Department of Labor, Licensing and Regulation Division of Labor and Industry

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1 Audit Report Department of Labor, Licensing and Regulation Division of Labor and Industry April 2006 OFFICE OF LEGISLATIVE AUDITS DEPARTMENT OF LEGISLATIVE SERVICES MARYLAND GENERAL ASSEMBLY

2 This report and any related follow-up correspondence are available to the public through the Office of Legislative Audits at 301 West Preston Street, Room 1202, Baltimore, Maryland The Office may be contacted by telephone at , , or Electronic copies of our audit reports can be viewed or downloaded from our website at Alternate formats may be requested through the Maryland Relay Service at The Department of Legislative Services Office of the Executive Director, 90 State Circle, Annapolis, Maryland can also assist you in obtaining copies of our reports and related correspondence. The Department may be contacted by telephone at or

3 April 24, 2006 Senator Nathaniel J. McFadden, Co-Chair, Joint Audit Committee Delegate Charles E. Barkley, Co-Chair, Joint Audit Committee Members of Joint Audit Committee Annapolis, Maryland Ladies and Gentlemen: We have audited the Division of Labor and Industry (DLI) of the Department of Labor, Licensing and Regulation for the period beginning March 25, 2002 and ending November 8, Our audit disclosed that DLI continues to have a significant backlog of overdue inspections of boilers, pressure vessels, and elevators. We have commented on this condition with respect to boilers and pressure vessels in each of our audit reports on DLI since In addition, we determined that DLI did not always bill its debtors and refer related delinquent accounts receivable to the State s Central Collection Unit timely, in accordance with the Unit s guidelines. Respectfully submitted, Bruce A. Myers, CPA Legislative Auditor

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5 Agency Responsibilities Background Information The Division of Labor and Industry (DLI) is a separate unit within the Department of Labor, Licensing and Regulation. The mission of DLI is to protect and promote the health, safety, and employment rights of Maryland s citizens. Specifically, DLI administers State laws that deal with employment issues, safety and health issues, prevailing wages, as well as safety inspections of amusement rides, boilers and pressure vessels, elevators and escalators, and railroads. According to the State s records, during fiscal year 2005, DLI had 180 authorized positions and operating expenditures totaling approximately $11.5 million. Current Status of Findings From Preceding Audit Report Our audit included a review to determine the current status of the five fiscal compliance findings contained in our preceding audit report dated September 11, We determined that DLI satisfactorily addressed two of these findings. One of the findings is no longer relevant as the applicable State law was repealed. The remaining two findings are repeated in this report. We also conducted a review to determine the current status of the six findings from our preceding audit report related to a previous performance audit that we conducted on boiler and pressure vessel inspections. Our current audit follow-up disclosed that DLI satisfactorily addressed each of the six findings. 3

6 Findings and Recommendations Safety Inspections Finding 1 Safety inspections for boilers, pressure vessels, and elevators were not performed timely in accordance with State law. We have noted this condition regarding boilers and pressure vessels since 1977 and regarding elevators since Analysis According to DLI s records, which we tested and found to be reliable, DLI did not perform safety inspections of boilers, pressure vessels, and elevators timely as required by State law. Specifically, as of November 2005, inspections for more than 14,000 of the approximately 55,000 boilers and pressure vessels (25 percent) were significantly overdue. In this regard, DLI s records indicated that 7,792 of these inspections were more than one year overdue, while approximately 4,800 of them were more than two years overdue. DLI s records as of November 2005 also indicated that inspections for approximately 3,800 of 19,000 elevators (20 percent) were significantly overdue, with 443 of these inspections more that one year overdue. In most instances, insurance company inspectors trained and certified by DLI were responsible for conducting the boiler and pressure vessel inspections that were overdue. Although DLI implemented procedures to notify insurance companies and equipment owners that these inspections needed to be performed by the companies, these procedures have not helped DLI reduce the number of past due inspections. DLI is responsible for ensuring the periodic inspection of boilers, pressure vessels, and elevators and related devices (such as escalators) in accordance with Title 12 of the Public Safety Article of the Annotated Code of Maryland. In each of our audit reports since 1977, we have commented that DLI had not ensured that boilers and pressure vessels were inspected within the time periods specified by law. A similar condition regarding overdue elevator inspections has appeared in our audit reports since We have again been advised by DLI that inspections were not conducted in accordance with the aforementioned laws primarily because of staffing shortages. 4

7 Recommendation 1 We again recommend that DLI eliminate its inspection backlog and maintain the inspection process on a current basis in accordance with the provisions of the law. Accounts Receivable Finding 2 DLI did not always bill debtors and refer related delinquent accounts in a timely manner to the State s Central Collection Unit. Analysis DLI did not bill debtors and refer delinquent accounts to the State Central Collection Unit in a timely manner as required by State guidelines. Specifically, our test of 15 outstanding accounts for occupational safety and health penalties and boiler inspection fees disclosed that, for 10 accounts tested, DLI issued bills at intervals ranging from 65 to 195 days. Although the remaining 5 accounts were originally invoiced during July 2005, DLI had not issued any follow-up billings on these accounts as of November In addition, for 8 of the accounts tested, DLI waited 31 to 231 days after the dates required before transferring these delinquent accounts to the Unit. The collectibility of outstanding accounts diminishes as the accounts increase in age. The Unit s guidelines require that agencies issue billings on unpaid accounts at 30-day intervals. The Unit s guidelines also require that agencies transfer accounts to the Unit within 75 days of the original demands for payment when debtors fail to positively respond to the demands. According to DLI s records, in fiscal year 2005, collections for occupational safety and health penalties and boiler inspection fees totaled approximately $1.2 million and, as of November 30, 2005, the related accounts receivable balance was $108,852. DLI s failure to refer delinquent accounts to the Unit in a timely manner was commented upon in our two preceding audit reports. Recommendation 2 We again recommend that DLI strictly comply with Central Collection Unit regulations. Specifically, we recommend that DLI transfer delinquent accounts to the Unit for collection assistance and issue demands for payment at the intervals prescribed by the Unit. 5

8 Audit Scope, Objectives, and Methodology We have audited the Division of Labor and Industry (DLI) of the Department of Labor, Licensing and Regulation for the period beginning March 25, 2002 and ending November 8, The audit was conducted in accordance with generally accepted government auditing standards. As prescribed by the State Government Article, Section of the Annotated Code of Maryland, the objectives of this audit were to examine DLI s financial transactions, records and internal control, and to evaluate its compliance with applicable State laws, rules, and regulations. We also determined the current status of the findings contained in our preceding audit report. In planning and conducting our audit, we focused on the major financial-related areas of operations based on assessments of materiality and risk. Our audit procedures included inquiries of appropriate personnel, inspections of documents and records, and observations of DLI s operations. We also tested transactions and performed other auditing procedures that we considered necessary to achieve our objectives. Data provided in this report for background or informational purposes were deemed reasonable, but were not independently verified. Our audit did not include certain support services provided to DLI by the Department of Labor, Licensing and Regulation Office of the Secretary. These support services (such as payroll, purchasing, data processing, maintenance of accounting records, and related fiscal functions) are included within the scope of our audits of the Office of the Secretary. We did not audit DLI s federal financial assistance programs for compliance with federal laws and regulations because the State of Maryland engages an independent accounting firm to annually audit such programs administered by State agencies. Our audit scope was limited with respect to DLI s cash transactions because the Office of the State Treasurer was unable to reconcile the State s main bank accounts during the audit period. Due to this condition, we were unable to determine, with reasonable assurance, that all of DLI s cash transactions were accounted for and properly recorded on the related State accounting records as well as the banks records. 6

9 DLI s management is responsible for establishing and maintaining effective internal control. Internal control is a process designed to provide reasonable assurance that objectives pertaining to the reliability of financial records, effectiveness and efficiency of operations including safeguarding of assets, and compliance with applicable laws, rules and regulations are achieved. Because of inherent limitations in internal control, errors or fraud may nevertheless occur and not be detected. Also, projections of any evaluation of internal control to future periods are subject to the risk that conditions may change or compliance with policies and procedures may deteriorate. Our reports are designed to assist the Maryland General Assembly in exercising its legislative oversight function and to provide constructive recommendations for improving State operations. As a result, our reports generally do not address activities we reviewed that are functioning properly. Our audit did not disclose any conditions that we consider to be significant deficiencies in the design or operation of internal control that could adversely affect DLI s ability to maintain reliable financial records, operate effectively and efficiently and/or comply with applicable laws, rules and regulations. However, this report does include findings regarding significant instances of noncompliance with applicable laws, rules, or regulations. The response from the Department of Labor, Licensing and Regulation, on behalf of DLI, to our findings and recommendations is included as an appendix to this report. As prescribed in the State Government Article, Section of the Annotated Code of Maryland, we will advise the Department regarding the results of our review of its response. 7

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11 DLLR - Division of Labor and Industry Discussion Notes 3/25/02 11/8/05 The Division agrees with the findings contained in the audit report dated March 27, 2006 and we appreciate the opportunity to provide the following response: Safety Inspections Finding 1 Safety inspections for boilers, pressure vessels and elevators were not performed on a timely basis in accordance with State law. DLLR Response to finding 1 The Division concurs with the findings that safety inspections for boilers and elevators are not performed on a timely basis in accordance with State law. DLLR Corrective Action: This finding is directly related to inspection resources being applied to the existing workload. The Division intends to continue to recruit for inspectors to fill existing vacancies. Recruitment efforts for deputy boiler inspectors continues to be a challenge and the Division is working with the National Board of Boiler and Pressure Vessel Inspectors to develop training opportunities for persons desiring to enter this profession. Workload estimates and staffing needs have been identified for consideration of acquiring additional inspectors. The Division intends to apply risk based analysis to the inspection frequency process to ensure that the inspections are directed to the highest risk areas. Time Table for Corrective Action: The Division continues to maximize the resources that are available for inspection thereby helping to reduce the total overdue population for both elevators and boilers. The one remaining elevator safety inspection vacancy will be filled by the end of April, The Division will be meeting with members of the National Board in May, 2006 to discuss additional recruitment solutions to the national shortage of qualified boiler inspectors. Additional inspection resources have been requested consistent with workload estimates and existing staffing levels. An over-the-budget request for additional staffing has been submitted as part of the FY 2007 budget process. 1

12 DLLR - Division of Labor and Industry Discussion Notes 3/25/02 11/8/05 Accounts Receivable Finding 2 The Division did not bill debtors and refer related delinquent accounts in a timely manner to the State Central Collection Unit. DLLR Response to finding 2 The Analysis is correct and the Division agrees with the findings indicating that several delinquent accounts were not referred in accordance with Central Collection Unit (CCU) procedures. DLLR Corrective Action: The Division intends to apply resources toward monitoring compliance with Central Collection Unit (CCU) procedures to ensure payment demands and referral of accounts are consistent with the standards prescribed. Additionally, the two existing account receivable systems for the boiler and elevator inspection fees will be consolidated into one system to ensure application and compliance effectiveness. Time Table for Corrective Action: The Division has taken immediate manual steps to ensure compliance with CCU procedures and intends to have an automated system within the first quarter of FY

13 AUDIT TEAM Peter J. Klemans, CPA Audit Manager Joseph E. Adriani Senior Auditor Clarence A. Traynham Staff Auditor