Independent Auditors' Report — KPMG LLP, Financial Section, U.S. Department of Labor

Summary

KPMG LLP Independent Auditors' Report to the Secretary and Inspector General of the U.S. Department of Labor on the audit of DOL's financial statements, from the FY 2022 Agency Financial Report, giving a qualified opinion on the consolidated financial statements as of September 30, 2022. The basis for the qualified opinion says DOL reported remaining obligations from prior year of $7.9 billion, net of a $39.4 billion downward adjustment, related to COVID-19 unemployment insurance programs. It also says DOL reported COVID-19 related unemployment insurance benefit overpayments of $3.5 billion in accounts receivable. KPMG states it was unable to obtain sufficient appropriate audit evidence about the methodology and assumptions used to estimate the balances and so could not determine whether adjustments were necessary.

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Financial Section




                                KPMG LLP
                                Suite 12000
                                1801 K Street, NW
                                Washington, DC 20006




                                                Independent Auditors’ Report


  Secretary and Inspector General
  United States Department of Labor

  Report on the Audit of the Financial Statements
  Qualified Opinion on the Consolidated Financial Statements and Opinion on the Sustainability Financial
  Statements
  We have audited the financial statements of the United States (U.S.) Department of Labor (DOL), which
  comprise the consolidated financial statements and the sustainability financial statements. The consolidated
  financial statements comprise the consolidated balance sheet as of September 30, 2022, and the related
  consolidated statements of net cost and changes in net position, and combined statement of budgetary
  resources for the year then ended, and the related notes to the consolidated financial statements.

  The sustainability financial statements comprise the statements of social insurance as of September 30, 2022,
  2021, 2020, 2019, and 2018, the statements of changes in social insurance amounts for the years ended
  September 30, 2022 and 2021, and the related notes to the sustainability financial statements.

  In our opinion, except for the possible effects on the 2022 consolidated financial statements of the matters
  described in the Basis for Qualified Opinion on the Consolidated Financial Statements and Basis for Opinion on
  the Sustainability Financial Statements section of our report, the accompanying consolidated financial
  statements present fairly, in all material respects, the financial position of the United States Department of
  Labor as of September 30, 2022, and its net costs, changes in net position, and budgetary resources for the
  year then ended in accordance with U.S. generally accepted accounting principles.

  Also, in our opinion, the accompanying sustainability financial statements present fairly, in all material
  respects, the United States Department of Labor’s social insurance information as of September 30, 2022,
  2021, 2020, 2019, and 2018, and its changes in social insurance amounts for the years ended September 30,
  2022 and 2021 in accordance with U.S. generally accepted accounting principles.

  Basis for Qualified Opinion on the Consolidated Financial Statements and Basis for Opinion on the
  Sustainability Financial Statements
  In fiscal year 2022 DOL reported remaining obligations from prior year in the amount of $7.9 billion, net of a
  current year downward adjustment in the amount of $39.4 billion, related to the unemployment insurance
  programs enacted during the COVID-19 pandemic. These amounts are reflected in the unobligated balance


                                KPMG LLP, a Delaware limited liability partnership and a member firm of
                                the KPMG global organization of independent member firms affiliated with
                                KPMG International Limited, a private English company limited by guarantee.




                                                                                                      FY 2022 Agency Financial Report 29
Financial Section




  from prior year budget authority, net, caption of the combined statement of budgetary resources for the year
  ended September 30, 2022. The obligations were comprised of $3.0 billion in undelivered orders- paid (public)
  and $4.9 billion in undelivered orders – unpaid (public). DOL also included information related to these
  obligations and the downward adjustments in notes 18.A, 18.D, 18.E, and 25. We were unable to obtain
  sufficient appropriate audit evidence about the methodology and certain underlying assumptions used to
  estimate the balances in fiscal year 2022. Consequently, we were unable to determine whether any
  adjustments to these amounts were necessary.

  In addition, DOL reported COVID-19 related unemployment insurance benefit overpayments, net of allowance
  for uncollectible accounts, in the amount of $3.5 billion, in the accounts receivable, net (with the public),
  caption in the consolidated balance sheet as of September 30, 2022. DOL also included information related to
  the accounts receivable and the allowance for uncollectible accounts in notes 4, 19, 21 and 25. We were
  unable to obtain sufficient appropriate audit evidence about the methodology and certain underlying
  assumptions used in developing the estimated component of the related account balances in fiscal year 2022.
  Consequently, we were unable to determine whether any adjustments to these amounts were necessary.

  We conducted our audits in accordance with auditing standards generally accepted in the United States of
  America (GAAS), the standards applicable to financial audits contained in Government Auditing Standards,
  issued by the Comptroller General of the United States, and Office of Management and Budget (OMB) Bulletin
  No. 22-01, Audit Requirements for Federal Financial Statements. Our responsibilities under those standards
  and OMB Bulletin No. 22-01 are further described in the Auditors’ Responsibilities for the Audit of the
  Financial Statements section of our report. We are required to be independent of DOL and to meet our other
  ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe
  that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified
  audit opinion on the consolidated financial statements and audit opinion on the sustainability financial
  statements.

  Emphasis of Matter
  As discussed in Notes 1-W and 1-Y to the financial statements, the sustainability financial statements are
  based on management's assumptions. These sustainability financial statements present the actuarial present
  value of DOL's estimated future income to be received and future expenditures to be paid using a projection
  period sufficient to illustrate long-term sustainability. The sustainability financial statements are intended to
  aid users in assessing whether future resources will likely be sufficient to sustain public services and to meet
  obligations as they come due. The statements of social insurance and changes in social insurance amounts are
  based on income and benefit formulas in current law and assume that scheduled benefits will continue after
  any related trust funds are exhausted. The sustainability financial statements are not forecasts or predictions.
  The sustainability financial statements are not intended to imply that current policy or law is sustainable. In
  preparing the sustainability financial statements, management considers and selects assumptions and data
  that it believes provide a reasonable basis to illustrate whether current policy or law is sustainable.
  Assumptions underlying such sustainability information do not consider changes in policy or all potential
  future events that could affect future income, future expenditures, and sustainability, for example,
  implementation of policy changes to avoid trust fund exhaustion or unsustainable debt levels. Because of the
  large number of factors that affect the sustainability financial statements and the fact that future events and
  circumstances cannot be estimated with certainty, even if current policy is continued, there will be differences
  between the estimates in the sustainability financial statements and the actual results, and those differences
  may be material. Our opinion on the sustainability financial statements is not modified with respect to this
  matter.




30 United States Department of Labor
                                                                                  Independent Auditors’ Report




Other Matter - Interactive Data
Management has elected to reference to information on websites or other forms of interactive data outside
the Agency Financial Report to provide additional information for the users of its financial statements. Such
information is not a required part of the financial statements or supplementary information required by the
Federal Accounting Standards Advisory Board. The information on these websites or the other interactive data
has not been subjected to any of our auditing procedures, and accordingly we do not express an opinion or
provide any assurance on it.

Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with U.S. generally accepted accounting principles, and for the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of financial statements that
are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our
opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not
a guarantee that an audit conducted in accordance with GAAS, Government Auditing Standards, and OMB
Bulletin No. 22-01 will always detect a material misstatement when it exists. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate,
they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, Government Auditing Standards, and OMB Bulletin No. 22-
01, we:

   • Exercise professional judgment and maintain professional skepticism throughout the audit.

   • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
     or error, and design and perform audit procedures responsive to those risks. Such procedures include
     examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

   • Obtain an understanding of internal control relevant to the audit in order to design audit procedures
     that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
     effectiveness of DOL’s internal control. Accordingly, no such opinion is expressed.

   • Evaluate the appropriateness of accounting policies used and the reasonableness of significant
     accounting estimates made by management, as well as evaluate the overall presentation of the
     financial statements.

We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control related matters
that we identified during the audit.

Required Supplementary Information
U.S. generally accepted accounting principles require that the information in the Management’s Discussion
and Analysis and Required Supplementary Information sections be presented to supplement the financial



                                                                           FY 2022 Agency Financial Report 31
Financial Section




  statements. Such information is the responsibility of management and, although not a part of the financial
  statements, is required by the Federal Accounting Standards Advisory Board who considers it to be an
  essential part of financial reporting for placing the financial statements in an appropriate operational,
  economic, or historical context. We have applied certain limited procedures to the required supplementary
  information in accordance with GAAS, which consisted of inquiries of management about the methods of
  preparing the information and comparing the information for consistency with management’s responses to
  our inquiries, the financial statements, and other knowledge we obtained during our audits of the financial
  statements. We do not express an opinion or provide any assurance on the information because the limited
  procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

  Other Information
  Management is responsible for the other information included in the Agency Financial Report. The other
  information comprises the Message from the Secretary of Labor, Message from the Chief Financial Officer, and
  Other Information sections but does not include the financial statements and our auditors’ report thereon.
  Our opinions on the financial statements do not cover the other information, and we do not express an
  opinion or any form of assurance thereon.

  In connection with our audit of the financial statements, our responsibility is to read the other information
  and consider whether a material inconsistency exists between the other information and the financial
  statements, or the other information otherwise appears to be materially misstated. If, based on the work
  performed, we conclude that an uncorrected material misstatement of the other information exists, we are
  required to describe it in our report.

  Report on Internal Control Over Financial Reporting
  In planning and performing our audit of the financial statements as of and for the year ended September 30,
  2022, we considered the DOL’s internal control over financial reporting (internal control) as a basis for
  designing audit procedures that are appropriate in the circumstances for the purpose of expressing our
  opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of
  the DOL’s internal control. Accordingly, we do not express an opinion on the effectiveness of the DOL’s
  internal control. We did not test all internal controls relevant to operating objectives as broadly defined by the
  Federal Managers’ Financial Integrity Act of 1982.

  Our consideration of internal control was for the limited purpose described in the preceding paragraph and
  was not designed to identify all deficiencies in internal control that might be material weaknesses or
  significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not
  identified. However, as described in Exhibit I, we identified certain deficiencies in internal control that we
  consider to be a material weakness.

  A deficiency in internal control exists when the design or operation of a control does not allow management
  or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
  misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
  internal control, such that there is a reasonable possibility that a material misstatement of the entity’s
  financial statements will not be prevented, or detected and corrected, on a timely basis. A significant
  deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a
  material weakness, yet important enough to merit attention by those charged with governance. We consider
  the deficiencies described in Exhibit I to be a material weakness.




32 United States Department of Labor
                                                                                Independent Auditors’ Report




Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether DOL’s financial statements as of and for the year
ended September 30, 2022 are free from material misstatement, we performed tests of its compliance with
certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could
have a direct and material effect on the financial statements. However, providing an opinion on compliance
with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards or OMB Bulletin No. 22-01.

We also performed tests of DOL’s compliance with certain provisions referred to in Section 803(a) of the
Federal Financial Management Improvement Act of 1996 (FFMIA). Providing an opinion on compliance with
FFMIA was not an objective of our audit, and accordingly, we do not express such an opinion. The results of
our tests disclosed no instances in which DOL’s financial management systems did not substantially comply
with the (1) Federal financial management systems requirements, (2) applicable Federal accounting standards,
and (3) the United States Government Standard General Ledger at the transaction level.

DOL’s Response to Findings
Government Auditing Standards requires the auditor to perform limited procedures on DOL's response to the
findings identified in our audit and described in Exhibit II. DOL’s response was not subjected to the other
auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion
on the response.

Purpose of the Reporting Required by Government Auditing Standards
The purpose of the communication described in the Report on Internal Control Over Financial Reporting and
the Report on Compliance and Other Matters sections is solely to describe the scope of our testing of internal
control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of
the DOL’s internal control or compliance. Accordingly, this communication is not suitable for any other
purpose.




Washington, DC
December 13, 2022




                                                                         FY 2022 Agency Financial Report 33
Financial Section

Material Weakness
Exhibit I



 1. Improvements Needed in Controls Over Estimates Related to Unemployment Trust Fund (UTF)
    Balances and Activity

      Certain unemployment insurance (UI) pandemic programs were established in response to the
      COVID-19 pandemic to provide enhanced UI benefits to eligible individuals. Although the UI
      pandemic programs expired at the end of fiscal year 2021, there continued to be UI benefit
      disbursement and related activities during fiscal year 2022 that are reported in the United
      States Department of Labor’s (DOL) fiscal year 2022 consolidated financial statements and
      related notes. The preparation of the DOL financial statements requires management to make
      certain estimates and assumptions related to the UI programs that affect the reported
      amounts of assets and liabilities as of September 30, 2022, and the associated revenues and
      expenses for the year then ended. These estimates include the Obligation of COVID-19
      funding, UTF COVID-19 benefit overpayment receivables, and UTF expenses, among others.
      We noted certain management controls were not sufficiently designed and documented to
      support the methodology, assumptions, and data used to develop these estimates. The
      deficiencies noted increase the risk that misstatements in DOL’s consolidated financial
      statements could occur and not be prevented or detected and corrected in a timely manner.
      We have included below a summary of the specific issues noted:

      Obligation of COVID-19 funding

      Management updated its prior year’s estimate of UI obligations in the amount of $47.3 billion
      for certain UI claims for unemployed weeks that occurred prior to the expiration of the UI
      pandemic programs and recorded a downward adjustment of prior year’s obligation in the
      amount of $39.4 billion. However, we noted that management did not have sufficient
      processes and controls in place to properly validate the reasonableness of the methodology
      and assumptions used to re-estimate the remaining obligated amounts. This resulted in
      management’s inability to properly support the completeness, existence, and accuracy of the
      $7.9 billion remaining obligations or the $39.4 billion in downward adjustments reflected in
      the Unobligated balance from prior year authority, net, reported in the combined statement of
      budgetary resources for the fiscal year ended September 30, 2022, and the related
      information in notes 18.A, 18.D, 18.E, and 25.

      UTF COVID-19 Benefit Overpayment Accounts Receivables

      In fiscal year 2022, management developed an estimate for the UTF benefit overpayments
      accounts receivable related to the UI pandemic programs for those State Workforce Agencies
      (SWAs) that had not reported any benefit overpayment receivables to DOL as of September
      30, 2022. However, management did not have sufficient processes and controls in place to
      validate the relevance and reliability of the data and assumptions used in developing the
      estimate. This resulted in management’s inability to properly support the completeness,
      existence, and accuracy of $3.5 billion in accounts receivable, net, reported in the consolidated
      balance sheet as of September 30, 2022, and the related information disclosed in notes 4, 19,
      21, and 25.



34 United States Department of Labor
                                                                      Independent Auditors’ Report

                                                                                 Material Weakness
                                                                                           Exhibit I


UTF Expense

DOL management estimates the monthly expense for SWAs using the daily cash drawdown
data reported by SWAs until the reports reflecting the actual expenses for the month are
submitted by the SWAs, usually 30 days after the end of the month. We noted that
management’s controls over the monthly expense estimate were not sufficiently designed to
determine the completeness, existence, and accuracy of the cash drawdown data used to
calculate the estimate. Specifically, the controls did not assess whether the SWA drawdown
data contained any unusual fluctuations that would require adjustments before the data is
used in the estimate. This resulted in an initial understatement of $5.2 billion of UTF expenses
for fiscal year 2022. Management subsequently made corrections for the error because of our
finding.

The deficiencies noted above occurred because management’s risk assessment process did not
sufficiently identify and assess the risk associated with the assumptions used in the estimates,
nor assess the reliability of the underlying data used in developing the estimates, including the
data provided by SWAs.

The following criteria are relevant to the conditions noted above:

      The Government and Accountability Office Standards for Internal Control in the Federal
      Government (the Standards), Section 10.02 states:

      Management designs control activities in response to the entity’s objectives and risks to
      achieve an effective internal control system. Control activities are the policies,
      procedures, techniques, and mechanisms that enforce management’s directives to
      achieve the entity’s objectives and address related risks.

      Section 13.04 of the Standards states:

      Management obtains relevant data from reliable internal and external sources in a
      timely manner based on the identified information requirements. Relevant data have a
      logical connection with, or bearing upon, the identified information requirements.
      Reliable internal and external sources provide data that are reasonably free from error
      and bias and faithfully represent what they purport to represent. Management
      evaluates both internal and external sources of data for reliability. Sources of data can
      be operational, financial, or compliance related. Management obtains data on a timely
      basis so that they can be used for effective monitoring.

To address the deficiencies noted above, we recommend that the Deputy Chief financial
officer and the Assistant Secretary for Employment and Training:

     1. Design and implement controls over their respective estimates to ensure
        management’s review of the estimates are performed at a sufficient level of detail,
        including the methodology, underlying data, and assumptions used to develop the
        estimates;


                                                                FY 2022 Agency Financial Report 35
Financial Section

Material Weakness
Exhibit I


            2. Maintain documentation of the reviews performed to assess the reasonableness of
               the methodology, underlying data, and assumptions used to develop the estimates
               that is sufficiently detailed to evidence the specific items reviewed, analysis
               performed, and conclusions reached; and

            3. Provide additional training to the reviewers of the estimates to reinforce established
               policies and procedures, as necessary.

      Management’s Response:

      See Exhibit II for management’s response.

      Auditors’ Response:

      We will conduct follow-up procedures in FY 2023 to determine whether corrective actions
      have been developed and implemented.




36 United States Department of Labor
     Independent Auditors’ Report

          Management’s Response
                        Exhibit II




FY 2022 Agency Financial Report 37
Financial Section

Management’s Response
Exhibit II




38 United States Department of Labor
     Independent Auditors’ Report

          Management’s Response
                        Exhibit II




FY 2022 Agency Financial Report 39
Financial Section

Management’s Response
Exhibit II




40 United States Department of Labor


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