collective bargaining employees for the crafts in that labor union. Wage and Hour confirmed the firm's belief, and they noted that this result shows that third party data are generally submitted only for those employees and classifications for which the third party has direct knowledge.

Wage and Hour is having the public accounting firm review a sample of WD-10s for each of its surveys before the survey is published. Wage and Hour selects the WD-10s to be reviewed. The sample selection process is that 10 percent of the WD-10s used in the survey are selected. However, more than 10 percent of the WD-10s are reviewed, because all WD-10s are reviewed for contractors in the initial 10 percent selection (i.e., some contractors submit more than one WD-10). Discrepancies found by the firm will be reviewed by Wage and Hour and craft rates will be adjusted, if needed, before the decision is published. Unless fraud is suspected, Wage and Hour does not plan to follow up on contractors who would not allow the firm to review their records.

Wage and Hour published 75 surveys in FY 1997. As of January 26, 1998, six surveys have been published in FY 1998. The public accounting firm has not reviewed WD-10 forms from any of these surveys. These surveys consist of old data collected over an extended period of time. Because of the age of the data, the firm was not requested to verify the WD-10 forms. One or two more surveys of old data remain to be published and will not be reviewed by the firm. Thereafter, under current plans, the firm will review a sample of WD-10s from each survey prior to publication. No surveys reviewed by the firm to date have been published.

Wage and Hour said that the public accounting firm's reviews are important because they establish the level of errors currently in the system. After the system is reengineered, Wage and Hour expects the level of errors to drop substantially.
 

On February 3, 1998, the public accounting firm faxed us updated summary information on 16 surveys that they had tested. They had visited 233 contractors and reviewed 1,233 WD-10s. They were unable to visit 61 contractors to review 278 WD-10s. The main reason for being unable to visit contractors was lack of cooperation. However, some of the contractors could not be visited because they had gone out of business.

For example, the firm was unable to visit 5 (45 percent) of the 11 contractors sampled in the Rochester County, New York residential survey. They were also unable to visit 17 (31 percent) of the 55 contractors sampled in the State of Vermont building survey, and 15 (27 percent) of the 55 contractors sampled in the State of Montana building survey.
 
 

Of the $3.75 million that the Wage and Hour Division received in FY 1997 for Davis-Bacon improvements, $313,950 (8 percent) was obligated for startup costs for the Bureau of Labor Statistics (BLS) to conduct four fringe benefits surveys during FYs 1998 and 1999. These surveys are expected to cost Wage and Hour $1,479,000 in FY 1998, and an additional $1,177,600 during FY 1999. Thus, the four surveys will cost a total of $2,970,550 over 3 years.

Wage and Hour has obligated an additional $149,700 in FY 1998 funds for BLS to perform a study of the feasibility of determining the union/nonunion status of worker data collected during Occupational Employment Statistics surveys. Therefore, BLS will receive a total of $3,120,250 from Wage and Hour during FYs 1997, 1998, and 1999 to study the feasibility of collecting data for Davis-Bacon wage determinations.

A summary of the agreements between Wage and Hour and BLS follows:

Fringe Benefit Surveys

On April 2, 1997, Wage and Hour entered into a reimbursable interagency agreement with BLS to test the feasibility of adapting BLS surveys to collect fringe benefit data for construction occupations. Wage and Hour agreed to commit $313,950 in FY 1997 funds to
 

According to the agreement, BLS would perform fringe benefit surveys in Toledo, Salt Lake City, Jacksonville, and Tucson. BLS was to begin work on the Jacksonville and Tucson surveys in May 1997. Work in those two cities would continue through 1998. BLS was to conduct the Toledo and Salt Lake City surveys during 1999. BLS did not have the staff to conduct the four surveys simultaneously.

On October 30, 1997, Wage and Hour agreed to commit $1,479,000 in FY 1998 funds for BLS to continue the second year of the 3-year study. The costs had increased $117,400 from $1,361,600 to $1,479,000 due to "increases in BLS mandatories."

BLS provided us a summary of the estimated FYs 1997 and 1998 costs of the surveys. The FY 1998 estimated costs are as follows:

Compensation/ Benefits                         $583,000

Travel                                                          140,000

Space Rent/WCF                                     254,000

Other                                                           502,000

Total                                                       $1,479,000

BLS also provided us a schedule showing expected completion dates for various activities related to the Jacksonville and Tucson tasks. According to BLS, the Jacksonville survey will be published on August 14, 1998, and the Tucson survey will be published on October 21, 1998.

The Toledo and Salt Lake City surveys will be conducted in 1999, and will not be published until late 1999.

Unless the results from the first two surveys clearly demonstrate that the BLS approach is not feasible, Wage and Hour told us that they will not make a decision regarding the feasibility of
 

Union Status Survey

On December 19, 1997, Wage and Hour entered into a reimbursable interagency agreement with BLS to gauge the feasibility of determining if the Occupational Employment Statistics survey could be used to collect union status of occupational data for construction employers. Union data is vital to Wage and Hour in order to determine if collective bargaining agreements prevail.

According to the BLS agreement, the survey is to be performed in four states, and will run from December 1997 through March 1998. Wage and Hour told us the states are Massachusetts, Pennsylvania, Nevada, and a fourth state to be determined. These states were chosen because they volunteered to participate in the study and they have good track records of getting information from employers.

According to the BLS budget, $120,000 (80 percent) of the $149,700 total survey costs will be paid to the states for collecting the data. The data will be collected by the State Employment Security Agencies in the four states in conjunction with their Labor Market Information (LMI) and other statistical data gathering functions.

The relatively quick turnaround time of this study is because BLS is utilizing a case study methodology rather than full-blown formalized survey tests, as is being used on the fringe benefit surveys. BLS told us they are seeking to determine if employers have data on the unionization status of their workers, what the burden is on employers to provide the data, and whether employers are willing to provide the data. Across the four states, 1,700 business establishments will be contacted. Employers will be contacted through routine telephone calls made as followup to the BLS Occupational Employment Statistics survey.

Information gathered by the four states will be compiled, analyzed, and tabulated by BLS. BLS plans to issue a report to Wage and Hour in May 1998, summarizing and concluding on the results of the union status study.

Obligations for reengineeering requirements analysis and design accounted for $620,595 (17 percent) of the $3.75 million that Wage and Hour received in FY 1997 for Davis-Bacon
 

As of January 27, 1998, $530,287 had been paid, and another $83,229 invoiced but not yet approved for payment. Also, an additional $156,358 has been obligated from FY 1998 funds to continue the reengineering services.

According to the task orders which funded the reengineering project, the objective was as follows:

The purpose of this task order is to specify the work activities and labor effort that CDSI will undertake during the designated period of performance, in providing services to Wage and Hour (W&H) Division in support of the DBRA reengineering project.

One of the requisitions, dated March 11, 1997, was for $230,000. The second requisition, dated June 5, 1997, was for an additional $252,595. The funds were for preparation of a "DBRA Reengineering Requirements Analysis Report." This comprehensive report was submitted by CDSI to Wage and Hour on June 30, 1997. This document analyzed in great depth the current system and its deficiencies, as well as technology, hardware, and software needed to modernize the Davis-Bacon prevailing wage process. The funds also provided for the development and establishment of a Davis-Bacon Web site, the establishment of scanning/data capture capability, and the redesign of Form WD-10, which is the basic data collection instrument.

The third FY 1997 requisition, dated September 30, 1997, was for $138,000 to fund the reengineering process past September 30, 1997. These funds were used to pay CDSI for the preparation of a two-volume comprehensive document entitled "Preliminary System Design." This document was submitted by CDSI to Wage and Hour on December 5, 1997. The document contains computer system models with narrative, system flow charts, detailed program flow charts, summary of research and analysis, System Specifications, recommendations for subsystem implementation of mail processing, and descriptions of computer-aided followup support and workflow management.
 

Wage and Hour is scheduled to perform a Davis-Bacon survey in the State of Oregon early in calendar year 1998. New technologies developed by CDSI will be made available to assist in this survey. These technologies include ancillary forms redesign, automated mailing/printing on demand, and using the web as a source of information. The development of these technologies is scheduled for completion by September 1998. Subsequent surveys are supposed to provide CDSI with opportunities to perfect the above technologies and implement additional technologies as they become available.

Based on the "DBRA Requirements Analysis", the activities of forms redesign, automatic mailing, web implementation, imaging, and models and their application are to be completed in phases. Phases 0 through II encompass the above activities and are scheduled for completion in April 1999. Phases III and IV involve Integrated Systems Tests and Regional Installation Tests respectively. The operational date for all regions is listed as July 2000.
 
 

Wage and Hour obligated $2,187,591 (or 58 percent of total FY 1997 obligations) and spent $2,186,215 on ADP hardware/software and telecommunications equipment. These purchases were for the reengineering of the Davis-Bacon wage determination process.

The investment in ADP hardware and software was based on reengineering plans an ESA contractor (CDSI) outlined in a report titled "Requirements Analysis" (RA) (see page 10). The RA plan for Davis-Bacon reengineering called for electronic imaging of WD-10s and attachments, World Wide Web (WWW) capabilities for WD-10 on-line transmission, data cleaning, and knowledge management software to aid in validation, flow and management of data received. According to Wage and Hour, significant ADP infrastructure improvements were needed to accomplish these goals. Also, a 1996 GAO report identified Wage and Hour's
 

On the following page is a summary schedule of the ADP hardware/software and telecommunications equipment purchased in support of Davis-Bacon wage determination/survey improvements.
 
 
 

DBRA Improvements  ADP Equipment Purchases
Equipment	Cost	Purpose
1. 3 Sequent NUMA-Q Servers	$1,444,870	Increase storage capacity and processing speed in conjunction with imaging/scanning technology.
2. 3 Compaq Proliant 5000 Servers (Windows NT WebServers)	69,552	Enhance ESA intranet service and intra- & internet test and development.
3. Software upgrades, Netscape Suite Spot, Microsoft NT	23,657	Web Server Integration software.
4. 3 Sequent NTX2000/WINServer Pro Servers	177,908	Internet server, application server and application test and development server.
5. 9 Pentium Computers & 2 Pentium Notebook Computers	45,124	Computers to be used by CDSI development staff for prototype development of Davis-Bacon reengineering goals.
6. 28 Regional Office and 22 National Office Desktop Computers	107,500	Upgrade old, outdated computers and facilitate Wide Area and Local Area Networks.
7. Router Equipment	242,104	"Pipes" for LAN development which facilitate communication with other servers and computers.
8. PBX Phone/Voice Mail System	75,500	Automated phone system - upgrade telecommunications capability.
TOTAL	$2,186,215

 
 

Brief Narrative on Each Purchase

1. Three Sequent NUMA-Q Servers - The largest obligation was for the purchase of three large, high speed servers. According to Wage and Hour, these new servers were needed because of increased processing power and storage capacity for utilizing imaging/scanning technology for on-line data capture of WD-10 information. On September 16, 1997 (14 days before the end of the fiscal year), Wage and Hour obligated $1,444,870 of the FY 1997 supplemental funding for these three large, high speed servers. Although the total cost for these three servers was paid with Davis-Bacon reengineering funds and the servers were acquired primarily to meet the requirements of the Davis-Bacon reengineering initiative, these systems are sufficiently large and scalable that they can also be used by all other ESA programs to satisfy similar requirements for computational speed and storage. ADP personnel and ADP maintenance costs will be allocated to the various agencies/users.

ESA ADP staff provided us a tour of the ESA computer room on January 27, 1998, and pointed out the computer equipment purchased with Davis-Bacon reengineering funds. Two of the three servers are operational and the third server has yet to be assembled, although ESA plans to have it operational within 2 months. The two operational servers are not being used for Davis-Bacon purposes because the reengineering process is still in the developmental stage. However, most of the work required to configure these systems for future use by Davis-Bacon has already been accomplished.
 
 

Items 2 - 4 below represent additional significant investments of Davis-Bacon funds in ADP equipment and software to enable WD-10 transmission via the World Wide Web. According to the Requirements Analysis, Web technology would expand the base for data acquisition and public access to Davis-Bacon. A prototype has been developed for WD-10 transmission via the Web but it is not available for public use yet.

2. Three Compaq Proliant 5000 Servers (Windows NT WebServers) - A total of $69,552 of the FY 1997 Davis-Bacon funding was spent on three Compaq Proliant 5000 servers. One of these servers is being used as an Intranet server for ESA agency-wide purposes. The other two Compaqs are used for test and development purposes for Davis-Bacon Web applications (Internet and Intranet) as well as serving as backup for the Intranet server.

3. Netscape Suite Spot; Microsoft NT; Software upgrades - Wage and Hour obligated $23,657 of the FY 1997 funding on software packages and software upgrades for use on the Internet and Intranet servers.

4. Three Sequent NTX2000/WINServer Pro Servers - A total of $177,908 of the FY 1997 funding was spent on three NTX2000/WINServer Pro servers. These servers, according to ESA officials, were needed for Internet capabilities. One of these servers is used as an Internet server to house Davis-Bacon applications. A second server is used to support software application development required to analyze and cleanse Davis-Bacon survey data, and the third server is used as a development server.

5. Nine Pentium Desktop Computers and 2 Pentium Notebooks - These nine desktop computers and two Notebooks cost a total of $45,124. These computer purchases were for CDSI development staff who were to design a prototype for WD-10 Web capabilities as well as WD-10 data capture via imaging/scanning technology.

6. Fifty Desktop Computers - Wage and Hour purchased 28 desktop computers for regional office Davis-Bacon personnel and 22 desktops for National Office Davis-Bacon personnel. The price for these purchases was $107,500 in FY 1997 funds. These new desktop computers, according to Wage and Hour officials, were needed to upgrade existing old, outdated computers being used by some regions and to facilitate one centralized wide area network.
 

7. Router Equipment - Wage and Hour obligated $242,104 of FY 1997 funding on router equipment for LAN development. According to one Wage and Hour official, this equipment is the "pipes" that enable electronic data to travel between computers, servers, printers and other peripheral equipment that make up a local area network.

8. PBX Phone/Voice Mail System - Wage and Hour bought into a PBX telephone/voice mail system purchased by ESA. Wage and Hour staff explained that this purchase was a needed upgrade to Wage and Hour's telecommunications capability. Wage and Hour staff indicated that this purchase will enable them to implement an automated telephone system to enhance communication between Wage and Hour and WD-10 users. Wage and Hour obligated $75,500 of FY 1997 funds on this PBX system. This amount represented a 23 percent allocation rate based on the number of phone units for Davis-Bacon staff.

The new technologies mentioned as part of reengineering Davis-Bacon, i.e., imaging/scanning technology and Web capabilities, are still in the development stage and are not fully operational. Wage and Hour's FY 1998 Operating Plan indicates that an additional $71,000 of Davis-Bacon funds will be used to purchase equipment.
 
 

On September 30, 1997 ( the last day of FY 1997), Wage and Hour obligated $117,513 of FY 1997 Davis-Bacon funding for one Computer System Manager in the Atlanta Regional Office and nine Local Area Network (LAN) Managers in nine ESA Regional and District Offices. Davis-Bacon is being charged a pro rata share of the contractors' cost. This forward funding was for the period September 29, 1997 through February 1, 1998. Wage and Hour stated that, due to the additional ADP equipment and software purchased with the Davis-Bacon funding and the resulting enhanced infrastructure for LAN development, Wage and Hour should contribute its fair share for additional LAN Managers as well as additional demands on existing LAN Managers.

Wage and Hour staff reiterated that ESA's Division of Automated Systems Management believed that Wage and Hour needed to provide additional funding for the ADP support structure. Wage and Hour staff said that, given the additional demands on the LAN environment, and given that Wage and Hour had FY 1997 Davis-Bacon supplemental funding
 

Wage and Hour provided us the following FY 1998 obligation plan for reengineering Davis-Bacon wage surveys.

*Wage and Hour told us that planned amounts will change. For example, the $1,479,000 planned for BLS surveys will be increased by $149,700 to fund the union status survey currently under way.

ATTACHMENT