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There’s routine mismanagement, and then there’s mismanagement that’s gotten so bad that government officials decide they have no choice but to own up to it.

The District’s Department of Employment Services, apparently, is suffering from the second kind.

City officials appeared before a D.C. Council committee last Friday to account for the diversion of tens of millions of dollars from a troubled workers’ compensation program run by DOES—money that went to bolster the city budget and hire “transitional” employees, among other uses—and to acknowledge that they’d allowed a disbarred, unlicensed lawyer to serve as an administrative law judge for 16 years.

Pledging to address a longstanding failure to perform financial audits, a lack of consistent leadership, attrition of qualified judges and a backlog of injured workers’ claims, DOES and Gray administration officials admitted that $37.9 million had been transferred from the program to the city’s general budget—$24 million of which they say they don’t intend to restore.

The five-hour hearing before At-Large Councilmember Vincent Orange, who chairs the Committee on Business, Consumer, and Regulatory Affairs, was prompted by Washington City Paper stories about the illegitimate judge and a questionable era of budget management that officials now attribute to citywide fiscal pressures.

Injured employees, advocacy groups, and lawyers for employees and employers complained of delays in issuing decisions and inconsistent application of the law, among other shortcomings. They urged the city to return the funds and establish an independent workers’ comp agency, like most states have.

The workers’ comp program at DOES, which hears up to 900 workers’ comp cases per year, has withered for years. In February, City Paper exposed administrative judge Anand K. Verma, who had issued hundreds of workers’ comp rulings without a license to practice law. The D.C. Court of Appeals has since ordered a judicial review panel at DOES to decide whether employees affected by those rulings are entitled to new hearings.

In his testimony on Friday, Acting DOES Director Thomas Luparello said Verma was no longer employed by DOES, and proposed that workers’ comp judges be required to show certification on an annual basis that they are members in good standing of a state bar.

But Friday’s hearing made clear that Verma was merely one sign of a program in need of reform. There should be 14 administrative law judges hearing workers’ comp cases; at one point, though, the panel was down to six judges, and cases took up to a year to be adjudicated, according to testimony by lawyers for both employees and employers.

Luparello testified that he’s filling at least six vacant judge positions, and that he would implement technical enhancements to “facilitate the delivery of services,” including electronic case tracking, online filings and other features to ensure that cases are being processed “efficiently and effectively.”

On Monday, Luparello acknowledged in an email to City Paper that the program needs fixing. “I’m committed to working to improve the processes, procedures, and technology that support workers’ comp, along with assuring that they have adequate staffing to carry out their mission,” he wrote. “That’s work that needs to be done regardless of whether that department remains with DOES or is spun off into another Agency.”

The most embarrassing detail at the hearing was that DOES hasn’t completed an independent audit of the workers’ comp program since 2006, which City Paper reported in July. Luparello testified that outstanding audits through 2011 should be delivered by the end of October, with audits for 2012 through 2014 pending contract approval.

The workers’ comp program is set up to cover medical and rehabilitation costs and long-term disability benefits resulting from workplace injuries. Employers pay for the program through annual assessments paid into two separate accounts: The “Special Fund” provides benefits in cases of uninsured employers or pre-existing disabilities. The “Administration Fund” covers the costs of running the program.

The city’s diversion of those funds hovered over the whole hearing. Seeking to mute concerns, Chief Financial Officer Jeffrey DeWitt testified that the maneuver was part of recession-era budget shuffles that predated his tenure.

Since 2000, according to DeWitt, the city has collected $279.4 million from employers by issuing assessments at the beginning of each fiscal year, based on historical information and projections.

DeWitt showed slides demonstrating that the city passed budget legislation to transfer into the general fund a total of $37.9 million in assessments for fiscal years 2011 and 2012 as part of a “city-wide gap closing measure.” (The budget legislation authorized transfers up to $60 million, though the city never took that much because there wasn’t that much money available in excess workers’ comp funds.) In addition, some $5 million in workers’ comp funds were “reprogrammed” to the Transitional Employment Program and for payments to the Excel Institute, a nonprofit school founded by former Washington NFL star George Starke that trains troubled youths to be auto mechanics.

In 2012, DeWitt said, the District restored $13.4 million that had been “swept” from the workers’ comp funds, resulting in a net loss to workers’ comp of $24.5 million.

Calling the budget moves “one element of a larger strategy to keep from laying people off,” DeWitt said city lawyers deemed the transfers legal at the time. “Whether it was good policy or not is a different question,” he said. “We can’t say whether the expenditures were appropriate until we receive detailed audits.”

The city’s presentation didn’t fully satisfy Judge E. Cooper Brown, the former chief administrative appeals judge for the appellate review panel at DOES. Brown, who now serves as vice chair and deputy chief judge of the U.S. Department of Labor’s Administrative Review Board, testified that he alerted city officials as early as 2011 about funds transfers dating to at least 2009. He didn’t think such transfers were legal, pointing to the D.C. law that says that “all moneys and funds” in the Special and Administrative Funds “shall be held in trust by the Mayor,” and that such funds “shall not be used for purposes other than those provided by this chapter.”

Brown cited litigation in at least five other states over the legality of what he described as a “raid” of funds that derive from employer assessments. For instance, the Supreme Court of Kentucky has already deemed workers’ comp funds private in nature, he testified, saying explicit changes to the law, not budget legislation, are required to free up the money.

“[The city] was getting bad legal advice,” said Brown, citing a $1.9 million settlement between the District and the Washington Metro Area Transit Authority in 2011, the result of a legal challenge to the use of workers’ comp funds for non-designated purposes. “If it was legal and aboveboard, then why did the city settle with WMATA when it raised a big stink?”

(Eric Goulet, budget director for Mayor Vince Gray, pinned the WMATA decision on an “arcane” legal issue decided by a previous administration.)

What D.C. really needs, Brown said, is “an independent, stand-alone workers’ compensation agency similar to those in our neighboring states of Virginia and Maryland, in direct policy line to the Mayor.” He recommended a thorough review of the workers’ comp statute and that the city give strong consideration to closing a $40,000 gap in pay between workers’ comp judges and other administrative judges in D.C., who are part of separate independent agency.

William Schladt, a veteran workers’ comp attorney who represents employers and practices in D.C., Maryland and Virginia, also disagreed with the city’s position on the legality of the funds transfers. He said after the hearing that the workers’ comp program will never improve without highly qualified judges, and that it would be impossible to attract such talent without competitive salaries that elevate the prestige of the job.

“[DOES] has treated the office of workers’ compensation as the ugly step child and has never given adequate funding or facilities…required to operate an important system that is supposed to quickly and adequately compensate employees for workplace injuries,” Schladt testified. “My clients pay into a fund, and they expect that to be used for a system that works quickly and efficiently.”

At several points during the hearing, Orange suggested that $24.5 million could fix a lot of what ails the program. But Goulet said the Gray administration has no intention of restoring the funds, as that could prompt calls to do the same thing with a variety of other special funds that the city tapped during the recession.

Orange tells City Paper he was pleased with what the hearing covered: “They need to complete audits of the program as soon as possible. Everyone understands [DOES] was caught with their pants down on that.”

Although he was interested in the idea of independence for the workers’ comp program, Orange recognized that such an overhaul is perhaps best left to a new administration. But he says he’ll push for further review of the appropriateness of the budget transfers, particularly funds that were used for specific, non-workers’ comp purposes: “I do not believe that payments to the Transitional Employment Program and the Excel Institute were proper.”

Orange also wants to amend existing law to require all lawyers and judges practicing before all city agencies to certify annually that they’re members in good standing of a state bar, to prevent another Verma. And he also still wants to talk about whether to restore the $24.5 million in diverted workers’ comp funds, no matter what Gray’s administration says.

“If the funds exist, then why not put them to use for purposes of an efficient and effective system?” Orange asks. “It’s a matter of whether there is the political will to execute reforms in proper fashion to get it done.”

Photo by Darrow Montgomery