Federal Railroad Workers Audit Shows $360 Million Overhang (2023)

A recent report by the federal agency, citing problems in the late 2000s, found that federal agencies' incomplete lien recovery records resulted in nearly $360 million in distress.

SomeAudit commissioned by the Attorney-General of the RepublicDescribes a series of problems with receiving workers' compensation reimbursement plans from the American Railroad Pension Board. However, one accounting expert said the report left room for the agency to improve, not condemn.

what you need to know

  • An audit by the Railroad Retirement Board, the federal agency responsible for paying benefits to retired or sick railroad workers, found about $360 million in trouble over the past five years, while control and policy problems widened.

  • Under the Workers' Insurance Act, the agency is entitled to reimbursement for payments made if certain conditions are met; however, the agency has not necessarily been able to demonstrate how much it can collect from employees, the report said.

  • In a statement to Spectrum News, a spokesman for the Rail Retirement Board agreed the agency had room for improvement but questioned the amount of the cost in dispute.

  • An accounting expert who reviewed the report believed the agency was on the right track and observed that the agency was fulfilling its mission of helping employees and their beneficiaries.

The agency lacked effective controls, failed to comply with federal regulations and appeared unable to provide refunds, according to a report by consulting firm RMA Associates. As a result, the program left an estimated $358.8 million in "disputed costs" (costs that could not be adequately substantiated or whose nature, purpose or reasonableness was called into question) over five years, the report said.

Established in the 1930s, the Railroad Pension Board is a federal agency that administers retirement, unemployment, survivor, and sickness benefits for railroad workers and their families.

Generally speaking, the Railroad Unemployment Insurance Act ensures that railroad workers receive benefits for the days they are unable to work due to illness or injury. Federal law also requires railroad workers to reimburse the RRB for certain sickness benefits.

If an employee is injured and sues their employer (or a third party they believe is responsible for the injury), they cannot work until the injury occurs and will not be paid until the claim is resolved. At the same time, the employee also enjoys federal insurance benefits. If they lose their claim, they don't need to refund any money to the rail agency.

However, if an employee receives wages through litigation, settlement, or other agreement, the RRB has the right to refund wages paid and may place a lien on wages owed under the railroad provisions of the Insurance Act. 12(o).

However, according to the audit, the Railroad Pension Board does not have a good enough tracking system to determine how many cases qualify for Section 12(o) liens, how much money has been recovered, and how much money can even be recovered.

“The RRB Program Office does not know the financial magnitude of the commitment process under Section 1. 12(o), and therefore cannot adequately determine the dollar value of potentially recoverable sickness benefits; in particular, the dollar value of a 12(o) commitment is eligible from reinstated in the sickness benefit scheme," the audit report said.

Between October 2015 and September 2021, the RRB paid out $477.2 million in sickness benefits. While the audit found that $118.8 million had been returned, the board said it had not conducted an "extensive examination" to calculate the amount that might be recovered.

“As a result, the RMA determined that all net sickness benefits paid as part of our audit totaled $358.8 million . ,” we read in the audit report.

The audit also found that the Pensions Board lacked communication with the rail sector regarding changes to its format and system, and failed to comply with federal accountability standards.

This is not the first report to claim that the RRB is unable to cope with committed recovery. and2012 ReportIt also uncovered problems that could have cost the agency $300,000 over two years.

The agency has also handled major fraud cases in recent years. 2021Six employees have been charged with defrauding the agency of more than $975,000.; all were convicted or pleaded guilty. and2008 New York Times investigationclaims that almost all applications submitted to the agency are approved, which ultimately leads to11 people charge

From a list of more than 20 recommendations, the auditors recommended that the RRB "develop and document a comprehensive set of controls covering all elements of section 12(o)" and "implement a comprehensive tracking system", most of which have been managed by the railway department's consent. "Ensure that all commitments are identified, monitored and collected. The RRB agreed, but said it was "unable to provide an estimated completion date" due to "a multi-year modernization effort underway across the agency".

Following comments from Spectrum News, an agency spokesperson said it was "misleading and wrong" to flag the $358.8 million in net sickness benefits as unpaid liens, adding that "the vast majority of the RRB Most of the health claims are not based on such conditions” but are “illnesses and injuries caused by everyday life” which usually do not result in any reimbursement as part of the bill. Basically, management says that the average operating cost of the insurer is about $72 million in non-reimbursable funds.

"We know controls can always be improved, and the completion of our current IT modernization program will help make that happen," the spokesperson said.

The USC accounting professor said she doesn't think the biggest problem facing the railroad pension board is necessarily the $358 million cost involved, though she disagrees with him that the cost falls on the government statute list.

“Given the identified deficiencies in internal controls and government oversight, these costs should be considered suspect costs,” Zivia Sweeney, associate professor of clinical accounting at the University of Southern California’s Leventhal School of Accountancy, told Spectrum News. There are funds that could be raised through the Section 12(o) commitment...Given the agency's workload, the focus should be on improving internal controls through staffing and conversion to a new software system."

Based on his analysis, the agency appears to be struggling with staffing issues, which could lead to a brain drain of long-standing institutional expertise.

Still, Sweeney thinks the agency's future looks good. First, the costs involved do not appear to be due to fraud or abuse, but to internal processes, namely records control. It can be done, and the agency is trying to make it happen with a budget proposal to improve staffing and modernize IT systems.

Second, Sweeney noted that the Rail Pensions Board maintains a satisfaction rate of around 92-94% for beneficiary customers, which she believes is a figure a private company would like to have.

"They make sure that people don't suffer," Sweeney added.

"There are limitations in the infrastructure, people have recognized that there are problems, but ... they've asked for funding to fix them," Sweeney said. "From that point of view, that's all you can really ask for in trying to figure this out.


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