    Davis-Bacon Act: Labor Now Verifies Wage Data, but Verification Process
    Needs Improvement (Letter Report, 01/11/99, GAO/HEHS-99-21).

    Pursuant to a legislative requirement, GAO reviewed the: (1) Department
    of Labor's response to the House Appropriations Committee's directive
    that it verify a random sample of employers' wage data submissions and
    select a sample of submissions for on-site data verification; and (2)
    likely effect of these efforts on the accuracy and timeliness of
    Davis-Bacon Act wage determinations.

    GAO noted that: (1) in response to a Committee directive and GAO's
    recommendation, Labor has implemented a program to verify wage survey
    data submitted on standardized wage data forms by construction
    contractors and interested third parties, such as contractor
    associations and trade unions; (2) to verify these data, Labor has
    developed procedures to select samples of these forms for telephone
    verification that differ depending on whether the forms are submitted by
    contractors or third parties; (3) in addition, Labor has hired a private
    accounting firm to conduct on-site verification reviews; (4) as of
    September 30, 1998, the accounting firm had issued final reports for 9
    of the 85 geographic area surveys scheduled for audit from April 1997 to
    June 1998 and had identified errors in wages reported in about 70
    percent of the wage data forms reviewed; (5) in both the telephone and
    on-site verification processes, all data--regardless of the entity that
    submitted them--are verified only with the contractors; (6) even though
    Labor has identified and corrected numerous errors in the wage data
    submitted, its verification efforts will have limited impact on the
    accuracy of the wage determinations and will increase the time required
    to issue them; (7) specifically, errors the accounting firm identified
    and corrected in all nine area surveys averaged 76 cents per hour; (8)
    but, because Labor was only able to correct the limited number of wage
    data forms verified, which contain a small portion of the wage rates
    submitted, on average, changes to these wage determinations will be less
    than 10 cents per hour, according to Labor officials' estimates; (9) the
    extent to which correcting the errors found through verification will
    improve the accuracy of wage determinations is limited by: (a) the
    Committee directive to use a random sample of wage data forms for
    verification, given the characteristics of the wage data with respect to
    the universe being sampled; and (b) the procedures Labor uses to
    implement this directive; (10) for example, in its procedures, Labor
    assumes that data from contractors that refuse access to supporting
    documentation are correct and includes the wages in calculating wage
    determinations; and (11) while the time needed for verification reduced
    timeliness of wage determinations, telephone verification added less
    time to the process than did on-site verification--an estimated average
    of 2 weeks as compared with an average of 211 days for the 30 area
    surveys for which the auditor completed preliminary reports.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  HEHS-99-21
         TITLE:  Davis-Bacon Act: Labor Now Verifies Wage Data, but
                 Verification Process Needs Improvement
          DATE:  01/11/99
       SUBJECT:  Income statistics
                 Data integrity
                 Minimum wage rates
                 Labor law
                 Payroll records
                 Congressional oversight
                 Construction contracts
                 Wage surveys

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    Cover
    ================================================================ COVER

    Report to Congressional Committees

    January 1999

    DAVIS-BACON ACT - LABOR NOW
    VERIFIES WAGE DATA, BUT
    VERIFICATION PROCESS NEEDS
    IMPROVEMENT

    GAO/HEHS-99-21

    Davis-Bacon Act

    (205376)

    Abbreviations
    =============================================================== ABBREV

      CBA - collective bargaining agreement
      OIG - Office of Inspector General
      RSPR - Regional Survey Planning Report
      WHD - Wage and Hour Division

    Letter
    =============================================================== LETTER

    B-280302

    January 11, 1999

    Congressional Committees

    The Davis-Bacon Act was enacted in 1931 to protect communities and
    workers from the economic disruption caused by contractors hiring
    workers from outside the local geographic area, where wages are
    lower, thus obtaining federal construction contracts by underbidding
    contractors who pay local wage rates.  The act requires that
    employers pay locally prevailing wage rates, including fringe
    benefits, to laborers and mechanics employed on the more than $40
    billion of federal construction projects a year.\1 Since 1931, the
    Congress has enacted many statutes that extend Davis-Bacon's
    prevailing wage provisions to construction projects for which the
    federal government provides only partial funding, such as the
    construction of local schools.  The Department of Labor, which
    administers the act, surveys construction contractors and other
    interested third parties to obtain information on wages paid to
    workers in each construction craft and uses the data submitted on
    these survey forms to determine local prevailing wage rates.\2

    In previous reports and testimony, we expressed concern that Labor's
    procedures for determining prevailing wage rates were vulnerable to
    the use of inaccurate or fraudulent data.\3 The use of such data
    could lead to the payment of wages that are either lower than what
    workers should receive or higher than the actual prevailing wages,
    which would inflate federal construction costs at the taxpayers'
    expense.  We also noted that basing wage determinations on old wage
    data raises questions about whether the wage results still reflect
    current conditions.\4 In 1996, we recommended that Labor verify wage
    data it receives by obtaining appropriate documentation from a sample
    of participating employers or conducting a limited number of on-site
    reviews of employer wage data.\5

    The House Appropriations Committee has also expressed concerns about
    the accuracy and timeliness of Davis-Bacon wage determinations.  The
    Committee's reports on appropriations for the Departments of Labor,
    Health and Human Services, and Education and related agencies for
    fiscal years 1998 and 1999 directed Labor to ensure that a portion of
    the funds appropriated for the wage survey program be used to
    randomly sample all data submissions to verify their accuracy.\6
    Moreover, the reports specified that Labor select a sample of all
    wage data submissions for on-site data verification against actual
    payroll records.  In response to a request in the Committee reports,
    we reviewed these verification activities to determine

      -- what Labor has done in response to the Committee's directive
         that it verify a random sample of employers' wage data
         submissions and select a sample of submissions for on-site data
         verification and

      -- the likely effect of these efforts on the accuracy and
         timeliness of Davis-Bacon wage determinations.

    We are sending this report to you because of your committees'
    oversight responsibilities for Labor (see list of addressees at the
    end of this letter).  We conducted our review between June and
    October 1998 in accordance with generally accepted government
    auditing standards.  For information on our methodology, see appendix
    I.

    --------------------
    \1 The $40 billion dollar estimate does not include the cost of
    construction projects covered by the prevailing wage laws for which
    others such as state and local governments, rather than the federal
    government, are responsible for the contract costs.

    \2 "Interested parties" may include the employers or contractors;
    contractor associations; construction workers; labor unions; and
    federal, state, and local agencies.

    \3 For a list of selected reports and testimony we have issued on
    this topic, see Related GAO Products at the end of this report.

    \4 Labor reported that in 1996 the average age of a wage
    determination was 7 years.  In addition, when the wage determination
    is issued, it can be based on survey data that are already out of
    date.  For example, in 1998 Labor was verifying some data for wages
    reported to have been paid in 1993 and had not yet issued a wage
    determination as of September 30, 1998.

    \5 Davis-Bacon Act:  Process Changes Could Raise Confidence That Wage
    Rates Are Based on Accurate Data (GAO/HEHS-96-130, May 31, 1996).

    \6 U.S.  Congress, House of Representatives, Departments of Labor,
    Health and Human Services, and Education and Related Agencies
    Appropriations Bill, 1998, H.  Rept.  105-205, 105th Cong., 1st
    sess., and U.S.  Congress, House of Representatives, Departments of
    Labor, Health and Human Services, and Education and Related Agencies
    Appropriations Bill, 1999, H.  Rept.  105-635, 105th Cong., 2nd sess.

       RESULTS IN BRIEF
    ------------------------------------------------------------ Letter :1

    In response to a Committee directive and our recommendation, Labor
    has implemented a program to verify wage survey data submitted on
    standardized wage data forms by construction contractors and
    interested third parties, such as contractor associations and trade
    unions.  To verify these data, Labor has developed procedures to
    select samples of these forms for telephone verification that differ
    depending on whether the forms are submitted by contractors or third
    parties.  In addition, Labor has hired a private accounting firm to
    conduct on-site verification reviews.  As of September 30, 1998, the
    accounting firm had issued final reports for 9 of the 85 geographic
    area surveys scheduled for audit from April 1997 to June 1998 and had
    identified errors in wages reported in about 70 percent of the wage
    data forms reviewed (see fig.  4).  In both the telephone and on-site
    verification processes, all data--regardless of the entity that
    submitted them--are verified only with the contractors.

    Even though Labor has identified and corrected numerous errors in the
    wage data submitted, its verification efforts will have limited
    impact on the accuracy of the wage determinations and will increase
    the time required to issue them.  Specifically, errors the accounting
    firm identified and corrected in all nine area surveys averaged 76
    cents per hour.  But, because Labor was only able to correct the
    limited number of wage data forms verified, which contain a small
    portion of the wage rates submitted, on average, changes to these
    wage determinations will be an average of 10 cents per hour,
    according to Labor officials' estimates.  The extent to which
    correcting the errors found through verification will improve the
    accuracy of wage determinations is limited by (1) the Committee
    directive to use a random sample of wage data forms for verification,
    given the characteristics of the wage data with respect to the
    universe being sampled, and (2) the procedures Labor uses to
    implement this directive.  For example, in its procedures, Labor
    assumes that data from contractors that refuse access to supporting
    documentation are correct and includes the wages in calculating wage
    determinations.  While the time needed for verification reduced the
    timeliness of wage determinations, telephone verification added less
    time to the process than did on-site verification--an estimated
    average of 2 weeks as compared with an average of 211 days for the 30
    area surveys for which the auditor submitted preliminary reports.
    The verification efforts completed to date may, however, have a
    significant impact on improving the accuracy of future wage
    determinations by deterring the submission of fraudulent and
    inaccurate data, educating contractors on how to complete wage data
    forms, and providing Labor with information to use in its long-term
    reengineering efforts.  We are recommending specific changes to
    Labor's verification procedures that should increase their impact on
    the accuracy of the wage determinations while reducing the time and
    the cost to collect this information.

       BACKGROUND
    ------------------------------------------------------------ Letter :2

    The Davis-Bacon Act and related legislation require employers on
    federally funded construction projects valued in excess of $2,000 or
    federally assisted projects to pay their workers no less than the
    prevailing wage rate.  According to its regulations, the Department
    of Labor determines the wages "prevailing for the corresponding
    classes of laborers and mechanics employed on projects of a character
    similar to the contract work in the .  .  .  city, town, village, or
    other civil subdivision of the State in which the work is to be
    performed." The Department of Labor's Wage and Hour Division (WHD) is
    responsible for making these wage determinations.

    In addition to making these determinations, Labor is responsible for
    ensuring that employers covered by the law pay at least the mandated
    wage.  While some of the same staff work on both responsibilities,
    Labor estimates that in fiscal year 1997, it used the equivalent of
    51 full-time staff and spent about $5.5 million on the process of
    determining Davis-Bacon prevailing wages at both its Washington,
    D.C., headquarters and five regional offices.\7

    To determine the prevailing wage rates, Labor periodically conducts
    surveys, called "area surveys," to collect data on wages and fringe
    benefits paid to workers in similar job classifications on comparable
    construction projects in a specific geographic area.\8 The agency
    solicits information from employers and third parties, such as
    representatives of unions and contractor associations.  As shown in
    figure 1, after receiving and analyzing the data, Labor issues wage
    determinations for a series of job classifications such as
    electricians, carpenters, and drywallers in specific geographic areas
    varying in size from a section of a county to an entire state.\9 For
    example, the prevailing wage determination for the Washington, D.C.,
    metropolitan area in 1996 included individual wage rates for 143
    different construction crafts.  For a more complete description of
    the wage determination process, see appendix II.

       Figure 1:  Flowchart of Wage
       Determination Process

       (See figure in printed
       edition.)

    Labor relies on the voluntary participation of contractors and other
    interested parties in conducting the wage survey.  While
    participation is voluntary, failure to supply truthful answers can
    have serious consequences:  it is a crime under federal law (18
    U.S.C.  1001) to knowingly submit false data to the government, and
    it is a crime under federal law (18 U.S.C.  1341) to use the U.S.
    mail for fraudulent purposes.

    Contractors and interested third parties generally submit data on
    wage survey forms, called WD-10s, which are supplied by WHD.\10 As
    shown in the sample forms WD-10 in figure 2, regardless of whether
    data are submitted by contractors or third parties, a separate WD-10
    is submitted for each construction project and for each contractor
    that employed workers on that project.  Wage rate determinations are
    issued for different job classifications, such as drywallers and
    electricians.  In fiscal year 1997, WHD issued 1,860 individual wage
    rate determinations, which were based on information obtained from 43
    area wage surveys.\11

    In accordance with its regulations, Labor determines an area's
    prevailing wage rate on the basis of the 50-percent rule, which
    states that the prevailing wage will be the wage paid to the majority
    of workers employed in a specific job classification.  If the same
    rate is not paid to a majority of those workers in the
    classification, the prevailing wage will be the average of the wages
    paid, weighted by the total number of workers employed in the
    classification.  See the prevailing wage formula in figure 2 for an
    example of this calculation using the two hypothetical forms WD-10.

       Figure 2:  Examples of Wage
       Data Forms (WD-10s) Submitted
       for an Area Survey

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

    Note:  The hypothetical example chosen is simplified for ease of
    discussion.  It illustrates a case in which the majority of workers
    employed in a specific job classification are paid the same wage
    rate.  In many other cases, a majority does not exist and Labor
    calculates a weighted average.

    We previously reported that Labor's wage determination process
    contained internal control weaknesses that contributed to a lack of
    confidence in the resulting wage determinations.  These weaknesses
    included limitations in Labor's verification of the voluntarily
    submitted wage and fringe benefit data.  We recognized, however, that
    accurately reported wage data are not sufficient to ensure the
    accuracy of the wage determinations.  For example, in a previous
    report, we concluded that reporting bias resulting from the voluntary
    nature of the wage surveys may also reduce the accuracy of the wage
    determinations.

    In 1995, a congressional committee heard specific allegations that
    inaccurate and fraudulent wage data were submitted and used to
    determine prevailing wage rates in Oklahoma City.  Both GAO and
    Labor's Office of Inspector General (OIG) then received congressional
    requests to review Labor's wage determination process.  Labor
    responded to the allegations by introducing a policy to verify a
    sample of wage data forms received from third parties, but it did not
    extend this verification process to forms submitted by
    contractors.\12

    Before that, Labor had contacted both contractors and third parties
    to obtain clarification about data that were inconsistent or unclear,
    but it had not attempted to verify data that were not obviously
    inaccurate.

    In May 1996, we recommended that Labor obtain appropriate
    documentation or conduct a limited number of on-site inspection
    reviews to verify a sample of wage data submissions.  Our
    recommendation was intended to improve data reliability and increase
    confidence in the accuracy of wage data in the short term while Labor
    continued its longer-term efforts to address larger weaknesses in the
    wage determination process.  We expected that verification would also
    increase the accuracy of future wage determinations by reducing
    errors through educating both contractors and third parties about how
    to complete wage data forms and deterring the submission of
    fraudulent data.

    In March 1997, Labor's OIG issued a report on its audit of a
    judgmental sample of wage data collected for use in calculating
    prevailing wage rate determinations issued in calendar year 1995.\13
    The audit did not find evidence of fraud or deliberate misreporting
    of wage data.  However, OIG determined that inaccurate data submitted
    by both employers and third parties were frequently used in
    prevailing wage determinations and that access to payroll records was
    the most important factor to successfully verifying wage data.  OIG
    echoed our suggestion that verification efforts be viewed as
    temporary steps until more fundamental reforms in Labor's survey
    methodology could be made.

    --------------------
    \7 This amount excludes $3.75 million that the Congress appropriated
    specifically for Davis-Bacon program reengineering efforts in fiscal
    year 1997, as well as some costs incurred by states conducting area
    wage surveys.

    \8 Fringe benefits considered in computing the prevailing wage rate
    include, but are not limited to, holiday and vacation pay, health
    insurance, and pension benefits.

    \9 Labor conducts wage surveys and issues wage determinations for
    four basic types of construction--building, residential, heavy, and
    highway.  For determining prevailing wage rates for highway
    construction, both the survey and its analysis are often done by
    individual state agencies.  Labor also uses a contractor to complete
    both the survey and preliminary analysis for a limited number of area
    surveys.  Labor includes both the state- and contractor-completed
    surveys among those sent to the accounting firm for on-site
    verification.  The contractor-completed surveys are also subject to
    telephone verification, but the state-completed surveys are not.

    \10 In an effort to obtain the greatest participation, Labor staff
    sometimes complete the WD-10 form with information provided over the
    telephone by employers.

    \11 This number does not include ongoing modifications to wage
    determinations when there are automatic or negotiated changes to the
    wage rate specified in the collective bargaining agreement or wage
    determinations limited to specific projects rather than for entire
    geographic areas.

    \12 Third parties generally provide about one-third of all wage
    survey forms.

    \13 Department of Labor, OIG, Inaccurate Data Were Frequently Used in
    Wage Determinations Made Under the Davis-Bacon Act, Final Report
    #04-97-013-04-420 (Mar.  10, 1997).

       LABOR HAS IMPLEMENTED A PROGRAM
       TO VERIFY WAGE DATA
    ------------------------------------------------------------ Letter :3

    In response to the House Appropriations Committee's directive and our
    recommendation, Labor has implemented a program to verify wage survey
    data submitted by construction contractors and interested third
    parties, such as contractor associations and trade unions.  To verify
    these data, Labor established procedures to select samples of wage
    data forms for telephone verification that differ depending on the
    entity that submitted the form.  In addition, Labor has hired a
    private accounting firm to conduct on-site verification reviews.  In
    both the telephone and on-site verification process, all
    data--regardless of which party submitted them--are verified only
    with the contractors.

          LABOR'S TELEPHONE
          VERIFICATION PROCEDURES
          DIFFER DEPENDING ON WHETHER
          THE DATA ARE SUPPLIED BY
          CONTRACTORS OR THIRD PARTIES
    ---------------------------------------------------------- Letter :3.1

    In response to our recommendation, in June 1996 Labor expanded its
    telephone verification process begun the previous year from one of
    verifying wage data submitted by third parties to one that also
    verifies wage data submitted by contractors.  However, Labor verifies
    a different percentage of wage data forms submitted by third parties
    than that for data forms submitted by contractors.  In addition,
    regardless of who submitted the wage data form, Labor asks for
    supporting documentation only from contractors, not from third
    parties.

    Labor verifies a larger percentage of wage data forms submitted by
    interested third parties than for those submitted by contractors, as
    shown in figure 3.  For wage data submitted by third parties, wage
    analysts must select every tenth--10 percent--WD-10 wage data form
    submitted (and no fewer than two WD-10 forms) for verification with
    the contractor.\14 In contrast, for wage data submitted by
    contractors, Labor requires that regions select every fiftieth--2
    percent--wage data form (but no fewer than five) for telephone
    verification.  Regional wage officials told us that they always use
    the sample size required by Labor's national office for contractors,
    but they exceed it for third parties.  For example, wage analysts in
    one region told us that they verify 100 percent of wage data forms
    submitted by third parties by requiring that all such forms be signed
    by contractors who paid the wages that were reported.  A senior wage
    analyst in another region told us that they conduct telephone
    verification of almost all third-party wage data forms.

       Figure 3:  Selecting Wage Data
       Forms for Verification

       (See figure in printed
       edition.)

    Labor's procedures require that wage analysts verify data only with
    the contractors, not with third parties, even for data submitted by
    third parties.  The procedures require the regional offices to send
    letters to the contractors selected for verification requesting that
    supporting payroll documents be mailed to Labor.  (See app.  III for
    a sample of the letter Labor sends to contractors.) Wage analysts
    contact the contractors selected for verification by telephone to
    verify wage data regardless of whether the contractor has provided
    the requested documents.  Wage analysts told us that they generally
    do not receive the documents requested from the contractor and,
    therefore, rely on the contractor's verbal assurance that the data
    are correct.  When the wages reported by the contractor, either with
    documentation or with oral confirmation, are different from those
    originally submitted, Labor replaces the wage data submitted on the
    WD-10.\15 When the information provided by the contractor does not
    agree with the data submitted by a third party, regional wage
    analysts told us that they always take the word of the contractor
    over the information supplied by the third party.  Unlike the process
    Labor uses with contractors, Labor seldom notifies third parties that
    the wage data forms they submitted have been selected for
    verification and does not ask them for documentary evidence to
    support the data they provided.

    Even though information from contractors who participate in the
    verification process sometimes leads to changes in the wage data,
    Labor includes in the prevailing wage calculation data reported by
    contractors who refuse to participate in the verification process,
    thereby assuming these data to be accurate.  Labor does not keep
    records that would allow us to assess how often this occurs.  One of
    Labor's regional offices, however, provided data showing that in the
    18-month period from April 1, 1997, to September 30, 1998, wage
    analysts in that region were unable to verify data by telephone for
    41--57 percent--of the 72 WD-10 forms submitted by contractors that
    were selected for verification.  Labor's procedures allow it to
    assume that these data are correct and to include them in the wage
    calculation.  However, this assumption is questionable because, of
    the remaining 31 forms that were verified by telephone, analysts
    found errors in data submitted in 9 of the forms, or 29 percent.

    --------------------
    \14 Labor also requires its wage analysts to verify with the
    contractor all third-party data submitted by a union that reports
    wages for workers employed by a nonunion firm.  Labor's policy does
    not include any similar procedures to verify data submitted by third
    parties that are not unions, such as contractor associations and
    federal and state agencies.  However, Labor's procedures require wage
    analysts to verify any wage data that on the surface are
    questionable, regardless of the source of the data.

    \15 Labor does not keep records, however, that would show how often
    errors are found in telephone verification or how often changes are
    made.

          LABOR USES A PRIVATE
          ACCOUNTING FIRM TO CONDUCT
          ON-SITE VERIFICATION
    ---------------------------------------------------------- Letter :3.2

    In April 1997, Labor began a process of on-site wage data
    verification under a contract awarded to a private accounting firm.
    As of September 30, 1998, Labor had paid the firm a total of $1
    million for on-site verification for fiscal years 1997 and 1998, and
    had awarded a new contract to the same firm for $500,000 in fiscal
    year 1999.\16

    The contract requires the accounting firm to review a sample of
    payroll records to verify wage survey data and interview employers to
    obtain information to assist in Labor's efforts to reengineer the
    wage determination process.  Labor selects what it describes as a
    10-percent sample of the wage data forms submitted by both
    contractors and interested third parties for a specific area wage
    survey.  It reaches this percentage by selecting every tenth data
    form for verification.  In fact, the percentage of WD-10s selected
    for on-site verification usually exceeds 10 percent.  This is
    because, after selecting every tenth data form submitted, Labor adds
    to the set of forms the auditor will review all other usable WD-10s
    that could be examined at that contractor's office, such as the forms
    for other projects for which data were reported.\17 As a result, 10
    percent is the minimum sample size; the actual sample size varies
    from one survey to another.\18 For example, for the 9 surveys for
    which final audit reports were completed, the actual percentage of
    WD-10s selected for on-site verification ranged from 10 to 56
    percent.

    As with the telephone verification conducted by WHD wage analysts,
    auditors verify the data on-site only with the contractor who
    employed the workers, even when the data were submitted by third
    parties.  The WHD regional office mails the contractors selected for
    verification a letter notifying them that an auditor will contact
    them to request a visit to their establishments.  (See app.  III for
    a sample letter sent to contractors.) The contractor is asked to make
    payroll records available to the auditor to confirm that the data
    reported on the WD-10 are complete and correct.  While the
    contractor's cooperation with the auditor is requested, it is
    voluntary for contractors whose wage data cover private construction
    projects, because Labor is not authorized to require contractors to
    provide records for such projects.\19 In contrast, contractors on
    federal projects are required by law to grant access to payroll
    records related to the federal projects.  Labor, however, does not
    specify this in its letters to these contractors.  Labor is concerned
    that doing so might discourage contractors from participating in
    future Davis-Bacon surveys, which could reduce the number of survey
    respondents and thus affect the accuracy of wage determinations.

    The auditor compares the data reported on the WD-10 with the payroll
    records for the reported project.  Discrepancies between the original
    WD-10 submitted and the payroll records or contractor's testimony are
    recorded by the auditor.  After completing the audit of the area wage
    survey data, the auditor submits a preliminary report to Labor, which
    includes a list of all discrepancies and a list of contractors that
    did not participate in the verification process.\20 Labor reviews the
    preliminary report and makes follow-up telephone calls with
    contractors as necessary.  After Labor reviews the auditor's
    findings, the accounting firm submits a final report reflecting
    changes on which Labor and the firm have agreed.  Regional wage
    analysts told us that only after Labor receives the final report do
    the analysts incorporate appropriate changes to wage data,
    recalculate wage data, and forward recommended wage rate
    determinations to Labor's national office for final review and
    issuance.

    During the 15-month period from the beginning of the on-site
    verification process in April 1997 to June 30, 1998, Labor sent 85
    surveys to the auditors for on-site verification.\21 As of September
    30, 1998, the auditors had completed audits for 30 of the 85 area
    surveys and had issued final reports for 9 of these.

    The auditors reported finding errors in both the wages and the number
    of workers reported in the majority of wage data forms they reviewed.
    Specifically, for the nine surveys for which they had completed final
    reports, the auditors found errors in wage rates reported in about 70
    percent of all wage data forms reviewed.  Labor has issued new wage
    determinations based on four of these nine surveys (see fig.  4).

       Figure 4:  Status of 85 Area
       Surveys Subject to On-Site
       Verification, as of September
       30, 1998

       (See figure in printed
       edition.)

    --------------------
    \16 This $1 million is in addition to the $10 million Labor estimated
    it spent for fiscal years 1997 and 1998 wage determination activities
    other than verification.

    \17 The data are submitted on a separate WD-10 form for each
    contractor and project.  Thus, a contractor who employed workers on
    more than one project will be identified as the contractor on more
    than one WD-10 form.  (See #1 in fig.  2.)

    \18 Multiple WD-10 forms may be submitted for the same contractor and
    project if data are submitted for the project by both contractors and
    third parties.

    \19 Legislative proposals for providing such authority have been
    introduced in the Congress in recent years, but none has been enacted
    to date.

    \20 The report also describes the contractors' responses to five
    specific questions, including the contractors' experience using the
    WD-10 to submit wage data, and their interest in providing and
    ability to provide wage data electronically.  This information is
    collected as part of the second purpose of the audit:  to gather
    information to help Labor improve the wage determination process.

    \21 This represented an unusually large number of surveys because it
    included 42 surveys that were begun before the beginning of the
    on-site verification process in April 1997 and 43 that were initiated
    in the following 15 months.

       VERIFICATION WILL HAVE LIMITED
       IMPACT ON ACCURACY OF
       PREVAILING WAGE DETERMINATIONS
       AND WILL REDUCE TIMELINESS
    ------------------------------------------------------------ Letter :4

    Verification efforts conducted to date will have a limited impact on
    the accuracy of prevailing wage rate determinations and will increase
    the time required to issue them.  The extent to which the
    verification process improves the accuracy of Labor's prevailing wage
    determinations will be limited by the congressional directive to use
    a random sample of wage data forms to select wage data for
    verification and the procedures Labor uses to implement the
    directive.  In addition, on-site verification has added time to the
    wage determination process, increasing the likelihood that data used
    will be outdated.  The on-site verification process has, however,
    provided information that Labor is using as it tries to improve the
    process for future wage determinations.

          ERRORS IDENTIFIED, BUT
          IMPACT ON ACCURACY OF WAGE
          DETERMINATIONS IS LIMITED
    ---------------------------------------------------------- Letter :4.1

    Although Labor has identified and corrected numerous errors in the
    wage data submitted, it has been able to correct only the limited
    number of wage data forms verified.  Since this represents only a
    small portion of the total number of data forms submitted, these
    corrections have only a minimal impact on the accuracy of the data
    used to calculate wage determinations.  As a result, even though we
    found that errors the auditors identified in all nine area surveys
    averaged 76 cents per hour, Labor officials estimate that the changes
    to wage determinations will amount to an average of 10 cents per
    hour.

    Furthermore, both the Committee directive to use a random sample of
    wage data forms to select wage data for verification and the
    procedures Labor uses to implement the directive also limit the
    extent to which errors found will improve the accuracy of wage
    determinations.  While a random sample is often assumed to be the
    most effective approach to selecting a sample, it is not the best
    approach for verification in this situation.  It would be impractical
    to verify a large enough random sample of wage forms to ensure that
    verification would have an impact on the accuracy of the wage
    determination.  Moreover, the procedure Labor uses to verify wage
    data (1) does not take into account whether the data it selects for
    verification are likely to be used in calculating wage
    determinations, (2) assumes that data from contractors that refuse
    access to supporting documentation are correct, and (3) does not
    attempt to verify data with third-party submitters when contractors
    are unable to provide or refuse access to supporting documentation.

             VERIFICATION SAMPLE NOT
             LARGE ENOUGH TO ENSURE
             IMPACT ON ACCURACY OF
             WAGE DETERMINATIONS
    -------------------------------------------------------- Letter :4.1.1

    Although the House Committee directed Labor to use a random sample to
    select wage data forms to verify the accuracy of wage data, Labor
    does not select a large enough number of data forms to ensure that
    the errors found will improve the accuracy of wage determinations,
    nor would it be feasible to do so.\22 Although random sampling is
    sometimes the best approach to selecting data, in some circumstances
    other sampling strategies are more effective.  A random sample would
    allow Labor to assume that data found to be in error were
    representative of all data submitted, and Labor could adjust the
    prevailing wage rate rather than adjusting the data on only the
    WD-10s selected for verification.  However, the sample size needed
    for this approach would require Labor to verify most of the wage data
    submitted.  Conversely, a carefully chosen judgmental sample would
    allow Labor to select wage data forms for which correcting errors
    found would have the greatest effect on the accuracy of the wage
    determinations.

    To select a representative random sample that would ensure the
    accuracy of the data used to determine prevailing wage rates, Labor
    would have to sample workers within each job classification rather
    than wage data forms, which often combine job classifications, as it
    does now.  Labor currently determines the amount of wage data to be
    verified by selecting a uniform percentage of WD-10s for each area
    survey, ranging from 2 percent to 10 percent.  However, because Labor
    determines multiple prevailing wage rates, one for each job
    classification, it must select a sample of wage data from every job
    classification within a survey to ensure a representative sample for
    all prevailing wage rates.  Since wage data forms often include data
    for multiple job classifications, sampling wage data forms alone does
    not ensure representativeness within specific job classifications.

    Labor would also have to select a sufficient number of workers within
    each job class to meet the statistical criteria for appropriately
    projecting from sampled cases to all the wage data.  However, data
    submitted on the number of workers within a job class can be small,
    often fewer than 10.  As a result, Labor would need to select a
    sample size equal or close to the total number of workers.  For
    example, we calculated that the sample size required for a
    statistically representative sample would require that Labor verify
    all data submitted for 40 of 45 job classifications in one fiscal
    year 1997 area survey in order to be within 50 cents per hour of the
    correct wage.  For all job classifications, Labor would have had to
    verify the wages of more than 5 times the number of workers it
    verified, 439 rather than 78 of the 664 workers for whom wages were
    reported.  (See app.  IV.)

    --------------------
    \22 In addition, the sample Labor draws is systematic but does not
    meet the criteria to be considered random.  See app.  IV for more
    information.

             LABOR SELECTS WAGE DATA
             FOR VERIFICATION THAT
             WILL HAVE LITTLE OR NO
             IMPACT ON ACCURACY OF
             WAGE DETERMINATIONS
    -------------------------------------------------------- Letter :4.1.2

    Using a random sample does not allow Labor to judgmentally select for
    verification wage data that will have the greatest potential impact
    on accuracy.  For example, Labor verifies wage data that it does not
    expect to, and does not, use to calculate prevailing wage
    determinations.  In addition, Labor does not consider the cost of
    travel and staff time in selecting wage data forms to verify.

    Of the 30 area surveys for which on-site verification preliminary
    reports had been completed as of September 30, 1998, 29 included
    verification of wage data that would not be used in calculating
    prevailing wage rates.  The data verified would not be used for two
    reasons.  First, in some instances, wage determinations would be
    based on wage rates included in collective bargaining agreements, not
    on the wage data reported--whether the data were accurate or not.  In
    general, when the same wage is paid to 50 percent or more of the
    workers employed in a job classification, the wage rate is the same
    because it is specified in a collective bargaining agreement that
    covers the specified job classification.\23 When this occurs, Labor
    does not determine the prevailing wage rates on the basis of data
    reported on the WD-10s.  Instead, it uses the collective bargaining
    rate as the prevailing wage rate.  Second, in some instances, Labor
    knew it would not use the wage data because it had received
    insufficient data within the specific job classification to allow it
    to issue a wage determination.  Labor's procedures require that it
    receive responses from a minimum of 25 percent of the contractors and
    third parties it contacts for data and wages covering a minimum of
    three workers from two contractors to determine the prevailing
    wage.\24 When Labor receives too few responses, it does not issue a
    new wage determination.

    For example, for one of the four area surveys for which Labor has
    issued prevailing wage rate determinations, none of the verified
    wages were used to determine the prevailing wage rates.  For this
    specific survey, the rate specified in the collective bargaining
    agreement was used for 34 of the 36 individual job classifications.
    Data for the remaining two job classifications were not used because
    Labor did not receive sufficient data for these two job
    classifications from the survey responses.  Thus, although the
    on-site verification for this one survey cost about $40,000, and it
    required 5 weeks to complete the preliminary report, none of the
    results were used.

    Labor also does not balance the benefits against the costs of
    verifying specific wage data forms when selecting its sample.  For
    example, selecting wage data forms with wages reported for the
    greatest number of workers within a specific job classification has
    the potential for greater benefit in improving the accuracy of the
    wage determination than does selecting and verifying wages for a
    smaller number of workers.  Using the sample WD-10s in figure 2, if
    Labor's random sample resulted in verifying submission 2, which
    includes data for only 2 of a total of 82 workers for whom wages were
    used in the calculation, correcting even large errors would have
    little impact on the prevailing wage determination because only these
    2 wage rates could be adjusted.  On the other hand, even a small
    error in wage rates reported for the 80 workers would have a direct
    effect on the wage determination.  Using the hypothetical WD-10s in
    figure 2, if the fringe benefits reported on submission 1 were
    incorrectly omitted from submission 2, correcting the wages would
    increase the prevailing wage rate from $18.64 to $18.71, an increase
    of 7 cents.  However, as figure 5 shows, if the workers did not
    receive the fringe benefits on submission 1, which includes data on
    80 workers, correcting the error would reduce the prevailing wage
    rate from $18.64 to $16.00, a decrease of $2.64.

       Figure 5:  Calculation
       Comparing Effect of Correcting
       Errors on Simplified
       Hypothetical Wage Data Forms

       (See figure in printed
       edition.)

    Note:  For the purpose of illustration, we use only two forms WD-10
    with widely differing numbers of workers reported in the job
    classification.  In actual practice, the 50-percent rule would apply;
    the prevailing wage rate would not be calculated but would be the
    rate paid to those on submission 1 because more than 50 percent of
    the workers are paid the same wage, to the penny.

    Labor also does not consider the cost of accessing payroll records
    when selecting wage data forms for verification.  To do on-site
    verification, the accounting firm's auditors must contact individual
    contractors and visit their administrative offices to review payroll
    records; these offices may be located far from one another.  For
    example, as shown in figure 6, for the area wage survey covering
    Lawrence and Greene counties in Pennsylvania, contractors' offices
    were located in six states and were as far away as Texas and
    Massachusetts.  Using Labor's systematic selection process, auditors
    would attempt to visit the contractor's administrative office for
    submission 1 in our example, regardless of the great distance from
    the other sites and the small number of drywallers whose reported
    wages were to be verified.

       Figure 6:  Geographic
       Dispersion of Contractors in
       Pennsylvania Area Survey

       (See figure in printed
       edition.)

    --------------------
    \23 Labor obtains data on the WD-10 about whether the workers are
    covered by a collective bargaining agreement (see #3 in fig.  2).

    \24 When Labor receives data from an entity it has not contacted, it
    counts these data in the response rate as though it had requested the
    data.

             LABOR ASSUMES DATA ARE
             ACCURATE WHEN CONTRACTORS
             REFUSE OR ARE UNABLE TO
             PROVIDE SUPPORTING
             DOCUMENTATION
    -------------------------------------------------------- Letter :4.1.3

    Labor assumes that data from contractors that are unable to provide
    or refuse access to supporting documentation are correct by including
    them in the wage rate calculations.  A more reasonable assumption
    would be that data from contractors who refuse access have a greater
    chance of being inaccurate than data from contractors who provide
    access.  Labor did not have comprehensive data on the reasons
    contractors would not provide access to the payroll records necessary
    to verify reported wage data.  Both Labor's wage analysts and the
    on-site accounting firm auditors reported that contractors had many
    reasons for not participating, such as not wanting to devote the
    necessary resources to access the records or that the records were no
    longer available.  It is also possible, however, that wage data may
    be fraudulent or carelessly reported, because contractors who
    knowingly submit fraudulent data may be unlikely to voluntarily
    submit to an audit of their payroll records out of fear of
    prosecution for committing a federal crime.

    As shown in figure 7, 27 percent of the contractors selected for
    verification either refused or were unable to provide on-site
    auditors access to some or all of the payroll records required for
    verification.  For the 30 on-site audits for which Labor has received
    preliminary reports, auditors were unable to visit 20 percent, or 59,
    of the 293 contractors selected for on-site verification either
    because the contractors would not participate in on-site verification
    or the accounting firm was unable to schedule an acceptable time for
    auditors to visit.  Another 7 percent of the contractors denied or
    were unable to provide access to some or all of the necessary payroll
    records after the auditors arrived at the contractors' offices.\25
    Labor's OIG found in its verification review that access to payroll
    records was the most important factor in successfully verifying wage
    data.

       Figure 7:  Access Provided by
       Contractors to Payroll Records

       (See figure in printed
       edition.)

    While Labor does not have legal authority under the Davis-Bacon Act
    to access payroll records for workers involved in private
    construction, it does have authority to access such records for
    federally funded or assisted construction work covered by the act.
    Labor officials told us that they do not exercise this right because
    to do so might result in reduced accuracy of future wage
    determinations if it discouraged contractors from voluntarily
    providing wage data for future surveys.

    --------------------
    \25 Labor sometimes asks government contracting agencies to provide
    certified payroll records, but it reported limited success in
    obtaining these records.

             VERIFYING DATA ONLY WITH
             CONTRACTORS LIMITS
             ACCURACY OF WAGE
             DETERMINATIONS
    -------------------------------------------------------- Letter :4.1.4

    Labor's procedure of verifying wage data only with contractors also
    limits the accuracy gains achievable from the verification process
    and could actually result in decreased accuracy.  For example, our
    review of on-site verification reports found wage data, including
    fringe benefit data, submitted by third parties that auditors were
    unable to verify through the contractor.  The contractor either did
    not have records on fringe benefits paid or refused the auditors
    access to any payroll records.  In some cases in which the contractor
    did not verify the accuracy of the fringe benefits, the auditors
    recorded $0 under the fringe benefits as though the reported data
    were inaccurate.  These workers, however, were covered by a
    collective bargaining agreement.  Especially for fringe benefits paid
    under collective bargaining agreements, unions often have
    documentation to verify amounts paid.  In fact, regional wage
    analysts told us that, in some cases, unions may be the only source
    of data on fringe benefits.  By not seeking documentation from the
    third party, the verification process may have erroneously reduced
    the amount of wages and fringe benefits paid and thus contributed to
    a less accurate wage determination.

          VERIFICATION PROCESS ADDS
          TIME TO ISSUANCE OF WAGE
          DETERMINATIONS
    ---------------------------------------------------------- Letter :4.2

    As would be expected, verification efforts have increased the time
    required to issue wage determinations after the area survey has been
    completed.  Labor does not collect data on the amount of time
    required to complete telephone verification, but Labor officials who
    administer the wage determination process estimated that telephone
    verification added an average of 2 weeks to the process.  Telephone
    verification can be accomplished relatively quickly because Labor can
    conduct telephone verification as wage data are being submitted.  In
    addition, it does not require travel, which would add time and
    expense.

    On-site verification, however, adds much more time--months rather
    than weeks--to the process because (1) it requires travel and (2) in
    order to identify all wage data forms related to a specific
    contractor and more efficiently manage travel, it does not begin
    until after the survey cutoff date for wage forms has passed.  In
    fact, regional wage analysts told us that they do not send the
    surveys to the accounting firm for on-site verification until the
    telephone verification and all preliminary analysis have been
    completed such that wage determinations are ready to be forwarded to
    the national office for review and publication.  Our analysis of the
    30 area surveys for which the auditors submitted preliminary reports
    shows that the time between when Labor sent the area survey data to
    the accounting firm for verification and when Labor received the
    firm's preliminary report ranged from 36 to 408 days, with an average
    of 211 days.  However, Labor officials told us they cannot begin
    final calculations until they receive the final report from the
    auditors, which incorporates the results of discussions with Labor.
    Other Labor activities, such as reviewing the results of on-site
    verification audits and making any necessary adjustments to wage
    determinations before issuance, also add time to the wage
    determination process, but Labor has no data to estimate the amount
    of time these activities take.  Thus, while the impact verification
    is having on timeliness is greater than the time elapsed between when
    Labor forwards the surveys to the auditors and receives the
    preliminary report, the total time required is not available.  WHD
    officials told us that they expect this delay will decrease over
    time, attributing some of it to the time required for WHD staff and
    accounting firm auditors to master the verification process.

          VERIFICATION PROCESS
          FACILITATES LONG-TERM
          EFFORTS TO IMPROVE WAGE
          SURVEY PROCESS
    ---------------------------------------------------------- Letter :4.3

    While the effect of the verification process on the accuracy of data
    used in wage determinations has been minimal, these efforts may have
    a greater impact over the long term by deterring contractors and
    third parties from submitting inaccurate or fraudulent data,
    educating contractors about wage data form procedures, and assisting
    Labor in its reengineering efforts.  Labor officials stated that they
    had focused their verification procedures on identifying and
    deterring fraud rather than on ensuring the accuracy of the wage
    determinations.  But they also told us that the value of verification
    as a deterrent to the submission of fraudulent wage data must be
    balanced with its potential to deter voluntary participation in
    future Davis-Bacon Act surveys, which could, conversely, reduce the
    accuracy of the wage determinations.

    Verification efforts may help educate contractors about how to
    complete wage survey forms properly.  But Labor's procedure of not
    including third-party submitters in the verification process limits
    the potential for verification to improve the accuracy of future wage
    determinations.  Third parties do not benefit from the potential
    educational value that verification has because they are not informed
    of any errors identified on the WD-10s they submitted, nor do they
    learn how to properly complete them.

    Through its verification efforts, Labor has also obtained information
    that it is using in its long-term efforts to reengineer the wage
    determination process.  Labor included in the on-site verification
    process questions to contractors about the wage survey form and its
    terms, such as whether the contractors had difficulty understanding
    and completing the survey form.  Of those contractors who reported
    confusion or difficulty with the form, many identified the "peak
    week" and the number of workers employed during the peak week as
    major sources of confusion.\26 In addition, the accounting firm found
    in the course of its on-site payroll verification that contractors
    and third parties that submitted wage data had difficulty completing
    the form, including accurately identifying the job classification of
    workers.  The auditors found that these difficulties affected the
    accuracy of the wage data reported.  For example, for the nine area
    surveys for which the auditors completed final reports, they
    identified errors in wage data for 38 percent of all contractors
    visited caused by misidentification of the peak week.  Labor is also
    redesigning its wage reporting form, which responds to concerns
    raised by contractors during on-site verification.  Labor is also
    piloting a statewide survey using wage data for "total man-hours" in
    place of wage data for the peak week.\27

    --------------------
    \26 The "peak week" refers to the work week in which the contractor
    employed the largest number of workers in a particular craft or
    classification for work on a specific project.

    \27 Total man-hours differs from the peak week.  Total man-hours does
    not count the number of workers, but the number of total hours worked
    within a specific job classification for the entire length of the
    project.  In contrast, peak week counts the number of workers within
    a job classification for only one week, regardless of the number of
    hours worked and the wages paid them.

       CONCLUSIONS
    ------------------------------------------------------------ Letter :5

    Without accurate and timely data, Labor cannot determine prevailing
    wage rates that correctly reflect the labor market.  While obtaining
    accurate wage data through Labor's voluntary surveys will not ensure
    that wage rate determinations are accurate, inaccurate data guarantee
    inaccurate wage determinations.  We recognize that achieving
    100-percent accuracy is not possible.  However, inaccurate prevailing
    wage determinations could lead to the payment of wages that are
    either lower than what workers should receive or higher than the
    actual prevailing wages, which would inflate construction costs at
    the taxpayers' expense.  A system to verify wage data submitted by
    contractors and third parties is necessary to ensure that inaccurate
    data do not have a negative effect on the prevailing wage
    determination.

    As directed by the House Appropriations Committee, Labor has
    implemented a process to verify wage data submitted by both
    contractors and third parties.  This process allows it to identify
    and correct errors it finds in wage data reported.  It may also have
    a positive impact on the accuracy of wage data obtained in future
    wage surveys by educating contractors on the proper completion of
    wage data forms.  In addition, this process has helped Labor obtain
    information that will assist it in reengineering efforts.  For
    example, errors in wages reported often occur because of confusion by
    contractors and third parties over how to report workers and wages
    for the peak week.  Labor is exploring the alternative use of
    "man-hours" rather than peak week, which may be easier for
    contractors and third parties to report.

    The process Labor is using, however, is unnecessarily costly, in
    terms of both money and time.  On-site verification is a costly
    approach to verifying wage data, and it delays the issuance of wage
    rate determinations by months, especially when compared with
    telephone verification that is combined with supporting payroll
    records submitted upon request.  On-site verification requires a
    cadre of auditors to travel to worksites around the country to review
    payroll records.  While Labor's OIG found that access to payroll
    records was essential to successfully verifying wage data, the
    process need not require that the contractor be contacted in person
    rather than by telephone.  Obtaining copies of payroll records by
    mail as part of the telephone verification is significantly less
    costly and takes less time.

    Relying on a random rather than a judgmental sample limits the
    accuracy gains achievable through verification.  While a random
    sample is often assumed to be better than a judgmental sample, it is
    actually less effective in selecting wage data forms to verify that
    will have an impact on the accuracy of the wage determinations.
    Labor does not gain the most significant benefits of a random
    sample--that is, being able to assume that errors found in verified
    wage data forms are representative of all wage data forms and adjust
    wage rates accordingly--because it is not feasible to verify a
    sufficiently large number of wage data forms.  In contrast, a
    carefully designed judgmental sample to select contractors for
    verification could consider the likelihood that the data will be
    used, the number of workers within a job classification, and the
    geographic dispersion of contractors.

    The impact of Labor's verification procedures on the accuracy of the
    wage determinations is also limited by the action it takes when
    documentation cannot readily be obtained from a contractor.  In our
    view, at least two aspects of Labor's verification procedures
    contribute to limiting accuracy.  First, contractors may refuse
    access to supporting documentation for many legitimate reasons--such
    as the time required--but contractors who refuse to provide the
    supporting documentation are more likely than those who provide
    access to have submitted fraudulent or carelessly reported data.
    Labor, however, (1) accepts the data and uses it as if documentation
    had supported it and (2) allows federal contractors to deny access to
    the supporting documentation even though Labor has the legal
    authority to access their records.  While discarding all such data
    might have negative consequences on Labor's ability to issue wage
    determinations, accepting all such data may contribute to inaccurate
    wage determinations.  Labor's approach does not achieve the needed
    balance in deciding which data to include and exclude.

    Second, Labor sometimes eliminates or revises data inappropriately
    when it does not seek supporting documentation from third parties
    that have submitted it.  Wage data submitted for a project by a third
    party are generally verified against the payroll or oral testimony of
    the contractor associated with that project.  The third party that
    submitted the original WD-10 is not provided the opportunity to
    validate the information it submitted; final corrections are
    generally provided only by the contractor.  As a result, data
    supplied by third parties may be eliminated or revised inaccurately,
    even though, in some cases, only the third party, not the contractor,
    can provide supporting documentation, for example, for benefits
    provided by a union.  Supporting documentation provided by third
    parties could improve the completeness and thus the accuracy of the
    data used.

       RECOMMENDATIONS
    ------------------------------------------------------------ Letter :6

    To reduce the cost of verification and increase the benefits, we
    recommend that the Secretary of Labor direct the WHD Administrator to
    revise verification procedures to maximize the expected value to be
    gained from verification.  Specifically, Labor should

      -- increase the use of telephone verification--while decreasing
         on-site verification audits--and increase efforts to obtain
         payroll documentation from all selected submitters;

      -- change the procedures used to select wage data for verification,
         using a judgmental sample of wage data forms based on the
         potential impact of the data on prevailing wage rate
         determinations rather than using a random sample; and

      -- revise verification procedures to take more appropriate action
         when documentation cannot readily be obtained from a contractor,
         such as not using data when supporting documentation is
         requested but not provided, requiring documentation where
         possible, and giving third parties an opportunity to provide
         supporting documentation for data they submitted.

       AGENCY COMMENTS
    ------------------------------------------------------------ Letter :7

    We provided a draft of this report to the Department of Labor for its
    review and comment.  It generally agreed with our recommendations and
    agreed to implement them by revising the verification process.  Labor
    also stated that our report was generally helpful and that some of
    our recommendations would decrease costs and improve timeliness.
    However, the Department took issue with some of our conclusions
    concerning the accuracy of survey data submissions by contractors and
    the use of data from contractors who refuse auditors access to
    supporting payroll records.  Labor also provided technical comments
    and corrections, and we have revised our report as necessary.

    With regard to the accuracy of the survey data, Labor stated that
    despite the many errors found by both the on-site auditors and
    Labor's OIG, the limited revisions to wage determinations that
    resulted from correcting these errors demonstrated that the wage
    determinations closely approximated the accurate prevailing wage
    rate.  We disagree, because the small number of data submissions
    verified is not a valid representative sample of all data submissions
    used to calculate the revised wage determinations.  Furthermore, the
    OIG's report does not support Labor's conclusion.  It states that:
    "The errors we discovered did not materially change many of the wage
    decisions because the data we sampled often represented a small
    portion of the responses for an individual WH
    survey.  .  .  .  If we had conducted more payroll reviews, we
    believe more exceptions would have been identified and would have
    revealed more material errors in published wage decisions."

    With regard to the use of data when contractors refuse access to the
    supporting payroll records, Labor disagreed with our conclusion that
    contractors unable or unwilling to provide auditors access to payroll
    records are more likely to have submitted fraudulent data than those
    who provide records.  Labor based its conclusions that contractors
    try to provide accurate and complete information on the data
    verification that has been done to date by both Labor's OIG and WHD.
    Basing conclusions about contractors unwilling or unable to provide
    access to payroll records on verification of data from contractors
    that do provide access is not logical or convincing.  We continue to
    believe that employers submitting fraudulent or unsubstantiated wage
    data forms are unlikely to voluntarily provide access to payroll
    records for review.  Because all verification efforts conducted to
    date, including those of the OIG, have relied on voluntary access to
    payroll records, the absence of fraud in verified wage data
    submissions provides no evidence that contractors who denied access
    did not submit fraudulent data.

    We have, however, clarified our conclusion on the use of data
    submitted by contractors or third parties that do not cooperate with
    verification efforts to allow Labor analysts to use judgment in
    deciding when to exclude such data from its wage determination
    calculations.  For example, we agree that Labor should consider
    including data from contractors that routinely cooperated with data
    verification efforts in the past and whose data were determined to be
    generally accurate.  Another factor to consider would be the possible
    adverse impact of discarding specific data on Labor's ability to
    issue a wage determination.

    Finally, in agreeing to select data using a judgmental sample, Labor
    stated that it intends to continue selecting some data for
    verification using a systematic sample, albeit fewer than it does
    now.  To the extent that data selected randomly represent a small
    segment of all data verified, Labor's proposed approach is consistent
    with our recommendation.

    ---------------------------------------------------------- Letter :7.1

    We are sending copies of this report to the Secretary of Labor,
    appropriate congressional committees, and other interested parties.

    Please call me at (202) 512-7014 or Larry Horinko at (202) 512-7001
    if you or your staffs have any questions about this report.  Other
    major contributors were John Carney, Robert G.  Crystal, Lise Levie,
    Ann P.  McDermott, Elizabeth T.  Morrison, and Ronni Schwartz.

    Carlotta C.  Joyner
    Director, Education and
     Employment Issues

    List of Addressees

    The Honorable Ted Stevens
    Chairman
    The Honorable Robert C.  Byrd
    Ranking Minority Member
    Committee on Appropriations
    United States Senate

    The Honorable Arlen Specter
    Chairman
    The Honorable Tom Harkin
    Ranking Minority Member
    Subcommittee on Labor, Health and Human
     Services, and Education
    Committee on Appropriations
    United States Senate

    The Honorable C.W.  Bill Young
    Chairman
    The Honorable David R.  Obey
    Ranking Minority Member
    Committee on Appropriations
    House of Representatives

    The Honorable John Edward Porter
    Chairman
    The Honorable David R.  Obey
    Ranking Minority Member
    Subcommittee on Labor, Health and Human
     Services, Education and Related Agencies
    Committee on Appropriations
    House of Representatives

    OBJECTIVES, SCOPE, AND METHODOLOGY
    =========================================================== Appendix I

    The House Committee on Appropriations in its reports on
    appropriations for the Departments of Labor, Health and Human
    Services, and Education and related agencies for fiscal years 1998
    and 1999 asked us to (1) review the Department of Labor's efforts to
    verify a random sample of employers' wage data submissions and select
    a sample of submissions for on-site data verification and (2)
    determine the likely effect of these efforts on the accuracy and
    timeliness of Davis-Bacon wage determinations.

    To describe Labor's actions, we interviewed Department of Labor
    officials in the Wage and Hour Division (WHD) at both headquarters
    and the five regional offices responsible for determining prevailing
    wage rates.  At the southeast regional office in Atlanta, Georgia, we
    interviewed WHD officials and reviewed the wage determination process
    in more detail, including reading relevant documentation and
    reviewing the process used to create a computerized database of wage
    data forms.  We also obtained a draft of WHD's procedures for
    telephone and on-site verification and task orders for on-site
    verification.  In addition, we interviewed representatives of the
    private accounting firm contracted to conduct on-site payroll
    verification, who provided time schedules, cost data, and other
    information about the firm's on-site reviews.

    To determine the likely effect of Labor's verification efforts, we
    obtained and analyzed data from a number of different sources.  These
    data include the following:

      -- all available WHD preliminary analyses (forms WD-22) for all
         wage surveys sent to the contractor for verification for the
         18-month period from the beginning of on-site verification in
         April 1997 through September 1998;

      -- all preliminary and final reports completed by the accounting
         firm for on-site audits as of September 30, 1998; and

      -- electronic records of wage data forms (forms WD-10) maintained
         by WHD under contract with Computer Data Systems, Inc.,
         concerning the area surveys for which the accounting firm had
         issued final reports for on-site verification.

    Using these and other data provided by WHD, we conducted several
    analyses.

      -- To obtain the average error amount in wage rates and the
         percentage of wage data forms with errors for the nine area
         surveys for which the accounting firm issued final reports, we
         identified the dollar value of errors on each WD-10 by job
         classification.  We determined the dollar value of errors in
         wage rates by calculating the absolute value of the difference
         between the sum of the reported wages and fringe benefits and
         the sum of the verified wages and fringe benefits.  We weighted
         the amount of error by the lower of the number of employees
         reported or the number of employees verified.  Because the
         auditors were not consistent in their analysis and reporting, as
         necessary we made assumptions about individual wage rates, such
         as when an average wage rate was reported but individual wage
         rates were verified.  We then calculated the average of the
         absolute value of error for all workers.

      -- To determine the percentage of contractors providing full and
         partial access to payroll records, we analyzed data in the 30
         preliminary reports summarizing the results of on-site
         verification audits.  Specifically, we counted the number of
         selected contractors the auditors reported as refusing access
         and those the auditors failed to access despite persistent
         efforts over a matter of weeks or months.  For those contractors
         who allowed the auditors access to the workplace, we identified
         the number of contractors unable or unwilling to provide access
         to the payroll records necessary to verify the wage rates
         reported on the selected forms WD-10.

      -- To determine the amount of time between when Labor sent area
         survey data to the auditor for on-site verification and when
         Labor received the auditor's preliminary report, we relied on
         data provided by WHD for the 30 surveys with preliminary reports
         completed by the auditor.  We computed the time elapsed between
         the date Labor sent the survey to the auditor for on-site
         verification and the date the regional office received the
         preliminary report.

    In addressing the second objective, we recognize that while accurate
    wage data are necessary, they are not sufficient to ensure that wage
    determinations accurately reflect the prevailing wage that a
    contractor would have to pay to obtain construction workers from the
    local area at the market wage.  Other issues must be considered to
    improve the wage determination process, such as the time lag between
    obtaining the wage surveys and issuing the wage determinations.
    Labor is exploring options to reengineer its wage determination
    process in the long term, which we will review at a later date.  We
    did not attempt to assess the accuracy of the prevailing wage
    determinations that result from these surveys, which was outside the
    scope of this review.  We also did not verify the results of on-site
    audit reviews; we focused on problems with procedures used rather
    than contract compliance.

    LABOR'S WAGE DETERMINATION PROCESS
    UNDER THE DAVIS-BACON ACT
    ========================================================== Appendix II

    The Davis-Bacon Act requires that workers employed on federal
    construction contracts valued in excess of $2,000 be paid, at a
    minimum, wages and fringe benefits that the Secretary of Labor
    determines to be prevailing for corresponding classes of workers
    employed on projects that are similar in character to the contract
    work in the geographic area where the construction takes place.

    To determine the prevailing wages and fringe benefits in various
    areas throughout the United States, Labor's WHD periodically surveys
    wages and fringe benefits paid to workers in four basic types of
    construction (building, residential, highway, and heavy).\28

    Labor has designated the county as the basic geographic unit for data
    collection, although Labor also conducts some surveys setting
    prevailing wage rates for groups of counties.  Wage rates are issued
    for a series of job classifications in the four basic types of
    construction, so each wage determination requires the calculation of
    prevailing wages for many different trades, such as electrician,
    plumber, and carpenter.  For example, in 1996 the prevailing wage
    rates for the Washington, D.C., metropolitan area included wage rates
    for 143 different construction trade occupations.  Because there are
    over 3,000 counties, more than 12,000 surveys could be conducted each
    year if every county in the United States was surveyed.  In fiscal
    year 1997, Labor issued 1,860 individual wage rate determinations
    based on 43 area wage surveys.  As shown in figure 1, Labor's wage
    determination process consists of four basic stages:

      -- planning and scheduling surveys of employer wages and fringe
         benefits in similar job classifications on comparable
         construction projects;

      -- conducting surveys of employers and third parties, such as
         representatives of unions or industry associations, on
         construction projects;

      -- clarifying and analyzing respondents' data; and

      -- issuing the wage determinations.\29

    --------------------
    \28 Heavy construction is a catch-all grouping that includes projects
    not properly classified under the other three types of construction:
    for example, dredging and sewer projects.

    \29 A wage determination is the listing of wage and fringe benefit
    rates for each classification of workers that the WHD administrator
    has determined to be prevailing in a given area for a type of
    construction.  Each wage determination involves establishing
    prevailing wage rates for many occupations.

       STAGE 1:  PLANNING AND
       SCHEDULING SURVEY ACTIVITY
    -------------------------------------------------------- Appendix II:1

    Labor annually identifies the geographic areas that it plans to
    survey.  Because Labor has limited resources, a key task of Labor's
    staff is to identify those counties and types of construction most in
    need of a new survey.\30 In selecting areas for inclusion in planned
    surveys, the regional offices establish priorities based on criteria
    that include

      -- the need for a new survey based on the volume of federal
         construction in the area;

      -- the age of the most recent survey; and

      -- requests or complaints from interested parties, such as state
         and county agencies, unions, and contractors' associations.

    If a type of construction in a particular county is covered by a wage
    determination based on collective bargaining agreements (CBA) and
    Labor has no indication that the situation has changed such that a
    wage determination should now reflect nonunion rates, an updated wage
    determination may be based on updated CBAs.  The unions submit their
    updated CBAs directly to the national office.

    --------------------
    \30 In 1996, the average age of a wage survey was more than 7 years.

          THE REGIONAL SURVEY PLANNING
          REPORT SHOWS WHERE FEDERALLY
          FINANCED CONSTRUCTION IS
          CONCENTRATED
    ------------------------------------------------------ Appendix II:1.1

    Planning begins in the third quarter of each fiscal year when the
    national office provides regional offices with the Regional Survey
    Planning Report (RSPR).  The RSPR provides data, obtained under
    contract with the F.W.  Dodge Division of McGraw-Hill Information
    Systems, showing the number and value of active construction projects
    by region, state, county, and type of construction and giving the
    percentage of total construction that is federally financed.\31 Labor
    uses the F.W.  Dodge data because they comprise the only continuous
    nationwide database on construction projects.  Labor supplements the
    F.W.  Dodge data with additional information provided to the national
    office by federal agencies regarding their planned construction
    projects.  The RSPR also includes the date of the most recent survey
    for each county and whether the existing wage determinations for each
    county are union, nonunion, or a combination of both.

    Using this information, the regional offices, in consultation with
    the national office, designate the counties and type of construction
    to be included in the upcoming regional surveys.  Although Labor
    usually designates the county as the geographic unit for data
    collection, in some cases more than one county is included in a
    specific data-gathering effort.

    The regional offices determine the resources required to conduct each
    of the priority surveys.  When all available resources have been
    allocated, the regional offices transmit to the national office for
    review their schedules of the surveys they plan to do:  the types of
    construction, geographic area, and time periods that define each
    survey.

    When Labor's national office has approved all regional offices'
    preliminary survey schedules, it assembles them in a national survey
    schedule that it transmits to interested parties, such as major
    national contractor and labor organizations, for their review and
    comment.  The national office transmits any comments or suggestions
    received from interested parties to its affected regional offices.
    Organizations proposing modifications of the schedule are asked to
    support their perceived need for alternative survey locations by
    providing sufficient evidence of the wages paid to workers in the
    type of construction in question in the area where they want a survey
    conducted.

    --------------------
    \31 The F.W.  Dodge data consider a project to be active from the
    time on-site work begins (ground breaking) until it is released to
    and accepted by the owner.

          EACH REGIONAL OFFICE OBTAINS
          A FILE OF ACTIVE PROJECTS
          THAT MATCH ITS SURVEY
          OBJECTIVES
    ------------------------------------------------------ Appendix II:1.2

    The target date for establishing the final fiscal year survey
    schedule is September 15.  Once the national office has established
    the final schedule, each regional office starts to obtain information
    it can use to generate lists of survey participants for each of the
    surveys it plans to conduct.  Each regional office then contacts
    Construction Resources Analysis at the University of Tennessee, which
    applies a model to the F.W.  Dodge data that identifies all
    construction projects in the start-up phase\32 within the parameters
    specified in the regional office's request and produces a file of
    projects that were active during a given time period.  The time
    period may be 3 months or longer, depending on whether the number of
    projects active during the period is adequate for a particular
    survey.  F.W.  Dodge provides information on each project directly to
    the regional offices.  The F.W.  Dodge reports for each project
    include the location, type of construction, and cost; the name and
    address of the contractor or other key firm\33 associated with the
    project; and, if available, the subcontractors.\34

    --------------------
    \32 F.W.  Dodge defines the start-up phase as one in which the
    construction will commence within 60 days.

    \33 Other examples of key firms would be the owner or architect of
    the project.

    \34 A subcontractor is an employer that has a contractual agreement
    with the project's prime employer.  On a typical construction
    project, most employees working on the job will be employees of
    subcontractors.

          ANALYSTS SCREEN PROJECTS TO
          DETERMINE THOSE TO BE
          SURVEYED
    ------------------------------------------------------ Appendix II:1.3

    When the F.W.  Dodge reports are received by the regional offices,
    Labor analysts screen them to make sure the projects meet four basic
    criteria for each survey.  The project must

      -- be of the correct construction type,

      -- be in the correct geographic area,

      -- fall within the survey time frame, and

      -- have a value of at least $2,000.

    In addition to obtaining files of active projects, Labor analysts are
    encouraged to research files of unsolicited information that may
    contain payment evidence submitted in the past that is within the
    scope of a current survey.

       STAGE 2:  CONDUCTING SURVEYS OF
       PARTICIPANTS
    -------------------------------------------------------- Appendix II:2

    When the regional offices are ready to conduct the new surveys, they
    send a WD-10 wage reporting form to each contractor (or employer)
    identified by the F.W.  Dodge reports as being in charge of one of
    the projects to be surveyed, together with a transmittal letter that
    requests information on any additional applicable projects the
    contractor may have.  Every WD-10 that goes out for a particular
    project has on it a unique project code, the location of the project,
    and a description of it.  Data requested on the WD-10 include a
    description of the project and its location, in order to assure the
    regional office that each project for which it receives data is the
    same as the one it intended to have in the survey (see examples in
    fig.  2).  The WD-10 also requests the contractor's name and address;
    the value of the project; the starting and completion dates; the wage
    rate, including fringe benefits, paid to each worker; and the number
    of workers employed in each classification during the week of peak
    activity for that classification.  The week of peak or highest
    activity for each job classification is the week when the most
    workers were employed in that particular classification.  The survey
    respondent is also asked to indicate which of four categories of
    construction the project belongs in.

    In addition, about 2 weeks before a survey is scheduled to begin,
    regional offices send WD-10s and transmittal letters to a list of
    third parties, such as national and local unions and industry
    associations, to encourage participation.  Labor encourages the
    submission of wage information from third parties, including unions
    and contractors' associations that are not the direct employers of
    the workers in question, in an effort to collect as much data as
    possible.\35 Third parties that obtain wage data for their own
    purposes may share it with Labor without identifying specific
    workers.  For example, union officials need wage information to
    correctly assess workers' contributions toward fringe benefits.
    Third-party data generally serve as a check on data submitted by
    contractors if both submit data on the same project.  Regional
    offices also organize local meetings with members of interested
    organizations to explain the purpose of the surveys and how to fill
    out the WD-10.

    Because the F.W.  Dodge reports do not identify all the
    subcontractors, both the WD-10 and the transmittal letter ask for a
    list of subcontractors on each project.  Subcontractors generally
    employ the largest portion of on-site workers, so their
    identification is considered critical to the success of the wage
    survey.  Analysts send WD-10s and transmittal letters to
    subcontractors as subcontractor lists are received.

    Transmittal letters also state that survey respondents will receive
    an acknowledgment of data submitted and that the respondent should
    contact the regional office if one is not received.  Providing an
    acknowledgment is intended to reduce the number of complaints that
    data furnished were not considered in the survey.  Labor analysts
    send contractors who do not respond to the survey a second WD-10 and
    a follow-up letter.  If they still do not respond, analysts attempt
    to contact them by telephone to encourage them to participate.

    --------------------
    \35 Labor officials said that third-party data submissions generally
    account for about one-third of all wage survey submissions.  The
    percentage of survey respondents that are third parties can be
    substantial for surveys of metropolitan areas.  Staff estimated that
    third-party participation may have been as high as 50 percent for one
    survey of metropolitan building construction.  There is little or no
    third-party participation in surveys of rural areas, staff said.

       STAGE 3:  CLARIFYING AND
       ANALYZING RESPONDENTS' DATA
    -------------------------------------------------------- Appendix II:3

          ANALYSTS REVIEW THE DATA
          SUBMITTED AS THEY RECEIVE
          THEM
    ------------------------------------------------------ Appendix II:3.1

    As the Labor wage analysts receive the completed WD-10s in the
    regional offices, they review and analyze the data.  Labor's training
    manual guides the analyst through each block of the WD-10, pointing
    out problems to look for in data received for each one.  Analysts are
    instructed to write the information they received by telephone
    directly on the WD-10 in a contrasting color of ink, indicating the
    source and the date received.  They are instructed to draw one line
    through the old information so it is still legible.

    Labor's wage analysts review the WD-10s to identify missing
    information, ambiguities, and inconsistencies that they then attempt
    to clarify by telephone.  For example, an analyst may call a
    contractor for a description of the work done on a project in order
    to confirm that a particular project has been classified according to
    the correct construction type.  An analyst may also call a contractor
    to ask about the specific type of work that was performed by an
    employee in a classification that is reported in generic terms, such
    as a mechanic.  In that situation, the analyst would specify on the
    WD-10 whether it is a plumber mechanic or some other type of mechanic
    to make sure that the wages reported are appropriately matched to the
    occupations that are paid those rates.

    Similarly, because of variations in area practice, analysts may
    routinely call to find out what type of work the employees in certain
    classifications are doing.  This is because in some areas of the
    country some contractors have established particular duties of
    traditional general crafts--for example, carpenters--as specialty
    crafts, which are usually paid at lower rates than the general craft.

          VERIFYING THIRD-PARTY DATA
    ------------------------------------------------------ Appendix II:3.2

    See letter portion of this report for a description of the
    verification process.

          DATA ARE RECORDED AND
          TABULATED
    ------------------------------------------------------ Appendix II:3.3

    When an analyst is satisfied that any remaining issue with respect to
    the data on the forms WD-10 for a particular project have been
    resolved, the data are recorded and tabulated.  The analyst enters
    them into a computer, which uses the data to generate a Project Wage
    Summary, form WD-22a, for reporting survey information on a
    project-by-project basis.  The WD-22a has a section for reporting the
    name, location, and value of each project; the number of employees
    who were in each classification; and their hourly wage and fringe
    benefits.  It also has a section for reporting the date of completion
    or percentage of the project completed, whichever is applicable.

          ANALYSTS DETERMINE WHETHER
          DATA ARE ADEQUATE
    ------------------------------------------------------ Appendix II:3.4

    At least 2 weeks before the survey cutoff date, the response rate for
    the survey is calculated to allow time to take follow-up action if
    the response rate is determined to be inadequate.  For example, WHD
    operational procedures specify that if data gathered for building or
    residential surveys provide less than a 25-percent usable response
    rate or less than one-half of the required key classes of workers,\36
    the analyst will need to obtain data from comparable federally
    financed projects in the same locality.\37

    If an analyst has no data on occupations identified by Labor as key
    classifications of workers for the type of construction being
    surveyed, Labor's procedures require him or her to call all the
    subcontractors included in the survey who do that type of work and
    from whom data are missing, to try to get data.  If the analyst still
    cannot obtain sufficient data on at least one-half of the required
    key classes, consideration must be given to expanding the scope of
    the survey geographically to get more crafts represented.  If the
    overall usable response rate for the survey is 25 percent or more,
    data on three workers from two contractors are sufficient to
    establish a wage rate for a key occupation.

    After the survey cutoff date, when all valid data have been recorded
    and tabulated, the final survey response rate is computer-generated.
    Typically, it takes a WHD analyst 4 months to conduct a survey.

    --------------------
    \36 Labor defines key classes of workers as those determined
    necessary for each of the four types of construction surveys.

    \37 Since 1985, regulation has prohibited, to the extent practicable,
    the use of wages for federal construction in determining prevailing
    wages.

          PREVAILING WAGE RATES ARE
          COMPUTER-GENERATED
    ------------------------------------------------------ Appendix II:3.5

    Once all the valid project data have been entered, the prevailing
    wage rate for each classification of worker can be generated by
    computer.  If there is a majority of workers paid at a single rate in
    a job classification, that rate prevails for the classification.  The
    wage rate needs to be the same, to the penny, to constitute a single
    rate.  If there is no majority paid at the same rate for a particular
    classification, a weighted average wage rate for that occupation is
    calculated.

    The prevailing wage rate for each occupation is compiled in a
    computer-generated comprehensive report for each survey, called the
    Wage Compilation Report, form WD-22.  The WD-22 lists each occupation
    and the wage rate recommended for that occupation by the regional
    office.  The form indicates whether the rate is based on a majority
    or a weighted average, and provides the number of workers for which
    data were used to compute each wage rate.  The regional offices
    transmit survey results to the national office, which reviews the
    results and recommends further action if needed.

       STAGE 4:  ISSUING THE WAGE
       DETERMINATIONS
    -------------------------------------------------------- Appendix II:4

    When all its recommendations have been acted upon, the national
    office issues the wage determination.  These determinations are
    final.  There is no review or comment period provided to interested
    parties before they go into effect.  Access to wage determinations is
    provided both in printed reports available from the U.S.
    Superintendent of Documents and on an electronic bulletin board.
    Modifications to general wage determinations are published in the
    Federal Register.

       LABOR'S APPEALS PROCESS
    -------------------------------------------------------- Appendix II:5

    An interested party may seek review and reconsideration of Labor's
    final wage determinations.  The national office and the regional
    offices accept protests and inquiries relating to wage determinations
    at any time after a wage determination has been issued.  The national
    office refers all the complaints it receives to the relevant regional
    offices for resolution.  Most inquiries are received informally by
    telephone, although some are written complaints.  Regional office
    staff said that a majority of those with concerns appear to have
    their problems resolved after examining the information (collected on
    a form WD-22a) for the survey at issue, because they do not pursue
    the matter further.  If an examination of the forms does not satisfy
    the complainant's concerns, the complainant is required to provide
    information to support his or her claim that a wage determination
    needs to be revised.  The national office modifies published wage
    determinations in cases in which regional offices, on the basis of
    evidence provided, recommend that it do so, such as when it has been
    shown that a wage determination was the result of an error by the
    regional office.  However, some of those who seek to have wage rates
    revised are told that a new survey will be necessary to resolve the
    particular issue that they are concerned about.  For example, if the
    wage rates of one segment of the construction industry were not
    adequately reflected in survey results because of a low rate of
    participation in the survey by that segment of the industry, a new
    survey would be necessary to resolve this issue.

          AN INTERESTED PARTY MAY
          APPEAL A DECISION OF LABOR'S
          WHD ADMINISTRATOR
    ------------------------------------------------------ Appendix II:5.1

    Those who are not satisfied with the decision of the regional office
    may write to the national office to request a ruling by Labor's WHD
    Administrator.  If the revision of a wage rate has been sought and
    denied by a ruling of Labor's WHD Administrator, an interested party
    has 30 days to appeal to the Administrative Review Board for review
    of the wage determination.  The board consists of three members
    appointed by the Secretary of Labor.  The Solicitor of Labor
    represents WHD in cases involving wage determinations before the
    Administrative Review Board.  A petition to the board for review of a
    wage determination must be in writing and accompanied by supporting
    data, views, or arguments.

    (See figure in printed edition.)Appendix III
    SAMPLE LETTERS SENT TO CONTRACTORS
    SELECTED FOR VERIFICATION
    ========================================================== Appendix II

    (See figure in printed edition.)

    METHODOLOGICAL ISSUES IN LABOR'S
    SAMPLING PROCEDURES
    ========================================================== Appendix IV

    In reviewing Labor's process of sampling wage data for verification,
    we identified problems with its sampling methodology that are
    primarily technical in nature.  Specifically, although the Congress
    directed that Labor use a random sample in selecting wage data to
    verify, and Labor describes its sample as being "random," the
    selection method used does not meet the criteria for randomness.
    Randomness would require that each WD-10 have an equal opportunity
    for being selected.  However, while Labor uses a systematic sample
    that does not target any specific wage data for verification, it
    fails to meet the criteria for randomness because not all wage
    submissions have an opportunity of being selected.  Labor uses a
    systematic sample, organizing WD-10s by project and by contractor
    prior to selection and then selecting them based on a fixed interval.
    Labor does not require that the first WD-10 selected be based on a
    number chosen purely by chance.  For example, to select a sample for
    telephone verification of data submitted by contractors, Labor
    procedures direct the wage analyst to select the 50th, then the
    100th.  However, because the data are organized prior to selection,
    the first 49 WD-10s are predetermined on the basis of the specific
    project and contractor involved.  Therefore, the WD-10s for those
    projects and contractors do not have any chance of being selected for
    verification.

    Labor officials in the national office told us that because of this,
    they do not know whether they have selected enough data for telephone
    and on-site verification to ensure the accuracy of the data used, or
    whether they have selected more data than needed and are wasting
    resources.  As a result, they do not know the extent to which data
    used to calculate wage rates have been verified, if at all.  For
    example, using the hypothetical wage data forms in figure 2, Labor
    would know the number of wage forms it had selected but would not
    know whether it was verifying wages for drywallers, electricians, or
    painters.  If Labor had selected only one of the two wage data forms
    for verification, it would disregard the fact that one form reported
    wages for 80 drywallers and the other form reported wages for 2; it
    would merely report that it had verified 50 percent of the WD-10s.
    In one of the on-site audit reports we examined, although Labor
    sampled 42 percent of WD-10s, the on-site auditor reviewed 28 percent
    of workers' wages and fringe benefits out of all wage data submitted
    for workers employed in that geographic area (390 out of 1,369).\38
    This resulted in a review of 100 percent of data used in calculating
    prevailing wage determinations for job classes such as stone masons,
    and no verification of data used in other job classes, such as
    painters.

    To select a random sample that would ensure the accuracy of the data
    used to determine prevailing wage rates, Labor would have to sample
    workers within each job classification rather than sample wage data
    forms as it does now, and it would have to select a sufficient number
    of workers within each classification.  We calculated the sample size
    required for a statistically representative sample in order to be
    within 50 cents per hour of the correct wage for one area survey (see
    table IV.1).  The table shows that Labor would need to select a
    sample size equal or close to the total number of workers, because
    data reported on the number of workers by job classification can be
    small.

                             Table IV.1

               Sampling Sizes, by Job Classification,
                Required to Ensure a Representative
                  Sample for Selected Area Survey

                        Number of workers
                ----------------------------------
                                                     Number of
                                          Required  additional
                              Selected         for     workers
                               for on-  representa    for whom
    Job          Listed on        site        tive   data need
    classifica    form WD-  verificati      random       to be
    tion                22          on    sample\a    verified
    ----------  ----------  ----------  ----------  ----------
    Accoustica           6           2           6           4
     l Ceiling
     Mechanic
    Backhoe              3           0           3           3
     Operator
    Boilermake         140          26          30           4
     r
    Brick               11           5          11           6
     Mason
    Carpenter           37           6          30          24
    Carpenter            8           0           8           8
     -Form
    Carpenter           12           5          12           7
     Helper
    Case and             3           0           3           3
     Cabinet
     Installer
    Cement               1           0           1           1
     Mason
    Crane                1           0           1           1
     Operator
    Dozer                2           0           2           2
    Drywall              5           0           5           5
     Finisher
    Drywall              1           0           1           1
     Finisher
     Helper
    Drywall              9           0           9           9
     Mechanic
    Drywall              3           0           3           3
     Mechanic
     Helper
    Electricia          33           3          30          27
     n
    Electricia          25           3          25          22
     n Helper
    Exterminat           2           0           2           2
     or
    Fence                2           0           2           2
     Erector
    Front End            2           0           2           2
     Loader
    Glazier              7           0           7           7
    Glazier              5           0           5           5
     Helper
    HVAC                16           0          16          16
     Helper
    HVAC                38           0          30          30
     Mechanic
    Ironworker          13           1          13          12
     ,
     Structura
     l
    Laborer,           127          22          30           8
     Unskilled
    Landscaper           4           0           4           4
    Lather               2           0           2           2
    Mason                8           0           8           8
     Tender
    Metal Stud           4           0           4           4
     Framer
    Millwright           2           0           2           2
    Painter             20           0          20          20
    Plasterer           13           0          13          13
    Plumber             19           0          19          19
    Plumber             15           0          15          15
     Helper
    Roofer               9           0           9           9
    Sheetmetal           9           0           9           9
     Worker
    Sheetmetal          18           0          18          18
     Worker -
     Metal
     Bldg.
    Sign                 2           0           2           2
     Installer
    Softfloor           10           0          10          10
     Layer
    Softfloor            3           0           3           3
     Layer
     Helper
    Sprinkler            4           4           4           0
     Fitter
    Sprinkler            2           1           2           1
     Fitter
     Helper
    Tile                 3           0           3           3
     Setter
    Truckdrive           5           0           5           5
     r -Tri-
     Axle
                       664          78         439         361
    ----------------------------------------------------------
    \a Calculations are based on a confidence interval of plus or minus
    50 cents per hour.

    (See figure in printed edition.)Appendix V

    --------------------
    \38 To obtain these figures, for one area survey we calculated the
    number of workers with wages reported that were verified as a
    percentage of the total number of workers with wages reported that
    were used to calculate wage determinations.

    COMMENTS FROM THE DEPARTMENT OF
    LABOR
    ========================================================== Appendix IV

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    RELATED GAO PRODUCTS

    Davis-Bacon Act:  Process Changes Could Address Vulnerability to Use
    of Inaccurate Data in Setting Prevailing Wage Rates
    (GAO/T-HEHS-96-166, June 20, 1996).

    Davis-Bacon Job Targeting (GAO/HEHS-96-151R, June 3, 1996).

    Davis-Bacon Act:  Process Changes Could Raise Confidence That Wage
    Rates Are Based on Accurate Data (GAO/HEHS-96-130, May 31, 1996).

    Addressing the Deficit:  Budgetary Implications of Selected GAO Work
    for Fiscal Year 1996 (GAO/OCG-95-2, Mar.  15, 1995).

    Davis-Bacon Act (GAO/HEHS-94-95R, Feb.  7, 1994).

    The Davis-Bacon Act Should Be Repealed (GAO/HRD-79-18, Apr.  17,
    1979).

    *** End of document. ***