Performance audit, Industrial Commission, Occupational Safety and Health Advisory Committee, Occupational Safety and Health Review Board, Arizona Employment Advisory Council, Boiler Advisory Board

              PERFORMANCE AUDIT
INDUSTRIAL COMMISSION
OCCUPATIONAL SAFETY AND
HEALTH ADVISORY COMMITTEE
OCCUPATIONAL SAFETY AND
HEALTH REVIEW BOARD
ARIZONA EMPLOYMENT
ADVISORY COUNCIL
BOILER ADVISORY BOARD
Report to the Arizona Legislature
By the Auditor General
November 1984
84- 10
DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
November 29, 1984
Members o f the Arizona Legi s l ature
The Honorable Bruce Babbitt, Governor
Mr. Harry G. Kelley, Director
I n d u s t r i a l Commission of Arizona
Transmitted herewith i s a report o f the Auditor General, A Performance
Audit o f the I n d u s t r i a l Commission o f Arizona. The report also contains
1 i m i ted reviews of the Occupational Safety and Health Advisory Commi ttee,
the Occupational Safety and Health Review Board, the Arizona Employment
Advisory Council, and the B o i l e r Advisory Board. An A p r i l 27, 1983,
resolution o f the Joint Legislative Oversight Committee authorized the
Auditor General t o conduct t h i s audit as a part o f the Sunset Review set
f o r t h i n A. R. S. § § 41- 2351 through 41 - 2379.
This report i s submitted t o the Arizona State Legislature f o r use i n
determining whether t o continue the I n d u s t r i a l Commission of Arizona and
i t s comrni ttee, council , and boards beyond t h e i r scheduled termination date
of July 1, 1986. The report makes recommendations t o 1 ) improve claims
processing efficiency, 2) ensure employers obtain workers' compensation
insurance, 3) el iminate I n d u s t r i a l Commission 1 icensing of employment
agencies, and 4) reduce a serious backlog o f b o i l e r inspections.
My staff and I w i l l be pleased t o discuss or c l a r i f y items i n the report.
Respectful 1 y submi tted,
~ 0 ~ ~ R. 1No% rto n
Auditor General
S t a f f : William Thomson
Mark Fleming
Martha L. Bradley
Deborah A. Baldwin
Urs C. Bauder
Nancy Love11
Stuart Go1 dstei n
11 1 WEST MONROE SUITE 600 PHOENIX, ARIZONA 85003 ( 602) 255- 4385
SUMMARY
INDUSTRIAL COMMISSION OF ARIZONA
The Office of the Auditor General has conducted a performance audit of
the Industrial Commission of Arizona ( ICA) in response t o an
April 27, 1983, resolution of the Joint Legislative Oversight Committee.
This performance audit was conducted as part of the Sunset Review set
forth in Arizona Revised Statutes ( A. R. S. ) 5541 - 2351 through 41 - 2379.
The Industrial Commission of Arizona was created i n 1925 to administer
the Workers' Compensation Fund. Since then the enabling statutes have
been revised, substantial ly modifying ICA's purpose. Today, the
five- member Commission i s responsible for various duties, most
administered by the ICA director. These duties include: 1 ) ensuring that
workers' compensation carriers are processing claims as required, 2
investigating complaints and enforcing laws to ensure that jobs and job
sites are safe for employees, 3) regulating elevators and boilers to
ensure their safety, 4) arbitrating wage disputes between employers and
employees, 5) regulating appl icant- pai d- fee employment agencies, and 6)
administering a special revenue fund.
The Workers' Com~ ensation Process
Is Efficient B u t A Few Improvements
Are Needed ( pages 13- 22)
ICA processes workers' compensation claims efficiently despite i t s
substantial work load. Effective management techniques, such as periodic
status reports and temporary staff reassignments, allow ICA to maintain a
stable work flow and to process claims in a timely manner. However, a
few improvements could further i ncrease cl aims processing efficiency. A
statutorily required protest period of 90 days i s excessive and may harm
some cl aimants, particul arly i f the cl aimant's empl oyer had not obtained
workers ' compensation insurance. Likewise, the 90- day protest period
unnecessarily delays some claimants' permanent benefits. Finally, the
current process of handling most disputed claims formally produces a
backlog of cases and nay not be the most efficient way to resolve all
cases.
The Legislature should consider amending A. R. S. 523- 947 to reduce the
90- day protest period to 45 days. ICA shoul d expand i t s use of informal
resolution of disputed claims in the initial phase of the protest process.
ICA Has Not Ensured That Employers
Dbtai n Workers ' Comuensation
Insurance ( pages 23- 32)
ICA policies and statutes do not ensure that all employers obtain
workers' compensation insurance as required by law. Over the past 5
years ICA has paid more than $ 2.6 million in compensation payments to
injured workers because employers had failed to obtain the required
insurance. Though ICA paid these claims from the Special Fund designed
for this and other purposes, i t i s the properly insured employer who pays
for this fund through taxes on workers' compensation i nsurance premi urns.
ICA has taken a passive approach to identifying uninsured employers.
However, even when uninsured empl oyers are identified the Comni ssion
lacks sufficient authority and penalties to ensure compliance. Other
agencies in Arizona and other states have successfully developed programs
that ICA could adapt and use to identify uninsured employers before their
employees are injured, as well as programs to increase pub1 ic awareness
of workers ' compensation requirements. Other states a1 so have harsher
penal ties.
The Legislature should consider authorizing ICA t o impose more stringent
and effective penal ties against uninsured employers. Thi s shoul d
i ncl ude: 1 ) i ncreasi ng the existing penal ty against uninsured empl oyers,
applied after ICA receives an uninsured claim, t o a t least cover ICA's
costs, and 2) authorizing ICA t o impose penalties on employers without
the required workers' compensation insurance, whether or not their
empl oyees have filed workers' compensation claims. These penal ties
should be paid to the ICA Special Fund. ICA should develop programs to , •
increase compl iance with workers' compensation insurance requirements,
similar to those used by other agencies.
Licensing Empl oyment Agencies
I s Not Necessar ,. v To P r o t e- c - t
Lonsumers ( ~ a a e s 35- 44 1
Licensing appl icant- pai d- fee empl oyment agencies does n o t e f f e c t i v e l y
p r o t e c t consumers. The c u r r e n t l i c e n s u r e process does not ensure t h a t
employment agencies are competent t o perform t h e i r services. A1 though
consumers r i s k some f i n a n c i a l harm when contracting f o r placement
services, they can p r o t e c t themselves without ICA involvement i f they are
given s u f f i c i e n t information about contract terms and fees. This can be
accompl i shed by s trengtheni ng empl oyment agency 1 aws t o r e q u i r e t h a t
consumers be given adequate information. These strengthened statutes can
e x i s t as a self- contained body o f 1 aw independent o f a s p e c i f i c
regulatory e n t i t y , maki ng ICA supervision o f t h i s i n d u s t r y unnecessary.
The Legislature should consider: 1 ) e l i m i nating empl oyment agency
1 icensure and d e l e t i n g a1 1 other requirements regarding ICA supervision
of p r i v a t e empl oyment agencies, 2 ) strengthening employment agency 1 aws
t o require t h a t consumers be provided s u f f i c i e n t information, and 3 )
e s t a b l i s h i n g e f f e c t i v e penalties f o r v i o l a t i o n s o f these laws. While
considering these changes t h e L e g i s l a t u r e shoul d a1 so consider amending
the d e f i n i t i o n o f employment agencies t o include career counselors.
Arizona D i v i s i o n o f
The Arizona D i v i s i o n o f Occupational Safety and Health ( ADOSH) B o i l e r
Section does not have an adequate inspection program. Most o f the
S e c t i o n ' s r e q u i r e d safety i n s p e c t i o n s a r e overdue, some by more than 1
year. This i s i n p a r t because the Section's poor records preclude it from
schedul i ng the i nspections e f f i c i e n t l y . The B o i l e r Section cannot
determine from i t s records how many b o i l e r s it shoul d be inspecting
regularly. I n addition, i nspection schedules are not grouped by b o i l er
l o c a t i o n thus causing excessive t r a v e l , and follow- up i n s p e c t i o n s a r e not
1 i m i t e d t o boi 1 ers with serious v i o l ations.
The B o i l e r Section should improve i t s inspection program by: 1) updating
the record- keeping system t o provide accurate information on inspection
needs, 2) grouping c e r t i f i c a t e e x p i r a t i o n dates according t o 1 ocation,
and 3) 1 imi ti ng on- si t e f o l l ow- up inspections t o b o i l e r s w i t h serious
v i o l a t i o n s .
OCCUPATIONAL SAFETY AND HEALTH ADVISORY COMMITTEE
OCCUPATIONAL SAFETY AND HEALTH REVIEW BOARD
ARIZONA EMPLOYMENT ADVISORY COUNCIL
BOILER ADVISORY BOARD
The O f f i c e o f the Auditor General has also conducted l i m i t e d reviews o f
these four agencies i n response t o an A p r i l 27, 1983, r e s o l u t i o n of the
J o i n t L e g i s l a t i v e Oversight Committee. These reviews were conducted as
p a r t of the Sunset Review set f o r t h i n A. R. S. SS41- 2351 through 41- 2379.
An i n t r o d u c t i o n , Sunset Factor evaluation and agency response are
included f o r each of these agencies.
TABLE OF CONTENTS
INDUSTRIAL COMMISSION OF ARIZONA
Page
INTRODUCTION AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . 1
SUNSETFACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FINDING I: THE WORKERS' COMPENSATION PROCESS IS EFFICIENT BUT A FEW IMPROVEMENTS ARE NEEDED . . . . . . . . . . . 13
Claims Processing I s E f f i c i e n t. . . . . . . . . . . . . . . . . . 15
Statutory Requirements Delay Some Cases . . . . . . . . . . . . . 16
Informal Resolutions May Decrease Costs . . . . . . . . . . . . . 19
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . 22
FINDING 11: ICA HAS NOT ENSURED THAT EMPLOYERS OBTAIN WORKERS' COMPENSATION INSURANCE . . . . . . . . . . . . . . 23
Uninsured Employers Have Caused Substantial Payments . . . . . . . 23
ICA Takes Limited Action To Enforce Compliance . . . . . . . . . . 26
ICA Could Develop Programs To Increase Compliance . . . . . . . . 29
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . 32
FINDIINSG N O1T1 1N: ECLEISCSEANRYS INTOG EPMROPLTOEYCMT ECNOTN ASUGMEENRCSIE S. . . . . . . . . . . . . . 33
ICA Licenses Only A Segment O f The Employment Agency Industry . . . . . . . . . . . . . . . . . . . . . . . . . 33
Employment Agency Licensure I s Not E f f e c t i v e. . . . . . . . . . . 33
Adequate Consumer Information I s Needed To He1 p Preclude Abuses . . . . . . . . . . . . . . . . . . . . . . . . . 36
Empl oyment Agency Laws Shoul d C l early Include Career Counsel ing Firms . . . . . . . . . . . . . . . . . . . . . 41
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . 43
TABLE OF CONTENTS ( C O ~ ' Cd~ l
- Page
FINDING IV: ARIZONA DIVISION OF OCCUPATIONAL SAFETY AND HEALTH BOILER INSPECTION PROGRAM I S INADEQUATE . . . . . . . . 4 5
I n s p e c t i o n s A r e Back1o gged . . . . . . . . . . . . . . . . . . . . 45
S c h e d u l i n g I s I n s u f f i c i e n t . . . . . . . . . . . . . . . . . . . . 49
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . 51
OTHER PERTINENT INFORMATION . . . . . . . . . . . . . . . . . . . . . 53
AREAS FOR FURTHER AUDIT WORK. . . . . . . . . . . . . . . . . . . . . 61
AGENCY RESPONSE
OCCUPATIONAL SAFETY AND HEALTH ADVISORY COFMITTEE
INTRODUCTION AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . 67
SUNSET FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
AGENCY RESPONSE
OCCUPATIONAL SAFETY AND HEALTH REVIEW BOARD
INTRODUCTION AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . 75
SUNSETFACTORS..... . . . . . . . . . . . . . . . . . . . . . . . 79
AGENCY RESPONSE
ARIZONA EMPLOYMENT ADVISORY COUNCIL
INTRODUCTION AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . 8 9
SUNSET FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
AGENCY RESPONSE
BOILER ADVISORY BOARD
INTRODUCTION AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . 99
SUNSET FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
AGENCY RESPONSE
LIST OF TABLES AND FIGURES
INDUSTRIAL COMMISSION OF ARIZONA
Page
TABLE 1 - 1IC9A8 1R- 8e2v eTnhureosu gAhn d 1E98x3p- e8n4d. itu. re. s:. . F. isc. a. l Y. e. ars. . . . . . . . . 4
TABLE 2 - D i s t r i b u t i o n O f F i l i n g Requests For Hearing. . . . . . . . . 17
TABLE 3 - C e r t i f i c a t e Inspection Sample Results. . . . . . . . . . . . 4 7
TABLE 4 - Fol low- Up Pending F i l e As O f June 14, 1984 . . . . . . . . . 48
TABLE 5 . N ational Incident Report 1982 And 1983 . . . . . . . . . . . 4 9
TABLE 6 - Inspection Card F i l e Sample. . . . . . . . . . . . . . . . . 50
TABLE 7 - Summary O f Federal And State Expenditures For ADOSH For Fiscal Years 1981- 82 Through 1983- 84 . . . . . . . 5 6
FIGURE 1 - Flow O f Workers' Compensation Benefits. . . . . . . . . . . 14
FIGURE 2 - Special Fund Disbursements And Recoveries, 1979 Through 1983 . . . . . . . . . . . . . . . . . . . . . 2 4
FIGURE 3 - No- Insurance Disbursements As Proportion Of Total
Special Fund D i sbursements. . . . . . . . . . . . . . . . . 25
FIGURE 4 - Construction I n j u r y And I l l n e s s Rates For
1979- 1 982 . . . . . . . . . . . . . . . . . . . . . . . . . 58
FIGURE 5 - Manufacturing I n j u r y And I l l n e s s Rates For
1979- 1 982 . . . . . . . . . . . . . . . . . . . . . . . . . 59
OSHA REVIEW BOARD
TABLE 1 - OSHA Review Board Expenditures And A c t i v i t y For Fiscal Years 1980- 81 Through 1984- 85 . . . . . . . . . . 7 6
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance audit of the
Industrial Commission of Arizona ( ICA) i n response to an April 27, 1983,
resolution of the Joint Legislative Oversight Committee. This performance
audit was conducted as part of the Sunset Review set forth i n A. R. S.
§ § 41- 2351 through 41 - 2379.
The Arizona Legislature created ICA i n 1925. Initially, the Commission's
responsibilities included the administration of the Worker's Compensation
Fund. Major revisions i n the statutes, especially the creation of the
State Compensation Fund as a separate agency, modified the Commission' s
functions.
Organization and Personnel
The Governor appoints the five members of the Commission, who are solely
responsible for promulgating rules and regulations, reviewing requests for
1 ump sum commutations,* 1 icensing sel f- i nsurers for worker' s compensation,
and hiring the ICA director. The statutes allow the Commission to
delegate the following powers to the ICA director:
e Investigate complaints to determine whether employment or places
of employment are injurious or otherwise unsafe to the welfare of
empl oyees.
@ Administer and enforce all laws for the protection of the l i f e ,
health, safety and we1 fare of employees.
3r A. R. S. § 23- 108.03 grants the Commission the authority to pay workers'
compensation awards as a lump sum rather than in monthly installments.
0 Act as the regulatory agency ensuring t h a t workers' compensation
c a r r i e r s are processing claims i n accordance with the law.
0 Administer the Special Fund.
0 Promote the voluntary a r b i t r a t i o n , mediation and c o n c i l i a t i o n o f
disputes between empl oyers and empl oyees.
Regul ate appl icant- paid- fee employment agencies.
I C A employs approximately 21 5 f u l l time equivalent employees ( FTEs) . Six
operating divisions c a r r y o u t ICA's statutory functions, as described
be1 ow:
Claims Division ( 70 FTEs) supervises and evaluates a l l workers'
compensation claims for compliance with the law and determines
ICA Special Fund compensation payments.
0 Administrative Law Judge Division ( 42 FTEs) adjudicates disputed
workers' compensation claims and occupational safety and health
cases.
0 Labor Department ( 7 FTEs) administers and enforces the laws
r e l a t i n g t o the payment of wages, employment practices, the
employment of chi1 dren and the 1 icensing o f private employment
agencies.
0 Arizona Division of Occupational Safety and Health ( ADOSH) ( 52
FTEs) enforces the Arizona Occupational Safety and Health Act to
ensure safety a t the work place, and administers the elevator
safety inspection program and the b o i l er safety inspection
program.
Special Fund Department ( 5 FTEs) determines benefits available
from the Special Fund* f o r supportive care, rehabil i t a t i o n and
second i n j u r i e s not covered under regular workers' compensation
insurance.
@ The Administrative Division ( 39 FTEs) provides support t o the
e n t i r e ICA, including 1 egal counsel , accounting and computer
services.
Budget
ICA does not receive any funding from the General Fund. A l l operations
except the Federally financed portions o f the Arizona occupational safety
and health program are funded through i t s administrative fund from a 3
percent t a x p a i d by empl oyers on t h e i r workers ' compensation insurance
premiums. I n addition t o the 3 percent assessed f o r operations, employers
pay a 1.5 percent premium tax t o support the ICA Special Fund. Currently
the Special Fund's balance i s approximately $ 63.6 m i l l i o n , although most
of these funds must be reserved f o r future commitments. The I n d u s t r i a l
Commi ssi on' s operational revenues and expenditures f o r f i scal years
1981 - 82 through 1983- 84 are shown i n Tab1 e 1.
* ICA administers the Special Fund, a special revenue fund established
t o provide some supportive medical and i n j u r y benefits and
rehabi 1 i t a t i o n programs t o extend the benefits avai 1 able under regular
workers ' compensation insurance coverage. I n addition, the Speci a1
Fund pays regular benefits t o employees who are not insured by t h e i r
employer. These employers become l i a b l e t o the Fund f o r the amounts
paid plus a penalty charge.
TABLE 1
FTE s
ICA REVENUES AND EXPENDITURES(~)
FISCAL YEARS 1981 - 82 THROUGH 1983- 84
Revenues
Premium assessments
Federal sources
Total
Expenditures
Administrative Division
Claims Division
Admi n i s t r a t i ve Law
Judge D i v i s i o n
Occupational Safety and
Health Division
Labor Department
Special Fund
F i r e Marshal
Federal ~ u n d s ( ~ )
Total ~ x ~ e nt d~ ir e s ( ~ )
Actual
1 981 - 82
2 54
Actual
1982- 83
Estimated
1983- 84
( 1 ) ICA revenues and expenditures do not include the Special Fund revenues
and expenditures.
( 2) Includes an amount f o r the F i r e Marshal's Office, which became part of
the Division of Emergency Services on January 1, 1982.
( 3) For fiscal years 1982- 83 and 1983- 84, a l l Federal funds supported the
Occupational Safety and Heal t h Admini s t r a t i on program assigned t o the
Occupational Safety and Health Division. A small portion of 1981- 82
Federal funds also contributed t o other programs, such as the F i r e
Marshal.
( 4) The difference between revenues and expenditures i s placed i n the
Special Fund, with the exception of excess federal funds which revert
t o the federal government.
Scope o f Audit
Our a u d i t focuses on ICA's a b i l i t y t o perform i t s statutory duties. The
a u d i t r e p o r t presents findings and recommendations i n four major areas:
0 The efficiency o f ICA's workers' compensation c l aims processing
system;
0 The extent t o which ICA ensures compliance with workers'
compensation insurance requirements;
0 The need to regulate appl icant- paid- fee employment agencies; and
0 The adequacy of the b o i l e r safety inspection program.
I n addition, we developed information on the Arizona occupational safety
and health program. The section Other Pertinent Information presents t h i s
information.
Due t o time constraints, we were unable t o address a l l p o t e n t i a l issues
i d e n t i f i e d during our preliminary audit work. The section Areas For
Further Audit Work describes these p o t e n t i a l issues.
We also reviewed four boards, l i s t e d below, which were i d e n t i f i e d
separately i n the Sunset Law and have functions r e l a t e d t o ICA's. The
scope and r e s u l t s o f these l i m i t e d reviews are presented on pages 67
through 104.
Occupational Safety and Health Advisory Committee
a Occupational Safety and Heal t h Review Board
0 Arizona Employment Advisory Council
0 B o i l e r Advisory Board
The Auditor General and staff express appreciation t o the executive
d i r e c t o r and ICA employees f o r t h e i r cooperation and assistance during the
audit.
SUNSET FACTORS
I n accordance with A. R. S. $ 41 - 2354, the Legislature should consider the
f o l l owing 12 factors i n determining whether the I n d u s t r i a l Commission o f
Arizona ( ICA) should be continued or terminated.
1. The objective and purpose i n establishing the Commission
The enabling statutes do not contain specific statements o f objectives
and purpose f o r the I n d u s t r i a l Commission. However, the objectives
and purpose of the ICA can be inferred from i t s powers under A. R. S.
$ 23- 107, which include:
e Formulate and adopt rules and regulations a f f e c t i n g the purpose
o f t h i s a r t i c l e .
Administer and enforce a11 laws f o r t h e p r o t e c t i o n o f the l i f e ,
health, safety and we1 fare of employees.
Promote the voluntary a r b i t r a t i o n , mediation and concil i a t i o n o f
disputes between empl oyers and empl oyees.
License and supervise private empl oyment agencies, and c o l l ect
and publish employment information.
Ensure t h a t workers' compensation c a r r i e r s are processing claims
i n accordance with the law.
e Investigate compl a i nts t o determine if employment conditions are
unsafe or i n j u r i o u s t o employees.
2. The effectiveness with which the Commission has met i t s objective and
purpose and the efficiency with which the Commission has operated
To examine overall Commission effectiveness and efficiency, it i s
necessary t o analyze each Commission function. Fol 1 owing i s a summary
of the items we analyzed:
Workers' Compensation - ICA has generally met i t s objectives and
purposes e f f i c i e n t l y and e f f e c t i v e l y , a1 though some improvements are
possible. Effective management has resulted i n e f f i c i e n t claims
processing ( Finding I, page 15). I n addition, ICA conducts seminars
t o keep the workers' compensation insurance industry informed on
requirements of the law. However, e f f i c i e n c y could be increased i f the
Legislature reduced the protest period f o r challenges against
compensation awards ( Finding I, page 16) and i f ICA adopted an
informal claim resolution process ( Finding I, page 19). ICA's
effectiveness could be strengthened i f ICA took steps t o increase
compl iance with workers' compensation 1 aws ( Finding 11, page 23).
Occupational Safety and Health - We were unable t o determine whether
the Federal government can administer occupational safety and health
programs more e f f e c t i v e l y than the Arizona D i v i s i o n o f Occupational
Safety and Health ( ADOSH). A1 though ADOSH's program i s expected t o
receive f i n a l Federal approval i n f a l l 1984, therefore being deemed as
e f f e c t i v e as t h e a l t e r n a t i v e Federal program, no v a l i d measures of
effectiveness are a v a i l a b l e ( Other Pertinent Information, page 53).
The B o i l e r Section, on the other hand, has not e f f e c t i v e l y performed
inspections i n accordance with ICA rules and regulations. B o i l e r
inspections are backlogged with many inspections overdue by more than
1 year ( Finding I V , page 45).
Labor - The Labor Department recently i n i t i a t e d 1 egi s l ative changes
increasing i t s enforcement powers, which may substantially improve i t s
effectiveness i n resolving wage claims. However, the Department's
regulation of p r i v a t e employment agencies does not provide effective
protection. Strengthening laws t o provide adequate consumer
information would eliminate the need for ICA involvement i n t h i s area
( Finding 111, page 33). Additionally, the statutory requirement t h a t
ICA provide employment information i s unnecessary, since other p r i v a t e
and State e n t i t i e s provide t h i s service.
3. The extent t o which the Commission has operated w i t h i n the pub1 i c
i n t e r e s t
ICA has operated i n the public i n t e r e s t by administering i t s
s t a t u t o r i l y required functions. These include workers' compensation
claims processing, ADOSH compliance investigations, and b o i l e r and
elevator regulation. However, as noted i n Sunset Factor 2,
improvements are possi bl e and empl oyment agency regul a t i o n i s
unnecessary.
4. The extent t o which rules and regulations promulgated by the
Commission are consistent with the 1 egi s l ative mandate
The ICA legal counsel and the Attorney General review new rules and
regulations t o determine whether they are consistent with ICA' s
1 egis1 ative mandate.
5. The extent t o which the Commission has encouraged input from the
public before promulgating i t s rules and regulations and t h e extent t o
which it has informed the public as t o i t s actions and t h e i r expected
impact on the pub1 i c
ICA n o t i f i e s the public o f Commission meetings and hearings i n
accordance with Arizona's open meeting law. Hearings held by the
Administrative Law Judge ( ALJ) Division are exempt from the law.
6. The extent t o which the Commission has been able t o investigate and
resolve complaints t h a t are w i t h i n i t s j u r i s d i c t i o n
ICA's divisions are authorized t o investigate and resol ve several
types of complaints or disputes. The Claims Division responds t o
workers' compensation claim compl aints and i n q u i r i e s informally by
providing information about statutes, administrative procedures and
claim status. The ALJ Division renders decisions on disputed claims.
Compl aints about potential occupational safety and heal t h v i o l a t i o n s
are investigated and resolved by ADOSH. The B o i l e r and Elevator
Sections w i t h i n ADOSH work t o ensure b o i l e r and elevator safety,
respectively. Final ly, the Labor Department a r b i t r a t e s disputed wage
claims and investigates and resolves complaints about employment
agencies.
7. The extent t o which the Attorney General or any other applicable
agency o f State government has the authority t o prosecute actions
under enabl i ng 1 egi s l ation
ICA employs i t s own legal counsel who generally represents the ICA i n
noncriminal matters. The Attorney General or county attorneys are
responsible f o r the prosecution o f criminal actions.
8. The extent t o which the Commission has addressed deficiencies i n the
enabling statutes which prevent it from f u l f i l 1 ing i t s statutory
mandate
ICA has i n i t i a t e d or supported several changes t o eliminate
deficiencies i n the enabl ing statutes. For example, the Commission
i n i t i a t e d statutory changes pertaining t o wage claims enforcement
( House B i l l 251 9, passed second regular session 1984) and increases i n
surety bond requirements f o r empl oyment agencies ( House Bi 11 2396,
passed May 1979).
9. The extent t o which changes are necessary i n the laws o f the
Commission t o adequately comply with t h e f a c t o r s 1 i s t e d i n the Sunset
Law
The Legislature should consider the following changes t o ICA's
statutes.
Workers' compensation laws ( Findings I and I1 ):
e Amend A. R. S. 523- 947 t o reduce the 90- day protest period t o 45
days.
@ Amend A. R. S. $ 23- 907. C t o increase the penalty on claims f o r
which the employer has f a i l e d t o obtain insurance, t o a t l e a s t
cover the 33.3 percent c o l l e c t i o n charges ICA must pay.
e Authorize ICA t o impose a mandatory penalty on employers without
required workers' compensation insurance. This penal ty shoul d be
paid t o the ICA Special Fund.
Employment agency 1 aws ( Finding I11 ) :
Del ete a1 1 requirements regarding I n d u s t r i a1 Commission
supervising and licensing of p r i v a t e employment agencies
( A. R. S. § § 23- 522 through 23- 526, § § 23- 528 through 23- 532, and
§ 23- 536).
Protect consumers of appl icant- pai d- fee empl oyment agencies by
strengthening empl oyment agency 1 aws. The revised 1 aws shoul d:
- Retain current statutes r e l a t i n g t o fee s p l i t t i n g and surety
bonds ( A. R. S. § § 23- 535 and 23- 527).
- Incorporate i n t o statute e x i s t i n g rules r e l a t i n g t o
contracts and forms, copies of contracts and receipts,
r i g h t s o f r e f e r r a l and pl acement, agency records, protection
against pl acement i n nonexistent job openings, t a l e n t and
modeling agencies, and advertising.
- Require empl oyment agency contracts t o provide consumers
w i t h d e t a i l e d information about the terms o f placement
transactions.
- Require contracts t o s p e l l o u t the circumstances e n t i t l i n g a
consumer t o a refund and define the conditions obligating
them t o pay t h e i r fee.
- Establish a specific time requirement f o r consumer refunds.
- Prohibit the charging o f advance or r e g i s t r a t i o n fees as a
condition of placement, and require t h i s p r o h i b i t i o n t o be
included i n contracts.
- Authorize c i t y and county attorneys and the Attorney General
t o enforce t h i s law.
- Provide for the recovery of attorney fees and incidental
expenses of t r i a l s f o r contractual disputes.
- Expand the current d e f i n i t i o n o f employment agency t o
include career counseling firms.
e The Legislature should consider establ ishing penal t i e s for
v i o l a t i o n s of the p r i v a t e employment agency law t o provide the
proper incentives f o r agencies t o comply with the provisions of
the act.
10. The extent t o which the termination of the Commission would
s i g n i f i c a n t l y harm the publ i c heal t h y safety or welfare
Termination o f the Commission may deprive workers o f protection
because ICA oversees workers' compensation insurance c a r r i e r s '
handling o f compensation claims and adjudicates compensation
disputes. ICA has specialized knowledge t o perform these functions.
I n addition, the Commission' s Special Fund provides workers'
compensati on coverage t o uninsured employees.
We s p e c i f i c a l l y questioned the need f o r two ICA functions. As noted
i n Sunset Factor 2, we could not determine whether replacing ICA's
OSHA program with a Federally operated program would b e n e f i t or harm
the publ i c . However, termination o f empl oyment agency regul ation
would not harm consumers o f p r i v a t e employment agencies.
11. The extent t o which the l e v e l o f regulation exercised by the
Commission i s appropriate and whether less or more stringent l e v e l s o f
regulation would be appropriate
Major changes t o the scope o f regulation under the ICA's j u r i s d i c t i o n
do not appear necessary, except t h a t ICA's r o l e i n regulating
employment agencies should be discontinued ( Finding I I I, page 33).
12. The extent t o which the Commission has used p r i v a t e contractors i n the
performance of i t s duties and how e f f e c t i v e use o f p r i v a t e contractors
coul d be accorn~ ils hed
ICA has used outside contractors including c o l l e c t i o n services and
court reporters. I n addition, the Commission intends t o use p r i v a t e
j a n i t o r i a l services t o maintain the ICA building, presently under
construction.
FINDING I
THE WORKERS COMPENSATION PROCESS I S EFFICIENT BUT A FEW IMPROVEMENTS ARE
NEEDED
A1 though the I n d u s t r i a l Comni ssi on o f Arizona ( ICA) processes workers '
compensation c l aims e f f i c i e n t l y , changes coul d f u r t h e r increase c l aims
processing efficiency. Statutory requirements unnecessarily delay
processing f o r some claims. I n addition, ICA should a c t i v e l y seek t o
resolve disputed claims through i nformal methods.
I n 1925 Arizona enacted workers ' compensation l e g i s l a t i o n t o provide
satisfactory means o f hand1 ing occupational i n j u r i e s . The 1 aw re1 ieves
employers o f l i a b i l i t y i n legal s u i t s involving negligence and a l l e v i a t e s
an i n j u r e d worker's loss o f income. According t o one authority, workers'
compensation laws have three objectives:
e To provide sure, prompt, and reasonable income and medical
benefits regard1 ess o f f a u l t , t o work- accident victims, or
income benefits t o t h e i r dependents;
a To provide a sing1 e remedy and reduce court delays, costs, and
work 1 oads o f personal- i njury 1 i t i g a t i o n ; and
To r e l i e v e public and p r i v a t e c h a r i t i e s o f f i n a n c i a l drains
incident t o uncompensated i ndustri a1 accidents.
Arizona Revised Statutes require employers t o have some form of workers'
compensation insurance or proof o f a b i l i t y t o pay d i r e c t compensation. A
worker i n j u r e d on the job i s e l i g i b l e for workers' compensation
benefits. An i n j u r e d worker may receive temporary o r permanent benefits
or both ( see Figure 1 ) .
FIGURE 1
FLOW OF WORKERS' COMPENSATION BENEFITS
I INJURY I
I Temporary Benefits I
I Paid i f more than 7 workdays are l o s t
due t o i n j u r y .
Permanent Benefits I
Paid i f the i n j u r y r e s u l t s i n a permanent d i s a b i l i t y ,
otherwise compensation ceases. ICA determines
permanent benefits f o r unscheduled i n j u r i e s ( i n j u r i e s
not l i s t e d i n statutes) based on a loss o f earning
capacity. Benefit payments may be
Lump Sum
Upon the Comnission' s approval
o f a claimant's request, benefits
may be paid i n a lump sum ( maximum
$ 25,000).
Source: Prepared by Auditor General staff from C l aims Division documents
ICA i s responsi bl e f o r supervi sing and evaluating claims processed by
insurance c a r r i e r s and s e l f - i nsured employers. I n 1983, 148,293 new
claims were reported t o and monitored by ICA.
Claims Processing I s E f f i c i e n t
Despite t h e i r substantial work loads, the Claims and Administrative Law
Judge ( ALJ) Divisions perform t h e i r functions e f f i c i e n t l y . E f f e c t i v e
management techniques allow the Divisions t o maintain a stable work flow
and t o process claims i n a timely manner.
Processing workers' compensation claims i s ICA's dominant a c t i v i t y , and
the two Divisions p r i n c i p a l ly responsible f o r these cases have
considerable work loads. The Claims and ALJ Divisions comprise 59
percent o f ICA's t o t a l personnel and 55 percent o f i t s t o t a l budget. I n
addition t o monitoring c l aims processed by insurance carriers,
sel f- insured employers, and the State Compensation Fund, the Division
also designates guardians f o r i n j u r e d minors, determines compensation f o r
i n j u r e d workers with f a c i a l disfigurement, and determines benefits f o r
workers whose employers do not have insurance. The major function o f the
ALJ Division i s t o adjudicate disputed compensation claims, and i n 1983
it received 4,183 new cases f o r hearing.
Because processing workers' compensation claims i s a c r i t i c a l function of
I C A y the Auditor General s t a f f performed an extensive review o f the
Claims Division process,* including a p r o d u c t i v i t y study and a work flow
analysis. The r e s u l t s i n d i c a t e t h a t claims are handled i n a timely
manner, claims s t a f f p r o d u c t i v i t y i s high and work flow i s e f f i c i e n t .
Management uses weekly and monthly status reports t o i d e n t i fy possi bl e
delays. To avoid or a1 1 eviate back1 ogs, s t a f f i s temporarily reassigned
or on occassion, temporary help i s hired.
* I n 1980 the J o i n t Legislative Budget Committee ( JLBC) staff performed a
management study for the C l aims Division. Several recommendations were
made, p r i n c i p a l l y for improvements i n data processing. The Claims
D i v i s i o n has imp1 emented many of the recommendations and reports
increased efficiency. However, according t o ICA, some of the
recommendations have y e t t o be implemented due t o budget constraints
and the anticipated move to the new I C A f a c i l i t y . Those areas i n which
improvements have not y e t been implemented were not studied by t h i s
audit team, as they had been addressed i n the 1980 JLBC report.
Statutory Requirements
Delay Some Cases
A1 though claims processing i s generally e f f i c i e n t , statutory requirements
unnecessarily delay processing o f some cases. The 90 day protest period
i s not needed and i n some cases may harm the claimant. The lengthy
protest period i s p a r t i c u l a r l y harmful for i n j u r e d workers o f uninsured
empl oyers. Likewise, Loss o f Earning Capacity ( LEC) awards are del ayed
due t o the 90- day requirement.
A protest period i s mandated by statute ( A. R. S. $ 23- 947. A) so any
involved p a r t i e s may protest decisions or determinations made on workers'
compensation claims. The protest period applies t o almost every action
taken on a claim, and no action becomes f i n a l u n t i l the protest period i s
compl eted. I n some i nstances, the excessi ve time del ays payment. This
i s especially t r u e w i t h no- insurance cases and LEC awards.
Ninety Days I s Not Needed - The 90- day protest period i s excessive and
should be reduced t o 45 days. Although the protest period i s intended to
provide parties with opportuni ty t o seek reconsideration, no formal or
legal preparation i s needed to f i 1 e a request for hearing. The
protesting party need only n o t i f y ICA by l e t t e r or by the request form
t h a t it disagrees with a decision i n the case. Most protests are f i l e d
w i t h i n 45 days and the average number of days for f i l i n g i s even lower
( see Table 2).
TABLE 2
DISTRIBUTION OF FILING REQUESTS FOR HEARING
Days to File
Percentage of Peopl e Requesti ng Heari ng
By Type of Coverage ( 1 )
Carrier Coverage No- Insurance
Less than 30 days 5 4% 54%
Less than 45 days 6 8 63
Less than 60 days 77 69
Less than 75 days 84 77
More than 90 days ( 2 3 11
Average days 36.6 44.5
Total cases 201 95
( 1 ) Carrier coverage cases are handled by private carriers, the State
Compensation Fund, or self- insured employers. No- insurance cases are
handled by ICA.
( 2) According to statute, a request for hearing must be filed w i t h i n 90
days; however, a request submitted a f t e r 90 days may s t i l l be heard.
If a request i s filed a f t e r the deadline, the administrative law
judge determines i f the case can be heard based on exemptions
out1 ined i n A. R. S. S23- 947.
Source: Compiled by Auditor General staff from ICA records - carrier
coverage f i l e s from March 28, 1984 through May 4, 1984 and
no- insurance open case f i l e s from January 1, 1983 through May 23, 1984
Payment Is Delayed to Uninsured Workers - The lengthy protest period
prohibits timely benefits payment to uninsured workers. The employers'
right to protest prevents ICA from beginning payment on no- insurance
claims before the protest period i s completed.
A no- insurance claim i s one i n which the employer does not have workers'
compensation insurance, i n violation of the law. In these cases, the
No- Insurance Section w i t h i n the Claims Division acts as the insurance
carrier and makes the necessary determi nations. A1 though employers are
liable for workers' medical and compensation costs incurred due to an
injury, they frequently do not pay. ICA pays those costs and takes legal
action to seek reimbursement from the employer.*
Once the No- Insurance Section i s notified of a case and makes the initial
determination of compensabil i ty, the 90- day protest period must pass
before the injured worker can receive any money for medical b i l l s or
compensation. Frequently, the employer i s uncooperative or cannot be
located and the No- Insurance Section has difficulty obtaining needed
information. The 90- day protest period and the difficulties in obtaining
information result i n an average wait of 154 days,** or five months,
before uninsured workers begin receiving medical or compensation
payments. In contrast, workers w i t h compensabl e claims whose employers
have coverage must, by statute, receive compensation w i t h i n 21 days.
The discrepancy between f i r s t payment i n carrier covered and uninsured
cases i s a result of the employers' right to protest i n no- insurance
cases. According to legal counsel, employers have the right to due
process. ICA cannot begin payment because employers are liable for any
funds dispersed. An employer has the right to protest a determination of
compensability, and the 90- day protest period must expire before the due
process requirement i s satisfied. The result, however, i s that the
injured worker i s penal ized because the employer was without coverage.
Loss of Earning Capacity Awards Also Delayed - The 90- day protest period
a1 so confl icts w i t h statutory requirements for LEC awards. Arizona
statutes require ICA to issue LEC awards w i t h i n 90 days after the Claims
Division i s notified of a claim. The 90- day protest period prevents ICA
from doing so.
* As noted in Finding I1 ( page 23), ICA i s seldom successful i n
recovering these costs. ** The 154 days i s the average time for 135 no- insurance claims filed
between July 1, 1983 and December 31 , 1984.
ICA i s responsible for determining LEC awards. LEC award processing
begins when Claims personnel are notified that a worker's condition has
stabil ized and the di sabil i ty i s permanent. Cl aims personnel determine
the effect of the disability on the worker's future earning capacity.
A. R. S. $ 23- 1047 specifies that awards should be determined w i t h i n 30 days
b u t grants a maximum of 90 days from the time Claims i s notified.
Concurrently, the worker receives notice that his condition i s stable and
temporary disability benefits will cease. The worker i s also notified of
any permanent loss of function on which permanent disability benefits are
based. The notice regarding temporary benefits carries a 90- day protest
clause. The protest period must elapse before ICA can issue an LEC award
for permanent di sabi 1 i ty benefits. Consequently, ICA cannot comply wi t h
statutory requirements for issuing LEC awards.
Before 1980 ICA was able to issue LEC awards within the required time.
A t that time the protest period was 60 days. Claims staff s t i l l had 30
days to issue an award after the protest period expired. In 1980 the
Legislature extended the protest period to 90 days without amending
A. R. S. $ 23- 1047, thereby creating confl icting time requirements for ICA.
Informal Resolutions
Rav Decrease Costs
The Industrial Commission should consider expanding i t s use of informal
methods for resol ving disputed cases. With the current formal hearing
procedures all protested claims cannot be processed in a timely manner.
Greater use of informal resol ution may provide additional savings and
reduce the case backlog.
Formal Hearing System Overburdened - The formal hearing system cannot
expeditiously process all disputed cases. When a party protests a
decision and requests a hearing, the Claims Division does the initial
processing and prepares the case file. The case i s sent to the ALJ
Division, which schedules and holds the hearing. ICA employs 16
administrative law judges, and each hears an average of one case per day,
according t o the chief judge. However, the ALJ Division s t i l l cannot
hear each case w i t h i n 90 days.* Consequently, the Claims Division holds
about 200 cases a t any one time f o r approximately 45 days before sending
them t o the ALJ Division. To process the 200 cases i n the holding tank,
an additional f u l l - t i m e judge would be necessary f o r a t l e a s t 1 year. We
did not examine the f e a s i b i l i t y of t h i s option because informal
resolution would be less costly.
Savings From Informal Resol ution - Expanded use o f informal resolution
could r e s u l t i n savings f o r ICA. Although the Claims Division uses
informal methods t o a 1 imited extent, it does not vigorously pursue
informal resolution. Other states using informal methods note high
success rates. A more active approach could r e s u l t i n savings.
A1 though ICA resolves some cases by informal methods, it does not
a c t i v e l y pursue informal r e s o l u t i o n w h i l e cases are i n the holding tank.
ICA reports t h a t approximately 15 percent o f the disputed cases are
resol ved informally. Informal resolution may r e s u l t from negotiation
among the p a r t i e s without any ICA involvement. Claims personnel may also
promote informal resolution by contacting t h e p a r t i e s t o provide
information. While the s t a f f does attempt informal resolution of cases
t h a t indicate t h a t a party has an i n s u f f i c i e n t understanding o f the
statutes or workers' compensation procedures, it does not try t o resolve
cases requiring more than a b r i e f w r i t t e n o r oral explanation.
Kansas and Maine are two states t h a t aggressively pursue informal
resolution before o r e a r l y i n the protest process. Within t h e i r workers'
compensation departments they have establ ished o f f i c e s t o assist i n
protest resol ution. Kansas ' C l aimant Advisory Section maintains a
t o l l - f r e e number t h a t involved parties may c a l l i f they have questions
about t h e i r claims. The Section employs three f u l l - t i m e paralegals,
averages 1,000 f i r s t time c a l l s each month, and estimates a 90 percent
* A1 though not required by statute, the ALJ Division attempts to hear
a l l cases and issue the awards w i t h i n 90 days a f t e r the Division
receives a request f o r hearing. According t o the ALJ Division, i n
1983 it averaged a 93.2 day turnaround time.
resolution rate. Because o f the Section's high success rate, 1 i t i g a t i o n
has s i g n i f i c a n t l y decreased and resulted i n savings for a l l involved
parties, according t o the d i r e c t o r of the Kansas Division o f Workers'
Compensati on.
Maine employs 10 people i n i t s Office o f Employee Assistance, which
handles 600 t o 800 protests a month. When a protest i s f i l e d , staff
members contact the invol ved p a r t i e s t o col l e c t and provide i nformation
regarding the case. If a case i s not resolved w i t h i n 21 days, it goes t o
an informal hearing not subject t o formal rules o f evidence. If
resolution i s not achieved, the parties may choose t o pursue a formal
hearing. The chairman o f Maine's Workers' Compensation Commission stated
t h a t the Office o f Employee Assistance has been very successful during
i t s f i r s t 5 months o f operation, and the informal hearing process
resolves approximately 75 percent o f the cases reaching t h a t level.
A more active approach t o informal resolution by ICA could r e s u l t i n
s i g n i f i c a n t savings. A1 though expanding ICA's use o f informal resolution
methods would create additional expenses, it would cost less than the
formal hearings. For example, a 15 percent increase i n the informal
resolution r a t e would save ICA an estimated $ 475,000 while costing
approximately $ 41,000 for personnel. The C1 aims Division manager
estimates than an expanded informal resolution program would require one
claims s p e c i a l i s t and one examiner. Salaries and benefits f o r the two
positions woul d t o t a l approximately $ 41,000. Assuming t h a t the expanded
program doubled the current informal resolution rate o f 15 percent,*
C l aims Di vision personnel coul d resol ve approximately 950 additional
cases each year. For each case resolved informally, ICA would save the
average formal hearing cost o f $ 500.
ICA could b e n e f i t . by greater use o f informal resolution methods.
Informal methods allow more timely resolution, reduce the number o f
formal hearings, and decrease costs f o r the Workers ' Compensation
* A 30 percent resolution rate i s a conservative estimate when compared
with programs i n Kansas and Maine. See pages 20 and 21 f o r informal
resolution rates i n those states.
2 1
Department, insurance companies and claimants. ICA should develop a
method f o r informal resolution early i n the protest process.
CONCLUSION
Although ICA processes workers' compensation claims e f f i c i e n t l y ,
statutory requirements delay some cases. The 90- day protest period i s
excessive and delays payment o f uninsured workers claims and LEC awards.
I n addition, ICA' s current formal resolution process i s overburdened and
expensive.
RECOMMENDATIONS
1. A. R. S. $ 23- 947 should be amended to reduce the 90- day p r o t e s t period
t o 45 days.
2. ICA should expand i t s use o f informal resolution i n the i n t i t i a l
phase o f the protest process.
FINDING I1
ICA HAS NOT ENSURED THAT EMPLOYERS OBTAIN WORKERS ' COMPENSATION INSURANCE
The I n d u s t r i a l Commission o f Arizona ( ICA) p o l i c i e s and statutes do not
ensure t h a t a1 1 employers obtain workers ' compensation insurance.
A1 though uninsured employers cost the Commission more than $ 2.6 m i l l ion
over the past 5 years, ICA takes only l i m i t e d action t o enforce compliance
with insurance requirements. The Commission coul d devel op programs t o
increase compliance and reduce payments.
Uninsured Empl oyers Have
Caused Substantial Payments
Employers without workers' compensation insurance have resul ted i n
substantial payments from the Special Fund. Many employers have not
insured t h e i r employees f o r workers' compensation benefits. As a r e s u l t ,
the ICA Special Fund* disbursed more than $ 2.6 m i l l ion i n compensation
payments t o uninsured workers i n the past 5 years. These costs burden
employers who properly insure t h e i r workers.
Many Employers Are Not Insured - Many employers have f a i l e d t o provide
t h e i r employees with workers' compensation insurance as required by 1 aw.
A. R. S. $ 23- 902 requires most employers t o obtain workers' compensation
insurance. Noncompl iance i s a class 2 misdemeanor ( A. R. S. 523- 932).
A1 though uninsured employers are 1 iable f o r a1 1 compensation benefits
a r i s i n g from employees' work r e l a t e d i n j u r i e s and diseases, ICA must pay
these claims out o f the Special Fund and then attempt t o obtain
reimbursement from the employer. I n t h e p a s t 5 years, ICA received more
than 7,600 claims from employees not covered by workers' compensation
insurance, a f f e c t i n g a t l e a s t 7,000 employers. Thus, a substantial
portion o f Arizona's estimated 60,000 employers may not be i n compliance
with workers ' compensation insurance requirements.
3 See footnote, page 3 for a description of the ICA Special Fund.
ICA Payments Are Sizeable and Increasing - Uninsured employers are
responsible f o r $ 2.6 m i l l ion i n Special Fund unreimbursed payments over
the past 5 years. These payments are r i s i n g and are an increasing burden
on the fund.
During the 5 years from 1979 t o 1983 ICA paid more than $ 3.1 m i l l i o n from
the Special Fund f o r no- insurance claims, but only about $ 500,000 was
recovered from the employers responsible f o r these claims. As o f December
31, 1983, the difference o f $ 2.6 m i l l i o n had not been recovered. I n
addition, the ICA administrative fund* spends more than $ 1 51,000 a year i n
administrative salaries ( f o u r f u l l - t i m e c l e r k s and most o f the ICA Legal
Department's time) t o process no- i nsurance claims. Supervisory and
overhead costs, such as suppl ies, computer support, u t i l i t i e s and office
rent are not included i n t h i s figure.
The gap between compensation benefits paid t o uninsured employees and the
amounts recovered from t h e i r employers, i ncl udi ng a 10 percent penal t y
( per A. R. S. $ 23- 907. C), i s increasing. Figure 2, a 5- year analysis o f the
Speci a1 Fund's no- i nsurance disbursements and the amounts recovered,
i l l u s t r a t e s the growth o f these payments, from $ 362,000 i n 1979 t o
$ 816,000 i n 1983.
FIGURE 2
SPECIAL FUND DISBURSEMENTS AND RECOVERIES, 1979 THROUGH 1983
S~ Urce: ICA Special Fund reports
* See page 3 f o r a description of the ICA administrative fund.
24
Likewise, the proportion of total Special Fund di sbursements for
no- insurance claims is a1 so increasing. No- insurance claims have
increased from less than 10 percent of total disbursements in 1970 to
approximately 25 percent of total disbursements in 1983 ( Figure 3). It is
doubtful that such an engagement of the Special Fund's resources was
expected when it was assigned the responsibility for no- insurance claims.
FIGURE 3
NO- INSURANCE DISBURSEMENTS AS PROPORTION
OF TOTAL SPECIAL FUND DISBURSEMENTS
Source: ICA Special Fund disbursement reports
Other Employers Pay Costs of Unreimbursed Claims - A1 though employers who
violate workers' compensation laws impose substantial cost to ICA,
properly insured employers must carry the financial burden through a tax
on compensation insurance premiums. ICA i s funded entirely through a tax
1 evied on workers ' compensation premi ums, accounted for i n the
administrative fund and the Special Fund. The administrative fund pays
the processing costs of no- insurance claims, averaging $ 99 per claim. The
Special Fund pays no- insurance claims on behalf of any employer who f a i l s
to pay w i t h i n a specified period. ICA then attempts to recover the
disbursement from the uninsured employer b u t is unsuccessful i n many
cases, losing an average of $ 342 per claim received. As a result,
properly insured employers carry the financial burden of both the costs
incurred when uninsured employers fail to reimburse the Special Fund and
the processing costs paid from the administrative fund.
ICA Takes Limited Action
To Enforce Compliance
ICA efforts t o increase compliance w i t h workers' compensation laws have
been minimal. The Commission takes 1 i t t l e action to identify uninsured
employers. Even if uninsured employers are identified, ICA 1 acks
sufficient authority and penal ties to ensure compl iance.
Passive Response to Uninsured Employers - Currently, ICA takes a passive
approach to deal ing w i t h uninsured employers. The Commission does not
identify noncomplying employers and require them to insure their workers
before claims are made. Rather, i t f i r s t becomes aware of employers
without workers' compensation insurance when claims for benefits ( usual ly
received from physicians) cannot be matched w i t h an existing insurance
policy. Once they are identified i n this manner, ICA requires the
uninsured employers to obtain insurance and, i f the claims result in
l i a b i l i t i e s to the ICA Special Fund, attempts to recover the amount owed
pl us a 10 percent penal ty from each employer.
I n 1981 ICA attempted t o i d e n t i f y uninsured employers by comparing i t s
computerized l i s t i n g s of properly insured employers t o the Department o f
Economic Security ( DES) f i l e o f employers with Federal unemployment
insurance. Federal unempl oyment insurance requirements a f f e c t
s u b s t a n t i a l l y t h e same employers who require workers' compensation
insurance. ICA planned t o i d e n t i f y those employers who were l i s t e d on DES
records as having unemployment insurance b u t n o t on ICA's f i l e o f properly
insured employers, and investigate them f o r possible noncompl iance with
workers' compensation laws. Two years 1 ater ICA abandoned the unfinished
e f f o r t . Since the computer was unable t o match the names o f employers
unless they were recorded i d e n t i c a l l y and many names were recorded
somewhat d i f f e r e n t l y i n the two f i l e s , ICA had t o match the f i l e s
manually. The labor involved made the p r o j e c t impractical.
Penalties For Noncompliance Are Not Effective - Even when ICA becomes
aware of an uninsured employer, it lacks e f f e c t i v e penalties f o r enforcing
workers' compensation insurance requirements and protecting the Special
Fund. The Commission has been unable t o f i n e uninsured employers because
it feels t h a t prosecution through the courts i s impractical. I n addition,
the penalties currently imposed are not s u f f i c i e n t t o minimize the Special
Fund's no- insurance payments. As a result, some employers benefit from
v i o l a t i n g workers' compensation insurance requirements.
ICA Cannot impose avail able penal t i e s because they require court action.
A. R. S. $ 23- 932 makes noncompl iance with workers' compensation 1 aws a ~ 1 ass
2 misdemeanor for which a court can impose fines up t o $ 10,000 on
enterprises and $ 750 on i ndivi dual s. The Attorney General i s responsi b l e
for the prosecution o f these cases ( A. R. S. § 23- 9291, and refers such
prosecutions t o the appropriate 1 ocal j u r i s d i c t i o n . However, according t o
ICA legal counsel, heavy work loads on these j u r i s d i c t i o n s and the court
system have made prosecuting uninsured empl oyers impractical . As a
resul t, the approximately 1,500 uninsured employers who come t o ICA's
a t t e n t i o n each year are not penalized for v i o l a t i n g workers' compensation
requirements.
Even when ICA succeeds i n recovering no- insurance payments from employers,
the e x i s t i n g 10 percent penalty on recoveries does not cover c o l l e c t i o n
costs. A. R. S. 523- 907. C authorizes ICA t o recover any disbursements made
from the Special Fund for uninsured employers plus a 10 percent penalty.
This penalty does not cover the cost of professional c o l l e c t i o n services,
which receive one- third o f the amounts recovered. ICA refers most claims
t o professional collectors. Other states impose s i m i l a r penalties o f up
t o 100 percent.
F i n a l l y , the Commission cannot impose and c o l l e c t mandatory fines t o
offset some of i t s payments. On the average, it costs ICA more than $ 99
i n administrative s a l a r i e s alone t o process a no- insurance claim and the
Special Fund loses $ 342 f o r each no- insurance claim received. The e f f e c t
of these unrecovered expenditures could be reduced i f ICA were authorized
t o impose , and c o l l e c t mandatory penal t i e s from uninsured employers. As
many as 24 states impose mandatory penalties on uninsured employers.
These penal t i e s vary between states, i n c l udi ng the f o l l owing
p o s s i b i l i t i e s : 1 ) f i n e s o f $ 1 per employee f o r each day o f noncompliance,
and 2) up t o twice the insurance premiums t h a t would have been paid over
the previous 3 years.
Employers can gain from v i o l a t i n g insurance requirements because the
l i m i t e d sanctions do not outweigh the potential benefits. Uninsured
employers suffer no penalty i f no compensation award i s made against them
or if they pay an award before the Special Fund does. ICA merely ensures
t h a t these employers obtain workers' compensation insurance immediately.
An uninsured employer can therefore benefit from saving on workers'
compensation insurance premi urns during t h e period of noncompl iance. The
annual premium can range between $ 1 6 and $ 2,262 f o r each $ 10,000 o f
payroll , depending on industry r i s k . If ICA were empowered t o impose a
mandatory penalty on a1 1 violators, employers could no longer save on
workers' compensation insurance with impunity.
ICA Could Develop Programs
To Increase Com~ il ance
ICA could increase compliance through a combination of enforcement and
public relations efforts. Even a small increase i n compliance could reduce
the ICA Special Fund payments for unreimbursed claims. Programs designed
to identify uninsured employers and increase publ ic awareness have been
developed by agencies comparable to ICA. ICA could adapt and use these
programs t o increase compl iance w i t h workers ' compensation 1 aws.
Uninsured employers identified and forced to obtain workers' compensaton
insurance before they become liable for compensation claims would not
become a burden on the ICA Special Fund. A combination of aggressive
enforcement and publ ic relations efforts would 1 ikely reduce the number of
uninsured employers and, consequently, the number of no- insurance claims.
For example, the average annual losses to the Special Fund totaled
$ 520,000 over the past 5 years. Thus, a 20 percent reduction i n
no- insurance claims could save the Special Fund an estimated $ 104,000 a
year.
Programs to Identify Uninsured Employers - Comparable agencies i n Arizona
and other states have developed programs that ICA could adapt and use to
identify uninsured employers. We have identified three such programs.
e Computer match between DES and ICA files A1 though ICA was
unsuccessful w i t h an attempt to match these f i l e s , the problems
encountered w i t h matching employers ' names coul d be overcome if
the DES identification number were used instead. ICA f i l e s
already contain the DES number for employers on record as of
1981. A computer run matching the DES numbers on f i 1 e w i t h ICA
against all DES numbers issued would produce the names of the
employers not on ICA records. All of these employers could
receive a computer generated l e t t e r requesting the name of their
workers' compensation insurance carrier and insurance policy
number. Employers who cannot or will not provide the requested
information would be potenti a1 violators who ICA coul d further
investigate. A computer match could be conducted as a pilot
project. The p r o j e c t would require t h a t the ICA f i l e s be updated
with the post- 1981 DES numbers. The resource requirements and
r e s u l t s of t h i s p i l o t p r o j e c t should be c a r e f u l l y recorded and
evaluated t o determine the scale and frequency o f any future
r e p e t i t i o n s o f the project.
a Monitor DES r e g i s t r a t i o n s Investigators i n several other states
routinely review new r e g i s t r a t i o n s f o r unemployment insurance and
DES audit reports. ICA could do the same and f o l l o w up any new
r e g i s t r a t i o n s t h a t are not on i t s records. A comparison of a
sample of 25 known uninsured employers ( selected from ICA
records) with DES employer records showed t h a t 16 ( 64 percent)
were on record with DES, some f o r more than 10 years.
a Business l i s t i n g s search Other agencies compare business
l i s t i n g s with t h e i r records i n t h e i r search f o r violators. The
Arizona Department of Revenue and the Alaska Workers'
Compensation Board use telephone d i r e c t o r i e s t o search f o r
employers not on t h e i r records. A1 ternatively, the Montana
Uninsured Employers Fund finds the Dunn and Bradstreet business
l i s t i n g s very helpful i n i t s e f f o r t t o reach uninsured employers.
S t a t i s t i c a l sampl i ng methods and analyses o f known uninsured
employer data can help match the enforcement e f f o r t t o available
resources, if necessary. An Auditor General analysis of Speci a1
Fund debtors shows t h a t employers from three general areas of
endeavor - service/ retai 1 , food/ l odgi ng and construction -
account for as much as 50 percent o f the Special Fund losses.
Based on t h i s information it can be expected t h a t a review o f
companies i n these areas 1 i s t e d i n the telephone book might
produce a substantial number o f uninsured employers. O f 25 known
uninsured employers selected from ICA f i l e s , a t l e a s t 12 ( 48
percent) were 1 i s t e d i n the telephone directory 6 months or more
before the f i r s t claim was f i l e d against the employer.
Programs t o increase public awareness - I n addition t o i d e n t i f y i n g
noncomplying employers, ICA could adapt methods used by other agencies t o
increase public awareness o f workers' compensation requirements. Current
ICA public r e l a t i o n s e f f o r t s consist l a r g e l y o f about 12 seminars per
year, given upon request or as part of a combined e f f o r t between ICA and
another organization such as the Small Business Admi n i s t r a t i on. I n
addition, ICA publ ishes two brochures on insurance requirements and
benefits, which are handed out a t seminars, following telephone i n q u i r i e s
and over the ICA information counter.
Public relations efforts could be s u b s t a n t i a l l y improved a t minimal cost
i f ICA followed the lead o f the Arizona Department of Revenue ( DOR). DOR
has aggressively used free media services t o inform the public o f the need
t o comply with the law, the consequences o f f a i l i n g t o do so and the place
t o c a l l t o report offenders. The DOR F a i r Share p r o j e c t i s credited with
about $ 6 m i l l i o n i n additional tax revenues. The p r o j e c t cost DOR only
$ 1 6,000 for publ i c i ty because DOR re1 ied heavily on free media support.
DOR a1 so experienced a substantial increase i n the number of tax f i l e r s i n
a period f o r which a drop had been forecast.
CONCLUSION
ICA has n o t e f f e c t i v e l y enforced workers' compensation insurance
D requirements. Substantial costs resulted from a combination o f the
Commission's inadequate enforcement e f f o r t s and ineffective penalties.
ICA does not aggressively i d e n t i f y employers who f a i l t o properly insure
workers, and c u r r e n t p e n a l t i e s are i n s u f f i c i e n t t o ensure compliance.
RECOMMENDATIONS
1. The Legisl ature shoul d consider:
a. Amending A. R. S. $ 23- 907. C to increase the penalty on no- insurance
claims to a t least cover the 33.3 percent collection charges.
b. Authorizing ICA to impose mandatory penalties on employers who do
not have required workers' compensation insurance. This penalty
should be paid to the ICA Special Fund.
2. ICA should develop programs to increase compliance w i t h workers'
compensation insurance requirements, including:
a. A pilot project to match DES and ICA employer f i l e s
electronically using DES identification numbers.
b. A routine program to ensure that newly established employers who
f a i l t o obtain workers' compensation insurance will come to ICA's
attention.
c. A public relations program designed t o inform employers and the
public of the requirement for workers' compensation insurance and
the consequences i f the requirement i s violated.
FINDING I11
LICENSING EMPLOYMENT AGENCIES IS NOT NECESSARY TO PROTECT CONSUMERS
The I n d u s t r i a l Commission o f Arizona ( ICA) does not need t o license
private employment agencies i n order to protect job seekers. The e x i s t i n g
1 icensure process does not e f f e c t i v e l y ensure p r a c t i t i o n e r competence and
i s unnecessary. Strengthening laws t o ensure t h a t consumers obtain
s u f f i c i e n t information about employment agency fees and contracts would
allow consumers t o protect themselves from the few abuses t h a t occur,
making ICA i nvol vement unnecessary. Statutory changes may a1 so be needed
t o protect consumers from s i m i l a r abuses by career counseling firms.
ICA Licenses Only A Segment O f
The Empl oyment Agency Industry
Currently, the I n d u s t r i a l Commi ssion only 1 icenses appl icant- paid- fee
empl oyment agencies ( APFs) . APFs provide t h e i r services t o i ndi v i dual job
seekers as opposed t o employers. I n March 1981 Arizona deregulated
empl oyer- pai d- fee agencies ( EPFs). EPFs provide t h e i r services t o
employers and advertise t h e i r positions as " fee- paid." Increasingly, the
trend i n the employment agency industry i s t o have employers pay a l l
agency fees or a sizeable portion o f them. As o f May 1984, 99 APFs were
1 i censed i n Arizona. These i ncl ude general empl oyment agencies, t a l e n t
and model ing agencies, babysi tti ng services and nurse r e g i s t r i e s .
The ICA Labor Department administers and enforces employment agency 1 aws,
rules and regul ations. The I n d u s t r i a l Commission delegated employment
agency program administration t o the ICA Labor Department i n 1978. The
director, one f u l l - t i m e investigator, one o f f i c e supervisor, and one
secretary carry out these duties.
Empl oyment Agency L i censure
I s Not E f f e c t i v e
- -
Licensing empl oyment agencies i n Arizona does not e f f e c t i v e l y protect
consumers. The licensure process for employment agencies does not attempt
t o address the question of competency. ICA's 1 icense examination tests
only f o r a general knowledge o f employment agency statutes and rules, and
requires no f u r t h e r evidence o f competency. Furthermore, t h e l i c e n s e
renewal process provides no additional assurances t h a t employment agency
staff are adequately s k i l l e d . As a r e s u l t , j o b seekers may assume f a l s e l y
t h a t 1 icensed empl oyment agencies are competent t o provide placement
services.
The ICA Labor Department's objective f o r licensure d i f f e r s from the
t r a d i t i o n a l purpose o f occupational 1 icensure. Traditionally, 1 icensing
attempts t o ensure p r a c t i t i o n e r competence. Benjamin Shimberg i n
Occupational Licensing: A Public Perspective, defines licensure as the
". . . process by which an agency of government grants
permission t o an individual t o engage i n a given
occupation upon finding t h a t the appl icant has attained
the minimal dearee o f comuetencv necessarv t o ensure
t h a t the publ < c heal t h y ; afetyU and we1 f i r e w i l l be
reasonably well protected. Before a license i s
wanted. the a ~ ica~ nt lmu st meet certain reauirements
as set- f o r t h " in the law. These usually' include
t r a i n i n g and experience . . ." ( emphasis added)
However, the primary purpose o f Arizona's 1 icensing process f o r empl oyment
agencies i s t o ensure worker protection, by keeping track o f state
employment agencies* and reviewing applications t o minimize the potential
f o r criminal i n f i l t r a t i o n o f the industry, according t o the ICA Labor
Department director. The Department makes no attempt t o evaluate the
competency o f employment agents.
Specifically, the employment agency license examination f a i l s to meet the
c r i t e r i a establ ished for most occupational 1 icensing examinations t h a t
measure a b i l i t i e s and ski1 1 level s. The examination tests applicants only
* The Labor Department's objective t o keep track o f employment agencies
i s accomplished t o some extent by other state e n t i ties. More than 53
percent of licensed employment agencies are corporations registered
with the Corporation Commission. I n addition, many o f the remaining
agencies are registered with the Secretary o f State or county or
municipal clerk ' s o f f i c e s and are on tax r o l l s.
for general know1 edge o f statutes, rules and regulations concerning
empl oyment agencies and does not t e s t t h e i r competency. * Moreover,
license applicants may take the same examination as many times as
necessary t o achieve a passing score. The exam has not been revised f o r 3
years. Besides the examination, 1 icense appl icants are screened only f o r
t h e i r moral character, general business and management experience, and
f i n a n c i a l status. Thus, ICA does not require 1 icense applicants t o have
any p r i o r experience i n or demonstrate knowledge about the placement
profession.
The license renewal process does nothing more t o ensure p r a c t i t i o n e r
competence. The only renewal requirement i s t h a t licensees respond t o a
questionnaire which requests l i m i t e d information on business operations
not related t o p r a c t i t i o n e r competence. There are no continuing education
or experience requirements.**
As a r e s u l t o f the minimal licensing and renewal requirements, job
appl icants may assume i n c o r r e c t l y t h a t a 1 icensed employment agency's
staff possess a level o f competency or proficiency necessary t o provide
placement services. A license displayed i n the agency's place o f business
may indicate t o the consumer t h a t the State has determined t h a t t h i s
agency's s t a f f has s k i l l s and knowledge t o provide competent service. I n
fact, the license merely shows t h a t the applicant has no record of
defrauding the public. The licensure process does not ensure competency
and was not designed t o do so.
3 The ICA Labor Department tests a l l people determined t o be involved i n
the actual operation of an employment agency, but issues only one
1 icense ( A. R. S. $ 23- 526. B and regulation R4- 12- 303 subsection El.
** Although the State does not a t t e s t t o the professional competency o f
employment agents, the American College Testing Program prepares and
administers an examination t h a t judges p r a c t i t i o n e r competence.
Candidates for the exam must have a t l e a s t 2 years professional
experience i n a private placement f i r m ; be an owner, partner, manager
or personnel consultant of a private personnel f i r m ; and subscribe t o
the National Association of Personnel Consul tants Code of Ethics.
This examination i s given t o members of professional trade
associations as we1 1 as nonmembers.
Adequate Consumer Information I s Needed
To He1 D Preclude Abuses
A1 though consumers r i s k some fi nanci a1 harm when contracting f o r p l acement
services, they can protect themsel ves i f they have s u f f i c i e n t information
about fees and contract terms. The few reported abuses could be prevented
by strengthening employment agency statutes t o require agencies t o provide
needed information t o consumers, thereby e l i m i n a t i n g t h e need f o r any
d i r e c t invol vement by ICA. Arizona regul ates other industries without any
d i r e c t State agency i nvol vement. Without ICA 1 icensi ng and enforcement
efforts, consumers woul d s t i l l have several options f o r resol ving t h e i r
problems with empl oyment agencies.
Strengthening Statutes To Prevent Abuses - Laws designed t o provide
s u f f i c i e n t i nformation t o consumers t o prevent abuses woul d el iminate the
need for ICA regulation o f the employment agency industry. The few
reported abuses stem l a r g e l y from deficiencies i n statutes, r e s u l t i n g i n
consumer uncertainty as t o fee obl igations, refund entitlements and other
contract specifications. To provide adequate s t a t u t o r y p r o t e c t i o n some of
the current rules and regulations need t o be c l a r i f i e d and transferred t o
statute. Additional statutes must be added t o provide more complete job
seeker protection. Final ly, some e x i s t i n g statutes should be retained i n
t h e i r current form.
Industry- wide abuses have been minimal. The Labor Department only
recei ved 41 compl aints against 1 icensed agencies during f i s c a l years
1982- 83 and 1983- 84. The number o f complaints being f i l e d has
s i g n i f i c a n t l y decreased i n recent years.
Even though the number o f complaints has diminished, statutory
deficiencies s t i l l cause consumers some problems. Vague contractual
language r e s u l t i n g from weak laws has minimized the amount o f information
available t o consumers during placement transactions. Statutes do not
require employment agency contracts t o define fee obl igations, refund
entitlements, or procedural r i g h t s o f job seekers. Following i s a summary
o f current problems.
0 - Fees - Confusion about agency fees has l e d t o improper fee charging.
Sometimes applicants have been asked t o pay t h e i r placement fee f o r
positions i n which the fee was already paid by the employer. I n some
cases agencies simply refused t o honor the terms o f placement
contracts. F i n a l l y , employment agencies have taken advantage o f
consumers by charging r e g i s t r a t i o n or advance fees as a condition o f
obtaining an interview f o r employment. Although ICA rules and
regulations p r o h i b i t advance fees, statutes do not. Consumers may not
know advance fees are prohibited because they are not s p e c i f i c a l l y
mentioned i n employment agency contracts. Twenty- eight states t h a t
regulate employment agencies p r o h i b i t advance fees i n statute.
a Refund Entitlements - Consumers may also be unaware o f the conditions
for fee refunds because they are not included i n an agency's placement
contract. Statutes do not require agencies t o provide consumers with
detailed statements of how refunds are computed. Consequently,
consumers are often uncertain i f they are e n t i t l e d t o a refund or how
much they can receive. Furthermore, statutes do n o t s t a t e a specific
time period i n which refunds must be made. A. R. S. $ 23- 532. B only
states t h a t refunds w i l l be made upon demand. This requirement has
not succeeded i n ensuring t h a t consumers are provided w i t h timely
refunds, as complaint f i l e s reveal instances o f consumers getting
t h e i r money months after I C A directed an agency t o pay. Also most
employment agency contracts simply inform appl icants t h a t they are
e n t i t l e d t o pay a p a r t i a l fee or get a p a r t i a l refund i f they are
terminated through no f a u l t of t h e i r own. However, the agency's fee
schedule contained i n the contract f a i l s t o define termination f o r
f a u l t o r termination without f a u l t . Statutes make no specific mention
of these conditions nor do they require agency contracts t o c l e a r l y
define the conditions. Most complaints f i l ed recently center around
the i n t e r p r e t a t i o n o f these terms.
a Consumer Rights - Statutes do not require contracts t o o u t l i n e the
procedural r i g h t s of job seekers. Arizona, as well as other states,
has adopted statutes f o r other regulated industries such as health
spas and buying clubs. These statutes require: 1) specific 0
contractual 1 anguage detail ing the appropriate bodies t o contact i n
case o f a complaint ( t h e i r names, addresses and telephone numbers),
and 2) statements r e f e r r i n g t o the sections o f the statutes t h a t
c l a r i f y consumer rights. 0
To address these deficiencies, several exi s t i ng r u l es and regul a t i ons
shoul d be modified and incorporated i n t o employment agency statutes t o
improve the 1 aw' s effectiveness. Rul es requiring t h a t consumers receive a
clear statement o f t h e i r r i g h t s and responsibil i t i e s should be enacted
i n t o law. Statutes should specify t h a t contracts delineate the exact
conditions under which fees are due, under what circumstances a job seeker
i s not obligated t o pay a fee and under what circumstances job applicants
can obtain refunds. The law should a l s o r e q u i r e t h a t specific fee
adjustment p o l i c i e s be stated i n the contract.
Other rules and regulations t h a t require no modifications should also be
incorporated i n t o employment agency statutes. These i ncl ude r i g h t s of
r e f e r r a l and placement, agency record requirements, consumer protection
against nonexistent job openings, and fa1 se advertising prohibitions. The
r u l e requiring t h a t job applicants receive a copy of the contract should
a1 so be transferred t o law.
Abuses could be further prevented and thereby reduced i f other statutes
were added. F i r s t , statements are needed showing how fees are computed
and t e l l i n g consumers who they could contact and what statutes consumers
could reference i f they have a complaint. This statement would l i s t the
names, addresses and phone numbers o f e n t i t i e s aggrieved consumers could
contact.
The other s t a t u t o r y a d d i t i o n needed i s a specific provision r e l a t i n g t o
penal ties. Without ICA industry supervision and employment agency
licensing, current penalty provisions would no longer be i n existence and
a l t e r n a t i v e penalty provisions should be considered. Several industries
regulated by self- contained acts provide f o r c i v i l penalties ( c o u r t f i n e s )
and criminal penalties or both. These acts provide f o r fines and allow
consumers t o recover court costs. Several states have placed criminal
penalties i n t h e i r laws t o provide agencies with incentives to comply w i t h
the law. New York's General Business Law and Colorado's Private
Employment Agency Act provide for imprisonment o f agents who v i o l a t e
provisions o f the law or f a i l t o make timely refunds. Courts could
determine the seriousness o f the v i o l a t i o n s and levy the appropriate
penal ties.
Final ly, several present empl oyment agency statutes s houl d be retained.
Two of these concern fee s p l i t t i n g and surety bonds.
@ A. R. S. $ 23- 535 p r o h i b i t s agencies from d i v i d i n g or sharing
d i r e c t l y or i n d i r e c t l y , a fee, charge or compensation received
from an applicant f o r employment w i t h an employer who obtains new
workers from an employment agency. Consumers should be protected
from additional costs, which they shouldn't have t o pay.
@ A. R. S. $ 23- 527 requires each license applicant t o post UP t o a
$ 5,000 surety bond or post a cash deposit, w i t h the condition
t h a t employment agents conform t o laws. The cash deposit shall
i n i t i a l l y be f o r $ 1,000, but before a license i s issued, a cash
deposit must be increased t o $ 5,000 or replaced by a surety bond
i n that amount. If a license i s approved and granted, a cash
deposit or surety bond must be maintained a t $ 5,000. The purpose
i s t o enable consumers t o obtain fee refunds should an agency go
out of business or f a i l f i n a n c i a l l y .
Separate Laws S u f f i c i e n t i n Other Industries - Though the employment
agency industry has unique c h a r a c t e r i s t i c s and needs t h a t r e q u i r e s p e c i f i c
regulation, several industries with s i m i l a r contractual abuses are being
effecti ve1y regulated through 1 egislation without agency invol vement.
This l e g i s l a t i o n includes the Dance Studio Act, Health Spa Act, Home
S o l i c i t a t i o n Act, Multi- Level Marketing Act and the Buying Club Act. Like
empl oyment agencies, these i n d u s t r i e s r e q u i r e minimal state supervision;
therefore, a special ized enforcement body t o pol i c e these industries i s
unnecessary. For effective enforcement, most o f these acts contain
provi sions f o r shared j u r i s d i c t i o n between c i t y and county attorneys'
o f f i c e s and the o f f i c e o f the Attorney General. These enforcement
agencies have formal complaint mechanisms f o r aggrieved consumers. Having
courts and other e n t i t i e s handle the disputes i s not 1 i k e l y t o place
s i g n i f i c a n t additional burdens on e x i s t i n g complaint resolution mechanisms.
Consumer A1 t e r n a t i ves For Compl a i n t Resol ution and Information - Even
without ICA regulation consumers have several options f o r obtaining
assistance. Consumers can currently seek assistance regarding employment
agency probl ems and questions from e n t i t i e s besides the I n d u s t r i a l
Commission. These enti t i e s a1 so provide job applicants with detailed
consumer information. I n addition, other 1 aws coexist with current
employment agency laws to protect consumers.
Job seekers aggrieved by employment agencies can r e f e r complaints t o
private and pub1 i c organizations t h a t a1 ready provide complaint resol ution
services. Among these e n t i t i e s are the Better Business Bureau ( BBB), the
Arizona Association of Personnel Consul tants ( AAPC), nursing and t a l e n t
agency trade organizations, p r i vate newspapers, and p r i vate mediation and
c o n c i l i a t i o n services. The BBB and the AAPC Ethics Committees maintain
staff t o resolve consumer complaints. I n f a c t , the Labor Department
shares information with the AAPC and even refers some complaints t o the
AAPC Ethics Committee f o r informal resolution. The BBB also provides a
free concil i a t i o n and mediation service t o resol ve disputes when both
p a r t i e s opt f o r t h i s type o f solution. Some newspapers provide consumer
complaint columns t h a t attempt t o s e t t l e complaints. For a small fee,
consumers can seek a r b i t r a t i o n through p r i v a t e mediators whose decisions
have the e f f e c t o f a lower c o u r t r u l i n g . I n addition, several county and
c i t y attorneys' offices maintain consumer a f f a i r s u n i t s t h a t attempt t o
mediate disputes t o avoid court t r i a l s . The Office o f the Attorney General
stated it w i l l undertake cases i n which a pattern o f consumer abuse has
been established with a f i r m and there i s a strong p o s s i b i l i t y of
recovering l o s t monies. F i n a l l y , consumers can f i l e t h e i r cases i n Small
Claims, Justice or Superior Court, depending upon the amount o f money
involved i n the dispute.*
The AAPC and the BBB also provide consumers with detailed information on
employment agency business practices. The AAPC and the BBB have worked t o
a s s i s t consumers w i t h job placement search by answering consumer i n q u i r i e s ,
providing background information on i n d i v i d u a l agencies, and providing
brochures on employment agencies.
F i n a l l y , several State and Federal laws already e x i s t i n addition t o the
Private Employment Agency Law, and are designed t o protect consumers from
fraud, misrepresentation, and i n t i m i d a t i o n tactics. These are the F a i r
Trade Act, Equal Employment Opportunity Act and false advertising statutes.
Empl oyment Agency Laws Shoul d C l early
Tncl ude Career Counsel ina Firms
Career counsel ing firms, which are simi 1 ar t o regulated empl oyment
agencies, may not be under the j u r i s d i c t i o n o f current laws. Though the
problems associated with these firms are o f t e n s i m i l a r t o those of
regulated employment agencies, a vague statutory d e f i n i t i o n o f employment
* k i l ing fees are nominal i n each o f these courts. If consumers seek
recovery o f fees i n cases a r i s i n g out o f contractual disputes and win
a case, A. R. S. T i t l e 12 provides f o r the recovery o f attorney fees and
incidental expenses a r i s i n g out of a t r i a l . I n addition, several
courts o f f e r mediation services t o consumers as an a l t e r n a t i v e t o
tri a1 .
agencies has caused the Labor Department to interpret career counseling
firms as being outside its present scope of regulation.
The current definition of an employment agency does not specifically
menti on career counsel ing firms that of ten operate similarly to
appl icant- pai d- fee employment agencies. These firms have commi tted the
same types of fee abuses and made similar contractual misrepresentations
as APF agencies.* Their advertising implies consumers will be able to
find jobs. However, career counselors disclaim any obligation to find
jobs for, or even provide leads to their clients. Articles appearing i n
law journal s, newspapers and family magazines indicate these firms have
been found to make job offer claims, collect fees and f a i l to deliver the
services contractual ly agreed upon. For instance, advertisements placed
i n national newspapers proclaim job offers or proclaim that career
counseling firms have the contacts that can lead to meaningful job
interviews. These advertisements also refer to a " hidden" or
" unpubl i shed" job market. The Federal Trade Commission is investigating
career counsel ing firms engaged i n unfair and deceptive trade practices.
The ICA Labor Department has failed to seek c l a r i f i c a t i o n a s to whether
these firms f a l l w i t h i n the scope of current statutes and regulations. In
Arizona, career counselors may f a l l w i t h i n the scope of the definition of
employment agent, thereby possibly affording consumers some statutory
protection. Though counselors are not specifically mentioned in the
definition of an employment agent, the definition states agents are, " all
persons, firms or corporations or associations which for a fee, commission
or charge that i s collected from persons seeking employment, furnish
persons seeking employment information enabl i n g or tending to enable the
persons to secure employment." Ten states and the District of Columbia
have adopted some form of legislation to deal w i t h potential abuses
awaiting the consumers who use career counseling firms. Legislation i n
other states now defines firms not only by what they do, b u t what they say
they will do.
* AS w i t h APF agencies, the abuses of these firms have been minimal i n
Arizona.
CONCLUSION
ICA does not need t o license employment agencies or supervise the
employment agency industry. Programs e x i s t t h a t judge the professional
competency of many employment agency personnel. I n addition, ICA' s
compl ai n t resolution and consumer information e f f o r t s dupl icate those o f
private sector and other governmental agencies. The few abuses t h a t s t i l l
prevail are not serious and could be handled with some statutory changes.
Stronger statutes would prevent these problems from occurring by providing
the consumer with adequate information about contract terms and fees.
These strengthened statutes could e x i s t as a self- contained body o f law,
independent o f a specific regulatory e n t i t y , making ICA supervision o f
t h i s industry unnecessary. Whi 1 e considering these changes the
Legi s l ature shoul d consider amending the d e f i n i t i o n o f employment agencies
t o i n c l ude career counsel ors.
RECOMMENDATIONS
1. The Legislature should consider deleting a l l statutory requirements
regarding I n d u s t r i a l Commission supervision and licensing o f the
p r i v a t e employment agency industry ( A. R. S. $ 923- 522 through 23- 526 and
§ § 23- 528 through 23- 532, and § 23- 536).
2. The Legislature s houl d consider protecting consumers who use
applicant- paid- fee employment agencies through an act r e l a t i n g t o
employment agencies. The revised 1 aws should:
a. Retain c u r r e n t s t a t u t e s r e l a t i n g t o fee s p l i t t i n g and surety
bonds ( A. R. S. $ 23- 535 and A. R. S. 923- 527) ;
b. Incorporate i n t o statute e x i s t i n g r u l e s r e l a t i n g t o
contracts and forms, copies o f contracts and receipts,
r i g h t s of r e f e r r a l and pl acement, agency records, protection
against placement i n nonexistent job openings, t a l e n t and
model i ng agencies, and advertising;
c. Require employment agency contracts t o provide consumers
with detailed information about the terms of the placement
transactions;
d. Require contracts to spell out the circumstances entitling
consumers to a refund and define the conditions obligating
them to pay the fee;
e. Establish a specific time requirement for refunds to
consumers;
f. Prohibit the charging of advance fees or registration fees
as a condition of placement and include this prohibition in
contracts;
g. Authorize city and county attorneys and the Attorney General
to enforce these laws;
h. Provide for the recovery of attorney fees and incidental
expenses arising out of t r i a l s for contractual disputes; and
i. Expand the scope of the current definition of an employment
agent to include all firms that charge applicants a fee for
their placement services, and all people who render
vocational guidance or provide counsel ing services and who
directly or indirectly procure or attempt to procure
employment or engagements for people seeking employment, and
people representing themselves as having access to jobs not
available to those not purchasing their services.
3. The Legislature should consider establishing penal ties for violations
of the private employment agency law to provide the proper incentives
for agencies to comply with the provisions of the act.
FINDING I V
ARIZONA DIVISION OF OCCUPATIONAL SAFETY AND HEALTH BOILER INSPECTION
PROGRAM I S INADEQUATE
The Arizona Division o f Occupational Safety and Health ( ADOSH) B o i l e r
Section does not have an adequate inspection program. Due t o a
substanti a1 backl og, the Boi 1 er Section does not perform needed
inspections. The backlog r e s u l t s from poor records and i n e f f i c i e n t
scheduling procedures.
I n 1977 the Legislature passed the B o i l e r Act, establishing a B o i l e r
Section under ADOSH. The B o i l e r Section has the authority t o require the
safe construction, i n s t a l l a t i o n , and operation o f b o i l e r s and 1 ined hot
water storage heaters. To prevent accidents and casualties, the B o i l e r
Section inspects b o i l e r s and l i n e d hot water heaters throughout the
State, excluding Tucson and Phoenix.* The Section issues c e r t i f i c a t e s
for those boilers meeting a l l requirements outlined i n the rules and
regulations.
Inspections Are Back1 ogged
The B o i l e r Section i s seriously backl ogged i n performing required
inspections. Our analysis shows t h a t many c e r t i f i c a t e inspections and 95
percent of pending f o l l ow- up inspections are overdue. F a i l u r e t o perform
needed inspections can r e s u l t i n accidents.
* Phoenix and Tucson had b o i l e r inspection departments before the State
established the B o i l e r Section. The two c i t i e s continue t o regulate
b o i l e r s w i t h i n t h e i r j u r i s d i c t i o n s . The State Boiler Section
statutes require t h a t the c i t y rules and regulations be equivalent t o
State r u l es and regulations.
C e r t i f i c a t e Inspections - The B o i l e r Section i s behind schedule i n i t s
b o i l e r c e r t i f i c a t e inspections. C e r t i f i c a t e inspections, performed by
Section or special inspectors,* a r e p e r i o d i c inspections required by
regulation. Rule 4- 13- 402. B requires t h a t power b o i l e r s be inspected
annually and process b o i l e r s and jacketed steam k e t t l e s be inspected
every 2 years. The Section performs i n i t i a l inspections o f hot water
heating and hot water supply boilers. The Section maintains a f i l e card
for each b o i l e r w i t h i n i t s j u r i s d i c t i o n and records inspections and
requirements or v i o l a t i o n s found during inspections. Our analysis o f a
sample** of 50 cards with a t o t a l o f 69 inspections*** shows t h a t as of a
June 1984, 68 percent of the b o i l e r s were overdue f o r inspection. A t
l e a s t 29 percent were more than 1 year overdue ( Tab1 e 3).
* A. R. S. 923- 485 a1 lows ADOSH t o issue c e r t i f i c a t e s f o r " special
inspectors" t o companies operating b o i l e r s and t o insurance company
b o i l e r inspectors. The c e r t i f i c a t e a1 1 ows a company inspector t o
inspect any b o i l e r or l i n e d hot water storage heater insured by t h a t
company. The company must submit a copy o f i t s inspection report t o
the B o i l e r Section. If a b o i l e r i s not insured o r the insurance
company does not perform the inspection and submit a report, the
Section i s responsible f o r inspecting the b o i l e r .
** Due t o the B o i l e r Section's poor record keeping, a s t a t i s t i c a l l y
random sampl e coul d not be performed. Instead, a nonstati s t i c a l ,
judgmental sample was taken. A1 though the sample r e s u l t s cannot be
projected f o r the population, they do i n d i c a t e s i g n i f i c a n t problems
with timely inspections.
*** B o i l e r inspections may be both i n t e r n a l and external. When
inspection cards showed both types of inspections, the analysis
1 i s t e d two inspections; thus the sample of 50 provides information on
69 inspections.
TABLE 3
CERTIFICATE INSPECTION SAMPLE RESULTS
AS OF JUNE 1 984
Number of
Inspection ~ t a t u s ( 1 ) Cases Percentage
I n Compl iance
Inspection not y e t overdue
Inspection w i t h i n period
Subtotal
Not i n Compliance
Inspection overdue by
0- 6 months
7- 12 months
. 13- 24 months
Over 24 months
Subtotal
Total s
Source: Compiled by Auditor General s t a f f from B o i l e r Section i nspection
records
( 1) An inspection i s i n compliance i f performed w i t h i n 30 days o f the due
date when performed by Section inspectors, or w i t h i n 90 days o f the
due date when performed by special inspectors. Statutes and r u l e s
and regulations allow the additional days. Results i n Table 3
i n c l u d e t h e 30 and 90 day periods.
Follow- up Inspections - I n addition t o the c e r t i f i c a t e inspection
back1 og, f o l l ow- up inspections are overdue. When an inspector notes a
code v i o l a t i o n during a c e r t i f i c a t e inspection, an abatement date i s
established, usually 30 days a f t e r the o r i g i n a l inspection, by which time
the b o i l e r must be i n compliance. To ensure the problem i s corrected,
the inspector should perform a follow- up inspection a t the end of the
abatement period. The Section does not issue the c e r t i f i c a t e u n t i l the
follow- up inspection i s performed and the b o i l e r i s found t o be i n
compliance. A copy of the o r i g i n a l inspection report i s kept i n a
pending f i l e u n t i l a follow- up report i s received. Our analysis of the
follow- up inspections not y e t performed shows t h a t the abatement deadline
had elapsed i n 95 percent of the cases ( Table 4).
TABLE 4
FOLLOW- UP PENDING FILE AS OF JUNE 14, 1984
Status Cases Percentage
Follow- up inspection not y e t due 6 5%
overdue( l)
0- 3 months
4- 6 months
7- 9 months
10- 12 months
Over 1 year
Total s
( 1 ) Thi r t y - t h r e e reports i n the f i l e 1 i sted no abatement date. According
t o the chief b o i l e r inspector, i f no date i s l i s t e d the follow- up
inspection should be performed w i t h i n 30 days o f the o r i g i n a l
inspection. Therefore, we included the 33 reports with no abatement
date i n our analysis, c a l c u l a t i n g t h e abatement date as 30 days a f t e r
the inspection date.
Source: Compiled by Auditor General s t a f f from B o i l e r Section
follow- up pending f i l e as o f June 14, 1984
Accident Potential - F a i l u r e t o perform periodic inspections can increase
the r i s k of accidents and i n j u r i e s . A1 though t h e c h i e f b o i l e r inspector
said no b o i l e r accidents were reported t o the Section i n 1983, National
Board of B o i l e r and Pressure Vessel Inspectors ( NBBPVI) s t a t i s t i c s show
t h a t b o i l e r incidents are common nationwide, and may r e s u l t i n i n j u r y or
death ( Table 5). An NBBPVI study found t h a t poor maintenance and t e s t i n g
of controls are the major causes of accidents. The NBBPVI states t h a t
inspections and proper maintenance are important for b o i l e r safety.
TABLE 5
NATIONAL INCIDENT REPORT 1982 AND 1983
Type o f B o i l e r Acci dents I n j u r i e s Deaths
Power Boi 1 ers 1,062 1,137 29 39 5 6
Steam & Hot Water
Heating Boilers &
Fired Hot Water
Storage Tanks 835 1,051 74 35 9 13
Cast Iron Boilers - 1,784 - 1,378 - 10 - 13 - 0 - 3
Total s - 3.681 - 3.566 -- 113 - 87 -- 14 2- 2
Source: National Board B u l l e t i n , Apri 1 1983 and A p r i l 1984, NBBPVI
Scheduling I s I n s u f f i c i e n t
The inspection backlog i s a r e s u l t of i n e f f i c i e n t scheduling. Scheduling
i s inadequate because inspection needs cannot be determined due t o poor
record keeping. Inspection schedules are not grouped by b o i l er 1 ocation
thus causing excessive t r a v e l . I n addition, follow- up inspections are
not 1 i m i ted t o b o i l e r s w i t h serious violations.
Needs Not Determined - The Section cannot determine i t s inspection needs
because i t s records do not accurately indicate the number of b o i l e r s
requi r i n g regular inspections. A1 though the c h i e f b o i l er inspector
stated t h a t the Section regulates more than 13,000 b o i l e r s , t h e a c t u a l
number may be s i g n i f i c a n t l y less. From the 13,000 b o i l e r tag numbers
t h a t should correspond t o b o i l e r s regulated by the Section, our a u d i t
team generated a l i s t o f 297 random numbers and selected corresponding
Section f i l e cards. The cards are numerically f i l e d with numbers
corresponding t o metal tag numbers placed on the b o i l e r s during the f i r s t
inspection. O f the 297 numbers selected only 97, o r 33 percent, were f o r
b o i l e r s requiring periodic or i n i t i a l inspections. Most o f the sample,
approximately 67 percent, consisted of missing cards,* u n i t s not under
the Section's j u r i s d i c t i o n , or those with undetermined inspection
requirements ( Tab1 e 6).
TABLE 6
INSPECTION CARD FILE SAMPLE
AS OF JUNE 1984
Number i n Category Percentage
Require Inspection
Periodic Inspection ( 1- 2 years)
I n i t i a l Inspection Only - 64
Subtotal 9 7
Do Not Require Inspection
Card Missing
No ~ u r i s d i c t i o n
Unknown
Subtotal
Total
Source: Compiled by Auditor General Staff from B o i l e r Section Inspection
Card F i l e
No Grouping by Location - The B o i l e r Section does not organize
c e r t i f i c a t e inspections e f f i c i e n t l y . Presently, c e r t i f i c a t e inspections
are scheduled according t o fol 1 ow- up p r i o r i t i e s and c e r t i f i c a t e
expiration dates. For example, when a f o l l ow- up inspecti on i s conducted
i n the Flagstaff area the inspector selects b o i l e r s i n the v i c i n i t y with
expiring c e r t i f i c a t e s . However, a l l b o i l e r s i n the Flagstaff area do not
expire i n the same month. Consequently, the inspector must return t o the
same area several times a year t o perform c e r t i f i c a t e and follow- up
inspections.
* If a b o i l e r s e r i a l number does not have a corresponding card i n the
Section f i l e s , the Section assumes the number has not been assigned.
Occasionally the Section gives blocks of metal tags t o insurance
companies. When a company inspects a new b o i l e r , it should send the
inspection report with the s e r i a l number t o the Section. As a
r e s u l t , the card f i l e s do not account for large blocks of s e r i a l
numbers.
I n contrast, the ADOSH Elevator Section groups elevators by 1 ocation. It
performs annual c e r t i f i c a t i o n inspections on a l l elevators i n an area a t
one time. If a new c e r t i f i c a t e i s issued during the year, t h e e l e v a t o r
i s inspected again with the annual area inspection, thereby maintaining
consistent expiration dates.
Fol low- Up Inspections - The Section coul d f u r t h e r improve e f f i c i e n c y by
1 i m i t i n g on- si te follow- up inspections t o b o i l e r s w i t h serious
violations. As discussed e a r l i e r , when a code v i o l a t i o n i s noted during
an inspection, the inspector sets an abatement date and returns t o the
s i t e t o ensure t h a t the v i o l a t i o n has been corrected. Follow- up
inspections take p r i o r i t y i n scheduling and thus preclude inspectors from
concentrating on c e r t i f i c a t e inspections.
I n contrast, the ADOSH Elevator Section does not perform on- site
follow- up inspections f o r a l l violations. Nonserious cases require t h a t
the elevator owner send evidence o f compliance s t a t i n g t h a t the v i o l a t i o n
has been corrected. El iminating on- si te f o l l ow- up inspections, except
f o r serious v i o l a t i o n s would a l l o w t h e B o i l e r Section t o focus on
c e r t i f i c a t e inspections.
CONCLUSION
The b o i l e r inspection program i s inadequate. The ADOSH B o i l e r Section i s
behind on c e r t i f i c a t i o n inspections. Most inspections do not occur
w i t h i n the required time. Poor records and inadequate schedul i ng
procedures cause a back1 og of c e r t i f i c a t e inspections.
RECOMMENDATIONS
The ADOSH B o i l e r Section should take the following steps t o improve i t s
inspection program.
1. Update i t s record keeping system t o provide accurate information on
inspection needs.
2. Group c e r t i f i c a t e e x p i r a t i o n d a t e s according t o location.
3. L i m i t on- si t e follow- up inspections t o b o i l e r s w i t h serious
violations.
OTHER PERTINENT INFORftTION
A1 though Arizona administers an occupational safety and heal t h program,
no val id evidence suggests that the State program is more or less
effective than a Federally administered program. Arizona i s among the
states that administer their own occupational safety and health program,
while other states 1 eave this responsibil i t y to the Federal government.
Arizona's program meets Federal requirements. However, our research did
not reveal any val i d indicators of the program's effectiveness.
Available data suggests that injury and illness incident rates i n Arizona
have declined, b u t the decline cannot be fully attributed to Arizona's
occupational safety and health program. As a result, the impact of a
State program versus a Federal program i s not clear.
Federal Law A1 lows States
To Have Own Proarams
The Federal Occupational Safety and Health Act, enacted by Congress i n
1970, gives states the option to administer their own programs or rely
solely on the Federal government to administer the program. Arizona
administers i t s own occupational safety and health program.
State vs. Federal Program - Twenty- four states or jurisdictions,
including Arizona, administer their own occupational safety and health
programs, while the remainder rely on the Federal government to operate
the programs i n their states.* For states relying entirely on a Federal
program, the Federal government funds 100 percent of the program costs;
for those w i t h state control, the Federal government funds up to 50
percent of the operating costs. If a state chooses to develop its own
program, the program must be deemed as effective as the Federal program
to recei ve final approval.
* Of 57 states and jurisdictions, 24 have approved s t a t e occupational
safety and health plans ( one of these plans covers pub1 ic employees
only). As of August 1, 1984, 21 of the 24 states and jurisdictions
w i t h state plans had received plan certification, and two received
final approval i n April 1984. Final approval for s t a t e programs was
delayed due to a 1978 U. S. District Court decision requiring states
to meet benchmark staffing 1 eve1 s.
State program admini s t r a t i on has both advantages and disadvantages
compared with Federal administration. Some o f the reasons given for
states choosing t o have t h e i r own occupational safety and health programs
are: 1 ) independent programs a1 1 ow states t o continue a c t i v i t i e s a1 ready
i n progress a t the time the Occupational Safety and Health Act was
enacted i n 1970, 2) states w i t h t h e i r own programs devote more resources
t o promote safety and health, and 3) state programs allow greater
f l e x i b i l i t y and control t o meet i n d i v i d u a l s t a t e needs. Some o f the
reasons given f o r not having state programs are: 1 ) t h e s t a t e must fund
a t l e a s t 50 percent o f the program costs while Federally controlled
programs are funded 100 percent by Federal monies, and 2) v a r i a b i l i t y of
state plans l i m i t s nationwide uniformity i n program implementation and
administration.
Arizona's state Plan - Arizona i s among the states t h a t administer t h e i r
own plan. The Occupational Safety and Health Act o f Arizona was enacted
i n 1971 and placed under the j u r i s d i c t i o n o f the I n d u s t r i a l Commission o f
Arizona ( ICA). The Arizona Division of Occupational Safety and Health
( ADOSH) has sections t o enforce safety and health standards and
regulations. The costs of Arizona's occupational safety and heal t h
program, approximately $ 1.7 m i 11 ion f o r f i s c a l year 1982- 83, are funded
by both Federal and State monies.
Major revisions were made t o Arizona's Occupational Safety and Health Act
i n 1972 t o protect workers from unsafe working conditions. The i n t e n t o f
the Arizona l e g i s l a t u r e i n e s t a b l i s h i n g t h e Act i s stated as follows:
" The l e g i s l a t u r e declares it t o be i t s purpose and pol i c y t o
assure so f a r as possible every working man, woman and c h i l d i n
the state safe and healthful working conditions and t o preserve
our human resources. "
Authority f o r enforcement o f the Act was placed w i t h i n the Arizona
Division of Occupational Safety and Health o f ICA. P r i o r t o i t s
enactment, the I n d u s t r i a l Commission o f Arizona had a Division of
Safety. According t o the d i r e c t o r o f ADOSH, the Federal Government
preempted t h e s t a t e program i n October 1972 due t o several statutory
deficiencies, including Arizona's failure to s t a t u t o r i l y provide
sanctions for viol ations found i n i n i t i a l inspections. Once the statutes
were amended to correct the deficiencies, the preemption was l i f t e d .
Arizona's state plan received i n i t i a l Federal approval i n 1974. The
program is currently being evaluated for final approval. If the
evaluation finds the State program to be as effective as the Federal
program, Arizona will be eligible for final approval. According to a
Federal o f f i c i a l , Arizona is expected to receive final approval i n the
f a l l of 1984. As of August 1984 the only requirement Arizona's program
needed for final approval was for ICA to adopt a standard regarding
empl oyee access to medical records.
ADOSH has sections to enforce occupational safety and health standards
and regul a t i ons - Safety Compl i ance, Heal t h Compl i ance, and Consul t a t i on
and Training. The two Compliance Sections inspect work places for
safety and health violations, and may c i t e employers for violations. The
Consultation and Training Section provides nonpunitive safety and health
consul tation and training upon request.
ADOSH receives State funds from premium taxes on workers' compensation
insurance carriers and sel f- insured employers, and is financed up to 50
percent by federal funds.* Federal and State expenditures for fiscal
years 1981 - 82 through 1983- 84 are presented i n Tabl e 7.
x Although the State program i s financed up to 50 percent by Federal
funds, the Federal and State figures i n Tabl e 7 are not equal because
ADOSH expenditures i ncl ude Boi 1 er and Elevator Section expendi tures
not covered by Federal funds. In addition, according to ICA's chief
accountant, the Federal and State fiscal years are on different
cycles.
TABLE 7
F u l l Time
SUMMARY OF FEDERAL AND
STATE EXPENDITURES FOR ADOSH
FOR FISCAL YEARS 1981- 82 THROUGH 1983- 84
Actual Actual Estimated
Equivalent Positions Not Available 5 3 5 2
Expenditures:
Federal $ 686,700 $ 893,700 $ 763,800
State 930,200 827,900 847,600
Total $ 1,616.900 $ 1,721,600 $ 1 ,611.400
Source: I n d u s t r i a l Commission of Arizona budget requests for 1983- 84 and
1984- 85
Impact Of Arizona's Occupational Safety
And Health Program I s Unclear
Although ADOSH has a comprehensive occupational safety and health
program, which i s expected t o be determined by Federal a u t h o r i t i e s t o be
as effective as the Federal program, our research d i d not reveal any
indicators t o judge the program's effectiveness. Arizona's i n j u r y and
i l l n e s s incident rates are above the national l e v e l but have steadily
declined i n recent years. The d i r e c t o r of ADOSH indicated it i s more
advantageous f o r Arizona t o r e t a i n i t s own state program than r e l y on a
Federally administered program.
Lack of Indicators - Although Federal a u t h o r i t i e s are expected t o deem
Arizona's safety and health program t o be as effective as the Federal
Program, our research d i d not uncover any v a l i d indicators f o r measuring
the effectiveness o f e i t h e r the Federal o r State program. Since the
Purpose of the Occupational Safety and Health Administration ( OSHA) i s t o
reduce occupational i n j u r i e s and ill nesses, the Bureau of Labor
S t a t i s t i c s ( BLS) i n j u r y and i l l n e s s i n c i d e n t r a t e s are indicators t o
determine the effectiveness of programs. * However, the BLS incident
rates are not valid for comparing a s t a t e ' s performance against the
national average or against another state. Such a comparison could be
invalid due to the influence of factors unrelated to OSHA on the injury
rates, such as differences among state employment rates, types of
industries, and seasonal activity. Therefore, reductions i n BLS injury
and illness rates cannot be directly traced to e f f o r t s of OSHA. A 1983
study by the Congressional Research Service attempted to evaluate the
effectiveness of state plan states as compared to Federal program states
i n reducing BLS incident rates. Study results suggest that perhaps " the
most important way of measuring a s t a t e ' s performance i s against i t s own
improvement rather than i n relation - to other states."
Arizona Incident Rates - Arizona incident rates are above the national
average but have steadily decl i ned since 1979. According t o s t a t i s t i c s
gathered through BLS surveys, Arizona's total injuries and i l l nesses have
declined by approximately 29 percent, from 12.4 per 100 workers in 1979
to 8.8 per 100 workers i n 1982. A t the same time, total national
injuries and illnesses have also declined by 19 percent, from 9.5 per 100
workers i n 1979 to 7.7 per 100 workers i n 1982.**
For areas i n which ADOSH has directed i t s efforts, improvement i n the
injury and illness ratings has been even greater. Arizona's e f f o r t s
regarding inspections and consul tations are general ly focused on
construction and manufacturing, the high hazard industries. In
construction, Arizona injury and illness incidents per 100 workers
declined from 22.6 i n 1979 to 15.8 i n 1982. A t the same time, the
* Incident rates are determined for total cases, l o s t workday cases,
and 1 ost workdays. S t a t i s t i c s are gathered annual ly , are avai 1 able
by state or national average, and are categorized by industry. The
total cases show a11 injuries and illnesses per 100 full- time
workers. The l o s t workday cases count a l l injuries and illnesses
that result i n absence from work beyond the day of injury. The l o s t
workdays are the average number of days l o s t from work per 100
full- time workers as a result of occupational injury o r i l l n e s s .
This measure shows the severity of accidents and illnesses.
** BLS incident rates for 1983 were not available a t the time of our
review. BLS surveys are conducted subsequent to the year's
completion ( i. e., 1983 information is gathered in 1984).
5 7
national levels dropped from 16.2 in 1979 to 14.6 in 1982 ( Figure 4). In
manufacturing, Arizona injury and i l l n e s s rates declined from 16.7 i n
1979 to 10.6 i n 1982, while the national levels f e l l from 13.3 to 10.2
( Figure 5).
FIGURE 4
CONSTRUCTION INJURY AND ILLNESS RATES
1979 THROUGH 1982
Incidents 24,
Per
100 Workers
1 , Year
1979 1980 1981 1982
22 -
20 -
18 -
15.7 15.1 State
- 6
Source: Graph prepared by Auditor General s t a f f using figures obtained
from the 1979 through 1982 Arizona Occupational Injury and
I1 1 ness Survey, Management Information Section, Industrial
Commission; and the Federal Occupational Injuries and I1 1 nesses
Survey, U. S. Department of Labor, Bureau of Labor S t a t i s t i c s .
14 -,
Federal
FIGURE 5
MANUFACTURING INJURY AND ILLNESS RATES
1979 THROUGH 1982
Incidents 181
Per
100 Workers
Source: Graph prepared by Auditor General s t a f f using figures obtained
from the 1979 through 1982 Arizona Occupational I n j u r y and
I 1 1 ness Survey, Management Information Section, I n d u s t r i a l
tommi ssion; and the Federal Occupational I n j u r i e s and I 1 1 nesses
Survey, U. S. Department o f Labor, Bureau o f Labor S t a t i s t i c s .
Advantages o f ADOSH - According t o the director o f ADOSH, it i s more
advantageous f o r Arizona t o r e t a i n i t s own State program than t o convert
t o Federal control. The director indicated t h a t most benefits o f keeping
a state plan are intangible. The State plan allows Arizona t o establish
day- to- day relations with industry, have l e g i s l a t i v e oversight, have
greater personal accessi b i l i ty than a Federal program w i t h regional
staff, and t o conduct continuous consultations.* He added t h a t a1 though
the State program has the same parameters as the Federal program, the
State plan a1 1 ows f l e x i b i l i t y i n addressing 1 ocal issues.
* Continuous monthly consultations are conducted w i t h p a r t i c i p a t i n g
construction employers. They are free, nonpuni t i v e inspections of
employer job s i t e s f o r compl iance w i t h occupational safety and health
standards. Arizona i s a pioneer state i n o f f e r i n g continuing
consul t a t i ons.
Effect O f State vs. Federal
Proqram Cannot Be Determined
The decision as t o whether Arizona should r e t a i n a state plan or convert
t o a Federal program depends l a r g e l y on t h e extent t o which it i s
desirable f o r Arizona t o d i r e c t l y control occupational safety and health
a c t i v i t i e s . No concrete evidence exists t o determine the effectiveness
of e i t h e r the state or Federal programs. I n addition t o a lack o f
effectiveness measures, several studies indicate t h a t compl iance with
safety standards may have 1 i m i ted impact on occupational i n j u r i e s .
The lack o f v a l i d effectiveness measures does not allow us t o determine
whether the State program i s most e f f e c t i v e i n reducing occupational
i n j u r i e s and ill nesses or whether Arizona woul d have fewer occupational
i n j u r i e s and ill nesses under Federal control.
I n addition t o the lack o f effectiveness indicators, the p o t e n t i a l f o r
reducing i n j u r i e s through any occupational program may be limited.
According t o several studies o f manufacturing plants published between
1966 and 1976, most occupational i n j u r i e s are caused by uncontroll able
hazards unrelated t o safety standards. The r e l a t i o n s h i p between safety
standards and i n j u r i e s suggests t h a t the maximum potential impact o f OSHA
on i n j u r y rates i s probably i n the range o f a 15 t o 25 percent
reduction. I n addition, the greatest i n j u r y reduction i s i n work places
t h a t are inspected. If OSHA inspects only a small percentage o f a l l
establishments, t h e o v e r a l l impact on aggregate i n j u r y rates w i l l be
mini ma1 .
AREAS FOR FURTHER AUDIT WORK
During the audit, we i d e n t i f i e d several potential issues t h a t we were
unable t o complete due t o time constraints. We have l i s t e d these issues
as areas f o r f u r t h e r a u d i t work.
a Can the assessments on workers' compensation premiums be
collected more e f f i c i e n t l y ?
The two premium taxes t h a t support the I n d u s t r i a l Comnission o f
Arizona ( ICA) functions are collected separately although they
are derived from the same source. A 3 percent assessment against
employers' insurance premiums i s collected f i r s t by the State
Insurance Department and then passed on t o ICA for administrative
expenditures. However, I C A c o l l e c t s the 1.5 percent levy f o r the
Special Fund d i r e c t l y from the insurance carriers. Both amounts
are computed from the same workers' compensation insurance
premi urns, y e t the c a r r i e r s must submit separate tax statements.
Further a u d i t work i s necessary t o determine whether a uniform
c o l l e c t i o n process would be more e f f i c i e n t .
a Should ICA or the State Treasurer be responsible f o r t h e Special
Fund investments?
ICA manages Special Fund investments separately from the State
Treasurer's cash management program. Further a u d i t work i s
needed t o determine whether ICA should continue i t s own
investments, or use the State Treasurer's cash management program.
a Should death b e n e f i t payments required when no dependent e x i s t s
be adjusted f o r i n f l a t i o n or abolished?
A. R. S. $ 23- 1065. A requires an empl oyer or i nsurance c a r r i e r t o
pay $ 1,150 t o the I C A Special Fund upon the work related death of
an employee without dependents. This amount has not changed
since 1945. Similar fees i n other states exceed $ 17,000 per
death. According t o the ICA d i r e c t o r , t h e fee i s not necessary
since it only provides about $ 20,000 annually i n ICA revenues.
Further audit work i s needed t o determine whether the fee should
be adjusted t o current monetary values or abolished.
e Are cost projections f o r the new ICA b u i l d i n g ' s operating and
maintenance costs r e a l i s t i c ?
The ICA Special Fund investment committee estimates t h a t it w i l l
cost $ 5 per square f o o t per year t o operate and maintain i t s new
building. Operation and maintenance costs are approximately
$ 8.90 f o r the average Arizona State b u i l d i n g and exceed $ 8.50 f o r
a b u i l d i n g comparable t o the new ICA b u i l d i n g i n size and
construction. I C A does not plan t o charge f o r depreciation or
administration, which account for $ 4.90 o f t h e square f o o t
operating cost i n the average State building. Further a u d i t work
i s needed t o determine whether the ICA cost projections are
r e a l i s t i c and what e f f e c t , if any, differences between the
projections and average costs w i l l have on the Special Fund.
e Should the scope o f b o i l e r inspections be expanded t o include
other p o t e n t i a l l y dangerous heating units?
Arizona b o i l e r regulations do not r e q u i r e t h e B o i l e r Section t o
p e r i o d i c a l l y inspect l i n e d hot water heaters, unfired pressure
vessels, or hot water heating and hot water supply heaters, a l l
o f which are p o t e n t i a l l y dangerous. Phoenix regulates and
periodical 1 y inspects these u n i t s f o r commercial and i ndustri a1
establishments. Some other states also have a more expanded
scope o f inspections. Further a u d i t work i s needed t o f u l l y
document the need for and the cost o f an expanded scope of
inspection.
Can Arizona workers obtain r e l i e f f o r right- to- work law
v i o l a t i o n s from ICA?
Attorney General Opinion # 78- 70 states t h a t ICA has been charged
with the duty o f enforcing the right- to- work law. However, ICA
c l aims it 1 acks the a b i l i ty t o hand1 e right- to- work problems
because it has no s p e c i f i c s t a t u t o r y a u t h o r i t y t o do so. Rather,
A. R. S. $ 23- 1 07. A states generally t h a t ICA must administer and
enforce a l l laws t o protect Arizona c i t i z e n s when such duty i s
not delegated t o any other agencies. Further audit work i s
needed t o determine whether I C A involvement i n t h i s area i s
necessary and whether statutes s houl d define t h i s i nvol vement
more clearly.
e I s ICA's function t o protect Arizona's employed youth necessary
and s u f f i c i e n t ?
The I n d u s t r i a l Commission, a1 though l e g a l l y charged with making
rules t o define and amp1 i fy hazardous occupation prohibitions,
has not promulgated rules or taken any other s i g n i f i c a n t action
on c h i l d labor matters. However, the State has l i t t l e authority
to enforce c h i l d labor laws, and the 1 imited laws duplicate
Federal e f f o r t t o some extent. Even w i t h some Federal protection
there may be deficiencies i n both laws. According t o the Lab