DPC | November 6, 2007

Senate Oversight Highlights Week of October 22, 2007

“It is the proper duty of a representative body to look diligently into every affair of government and to talk much about what it sees. It is meant to be the eyes and the voice, and to embody the wisdom and will of its constituents…” — Woodrow Wilson

Congress has the Constitutional responsibility to perform oversight of the Executive Branch and matters of public interest. This report summarizes highlights from each week’s Senate oversight hearings. 

Tuesday, October 23, 2007: Senate Committee on Environment and Public Works

“Examining the Human Health Impacts of Global Warming”

·Senator Boxer submitted remarks on the consequences global climate change could have on global public health concerns. 

·Witnesses expressed concern about how human health might be impacted in the United States. 

·Witnesses discussed possible increases in air pollution associated with climate change, particularly the impact such changes would have on American cities and its human health impacts in American cities. 

Wednesday, October 24, 2007: Senate Commerce, Science, and Transportation Committee

“The Future of Talk Radio”

·Witnesses testified about the importance of lifting barriers that discourage the availability of Low Power FM Radio stations in an effort to promote localism and programming diversity. 

·Witnesses expressed their growing concern with media consolidation, which exists in nearly every media market across the country and has contributed to reduced localism, content diversity, and owner diversity. 

·Witnesses explained that increased consolidation and the suppression of low power FM radio stations have contributed to the lack of diversity among station owners. 

Wednesday, October 24, 2007: Senate Homeland Security and Government Affairs Committee

“Watching the Watch List: Building an Effective Terrorist Screening System”

·Witnesses raised significant concerns about the accuracy of the terrorist screening system. 

·Witnesses explained that there is no strategic plan in place to remedy the current shortcomings of the terrorist watch list system. 

·Witnesses called for a better system of oversight and accountability. 

Thursday, October 25, 2007: Senate Finance Committee

“Small Business Health Insurance: Building a Gateway to Coverage”

·Witnesses testified that a large portion of the uninsured are employees of small businesses. 

·Witnesses explained that while small businesses face challenges in providing affordable health coverage to their workers, there are many tools that have the potential to increase coverage for small business employees. 

·Witnesses described how the self-employed have special concerns that must be addressed as part of any small business health reform effort. 

Thursday, October 25, 2007: Senate Commerce, Science, and Transportation Committee: Subcommittee on Interstate Commerce, Trade, and Tourism

“Sweatshop Conditions in the Chinese Toy Industry”

·Witnesses described the unsafe and unjust factory and employment conditions in Chinese toy factories. 

·Witnesses explained how corporations seek to manufacture toys in countries with little or no labor and environmental regulation. 

·Witnesses outlined possible solutions to human rights and product safety violations taking place in Chinese toy factories. 

Thursday, Oct. 25, 2007: Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security

“Single Audits: Are They Helping to Safeguard Federal Funds”

·Witnesses testified that a recent sampling of the single audit system revealed significant quality control issues. 

·Witnesses explained that auditing failures could result in the loss of tens of billions of taxpayer dollars. 

·Witnesses testified that inadequate government audit training is most likely to blame for deficiencies in the auditing process. 

Senator Boxer submitted remarks on the different effects that global climate change could have on public health. 

SEN. BOXER: Global warming can affect public health in many ways. Increased temperatures due to global warming can cause more frequent and more severe heat waves, which can cause illness and even death. For example, the European heat wave of 2003 caused countless numbers of illnesses and claimed 35,000 lives.

Leading scientists are telling us that we will have more extreme weather events like this as the planet warms, and that it is very likely to affect our health. The World Health Organization predicts that in my home state of California, heat related deaths could more than double by 2100.

Scientists from the World Health Organization, the EPA [Environmental Protection Agency] and the IPCC [Intergovernmental Panel on Climate Change] are also are concerned that global warming may contribute to a spread of certain mosquito-borne diseases like Malaria. It could help spread certain viruses and other disease-causing organisms to new areas.

Global warming also may contribute to an increase in waterborne diseases, including cholera, which causes severe diarrhea. Drought can cause a spread of water-borne diseases by wiping out supplies of safe drinking water and concentrating pollution. Floods can fuel water-borne illnesses as well. They wash sewage and other sources of pathogens into supplies of drinking water.

 

Witnesses expressed concern about how human health might be impacted in the United States.

SUSAN R. COOPER, M.S.N., R.N., COMMISSIONER, TENNESSEE DEPARTMENT OF HEALTH: With increased surface water temperatures, states all along U.S. coasts are seeing increases in harmful algal blooms. In 2007, a bloom along the Chesapeake resulted in a major fish kill and threatened oyster farms along the Bay. Blooms not only impact the aquatic life, but can also directly impact human health through shellfish poisoning, skin irritation from direct contact, respiratory distress by inhalation of toxins, and decreased availability of recreational waters. Algal bloom events also attract significant public and media attention. The Virginia Department of Health works collaboratively with other state agencies and academic institutions on a Harmful Algal Bloom Task force to monitor, respond to, and communicate with the public about algal blooms. 

In Montana, a state that routinely faces wildfire threats, increasing temperatures will result in more frequent occurrences of large, uncontrolled fires. Wildfires not only pose a direct threat to the health and safety of nearby residents, but also create dangerous levels of particulates in the air, contributing to respiratory distress and failure, and death in many cases. In 2007, the Montana Department of Public Health and Human Services worked closely with the Department of Environmental Quality to issue alerts about air quality and health impacts, aimed particularly at vulnerable populations. The state health agency also utilized the Health Alert Network to communicate with local health professionals throughout the fire season.

 

Witnesses discussed possible increases in air pollution in American cities from global climate change. 

MICHAEL MCCALLY, MD, PhD, EXECUTIVE DIRECTOR FOR PHYSICIANS FOR SOCIAL RESPONSIBILITY: Although ambient air pollutant concentrations have generally fallen since passage of the 1970 Clean Air Act, more than 100 million Americans live in areas where ozone levels exceed the U.S. Environmental Protection Agency’s eight-hour air quality standard and rates of asthma and other respiratory diseases continue to rise. 

Global warming will undermine efforts to improve air quality as rising temperatures accelerate ozone formation during summer months. A recent study published in the “Journal of Climatic Change” projects that across 50 U.S. cities, the number of unsafe air days when ozone levels exceed the U.S. Environmental Protection Agency’s eight-hour air quality standard will increase by 68 percent. The study also estimates that the number of unhealthy red alert days, days when everyone, young and old, healthy and infirm are advised to avoid prolonged outdoor exertion is expected to more than double across these 50 cities. 

Here in the nation’s capitol, the number of healthy air days during the summer months is expected to drop by 24 percent. Left unaddressed, rising ozone concentrations will cause serious respiratory and cardiovascular health problems in America’s cities. 

Witnesses testified about the importance of lifting barriers that discourage the availability of Low Power FM Radio stations in an effort to promote localism and programmatic diversity. 

MAC MCCAUGHAN, CO-FOUNDER, MERGE RECORDS: Low-power, college, NPR [National Public Radio] and other non-commercial broadcasting enterprises are extremely important today, especially as local information and entertainment options become scarcer. Commercial radio is about aggregating the largest possible number of listeners in a targeted demographic. Community-based radio is about serving its audiences. It has the unique power and the desire to be a conduit for news and culture, and is essential to the diversity that defines cultural life in this country… 

Congress should take action to allow for the growth of non-commercial radio, and the expansion of Low Power FM [Frequency Modulation] into more urban settings. In 2000, Congress passed legislation to limit the FCC’s [Federal Communications Commission] ability to issue non-commercial Low Power FM radio licenses in more populated communities across the country. Lifting this ban once and for all will lead to a significant expansion of community-based stations that will prioritize local and independent content and news, not to mention programming that highlights kinds of musical genres that are routinely ignored by commercial radio.

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Carol Pierson, President and CEO, National Federation of Community Broadcasters: This Committee is also well aware of the need to pass legislation to allow the FCC to grant additional Low Power FM (LPFM) licenses for schools, churches, community groups, local governments, Native Nations and other noncommercial entities. Since the service was established in 2000, nearly 1000 new LPFM stations have gone on the air, providing critically important local programming in small towns and rural parts of the country. Because of Congressional action, however, the FCC has been blocked from issuing these licenses in larger communities that could greatly benefit from the service. The technology is settled, the service is a huge success, and it is time for Congress to act once and for all to reauthorize the Commission to expand this service. Expansion and protection of community radio is particularly important in light of the role existing stations play in boosting public safety during emergencies. These stations are often the only ones with local staff to provide emergency coverage. 

Witnesses expressed their growing concern with media consolidation, which has swept nearly every media market across the country and contributed to reduced localism, content diversity, and owner diversity. 

MR. MCCAUGHAN: I also want to urge this Committee to take the necessary steps to ensure that our media landscape does not become even more consolidated. The deregulation that followed the 1996 Telecommunications Act allowed for unprecedented consolidation in commercial radio, which has resulted in a homogeneity that is often out-of-step with artists, entrepreneurs, media professionals and educators — not to mention listeners… It’s been widely reported that the FCC is considering altering the media ownership rules again and loosening the local ownership caps to allow major radio groups to buy even more stations in each market. No matter what your tastes in entertainment or news, if you value localism, competition and diversity, Congress and the FCC must recognize that further deregulation is not the answer.

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MS. Pierson: Over the past ten years, a great deal has been said about the impact of the massive consolidation of commercial radio ownership that resulted from the 1996 Telecommunications Act… Over two thirds of listeners and revenues in the commercial marketplace controlled by just ten companies. Over 70 percent of advertising revenues in virtually every market controlled by four broadcast firms or fewer. The scandalous lack of ownership opportunities for women and minorities. New, structural forms of payola that created economic barriers for local or independent music to be considered for rotation… Recent reports indicate that the FCC may consider lifting ownership rules that limit the number of commercial stations a company can own in any given market. I cannot stress strongly enough that the antidote to runaway consolidation in the commercial radio market is not more consolidation. Congress and the FCC must consider and implement policies that will allow for greater diversity of ownership, competition and localism. The Commission has built a significant record on issues of localism and ownership. It would be a huge mistake to allow more consolidation in the face of this record. 

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 S. Derek Turner, Research Director, Free Press, on behalf of

Free Press, Consumers Union Consumer Federation of America: Recent controversy surrounding remarks by two prominent talk radio hosts —Rush Limbaugh and Don Imus — spurred an examination talk radio programming on minority- and female-owned stations. We found: No minority-owned stations aired“Imus in the Morning” at the time of its cancellation. All minority-owned stations and minority-owned talk and news format stations were significantly less likely to air “The Rush Limbaugh Show,” as were female-owned stations. Having a minority- or female-owned station in a market was significantly correlated with a market airing both conservative and progressive programming. Overall, markets that aired both progressive and conservative hosts were significantly less concentrated than markets that aired just one type of programming. These results suggest that diversity in ownership leads to diversity in programming content. This result may seem obvious. But policy makers may have forgotten the reason behind ownership rules and limits on consolidation: Increasing diversity and localism in ownership will produce morediverse speech, morechoice for listeners, and moreowners who are responsive to their local communities. 

Witness also bemoaned the recently increased royalty fees for Internet and non-broadcast radio providers, expressing their concern that prohibitive costs will stifle the further development of this service for listeners. 

W. RUSSELL WITHERS, JR., WITHERS BROADCASTING COMPANIES: A few moments ago, I mentioned Internet streaming as one way broadcasters can adapt their traditional business models to include new technologies that complement local free over-the-air radio. Unfortunately, current conditions make this difficult. Broadcasters are required to pay sound recording performance fees when they stream their signals on the Internet. However, the most recent rates set by the Copyright Royalty Board (CRB) for these fees are so high that a viable business model for simulcast streaming is almost impossible. The increase in the sound recording performance fees over the next four years established by the CRB is unreasonable and debilitating to growing this exciting new service. 

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Tim Westergren Founder and Chief Strategy Officer Pandora Media, On behalf of the Digital Media Association: Finally, of course, there is the issue of royalties to performers and recording companies. As you know, traditional broadcasters do not pay royalties but the rest of us – cable, satellite and Internet radio – do pay. You may not be aware that Internet radio has the smallest of all radio revenue streams, but we pay proportionately the highest royalties. I am proud that in 2006 Pandora paid more than two million dollars in royalties to artists and recording companies, and had the old royalties rates stayed in effect, then in 2007 we would be on track to pay over four million dollars. Instead, unfortunately, the Copyright Royalty Board recently increased royalty rates more than 30 percent so our royalty in 2007 is now likely to reach over six million dollars, almost 50 percent of our total revenue. And per listener per track royalty rates for Internet radio are scheduled to climb an additional 27 percent in 2008, and 29 percent more in 2009. Under the CRB decision Internet music radio is economically unsustainable; it is not even a close call. Pandora has skyrocketed from a standing start to millions of listeners in two years; we were getting within sight of cash-flow positive operations under the old rates, but now we are back under water with no hope of ever emerging as the royalty rates continue to increase. Of course our disappointment is magnified because our broadcast and satellite competitors enjoy no royalties or very reasonable royalties, respectively. 

Witnesses explained that increased consolidation and the suppression of low power FM radio stations have contributed to the lack of diversity amongst station owners. 

DIR. Turner: The United States is a diverse melting pot of people and cultures. In such an environment it is not unreasonable to expect that the privilege of access to the scarce radio broadcast airwaves be distributed in a manner that reflects our racial, ethnic and gender diversity. Unfortunately, this is not the case. Women and people of color comprise 67 percent of our population, but own just 13 percent of our nation’s radio stations. And though the Communications Act explicitly directs the Federal Communications Commission to disseminate “licenses among a wide variety of applicants, including... businesses owned by members of minority groups and women,” our research reveals that the FCC lacks even the most basic understanding of the current state of female and minority ownership, and therefore has no basis to assess the impacts of its broadcast regulatory policies on these underrepresented owners… 

Women own just six percent of all full-power commercial broadcast radio stations, even though they comprise 51 percent of the U.S. population. Racial or ethnic minorities own just 7.7 percent of all full-power commercial broadcast radio stations, though they account for 34 percent of the U.S. population… Not only do women and people of color own few stations, but commercial stations have very few women and minorities at the top— in the positions of CEO [Chief Executive Officer], president or general manager. Just 4.7 percent of all full-power commercial broadcast radio stations are owned by an entity with a female CEO or president. Only one percent of the stations not owned by women are controlled by an entity with a female CEO or president. Just eight percent of all full-power commercial broadcast radio stations are owned by an entity with a CEO or president who is a racial or ethnic minority. Less than one percent of stations not owned by people of color are controlled by an entity with a minority CEO or president. 

 

 

Witnesses testified that while the terrorist watch list serves as critical counterterrorism tool, improvements need to be made to make it an effective program.

EILEEN R. LARENCE, DIRECTOR, HOMELAND SECURITY AND JUSTICE ISSUES, GENERAL ACCOUNTABILITY OFFICE: Our work also shows that agencies find the terrorist watch list to be an important counterterrorism tool, but we found that it could be strengthened by addressing potential security vulnerabilities, using it at all appropriate screening opportunities, and providing for greater accountability an effectiveness. 

PAUL ROSENZWEIG, DEPUTY ASSISTANT SECRETARY FOR POLICY, DEPARTMENT OF HOMELAND SECURITY: I think it is fair to say that, by and large, we’ve had a number of successes, and much work needs to be done. 

Witnesses raised significant concerns about the accuracy of the terrorist screening system.

GLENN A. FINE, INSPECTOR GENERAL, DEPARTMENT OF JUSTICE: Our recent audit found that the TSC [Terrorist Screening Center] has continued to make significant progress in important areas. However, we also concluded that the TSC’s management of the watch list continues to have significant weaknesses and that the information in the watch list database was not complete or fully accurate. These weaknesses can have enormous consequences. Inaccuracies in watch list data increase the possibility that reliable information will not be available to front-line screening agents, which could prevent them from successfully identifying a known or suspected terrorist. Furthermore, inaccurate watch list information increases the chances of innocent persons being stopped or detained because of misidentifications. For these reasons, we believe it is critical that the TSC and the agencies providing watch list data to the TSC further improve the accuracy of the information. 

Witnesses detailed shortcomings in the current system.

MR. FINE: We also determined that the TSC needs further improvement. I’d like to make five observations about these needed improvements. First, TSC still maintains two versions of the watch list database…. Second, we found that not all watch list records were being sent to downstream screening databases. We discussed this issue with TSC officials, who agreed with our findings and began correcting those omissions. Third, our review found that the TSC did not have a process for regularly reviewing the contents of the consolidated database to ensure that all outdated information is removed as well as to affirm that appropriate records are watch listed….Fourth, we found that the TSC’s efforts to resolve complaints from individuals about their possible inclusion on the watch list have improved since our previous audit and that TSC has created a dedicated unit to handle redress complaints…. Fifth, we found that the TSC does not have a policy or procedures to proactively use information from encounters with individuals to reduce watch list misidentifications. 

Witnesses explained that there is no strategic plan in place to remedy the current shortcomings of the terrorist watch list system.

DIR. LARENCE: [T]he government does not have an up-to-date strategy and implementation plan with the recommended governance structure to provide for the most effective watch list screening. The president tasked DHS [Department of Homeland Security] to work with relevant agencies to develop these plans. DHS said it submitted them in November 2004. The Homeland Security Council did not approve and implement the plans, however. 

Witnesses called for a better system of oversight and accountability.

DIR. LARENCE: In conclusion, overall, GAO’s [Government Accountability Office] findings stem in part from the fact that while each agency own a parochial piece of the watch list process, no one entity is accountable overall for resolving interagency conflicts, addressing vulnerabilities, monitoring results and ensuring that it is working as intended. 

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DIR. LARENCE: We think that somebody needs to be accountable, again, for really evaluating the watch list process to make sure that, for example, they would answer questions about how are agencies making nominations. Are we doing that consistent with.... They could look at the screening across agencies to make sure that that’s being done consistently. They could look at how the information is being used that’s developed from the watch listing process. And most importantly, they could monitor the outcomes of the process to determine if it is complying with privacy issues, if we’re getting the types of outcomes that we want, how can we better manage misidentifications. And they could also help to make sure that people consistently apply new technical opportunities and tools such as new computer algorithms or more sophisticated search engines. 

Witnesses testified that a large portion of the uninsured are employees of small businesses.

SEN. BAUCUS: We are here to consider how we can help employees of small businesses to get the kind of health coverage that they need, at a price that they can afford. Why small business employees? That’s where half the uninsured are. Half of uninsured workers either work for employers with fewer than 25 employees, or are self-employed. We will help a big chunk of the uninsured, if we can figure out how to provide affordable insurance options to small business employees. It’s our job to create a gateway to health coverage for the millions of small business employees who have none, or are struggling to keep the coverage that they have. 

SEN. GRASSLEY: The Census Bureau recently reported that 47 million Americans are uninsured – up from nearly 45 million in 2005 and approximately 38 million in 2000. The percentage of employers offering health coverage to their employees has declined from about 68 percent in 2000 to about 60 percent today. Health insurance premiums continue to grow at a rate that is approximately two times the rate of inflation and the growth of workers’earnings. So what we are seeing is that health insurance is becoming more expensive and less affordable. Employers are dropping coverage. And as a consequence – since 2000 – a total of almost nine million more Americans are now uninsured. 

The problem of the uninsured is most acute among small business. On average, about two in five small businesses do not offer health insurance. This means that a substantial percentage of small business employees are without employer-provided health Coverage. And those small business employees that are forced to purchase insurance on the individual market find it expensive. As a result, they often can’t afford health coverage. In the end, the small business employee – and often times his or her spouse and dependents – are not covered by health insurance. 

LINDA BLUMBERG, PRINCIPAL RESEARCH ASSOCIATE, URBAN INSTITUTE: Only 36 percent of establishments in firms of fewer than ten workers offer health insurance to any of their workers, compared with 99 percent of establishments in firms of 1,000 or more workers. Approximately 46 percent of workers employed by firms with fewer than ten workers are offered and are eligible for enrollment in their own employer’s health insurance plan, compared with 88 percent of workers employed in firms of 100 or more workers.Workers in the smallest firms are also less likely than their large firm counterparts to take up employer offers when they have one, although some of these workers receive coverage through a spouse employed by a larger firm. The lower rates of offer and take-up among small firms and their workers results in roughly 36 percent of workers in the smallest firms being uninsured, while only ten percent of workers in the largest firms lack coverage. 

Witnesses explained that while small business face challenges in providing affordable health coverage to their workers, there are many tools that have the potential to increase coverage for small business employees.

SEN. BAUCUS: What we learn today will help us to shape a bill that we can mark up in the Committee later this Congress. We have some difficult decisions to make. Many proposals to assist small business employees share common elements. They include a tax credit to help defray costs. They include a mechanism to provide more insurance options that are meaningful and affordable. And they include opportunities to pool risk across state lines. As usual, the devil is in the details. 

MS. BLUMBERG: Small employers face substantial disadvantages relative to large employers when providing health insurance to their workers. These problems can largely be summarized as higher administrative costs of insurance, limited ability to spread health care risk, and a workforce with lower wages. All of these problems must be addressed if insurance coverage is to increase significantly among workers in small firms. 

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While small businesses face formidable difficulties in providing affordable health insurance to their workers, tools are available for increasing coverage in this sector. The focus of such efforts should be on lowering administrative burdens, developing mechanisms for spreading the risk of high cost cases more broadly, and subsidizing low-income workers. But while high administrative costs do raise premiums, the primary barriers to coverage for small firm workers are their low incomes and their lack of insurance options that allow for broad-based pooling of health care risk. Both of these problems can be effectively addressed by developing a system of carefully designed purchasing pools and subsidies. 

JOEL ARIO, ACTING INSURANCE COMMISSIONER, PENNSYLVANIA DEPARTMENT OF INSURANCE AND CHAIRMAN OF THE HEALTH COMMITTEE, NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS: States led the way in requiring insurers to offer insurance to all small businesses in the early 1990s, and the federal government made guaranteed issue the law of the land in 1996for all businesses with two to 50 employees. Federal law does not limit rating practices, but 48 states have supplemented the guaranteed issue requirement with laws that limit rate variations between groups, cap rate increases, or impose other limitations on insurer rating practices. These rating laws vary significantly in response to local market conditions, but their common objective is to pool and spread small group risk across larger populations so that rates are more stable and no small group is vulnerable to a rate spike based on one or two expensive claims. In addition to requiring insurers to pool their small group risk, many states have established various types of purchasing pools and licensed associations to provide state-approved insurance products to their members.

States continue to experiment with reinsurance, tax credits and subsidies, and programs to promote healthier lifestyles and manage diseases as they pursue the twin goals of controlling costs and expanding access…. As always, states are the laboratories for innovative ideas. The federal government must work closely with their state partners, as well as with healthcare providers, insurers and consumers, to identify and implement reforms that will make insurance more affordable to small businesses. 

Witnesses described the special concerns of the self-employed that must be addressed as a part of any small business health reform effort.

SEN. BAUCUS: The special concerns of the self-employed will be an important part of small business health reform. A tax credit or other financial assistance for a self-employed person is useful only if coverage is available. Many self-employed people have to look for coverage on the individual market. And in that market, protections are limited, and coverage can be denied. A bill that comes out of this Committee should provide more insurance options to the self-employed. And it should also make sure that this insurance offers real coverage that is worth the money. 

MONTY NEWMAN, VICE PRESIDENT, NATIONAL ASSOCIATION OF REALTORS: Most independent contractor real estate agents and many employees of small brokerages must find coverage in the individual insurance market. That market presents itself as one in which there is no negotiating, no leverage, no economies of scale and absolutely no efficiency. For the most part, you basically take or leave whatever coverage is offered – at whatever price it is offered. 

Imagine yourself without health insurance and without an employer who shares in some portion of the cost. Would you know where to find coverage? Would you know how to determine whether the policies offered would actually provide much benefit? Would you be willing to commit ten percent of your income to be insured? 20 percent? 25 percent? This is the dilemma and challenge of the self-employed person. 

Obviously, realtorsare not alone in their struggle to obtain affordable health insurance today. Employment trends today suggest that there will be even more uninsured individuals in the future– and that more of them will be self-employed individuals. Today, as the result of corporate restructurings and job outsourcing, the share of the U.S. workforce that is self-employed – independent contractors, freelance workers, consultants, and other “non-traditional” workers – has reached a remarkable level.

The General Accounting Office estimated that these workers comprised 30 percent of the American workforce in 2000. Some experts estimate that by 2010, 41 percent of the U.S. workforce will be so-called “free agent” workers. Without changes to the current health insurance system, we fear this shift in the composition of the workforce will be accompanied by increases in the number of the uninsured. Finding a solution to the insurance problem must become a top priority. 

Witnesses described the unsafe and unjust factory and employment conditions to which Chinese toy factory workers are subjected. 

BAMA ATHREYA, EXECUTIVE DIRECTOR, INTERNATIONAL LABOR RIGHTS FORUM: We are here today to give voice to others who are barely more than children and who are also tragic victims of the global toy industry. These are China’s toy factory workers. The International Labor Rights Forum (ILRF) has long fought to give voice to the abusive conditions faced by factory workers in China and around the world. Over the past decade we have worked closely in solidarity with China’s factory workers [who]… explain first hand the abuses they suffer in the completely unregulated export factories of southern China. 

These are the workers who apply the lead paint to the toys and who breathe the paint fumes day in and day out. They operate the machinery that produces the plastics for the toys, and breathe and touch those toxics as well. Almost never are they given protective gear or masks-most would not know what protective gear looks like.

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Our allies in south China have conducted systematic research on the area’s toy factories throughout 2007. The results to date indicate repeated and endemic violations of China’s basic labor laws in every single factory. Compulsory overtime with inadequate and illegally low compensation is prevalent. Workers routinely work ten to 14 hours per day during the busy season. Because of a system of illegal fines and fees, workers actually receive well below the region’s mandated minimum wage. Very few workers are covered by government-mandated medical insurance or pension funds…. These workers may be at risk of lead poisoning, plastic poisoning or welding accidents. 

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Another toy company that we investigated… keeps two contracts for each worker. The company’s first contract with the worker is used to hand to factory inspectors when they visit. The other is the real contract with the worker. The real contract stipulates the following: “During working hours, in case of injuries and/or disabilities as a result of not following the operating rules, which the supervisor certifies to be true afterward, the first party (the factory), without exception, does not grant or bear any responsibility, and without exception, the second party (the worker) is himself responsible.” The same contract stipulates that … if a worker is severely maimed on the job and must leave her post to obtain medical emergency treatment, she is regarded as terminated and has signed away her rights to bring a case forward for any damages. 

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CHARLES KERNAGHAN, DIRECTOR, NATIONAL LABOR COMMITTEE: Workers are housed in primitive dorms, 12 people crowded into each room, sleeping on double-level metal bunk beds and fed company food the workers describe as “awful.” Every morning workers have to cue up to wait their turn to brush their teeth and use the toilet. After deductions for room and board, the workers’ take-home pay drops to just 46 cents an hour. 

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Despite the fact that the workers are illegally not paid any overtime premium, if they fail to show up for even a single overtime shift, two days’ wages will be deducted from their pay as punishment. Supervisors constantly abuse and harass the workers, calling them “idiots” and “garbage” and screaming at them to work faster. Talking back to management is strictly prohibited. One worker who tried to defend himself by answering back to a supervisor was attacked, choked, beaten and fired. Workers have no voice or rights. Workers have no choice but to bow their heads and remain silent.

Witnesses explained how corporations seek out production destinations where there are little or no labor or environmental regulations.

DIR. ATHREYA: Multinational corporations seek out production destinations precisely where there is little or no regulation of labor or environmental conditions. Let me restate this: Wal-Mart and the world’s major toy brands and retailers are producing in China despite the lack of meaningful product or worker safety regulation.… Wal-Mart bears a lion’s share of responsibility for pushing the toy industry into a region where product safety and worker safety inspection is virtually nonexistent. The Wal-Mart model of doing business, as I’ll explain, is precisely to push suppliers to produce in corners of the world where they can escape the costs that are inherent in providing protections for consumers or protections for workers.…

DIR. KERNAGHAN: Corporations say there is no need for laws to protect our children against toxic or sweatshop toys, as they can regulate themselves through voluntary codes of conduct and private monitoring schemes. However, this summer’s massive recall of toxic and hazardous toys made under abusive sweatshop conditions in China clearly demonstrates that corporate self-regulation is not enough. Toxic and sweatshop toys are two sides of the same coin, and need to be regulated by enforceable laws.

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HARRY WU, EXECUTIVE DIRECTOR, LAOGAI RESEARCH FOUNDATION: The Chinese government outlaws all independent trade unions, forcing workers to join the state-sponsored All China Federation of Trade Unions (ACFTU). This organization, run by the CCP [Chinese Communist Party], with over 170 million members, is used to control union activities and workers. The ultimate goal of the ACFTU is to “uphold…the leadership of the Communist Party” and to quash any grassroots union movements. The government’s most recent tactic is to co-opt foreign companies into allowing their employees to join the ACFTU under the auspices of protecting the workers.

Witnesses outlined possible solutions to human rights and product safety violations taking place in Chinese toy factories. 

DIR. ATHREYA: surely we can do better than to leave these horrific abuses to the ‘free market’ to address through such weak and voluntary efforts… [R]etailers who have played such a strong role in the development of voluntary systems are usually loath to see such systems assist in holding the companies themselves legally liable for non-compliance with local labor laws.

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What do we do, then, to stop this relentless race to the bottom?… Without the fear of such sanctions, companies like Wal-Mart, Mattel and Disney will correctly calculate that it is cheaper to suffer a little bad publicity once in awhile than to provide systematic and meaningful protections for workers and consumers.

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We applaud the initiative of Senator Byron Dorgan and Senator Lindsey Graham to promote a new legislative remedy for worker rights abuses in the global supply chains that bring consumer goods to the United States, the S.367 bill to amend the Tariff Act to prohibit the import, export and sale of goods made with sweatshop labor. 

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DIR. WU: The U.S. government has an obligation to ensure that forced labor products and tainted goods do not enter our borders. American companies must take responsibility for the Chinese factories that produce their goods. They must perform more frequent inspections and audits and should not allow phony unions to be set up in their factories and workplaces. Profit is the only factor that has the potential to affect China’s behavior. Worker’s rights in China will not improve until foreign businesses and governments collectively decide to press China to stop using prison and sweatshop labor and to allow their workers to independently organize. The time has long past to discard meaningless codes of conduct. 

Witnesses testified that a recent sampling of the single audit system revealed significant quality control issues. 

HUGH MONAGHAN, DIRECTOR, NON-FEDERAL AUDITS, OFFICE OF INSPECTOR GENERAL, DEPARTMENT OF EDUCATION: The National Single Audit Sampling Project was conducted [“under the auspices of the President’s Council on Integrity and Efficiency, or PCIE”]to … determine the quality of single audits statistically reliable estimates …and … make recommendations to address noted audit-quality issues. 

The project involved conducting and reporting on the results of [quality control reviews (QCRs)] of a statistical sample of 208 single audits randomly selected from over 38,000 single audits … For each of the 2008 QCRs, we categorized the results in three groupings: … “Acceptable” included audits with minor deficiencies that did not require corrective action for the audit. Audits of “limited reliability” included those with significant deficiencies warranting corrective action to afford unquestioned reliance on the audit. “Unacceptable” audits were those with deficiencies so serious that the auditor’s opinion on at least one major program could not be relied upon or there was a material reporting error or omission. 

Based on the results …, we estimate that just short of half of the audits in the population from which the sample was drawn, 48.6 percent were acceptable. Sixteen percent had significant deficiencies, and thus were of limited reliability. And 35.5 percent were unacceptable.

…. [W]hile we estimate that significant numbers of audits were not acceptable, audits reporting large dollar amounts of federal awards were significantly more likely to be of acceptable quality than other single audits. The 208 audits we reviewed reported total federal expenditures of $57.2 billion. 92.9 percent of this amount, $53.1 billion, was covered in acceptable audits. 

Witnesses explained that auditing failures could result in the loss of tens of billions of taxpayer dollars. 

SEN. COBURN: [I]f you … [consider] 93(sic) percent of these – as far as the money, looked okay – that’s just $36 billion on the $450 billion [(overall, beyond just the sample)] that may not look okay [but] that’s pretty worrisome. Thirty-six billion dollars would educate a lot of kids or take care of a lot of their health care.

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DANIEL WERFEL, ACTING CONTROLLER, OFFICE OF MANAGEMENT AND BUDGET: Clearly, it’s encouraging that 93 percent of the awards were covered by acceptable audits. And that tells us that there are certain elements and ingredients of what we’re doing in those situations that are working. The cognizant agency reviews the quality assurances that we’re doing. The peer-review process is having an impact in ensuring good, quality audits. 

On the other side of that, when we deal with these big dollars – and my office has testified in many cases in front of this subcommittee – and, you know, in the federal government, even a one percent or two percent error rate is billions of dollars. And in this case, if you look at the $450 billion … and you look at seven percent of that, you’re over $30 billion. So we’re very concerned about that. And what we want to do is see if we can start to bridge some of the good things that are going on in the 93 percent and make sure they’re spreading into the seven percent. 

Witnesses testified that inadequate government audit training is most likely to blame for deficiencies in the auditing process. 

JEANETT FRANZEL, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GOVERNMENT ACCOUNTABILITY OFFICE: [M]any of the problems were caused by lack of due professional care. And what that means is, you know, the auditors did not take enough care and attention to following standards. And we questioned them, “To what extent would improved guidance and additional training cause auditors to care more and to do a better job?” 

MS. MARY FOELSTER, DIRECTOR, GOVERNMENTAL AUDITING AND ACCOUNTING, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS: I mean, my experience, in working in this area for 14 years, is that, you know, I think many, many firms are trying to do this correctly. I mean, I’ve done many of these when I was in practice. And they’re complex. And so I think that, you know, in many cases, it’s just a lack of understanding, potentially, of the detailed requirements of the circular and the compliance supplement and all the underlying laws and recommendations. 

Witnesses from the agencies charged with monitoring the use of government funds offered suggestions for improving the single audit system and reducing the percentage of unacceptable audits. 

MR. MONAGHAN: [W]e addressed our recommendations to OMB [Office of Management and Budget], recommending a three-pronged approach to improve audit quality, to be implemented in consultation with other key stakeholders in the single-audit process [:] First, we recommend revisions and improvements in single-audit criteria and guidance and pertinent auditing standards to address deficiencies we noted [; s]econd, we recommended that OMB establish minimum requirements for training on performing single audits as a prerequisite for conducting them, and periodic update training[; a]nd third, we suggested that OMB review and enhance processes to address unacceptable audits … not meeting established training requirements. 

MS. FRANZEL: While we support the recommendations made in the PCIE report, we believe that a number of issues regarding the proposed training requirements need to be resolved. For instance, what are the efficiency and cost-benefit considerations for providing the proposed training? How can mechanisms already in place – for example, the [American Institute of Certified Public Accountants’(AICPA)] Government Audit Quality Center and others – be leveraged to implement the proposed training? And how will the training requirement affect the availability of audit firms that are qualified and willing to perform single audits going forward? Finally, how will compliance with the proposed requirements be monitored and enforced? 

We also believe that two other critical factors that Mr. Monaghan mentioned also need to be considered in evaluating the proposed actions. The first factor is the rate of problem audits by size, with “size” referring to the dollar amounts of the grantees federal expenditures. And the second is the distribution of single audits by size within the entire universe of single audits… Another consideration is strengthening the cognizant agency oversight for larger agencies, those that expend large amounts of federal dollars, again, aimed at improving accountability over federal dollars… In addition, we believe the larger effort to review the overall framework for single audits may be warranted.

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MS. FOELSTER: The PCIE report focused its recommendations almost entirely on the auditing profession. But meaningful improvements in single-audit quality will only occur when all of the key stakeholder groups – that is, the auditing profession, the procurers of the services and the federal agencies themselves –are involved in a solution.

DPC