Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

Department of Industrial Relations (8350)

The mission of the Department of Industrial Relations (DIR) is to protect the workforce of California, improve working conditions, and advance opportunities for profitable employment. These responsibilities are carried out through three major programs: the adjudication of workers' compensation disputes; the prevention of industrial injuries and deaths; and the enforcement of laws relating to wages, hours, and working conditions. In addition, the department regulates self-insured workers' compensation insurance plans, provides workers' compensation payments to injured workers of uninsured employers and other special categories of employees, offers conciliation services in labor disputes, and conducts and disseminates labor force research.

The Governor's budget proposes expenditures totaling $259 million for the department in 2002-03. This is 4.1 percent less than estimated expenditures for the current year. The request includes $156 million from the General Fund, 11 percent less than 2001-02 estimated expenditures. The budget proposes to offset portions of this General Fund reduction with various special fund augmentations.

In the following sections, we discuss the effectiveness of DIR's business inspection programs and a supplemental report submitted by the department. The Supplemental Report of the 2001 Budget Act required our office to (1) analyze DIR's workload estimate for 20 additional positions authorized for the Division of Labor Standards Enforcement in the current year and (2) recommend standards for determining the adequacy of funding for DIR's various enforcement programs.

Effectiveness of Enforcement Inspection Programs

Background

Among its several duties, DIR is responsible for preventing work-related injuries and deaths through its Division of Occupational Safety and Health (DOSH). The department also is responsible for establishing standards for wages, hours, and working conditions through its Division of Labor Standards Enforcement (DLSE).

These responsibilities are carried out through a number of activities. These include issuing permits to businesses for particular activities, consulting with businesses to identify and correct workplace hazards, investigating workers' complaints about their employers and workplace conditions, and inspecting and issuing citations to businesses for violations of employment and workplace statutes and standards. In 2001-02, the budget provided $74 million for about 740 personnel-years (PYs) for DOSH and $42 million for around 460 PYs for support of DLSE activities.

Business Inspections Are Key Enforcement Tool. This analysis focuses specifically on enforcement inspections performed by DOSH and DLSE. Inspections of businesses are a primary tool DIR uses to enforce existing laws regarding workplace safety, health, and labor standards. These inspections not only reveal companies that are not complying with state law, but they can also be used to identify emerging problem areas or trends in industries as they relate to compliance with workplace health, safety, and labor standards. Both DOSH and DLSE devote a significant portion of their staff to these inspection activities. The DOSH has about 225 investigators while DLSE has around 80.

Typically, DOSH inspectors examine the workplace for compliance with safety requirements, interview employees and supervisors about work conditions, take workplace pictures and samples (air quality and noise level in the work area, for example), and review various documents such as injury logs. For DLSE, inspectors check the company's records including business registration, proof of workers' compensation insurance, payroll records to ensure wages have been paid and appropriate taxes deducted, and tax returns. Inspectors also investigate the worksite and interview employees about working conditions. After an inspection, the employer is notified of any violations, and citations are issued and penalties assessed. Depending on the severity of a violation, DIR staff may return to the worksite to confirm that the business has corrected cited violations.

On average, DOSH and DLSE conduct 9,000 and 5,000 inspections a year, respectively. About three-quarters of the inspections are investigations in response to workplace complaints or reported accidents. The remaining inspections are "programmed," or planned visits to preselected businesses. The divisions target industries for these inspections based on past complaints, known problems, or to implement new workplace standards.

How Does DIR Assess Effectiveness of Inspection Programs?

The Division of Occupational Safety and Health and the Division of Labor Standards Enforcement each use a variety of measures to assess the effectiveness of their inspection programs. In general, the focus is on activity measures such as the number of inspections performed, as opposed to outcome measures or progress toward achieving the core goals of the programs to improve workplace safety, health, and compliance with labor laws.

Measures of Effectiveness. As noted above, business inspections are a key tool for DIR's enforcement of existing law. There are three main ways to measure the effectiveness of inspections.

• Activity measures show the type and number of inspections conducted by the program. Often, these are workload- and input-oriented. These measures can include the number and type of inspections conducted, the number of violations cited, as well as penalties and back wages found due.
• Outcome measures attempt to gauge what resulted from the inspections. As such, they are better than activity measures for determining program effectiveness. Examples include penalties and back wages paid.
• Benchmark measures gauge progress toward achieving the core goals of the inspection programs to improve workplace safety, health, and compliance with labor laws. Examples of benchmarks include the number of workdays lost due to injury and overall workplace compliance with labor standards.

The DOSH Uses a Variety of Measures. Our review shows that DOSH uses a combination of measures to assess the effectiveness of its inspection program. This includes activity and outcome measures related to inspections of individual businesses. In addition, for the businesses inspected, DOSH measures the percentage of cited violations that are serious in nature and calculates a violations-per-inspection ratio. The division tracks these measures over time, and uses the information to assess the effectiveness of the division's effort in targeting specific industries for programmed inspections. While the division monitors these data, there are no established goals for these measures.

The DOSH also uses benchmark measures to assess workplace health and safety over time for particular industries, as well as across industries. For instance, for high hazard industries (that is, industries with higher than average injury rates), DOSH utilizes the lost workday incidence rate (LWDI) as a benchmark measure. The LWDI is a widely used injury indicator that measures the rate of missed or restricted-activity workdays associated with injury and illness per 100 employees. The DOSH tracks this indicator over time for the companies it inspected to see if the division's intervention is associated with a decline in this measure. For the high hazard, agriculture, and construction industries, DOSH also sets percentage goals for reducing industry-wide (that is, all businesses in the state within a particular industry) LWDI, as well as fatalities, in its annual performance plan developed for the U.S. Occupational Safety and Health Administration (OSHA), as required by federal law.

The DLSE Relies Only on Activity Measures to Assess Effectiveness. Our review shows that DLSE, unlike DOSH, focuses only on activity measures to assess the effectiveness of its inspection program. The division relies exclusively on the number of inspections performed as the key indicator of program effectiveness. As we discuss later in this analysis, this measure does not provide an indicator of compliance or indicate whether DLSE is effective in its inspections program.

Statutory Reports Focus on Inspection Activities. Current law requires both DOSH and DLSE to report on their inspection activities annually. Figure 1 summarizes the respective reporting requirements as they relate to the inspection programs. Based on the information provided in the reports, the Legislature can be informed of basic inspection activities and outcomes. However, the current reports do not address progress against any goals or benchmarks to demonstrate the impact on inspected businesses. We discuss the need for such information in the following sections.

DOSH Program Needs Overall Program Goals And Improved Reporting

We find that the Division of Occupational Safety and Health (DOSH) inspection program appears to have a positive impact on workplace safety. Nevertheless, DOSH should establish program goals to allow for better assessment of the effectiveness of the inspection program. We recommend the enactment of legislation to amend the statutory reporting requirement to include program goals and results.

Workplace Violations and Injuries Have Declined, Increased DOSH Enforcement Appears to Have an Impact. Our review of activity and outcome measures for DOSH inspections shows that increased inspection efforts in recent years have been associated with a drop in violations of workplace health and safety laws. As Figure 2 shows, the number of programmed inspections increased 40 percent between 1996 and 2000, with an accompanying decline in serious violations of 24 percent. While there has been some recent concern regarding the timeliness of the division's response to accidents and complaints, the data on inspections and violations for the last five years, when considered together, suggest that businesses have increased their compliance with workplace safety and health standards. 

The increased compliance is also evidenced by statistics compiled by the U.S. Department of Labor (U.S. DOL) for California and the nation for various industries. Figures 3 and 4 show California industry's performance versus the nation for workplace injuries that result in lost workdays (LWDI discussed above) and injuries that do not result in lost workdays, respectively. Although California LWDI exceeded the U.S. level in the middle of the period, the state rate declined more rapidly than the nation`s after 1997. For injuries without lost workdays, the California rate was better than the U.S. over the period. While these results are not entirely attributable to DOSH activities, they also suggest that the combination of state laws and DOSH enforcement improves workplace safety and health. 

Data System Allows Trend Analysis. Our review also shows that in addition to monitoring inspection-related data, DOSH has a data system that tracks collection of assessed penalties. For each year's assessed penalties, the system tracks the year of collection so that the division knows how long it takes to collect penalties. Inspection staff are notified when an assessed penalty is paid in full. The system thus helps to ensure payment of penalties so that citations have the intended effect of penalizing noncompliance.

The DOSH Should Set Overall Goals for Inspections. While DOSH sets goals for programmed inspections that target specific industries, our review finds that the division lacks goals for its inspection program overall. This includes the 61 percent of inspections that result from accidents or complaints, as Figure 2 shows.

Currently, DOSH includes industry-specific goals in its federal performance plan for high hazard, agricultural, and construction industries. These goals include reducing LWDI and the number of fatalities.

However, DOSH does not set specific goals for the entirety of inspections conducted--whether accident, complaint, programmed, or follow-up. As a result, the effectiveness of the majority of inspections cannot be evaluated against established goals. Without overall goals, it is also difficult for DOSH and the Legislature to determine the total workload for the inspections program and to set priorities for resource allocation.

We think that overall goals could be set based on standards established by existing law or in DOSH's policies and procedures. For example, statute currently specifies timeframes within which DOSH must respond to complaints and fatalities, perform follow-up inspections, and verify that inspected businesses have abated cited violations. Similarly, the division's policies and procedures currently establish five inspection priority levels as well as mandatory and discretionary follow-up inspections. Setting goals based on these requirements would provide a basis for both DOSH and the Legislature to determine the workload of the division relative to the established priorities and requirements and allocate its resources accordingly.

The DOSH Should Report on Available Data. Although DOSH compiles a substantial amount of data, our review shows that often these data are not provided in a readily accessible way that facilitates legislative oversight of the inspection program. For example, the division uses LWDI to assess high hazard companies' injury and illness experience before and after an inspection. However, DOSH does not compare this measure for the inspected companies with that for all California businesses in those industries, information that is available from U.S. DOL's injury data. Such a comparison would more readily demonstrate the impact attributable to the inspection program.

In addition, while both DOSH and federal OSHA evaluate the division's progress toward its goals set in the federal performance plan, the results of these evaluations are not made known to the Legislature.

The DOSH Should Include Information on Goals and Results in Its Annual Report. In order to facilitate legislative review and oversight, we recommend that current law be amended to require DOSH, as part of its annual report, to include the following data on program goals and effectiveness:

• The number of inspections performed in each priority level, as established by the division's policies and procedures.
• The number of mandatory and discretionary follow-up inspections performed compared to the number of follow-up inspections planned.
• Goals and results for meeting statutory timeframes for inspections.
• Goals established in the federally approved annual performance plan and actual attainment of the goals.

These changes would improve the ability of DOSH and the Legislature to assess program effectiveness.

DLSE Effectiveness Limited by Lack of Case Tracking System

Although overall labor standards compliance appears to have improved among businesses inspected by the Division of Labor Standards Enforcement, the effectiveness of the division's inspection program cannot be determined because it lacks a data management system to provide detailed inspection-related information.

Compliance Appears to Have Improved. Our review of summary inspection activity and citation data provided by DLSE suggests that among businesses inspected by DLSE, labor standards compliance appears to have improved. Figure 5 shows the number of inspections conducted by DLSE from 1996 through 2000 and the citations issued. As the figure shows, inspections increased by 16 percent from 1996 through 2000, while the number of citations issued declined by 23 percent. This suggests a generally higher level of compliance among inspected businesses, in particular in the workers' compensation insurance area where citations dropped by about 31 percent. However, citations for violation of child labor laws and regulations increased by about 21 percent over the five years.

Lack of Data System Makes Effectiveness of Inspection Program Hard to Determine. While summary data are suggestive of improved compliance in general, we cannot readily determine how effective the DLSE enforcement inspection program is in targeting particular areas of concern or industries. For instance, we cannot tell whether the improvement in workers' compensation insurance is the result of concentrated inspection efforts in particular industries or an overall general increase in compliance. This is because the division lacks a data system that provides detailed information on inspections, violations, and penalties.

For example, while the division knows the total number of inspections per year, DLSE does not keep track of the type of inspections conducted--complaint, programmed "sweep," or follow-up. In fact, the division had to manually count files to tally complaint and programmed inspections for 2000, while the data for previous years were not available at all because the division had thrown away the case files. In addition, the division has never tracked the number of follow-up inspections. The DLSE also does not track the type of citation--child labor, workers' compensation, overtime, and minimum wage, for example--for specific industries, except for garment manufacturing and agriculture, industries on which the division focuses particular attention.

Without this type of information, DLSE cannot easily identify noncompliance trends, repeat violators, or problem industries so that the division can target resources to those areas. This limits the most effective deployment of resources.

Similarly, the division's ability to secure payment of back wages and penalties is also limited by the lack of an adequate data system. For instance, data on collected penalties cannot be tied to assessed penalties because DLSE does not have an accounts receivable system to track when penalties are paid. Also, DLSE cannot track whether back wages assessed to individual businesses have been paid. This limits DLSE's ability to ensure that citations have the intended effect of penalizing noncompliance and that workers receive wages due them.

Case Management System Proposal Under Review

Pending approval of the feasibility study report by the Department of Information Technology, we withhold recommendation on the $1.1 million General Fund request for the first-year costs of a Division of Labor Standards Enforcement case management system.

As we indicated above, DLSE does not have an information management system to track inspection cases. Recognizing the need for such data, the division has submitted a feasibility study report (FSR) to the Department of Information Technology (DOIT) to develop a case tracking system at an estimated cost of $3.9 million over three years, with $0.6 million in ongoing costs. The Governor's budget includes $1.1 million to begin development of this system in 2002-03, although DOIT has not yet approved the FSR.

We think that it is important for the department to have the capability to track and identify inspection and citation data at the level of detail described above in order to maximize the effectiveness of its enforcement program. However, pending DOIT's review and approval of the system, we withhold recommendation on the budget proposal.

DLSE Should Include Information From Data System In Annual Report

We find that the Division of Labor Standards Enforcement `s (DLSE's) reliance on the number of inspections as a measure of program impact is deficient because it does not measure compliance with labor laws. The division should establish industry- and citation-specific compliance targets. We recommend that current law be amended to require DLSE, as part of its annual report, to include compliance goals and results.

Upon the development of a case management system, DLSE will be able to use the data made available by the system to better track businesses' compliance with labor standards. The DLSE should also use the data provided by such a system to develop benchmarks to assess performance over time. As discussed above, currently DLSE measures the effectiveness of its inspection program in terms of the extent to which it met the number of inspections the previous year. This, however, does not measure compliance. In contrast, U.S. DOL determines compliance levels in various industries by measuring over time the percentage of inspected businesses in each of the industries that did not have any violations. We think that DLSE should consider setting compliance targets similar to those used by U.S. DOL. This would provide DLSE with more meaningful and effective measures to direct the allocation of resources to target problem industries or violations.

Accordingly, we recommend that the Legislature amend the current reporting requirement in statute to include industry- and citation-specific compliance goals and results, in a manner similar to that of U.S. DOL. The additional information would help to focus DLSE's evaluation efforts on benchmark measures, instead of activity data, to assess the effectiveness of the inspection program.

Enforcement Workload

Supplemental Report on Current-Year Augmentation For DLSE Enforcement

We find that the department's methodology for reporting and evaluating workload for the new investigator positions is appropriate. We recommend that in preparing its March 15, 2002 update report, the Department of Industrial Relations also include proposed workload measures for its new supervisor and administrative positions. In addition to workload measures, the department should set compliance targets and compile data on whether it meets these goals to determine the adequacy of funding for its enforcement programs.

Other Enforcement Programs. In addition to the inspection program we reviewed above, DLSE also investigates complaints regarding workplace discrimination and failure to pay the prevailing wage rate, as required by law, on construction projects receiving public funds. In the current year, DLSE received a $1.6 million augmentation and 20 additional enforcement positions for these three programs.

The Supplemental Report of the 2001 Budget Act requires DIR to report to the Legislature by December 15, 2001 and March 15, 2002 on its progress in filling these positions and their workload. The supplemental report also requires our office to (1) analyze the December 15, 2001 report and (2) recommend standards for determining the adequacy of funding for DIR's various enforcement programs. The supplemental report requires these standards to consider the department's statutory requirements and ensure sufficient enforcement presence in the workplace.

Hiring Halted for a Time Due to Hiring Freeze. In its first report, DIR indicates that once the new positions were established on October 1, 2001, it immediately began filling them using existing eligibility lists from recently administered civil service tests. After filling seven positions--three investigators, three administrative staff, and one supervisor--the Governor imposed a hiring freeze at the end of October, leaving 13 positions unfilled. Subsequently, at the beginning of December, the Department of Finance granted DIR an exemption from the hiring freeze for these positions. Consequently, the department has begun the hiring process again.

According to the report, DIR has allocated the 20 positions and assigned duties for the filled positions as follows:

• Bureau of Field Enforcement. Five of 17 positions are filled. The bureau inspects businesses for compliance with labor law. Filled positions include one supervisor to ensure staff training, assign complaint inspections, and schedule programmed "sweep" inspections; one inspector; and three administrative positions to perform inspection- and appeals-related clerical work.
• Discrimination Complaint Investigation Unit. One position allocated is filled. This unit investigates claims of employment discrimination based on personal characteristics (like race, gender, or age) or reporting substandard working conditions, for example. The filled position is an investigator.
• Public Works Unit. One position allocated is filled. This unit enforces prevailing wage law for construction projects that receive public funds. The filled position is an investigator.