Labor Organization Annual Financial Reports, 27346-27447 [E8-10151]

Agencies

• DEPARTMENT OF LABOR
• Office of Labor-Management Standards

[Federal Register Volume 73, Number 92 (Monday, May 12, 2008)]
[Proposed Rules]
[Pages 27346-27447]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-10151]



[[Page 27345]]

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Part III





Department of Labor





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Office of Labor-Management Standards



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29 CFR Part 403



Labor Organization Annual Financial Reports; Proposed Rule

Federal Register / Vol. 73, No. 92 / Monday, May 12, 2008 / Proposed 
Rules

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 403

RIN 1215-AB62


Labor Organization Annual Financial Reports

AGENCY: Office of Labor-Management Standards, Employment Standards 
Administration, Department of Labor.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: The Department of Labor's Employment Standards Administration 
(``ESA'') proposes to: make several revisions to the current Form LM-2 
(used by the largest labor organizations to file their annual financial 
reports) that will provide additional information on Schedules 3, 4, 11 
and 12, clarify reporting under certain functional categories and add 
itemization schedules corresponding to categories of receipts; and 
establish a procedure and standards by which the Secretary of Labor may 
revoke a particular labor organization's privilege to file a simplified 
annual report, Form LM-3, where appropriate, after investigation, due 
notice, and opportunity for a hearing. The proposed changes are made 
pursuant to section 208 of the Labor-Management Reporting and 
Disclosure Act (``LMRDA''). The proposed rule will apply prospectively.

DATES: Comments must be received on or before June 26, 2008.

ADDRESSES: You may submit comments, identified by RIN 1215-AB62, only 
by the following methods:
    Internet--Federal eRulemaking Portal. Electronic comments may be 
submitted through https://www.regulations.gov. To locate the proposed 
rule, use key words such as ``Labor-Management Standards'' or ``Labor 
Organization Annual Financial Reports'' to search documents accepting 
comments. Follow the instructions for submitting comments. Please be 
advised that comments received will be posted without change to https://
www.regulations.gov, including any personal information provided.
    Mail: Mailed comments should be sent to: Kay H. Oshel, Director of 
the Office of Policy, Reports and Disclosure, Office of Labor-
Management Standards, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Room N-5609, Washington, DC 20210.
    Because of security precautions the Department continues to 
experience delays in U.S. mail delivery. You should take this into 
consideration when preparing to meet the deadline for submitting 
comments.
    The Office of Labor-Management Standards (``OLMS'') recommends that 
you confirm receipt of your mailed comments by contacting (202) 693-
0123 (this is not a toll-free number). Individuals with hearing 
impairments may call (800) 877-8339 (TTY/TDD).
    Only those comments submitted through https://www.regulations.gov, 
hand-delivered, or mailed will be accepted.
    Comments will be available for public inspection during normal 
business hours at the above address.

FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director of the Office 
of Policy, Reports and Disclosure, at: Kay H. Oshel, U.S. Department of 
Labor Employment Standards Administration, Office of Labor-Management 
Standards, 200 Constitution Avenue, NW., Room N-5609, Washington, DC 
20210, (202) 693-1233 (this is not a toll-free number), (800) 877-8339 
(TTY/TDD).

SUPPLEMENTARY INFORMATION: 

I. Statutory Authority

    This proposed rule is issued pursuant to section 208 of the LMRDA, 
29 U.S.C. 438. Section 208 authorizes the Secretary of Labor to issue, 
amend, and rescind rules and regulations to implement the LMRDA's 
reporting provisions. Secretary's Order 4-2007, issued May 2, 2007, and 
published in the Federal Register on May 8, 2007 (72 FR 26159), 
contains the delegation of authority and assignment of responsibility 
for the Secretary's functions under the LMRDA to the Assistant 
Secretary for Employment Standards and permits re-delegation of such 
authority. The proposal implements section 201 of the LMRDA, which 
requires covered labor organizations to file annual, public reports 
with the Department, identifying the labor organization's assets and 
liabilities, receipts, salaries and other direct or indirect 
disbursements to each officer and all employees receiving $10,000 or 
more in aggregate from the labor organization, direct or indirect loans 
(in excess of $250 aggregate) to any officer, employee, or member, 
loans (of any amount) to any business enterprise, and other 
disbursements during the reporting period. 29 U.S.C. 431(b). The 
statute requires that such information shall be filed ``in such detail 
as may be necessary to disclose [a labor organization's] financial 
conditions and operations.'' Id.
    Section 208 authorizes the Secretary to establish ``simplified 
reports for labor organizations or employers for whom [s]he finds that 
by virtue of their size a detailed report would be unduly burdensome.'' 
Section 208 also authorizes the Secretary to revoke this privilege for 
any labor organization or employer if the Secretary determines, after 
such investigation as she deems proper and due notice and opportunity 
for a hearing, that the purposes of section 208 would be served by 
revocation.

II. Background

A. Introduction

    This proposal is part of the Department's continuing effort to 
better effectuate the reporting requirements of the LMRDA. The LMRDA's 
various reporting provisions are designed to empower labor organization 
members by providing them the means and information to maintain 
democratic control over their labor organizations and ensure a proper 
accounting of labor organization funds. Labor organization members are 
better able to monitor their labor organization's financial affairs and 
to make informed choices about the leadership of their labor 
organization and its direction when they receive the financial 
information required by the LMRDA. By reviewing the reports, a member 
may ascertain the labor organization's priorities and whether they are 
in accord with the member's own priorities and those of fellow members. 
At the same time, this transparency promotes both the labor 
organization's own interests as democratic institutions and the 
interests of the public and the government. Furthermore, the LMRDA's 
reporting and disclosure provisions, together with the fiduciary duty 
provision, 29 U.S.C. 501, which directly regulates the primary conduct 
of labor organization officials, operate to safeguard a labor 
organization's funds from depletion by improper or illegal means. 
Timely and complete reporting also helps deter labor organization 
officers or employees from making improper use of such funds or 
embezzling assets.
    In its continuing effort to achieve these goals, the Department 
proposes: first, to modify and improve the Form LM-2 by requiring 
additional information about the receipt and disbursement of labor 
organization funds; and second, to establish standards and procedures 
for revoking, where appropriate, the privilege afforded some labor 
organizations to file simplified annual reports, after investigation, 
due notice, and opportunity for a hearing.

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    The proposed rule brings the reporting requirements for labor 
organizations in line with contemporary expectations for the disclosure 
of financial information. Today labor organizations are more like 
modern corporations in their structure, scope, and complexity than the 
labor organizations of 1959.\1\ Further, as benefits have become a 
larger component of compensation, information about such benefits has 
become more important to members.\2\ Moreover, labor organization 
members today are better educated, more empowered, and more familiar 
with financial data and transactions than ever before. As labor 
organization members, no less than as consumers, citizens, or 
creditors, they expect access to relevant and useful information in 
order to make fundamental investment, career, and retirement decisions, 
evaluate options, and exercise legally guaranteed rights.
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    \1\ There are now more large labor organizations affiliated with 
a national or international body than ever before. At the close of 
FY 2005, 4,452 labor organizations, including 101 national and 
international labor organizations, reported $250,000 or more in 
total annual receipts. Unless otherwise noted, all estimates are 
based on data from the OLMS electronic labor organization reporting 
system (``e.LORS'') for FY 2005.
    \2\ The balance between wages/salaries paid to workers and their 
``other compensation'' has changed significantly during this time. 
For example, in 1966, over 80% of total compensation consisted of 
wages and salaries, with less than 20% representing benefits. U.S. 
Department of Labor, Report on the American Workforce (2001) 76, 87. 
By 2007, wages dropped to 70.8% of total compensation and benefits 
grew to 29.2% of the compensation package. U.S. Department of Labor, 
Bureau of Labor Statistics Chart on Total Benefits, available on the 
Web site of the Bureau of Labor Statistics, https://www.bls.gov.
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    In August and September of 2007, Department officials met with 
representatives of the community that would be affected by the proposed 
changes, including officials of labor organizations and their legal 
counsel, to hear their views on the need for reform and the likely 
impact of changes that might be made. The Department developed its 
proposal with these discussions in mind and it requests comments from 
this community and other members of the public on any and all aspects 
of the proposal.

B. The LMRDA's Reporting and Other Requirements

    In enacting the LMRDA in 1959, a bipartisan Congress made the 
legislative finding that in the labor and management fields ``there 
have been a number of instances of breach of trust, corruption, 
disregard of the rights of individual employees, and other failures to 
observe high standards of responsibility and ethical conduct which 
require further and supplementary legislation that will afford 
necessary protection of the rights and interests of employees and the 
public generally as they relate to the activities of labor 
organizations, employers, labor relations consultants, and their 
officers and representatives.'' 29 U.S.C. 401(a). The statute was 
designed to remedy these various ills through a set of integrated 
provisions aimed at labor organization governance and management. These 
include a ``bill of rights'' for labor organization members, which 
provides for equal voting rights, freedom of speech and assembly, and 
other basic safeguards for labor organization democracy, see 29 U.S.C. 
411-15; financial reporting and disclosure requirements for labor 
organizations, their officers and employees, employers, labor relations 
consultants, and surety companies, see 29 U.S.C. 431-36, 441; detailed 
procedural, substantive, and reporting requirements relating to labor 
organization trusteeships, see 29 U.S.C. 461-66; detailed procedural 
requirements for the conduct of elections of labor organization 
officers, see 29 U.S.C. 481-83; safeguards for labor organizations, 
including bonding requirements, the establishment of fiduciary 
responsibilities for labor organization officials and other 
representatives, criminal penalties for embezzlement from a labor 
organization, a prohibition on certain loans by a labor organization to 
officers or employees, prohibitions on employment and officeholding of 
certain convicted felons in a labor organization, and prohibitions on 
payments to employees, labor organizations, and labor organization 
officers and employees for prohibited purposes by an employer or labor 
relations consultant, see 29 U.S.C. 501-05; and prohibitions against 
extortionate picketing, retaliation for exercising protected rights, 
and deprivation of LMRDA rights by violence, see 29 U.S.C. 522, 529, 
530.
    The LMRDA was the direct outgrowth of a congressional investigation 
conducted by the Select Committee on Improper Activities in the Labor 
or Management Field, commonly known as the McClellan Committee, chaired 
by Senator John McClellan of Arkansas. In 1957, the committee began a 
highly publicized investigation of labor organization racketeering and 
corruption; and its findings of financial abuse, mismanagement of labor 
organization funds, and unethical conduct provided much of the impetus 
for enactment of the LMRDA's remedial provisions. See generally 
Benjamin Aaron, The Labor-Management Reporting and Disclosure Act of 
1959, 73 Harv. L. Rev. 851, 851-55 (1960). During the investigation, 
the committee uncovered a host of improper financial arrangements 
between officials of several international and local labor 
organizations and employers (and labor consultants aligned with the 
employers) whose employees were represented by the labor organizations 
in question or might be organized by them. See generally Interim Report 
of the Select Committee on Improper Activities in the Labor or 
Management Field, S. Report No. 85-1417 (1957); see also William J. 
Isaacson, Employee Welfare and Benefit Plans: Regulation and Protection 
of Employee Rights, 59 Colum. L. Rev. 96 (1959).
    Financial reporting and disclosure was conceived as a partial 
remedy for these improper practices. As noted in a key Senate Report on 
the legislation, disclosure would discourage questionable practices 
(``The searchlight of publicity is a strong deterrent.''); aid labor 
organization governance (Labor organizations will be able ``to better 
regulate their own affairs. The members may vote out of office any 
individual whose personal financial interests conflict with his duties 
to members.''); facilitate legal action by members against ``officers 
who violate their duty of loyalty to the members''; and create a record 
(The reports will furnish a ``sound factual basis for further action in 
the event that other legislation is required.''). S. Rep. No. 187 
(1959), at 16, reprinted in 1 NLRB Legislative History of the Labor-
Management Reporting and Disclosure Act of 1959, at 412.
    The Department has developed several forms for implementing the 
LMRDA's financial reporting requirements. The annual reports required 
by section 201(b) of the Act, 29 U.S.C. 431(b) (Form LM-2, Form LM-3, 
and Form LM-4), contain information about a labor organization's 
assets, liabilities, receipts, disbursements, loans to officers and 
employees and business enterprises, payments to each officer, and 
payments to each employee of the labor organization paid more than 
$10,000 during the fiscal year.\3\ The

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reporting detail required of labor organizations, as the Secretary has 
established by rule, varies depending on the amount of the labor 
organization's annual receipts. 29 CFR 403.4.
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    \3\ The format of Forms LM-2 and LM-3 remained essentially 
unchanged from the early 1960s, when the Department issued the first 
and second generation of rules under the Act, until October 2003 
when the revised Form LM-2 was issued. See, e.g., 25 FR 433 (Jan. 
20, 1960); 28 FR 14383 (Dec. 27, 1963). The Form LM-4 was adopted by 
a final rule in 1992 with an effective date of December 31, 1993. 
See 57 FR 49356-49365 (Oct. 30, 1992). The effective date was 
subsequently postponed until December 31, 1994. See 58 FR 28304 (May 
12, 1993). The Form LM-4 was then revised slightly and adopted by a 
final rule with the same December 31, 1994 effective date. See 58 FR 
67594 (Dec. 21, 1993).
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    Labor organizations with annual receipts of at least $250,000 and 
all labor organizations in trusteeship (without regard to the amount of 
their annual receipts) must file the Form LM-2. 29 CFR 403.2-403.4. 
This form may be filed voluntarily by any other labor organization. The 
Form LM-2 requires receipts and disbursements to be reported by 
functional categories, such as representational activities; political 
activities and lobbying; contributions, gifts, and grants; union 
administration; and benefits. Further, the form requires filers to 
allocate the time their officers and employees spend according to 
functional categories, as well as the payments that each of these 
officers and employees receive, and it compels the itemization of 
certain transactions totaling $5,000 or more. This form must be 
electronically signed and filed with the Department.\4\
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    \4\ The Form LM-2 and its instructions are published at 68 FR 
58449-523 (Oct. 9, 2003) and are available at https://
www.olms.dol.gov. Copies of the Form LM-3 and Form LM-4 are also 
available at https://www.olms.dol.gov.
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    Forms LM-3 and LM-4 were developed by the Secretary to meet the 
LMRDA's charge that she develop ``simplified reports for labor 
organizations and employers for whom [s]he finds by virtue of their 
size a detailed report would be unduly burdensome,'' 29 U.S.C. 438. A 
labor organization not in trusteeship that has total annual receipts 
less than $250,000 for its fiscal year may elect, ``subject to 
revocation of the privilege,'' to file Form LM-3 instead of Form LM-2. 
See 29 CFR 403.4(a)(1).\5\ The Form LM-3 is a five-page document 
requiring labor organizations to provide particularized information by 
certain categories, but in less detail than Form LM-2. A labor 
organization not in trusteeship that has total annual receipts less 
than $10,000 for its fiscal year may elect, ``subject to revocation of 
the privilege,'' to file Form LM-4 instead of Form LM-2 or Form LM-3. 
29 CFR 403.4(a)(2). The Form LM-4 is a two-page document that requires 
a labor organization to report only the total aggregate amounts of its 
assets, liabilities, receipts, disbursements, and payments to officers 
and employees.
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    \5\ The 2003 rule set this amount at $250,000. However, the rule 
inadvertently failed to change the figure in 29 CFR 403.4(a)(1) from 
$200,000 to $250,000. As part of this proposal, the Department 
intends to revise section 403.4(a)(1) by correcting it to read 
``$250,000.'' See proposed text of regulation.
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    The labor organization's president and treasurer (or its 
corresponding officers) are personally responsible for filing the 
reports and for any statement in the reports known by them to be false. 
29 CFR 403.6. These officers are also responsible for maintaining 
records in sufficient detail to verify, explain, or clarify the 
accuracy and completeness of the reports for not less than five years 
after the filing of the forms. 29 CFR 403.7. A labor organization 
``shall make available to all its members the information required to 
be contained in such reports'' and ``shall * * * permit such member[s] 
for just cause to examine any books, records, and accounts necessary to 
verify such report[s].'' 29 CFR 403.8(a).
    The reports are public information. 29 U.S.C. 435(a). The Secretary 
is charged with providing for the inspection and examination of the 
financial reports, 29 U.S.C. 435(b); for this purpose, OLMS maintains: 
(1) A public disclosure room at its national office in Washington, DC 
\6\ where copies of such reports filed with OLMS may be reviewed and; 
(2) an online public disclosure site, www.unionreports.gov, where 
copies of such reports filed since the year 2000 are available for the 
public's review.
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    \6\ The public disclosure room is located in Room N-1519 of the 
Francis Perkins Building, 200 Constitution Ave., NW, Washington, DC 
20210.
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III. Proposal

A. Proposal To Improve the Form LM-2

1. Introduction
    The Department is proposing further enhancements to the Form LM-2 
for the purpose of clarifying reporting and providing additional 
information to labor organization members and the public about the 
financial activities of labor organizations. The proposed enhancements 
provide additional information in Schedule 3 (Sale of Investments and 
Fixed Assets) and Schedule 4 (Purchase of Investments and Fixed Assets) 
that will allow verification that these transactions are performed at 
arm's length and without conflicts of interest. Schedules 11 and 12 
will be revised to include the value of benefits paid to and on behalf 
of officers and employees. This will provide a more accurate picture of 
total compensation received by labor organization officers and 
employees. In addition, the proposed changes will require the reporting 
on Schedules 11 and 12 of travel reimbursements indirectly paid on 
behalf of labor organization officers and employees.
    This proposed change will provide more accurate information on 
travel disbursements for labor organization officers and employees. The 
proposed enhancements also include additional schedules corresponding 
to the following categories of receipts: Dues and Agency Fees; Per 
Capita Tax; Fees, Fines, Assessments, Work Permits; Sales of Supplies; 
Interest; Dividends; Rents; On Behalf of Affiliates for Transmittal to 
Them; and From Members for Disbursement on Their Behalf. These 
schedules will provide additional information, by receipt category, of 
aggregated receipts of $5,000 or more. The $5,000 threshold for 
itemization is used throughout the Form LM-2. This proposed change is 
consistent with the information currently provided on disbursements. 
The Department also requests comment from the public regarding the 
appropriateness of the current functional disbursement categories in 
the Form LM-2. Comment is sought on whether changes should be made to 
these sections in order to improve their usability to members of labor 
organizations and the public. Form LM-2 is filed by approximately 18.5 
percent of the reporting labor organizations, i.e., those with $250,000 
or more in total annual receipts. Finally, the Department proposes to 
amend the Form LM-2 instructions to conform to the requirements for the 
proposed Form T-1.
    The revisions to the Form LM-2 made by the Department in 2003 have 
helped to fulfill the LMRDA's reporting mandate. However, based upon 
the Department's experience since 2003 and after reviewing data from 
reports filed on the revised form, the Department believes that further 
enhancements to Form LM-2 are necessary. The proposed enhancements, as 
more fully described below, will ensure that information is reported in 
such a way as to meet the objectives of the LMRDA by providing labor 
organization members with useful data that will enable them to be 
responsible and effective participants in the democratic governance of 
their labor organizations. The proposed changes are designed to provide 
members of labor organizations with additional and more detailed 
information about the financial activities of their labor organization 
that is not currently available through the Form LM-2 reporting. 
Moreover, experience with the software and technology developed for the 
2003 revisions show that it is possible to provide the level of detail 
necessary to give labor organization members a more accurate picture of 
their labor

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organization's financial condition and operations without imposing an 
unwarranted burden on reporting labor organizations. When a final rule 
is promulgated based on this notice of proposed rulemaking the 
Department will revise the Form LM-2 software currently in use by Form 
LM-2 filers to conform to any changes made in the final rule and will 
make it available to filers without charge.
    These proposed changes are consistent with the goals of the LMRDA 
and its legislative history as discussed above and in connection with 
the Department's 2002 NPRM and 2003 Final Rule. The reasons underlying 
the proposed revisions to the Form LM-2 are discussed section by 
section below.
2. The Proposed Revisions to the Form LM-2 and Instructions
    The following is a ``section-by-section'' discussion of the 
sections, items and schedules on the proposed revised Form LM-2 and 
instructions:
    Items 1-21. These sections on the form are unchanged.\7\
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    \7\ The Department published on March 4, 2008 a proposed rule 
that would establish a Form T-1 relating to the financial operations 
of ``trust[s] in which a labor organization is interested.'' See 29 
U.S.C. 402(l), 438. The proposed Form T-1 rule, if adopted, will 
affect the instructions to the Form LM-2. See 73 FR 11754.
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    Statement A. This statement is unchanged.
    Statement B. Receipts and Disbursements: This statement currently 
contains two primary columns, one with the heading ``Cash Receipts'' 
and one with the heading ``Cash Disbursements.'' Under each heading are 
items listed that describe categories of receipts or disbursements that 
should be reported. There are no proposed changes to the items listed 
under ``Cash Receipts.'' As discussed below, however, the Department 
proposes additional schedules to correspond to items listed under 
``Cash Receipts'' for which currently no schedules exist. As a result 
of these changes, the remaining cash disbursement items will be 
renumbered on Statement B. The proposed new form, including the new 
numbering system for the cash disbursement items can be found in the 
appendix to this proposed rule.
    Schedules 1-2. These schedules are unchanged.
    Schedule 3--Sale of Investments and Fixed Assets: The Department 
proposes to add two new columns to Schedule 3. The first new column 
entitled ``Name and Address of Purchaser (A)'' will disclose the 
purchasers of investments and fixed assets from the labor organization, 
if in the aggregate the sales amount to $5,000 or more per purchaser. A 
second column ``Date (C)'' will disclose the date of the sale. These 
additions will provide members with information necessary to verify 
that the sale was transacted at market price and at arm's length, 
thereby helping prevent interested parties from unjustly enriching 
themselves by purchasing labor organization assets at below-market 
price. The Department believes that Schedules 3 and 4 of the current 
Form LM-2 (the latter discussed below) do not provide labor 
organization members with adequate information to enable them to 
determine whether a particular purchase or sale of an investment or 
asset was transacted at market price and at arm's length. For instance, 
one labor organization in its latest Form LM-2 reported that it had 
sold a ``John Deere Lawn Tractor, Trailer and Mower'' for $678, even 
though this asset had a book value and cost of $18,000. Another labor 
organization reported that it had sold automobiles that had a book 
value of $57,997, a ``real estate investment trust'' that had a book 
value of $25,735, and furniture and equipment with a book value of 
$7,634. For each of these items, the union listed the sale price as $0. 
This same labor organization sold corporate stocks with a book value of 
$29,570,505 for $34,297,627. Another union sold a Ford Explorer for 
$9,252 that had a book value of $23,471. In all these situations, labor 
organization members would be unable to determine whether the labor 
organization received fair market value for the items that it sold, 
whether an insider benefited from these transactions, or whether the 
union's officials are properly managing the labor organization's 
finances. The book value of an asset is the value at which the 
investment or fixed asset was shown on the labor organization's books. 
The value of certain assets such as stocks can vary greatly within the 
fiscal year. Because the date of sales is not listed on the current 
Form LM-2, a labor organization member is unable to determine whether 
the labor organization received good value on the sale transaction. The 
stock on the day of the sale may have been worth much more than its 
book value. In this scenario, a labor organization member would be 
unable to determine whether the stocks were sold by the labor 
organization at market value. The labor organization's financial report 
filed on the current Form LM-2 would show this transaction as a profit 
for the labor organization, but the transaction could also have been 
detrimental to the labor organization if the asset was sold at a price 
below current market value. The proposed changes will help ensure 
disclosure of any potential conflicts of interest between the purchaser 
and the labor organization. The schedule will total all individually 
itemized transactions and will provide the sum of the sales by itemized 
individual purchasers and the sum of all non-itemized sales of 
investments and fixed assets, as well as the total of all sales. The 
Department estimates that this proposed change would impose a recurring 
burden on labor organizations of .51 hours per year. See the 
Department's initial Paperwork Reduction Act (``PRA'') analysis below; 
see also Table 2 below.
    Schedule 4--Purchase of Investments and Fixed Assets: The 
Department proposes to add two new columns to Schedule 4. The first new 
column entitled ``Name and Address of Seller'' will disclose the 
identity of the seller of investments and fixed assets to the labor 
organization, if in the aggregate the sales amount to $5,000 or more 
per seller. A second new column will disclose the date of the purchase. 
These changes will provide information to allow members to verify that 
all such sales were transacted at market price and at arm's length, 
thereby helping to prevent parties from unjustly enriching themselves 
by selling assets to a labor organization at above market price. The 
Department's review of data filed on the current Form LM-2 has 
demonstrated that the current form does not provide labor organization 
members with a clear understanding of the entities that are receiving 
in some cases hundreds of millions of dollars of the labor organization 
members' money. For instance, one labor organization listed on one line 
of its report disbursements of $789,369,139, another labor organization 
reported disbursements of $313,978,214, and another labor organization 
reported disbursements of $156,544,561. Labor organizations also report 
smaller amounts on this schedule. For instance, three labor 
organizations reported disbursements of $5,353, $5,350, and $6,952 on 
this schedule. None of the reports disclose the parties that sold these 
assets to these labor organizations. As such, the members of these 
labor organizations are not in a position to know whether these sums of 
money were well spent. The proposed changes help ensure the disclosure 
of any potential conflicts of interest between the seller and the labor 
organization. The schedule will total all individually itemized 
transactions and will provide the sum of the purchases from itemized 
individual sellers and the

[[Page 27350]]

sum of all other purchases of investments and fixed assets as well as 
the total of all purchases. As discussed below in the Department's 
initial PRA analysis, the Department estimates that this proposed 
change would impose a recurring burden on labor organizations of .56 
hours per year. See Table 2 below.
    Schedules 5-10. These schedules are unchanged.
    Schedule 11--All Officers and Disbursements to Officers: The 
Department proposes two substantive changes to the categories of 
disbursements reported on this schedule. First, an exception to the 
reporting of indirect disbursements will be eliminated and, therefore, 
both direct and indirect payments on behalf of the officer for travel 
expenses will be reported on Schedule 11. A ``direct disbursement'' to 
an officer is a payment made by the labor organization to the officer 
in the form of cash, property, goods, services, or other things of 
value. An ``indirect disbursement'' to an officer is a payment made by 
the labor organization to another party for cash, property, goods, 
services, or other things of value received by or on behalf of the 
officer. Such payments include those made through a credit arrangement 
under which charges are made to the account of the labor organization 
and are paid by the labor organization. For example, when a union, 
through its credit arrangements, is billed directly and pays the 
airline bills of an officer, the union will have to include this amount 
as part of the disbursements made to the particular officer.
    The instructions to the current Form LM-2 except from reporting on 
Schedule 11:

    Indirect disbursements for temporary lodging (room rent charges 
only) or transportation by public carrier necessary for conducting 
official business while the officer is in travel status away from 
his or her home and principal place of employment with the labor 
organization if payment is made by the labor organization directly 
to the provider or through a credit arrangement and these 
disbursements are reported in disbursement Schedules 15 through 19.

    The distinction between reporting of direct and indirect 
disbursements has existed for more than 40 years. The distinction, 
which was not in the first set of Form LM-2 instructions, was 
established because of the difficulties faced by unions in then 
reconstructing documentation for certain payments for their prior 
fiscal year. Because of this difficulty, organizations were allowed to 
report such disbursements as functional expenses of the organization 
rather than as disbursements to particular officials. This distinction 
remained in the instructions and was not revisited by DOL despite 
changes in data reporting and record retention methods over the 
intervening decades. This issue was not addressed in the 2002-2003 
rulemaking. The Department proposes to eliminate this distinction. 
Disbursements for temporary lodging and transportation made directly to 
the labor organization officer by the labor organization are reported 
on Schedule 11; however, the exemption applies if the labor 
organization pays the vendor directly for the travel. This distinction 
does not serve the purpose of section 201(b)(3) of the LMRDA, 29 U.S.C. 
431(b)(3), which calls for reporting of ``other direct or indirect 
disbursements (including reimbursed expenses) to each officer and also 
to each employee. * * *'' Under the current instructions, however, 
these indirect disbursements are not attributed to the labor 
organization officer.
    That payment for an official's travel and lodging expenses is made 
by credit card and does not reduce the significance of the expense to a 
labor organization member; yet the current Form LM-2 treats the method 
of payment as significant. Travel and lodging expenses for a particular 
officer may raise questions among the membership for various reasons. 
The choice of transportation by public carrier (airplane, train or bus) 
and the level of accommodation (first-class or coach) may be 
significant to a member. Lodging choices may run from a motor inn to a 
five-star hotel; where options are available, the officer's choice of 
accommodation may be significant to a member. However, the mode of 
payment now controls whether a labor organization member knows the full 
extent of disbursements made for a particular official of the labor 
organization. Although the specifics of the travel will not appear on 
the Form LM-2, members will have a better understanding of the total 
amount of disbursements made to or on behalf of a particular official. 
Through this more complete reporting, members of the labor organization 
will be better able to determine whether such disbursements warrant 
further scrutiny, including review of the underlying documentation 
maintained by the labor organization.
    As discussed below in the Department's initial PRA analysis, the 
Department believes that the proposed elimination of this exception 
will result in a recurring burden of .19 hours per respondent.
    Second, a new column will be added to Schedule 11 to allow 
disclosure of benefits disbursements for the labor organization 
official. Columns ``(A)'' through ``(E)'' will remain unchanged. Column 
``(F)'' will be redesignated ``Benefits.'' This is the only new column 
on the schedule requiring disclosure of additional information. Column 
``(G)'' will be redesignated ``Disbursements for Official Business.'' 
Column ``(H)'' will be redesignated ``Other Disbursements not reported 
in (D) through (G).'' Column ``(I)'' will be added for ``Total.''
    The current Form LM-2 does not provide sufficient information on 
disbursements made to or on behalf of officers. Benefit disbursements 
include, for example, disbursements for life insurance, health 
insurance, and pensions. Labor organization members should be provided 
information on benefits disbursed to or on behalf of officers because 
benefits received by officers may be an important part of the 
compensation package provided by the labor organization. Reporting 
benefits disbursed in the aggregate on Schedule 20 does not provide 
labor organization members and the public with a complete picture of 
compensation received by labor organization officers. For example, one 
local in its 2005 Form LM-2 listed $491,252 for ``Officer's Union 
Fringes'' even though the labor organization had fewer than ten full-
time officers. Unfortunately, a member of a labor organization has no 
way of knowing, for example, if these benefits were evenly distributed 
among the officers, or if one officer received $400,000 and the other 
eight officers split the remaining $91,252. Under the proposal, rather 
than report fringe benefits in the aggregate on the current Schedule 
20, the labor organization will report the benefits on Schedule 11 by 
individual labor organization officer.
    In another instance, a labor organization reported payments of 
$49,542 to ``Various Companies'' for ``Benefits Administration'' and 
payments of $64,219 to ``Various School Districts'' for ``Benefits paid 
on behalf of officers.'' Another labor organization reported on its 
Form LM-2 total disbursements of $461,971, $460,203, and $244,780 to 
certain individual officers. This disclosure did not take into account 
that these same officers and employees also received $181,297, 
$184,397, and $161,240 respectively as contributions to their employee 
benefit plans. These benefits payments were disclosed to the IRS but do 
not appear itemized by officers and employees on the Form LM-2. While 
labor organization members aware of the IRS data may be able to obtain 
this information about the compensation packages received by labor 
organization officers and employees, the Department's proposal will 
provide all

[[Page 27351]]

members with ready access to this information in a single database.
    Under the current Form LM-2, such benefits payments are not 
required to be reported as having been made to or on behalf of a 
specific officer. Requiring that the aggregate amounts of benefits 
disbursements appear next to the name of each labor organization 
officer and employee, when applicable, will result in labor 
organizations better informing their members how their monies have been 
spent. The above examples demonstrate that the current Form LM-2 fails 
to provide a full accounting of labor organizations' disbursements to 
their officials. The current Form LM-2 allows benefits payments made to 
or on behalf of officers to be lumped together with general benefits 
paid to members in Schedule 20. With such large disbursements listed in 
one category, it is impossible for labor organization members to 
ascertain what benefits are being paid to labor organization officers 
and employees. The Department believes that combining these 
disbursements into a single schedule does not adequately inform labor 
organization members and the public regarding benefits paid to labor 
organization officers, and thus in this area the full reporting mandate 
of the LMRDA is not fulfilled.
    As discussed below in the Department's initial PRA analysis, the 
Department believes that the addition of the benefits column to 
Schedule 11 will add an estimated recurring burden of .49 hours for 
officers See Table 3 below. Currently, labor organizations track 
benefit disbursements to officers for the IRS Form 990. Therefore, the 
only additional burden labor organizations will incur for Schedule 11 
is the time required to enter the sum each officer received in benefits 
next to each officer's name on the Form LM-2. Furthermore, the proposed 
changes are consistent with the level of disclosure required in other 
contexts for executive and employee compensation.\8\ Moreover, the need 
for greater transparency in compensation packages applies equally well 
to employees and not simply officers. Accordingly, the reasons 
discussed above apply to Schedule 12 below as well.
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    \8\ For example, the Securities and Exchange Commission on 
December 29, 2006, amended its regulations governing disclosure to 
that agency of executive compensation (71 FR 78338), and the 
Internal Revenue Service Form 990 requires more detailed disclosure 
in the area of executive compensation than does the Department's 
Form LM-2.
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    The Department recognizes that in the 2003 Form LM-2 Final Rule a 
decision was made to aggregate the benefits on Schedule 20 (Benefits) 
citing privacy considerations. See 68 FR 58374, 58387, 58399, 58426 
(Oct. 9, 2003). The Department believes that its proposal to add a 
benefits column to Schedule 11 (and 12) in the manner described above 
will preserve the privacy of the individuals. Recognizing privacy 
implications, the Department in this NPRM is not proposing to require 
labor organizations to itemize individual payments made to their 
officers and employees. Rather the Department proposes that labor 
organizations disclose the total sum paid directly or indirectly to 
each officer and employee. This level of disclosure balances the need 
to disclose total compensation packages against the need to protect the 
privacy of individuals receiving certain payments.
    The balance struck by this proposal will ensure that proper 
disclosure occurs, without disclosing private information to the 
general public, such as whether a particular officer or employee 
received an indirect payment for medical treatment. In fact, under the 
proposal a labor organization member reading the report will not be 
able to ascertain what types of benefits labor organization officers 
and employees receive, only the total value of these benefits. For 
instance, if a labor organization officer received a matching 
contribution to a 401(k) plan in the amount of $5,000, indirect payment 
of health insurance premiums in the amount of $6,700, and a health club 
membership in the amount of $1,200, the labor organization's Form LM-2 
would disclose that this officer received a total of $12,900 in 
benefits. The individual payments will not be itemized, thus protecting 
the official's privacy interests. The labor organization, however, is 
required to provide such information to the Department of Labor upon 
its request or to permit a member of the labor organization for just 
cause to examine records necessary to verify the report, the latter 
pursuant to 29 U.S.C. 431(c).
    Schedule 12--Disbursements to Employees: The proposed substantive 
changes to Schedule 12 are identical to the changes in Schedule 11 and 
the supporting reasons for the proposed changes are the same as 
described above for the changes to Schedule 11. One of the exceptions 
to the reporting of indirect disbursements will be eliminated and, 
therefore, both direct and indirect payments for travel expenses will 
be reported on Schedule 12. The reporting labor organization will be 
required to report aggregate benefits disbursements made to or on 
behalf of each of the employees listed on Schedule 12. A new column 
will be added to Schedule 12 to allow disclosure of benefits 
expenditures. Columns ``(A)'' through ``(E)'' will remain unchanged. 
Column ``(F)'' will be redesignated ``Benefits.'' This is the only new 
column on the schedule requiring disclosure of additional information. 
Column ``(G)'' will be redesignated ``Disbursements for Official 
Business.'' Column ``(H)'' will be redesignated ``Other Disbursements 
not reported in (D) through (G).'' Column ``(I)'' will be added for 
``Total.''
    As discussed below, the Department believes that the proposed 
elimination of the exception will result in a recurring burden of .38 
hours and the addition of the benefits column to Schedule 12 will add 
an estimated recurring burden of .88 hours. See discussion of Schedule 
12 in the PRA analysis below (figures here derived from the 
recordkeeping burden associated with benefits and travel).
    Schedule 13--Membership Status: This schedule is unchanged.
    Detailed Summary Page: The current detailed summary page contains 
information from Schedule 14 through Schedule 19. The new detailed 
summary page will include information from Schedule 14 through Schedule 
29. These summary pages will provide members with a snapshot of the 
labor organization's activities. Members may then use this snapshot to 
determine whether further analysis of the individual itemized schedules 
is required. There is no additional burden associated with these 
summary schedules because the software will automatically enter the 
totals in the appropriate lines of the summary schedules as the labor 
organization fills out the individual itemization schedules.
    Schedules 14-22. Currently, Form LM-2 filers only report the total 
amount received from dues and agency fees, per capita taxes, fees, 
fines, assessments, and work permits, sales of supplies, interest, 
dividends, rents, receipts on behalf of affiliates for transmittal to 
them, and receipts from members for disbursement on their behalf on 
Statement B. In some instances, these line items exceed $20 million. 
For example, one labor organization stated that it received over $298 
million in per capita taxes and another received over $28 million in 
rent. Little useful information can be discerned from these totals 
alone.
    The lack of itemization of most receipts on the current Form LM-2 
makes it easier for criminals to embezzle money coming to labor 
organization accounts. In one case, the president and

[[Page 27352]]

treasurer of a local labor organization converted over $184,129 in dues 
checks. However, the rank and file members, even if the individual 
checks had been in amounts of $5,000 or more, would have been unable to 
detect the conversion because the current Form LM-2 only requires the 
disclosure of the yearly total received in dues checks, not the 
reporting of individual checks received from employers. The proposed 
form will contain itemized information for each check that is $5,000 or 
more and disclose whether other checks aggregate to $5,000 or more. In 
those instances where the receipt checks, either alone or in 
combination aggregate to $5,000 or more, the labor organization will 
disclose this on the form. The change will address this problem, which 
extends to all the various reporting categories on the current form and 
not merely the receipt of dues payments, because now receipts-side 
embezzlements like the embezzlement of $184,129 mentioned above will be 
harder to hide.
    The Department proposes to add new schedules that coincide with the 
items of cash receipts listed on Statement B. These schedules represent 
new requirements that labor organizations itemize the individual 
categories of receipts aggregated to $5,000 from any one source. The 
labor organization will be required to complete a separate itemization 
schedule for each individual or entity from which the labor 
organization has received $5,000 or more. Each transaction from that 
individual or entity will include information about the individual, the 
purpose of the payment, the date of the payment, and the amount of the 
payment. The total amount received from the individual or entity, both 
itemized and non-itemized, will be included at the bottom of the 
itemized schedule. The totals from each itemized schedule will then be 
added together and that number will be entered in the appropriate item 
on Statement B.
    By providing itemization of receipts, labor organizations will 
better disclose to their members and the public a full accounting of 
all funds received and the identity of individuals and entities with 
whom the labor organization does business. The Department can use this 
information to determine the purpose of any receipt from one source in 
an amount of $5,000 or more, which will help identify possible 
diversion to unintended purposes. Members will be able to determine 
that money received by the labor organization is actually accounted 
for. For example, labor organization members can ensure that money they 
paid to the organization for disbursement on their behalf is accounted 
for on the Form LM-2. If there is no itemized receipt in new Schedule 
22 for payments of $5,000 or more or the receipt is less than expected, 
then the member will know that the money was not properly reported and 
may pursue other avenues to determine what has happened to the money. 
The current Schedules 14 through 20 will be re-numbered as described 
herein. Schedules 14 through 22 will now provide itemized disclosure in 
the following areas of receipts:

Schedule 14--Dues and Agency Fees,
Schedule 15--Per Capita Tax,
Schedule 16--Fees, Fines, Assessments, and Work Permits,
Schedule 17--Sale of Supplies,
Schedule 18--Interest,
Schedule 19--Dividends,
Schedule 20--Rents,
Schedule 21--Receipts on Behalf of Affiliates for Transmittal to 
Them,
Schedule 22--Receipts from Members for Disbursement on Their Behalf.

    Under the current form, receipts listed under the above listed 
categories on Statement B are not itemized on a separate schedule for 
aggregate amounts of $5,000 or more. The only itemized receipts are 
``Other Receipts.'' ``Other Receipts'' of $5,000 or more are itemized 
on the current Schedule 14. Proposed Schedules 14 through 22 will 
include the same information that is currently required on Schedule 14 
for ``Other Receipts.'' As discussed below in the Department's initial 
PRA analysis, the Department's estimates that the proposed changes will 
increase the recurring recordkeeping burden, per schedule, an 
additional .21 hours per year. The Department estimates that the total 
additional reporting burden for all the revised schedules will be .47 
hours per year. See Table 2 below.
    Additionally, the Department requests comments on whether to 
narrow, clarify, or remove the confidentiality exception from the Form 
LM-2 instructions. Currently, the following information is subject to 
special reporting privileges under the confidentiality exception: (1) 
Information that would identify individuals paid by the union to work 
in a non-union facility in order to assist the union in organizing 
employees, provided that such individuals are not employees of the 
union who receive more than $10,000 in the aggregate from the union in 
the reporting year; (2) information that would expose the reporting 
union's prospective organizing strategy; (3) information that would 
provide a tactical advantage to parties with whom the reporting union 
or an affiliated union is engaged or will be engaged in contract 
negotiations; (4) information pursuant to a settlement that is subject 
to a confidentiality agreement, or that the union is otherwise 
prohibited by law from disclosing; and (5) information in those 
situations where disclosure would endanger the health or safety of an 
individual. If the receipt or disbursement fits within one of the above 
broad categories, then the labor organization need not itemize the 
receipt or disbursement. Instead it may include the receipt or 
disbursement in the aggregated total on Line 3 of Summary Schedule 23 
(Other Receipts) or on Line 5 of Summary Schedules 24 (Representational 
Activities) or 28 (Union Administration), as appropriate.
    The current broad confidentiality exception makes it impossible to 
ascertain from reviewing the form the actual purpose and payer/payee of 
many receipts and disbursements. For example, one labor organization 
did not identify the name of the payee, date of disbursement, nor the 
amount of the transaction for over 46% of its disbursements. This labor 
organization reported $5,931,513 in disbursements on Schedule 15, Line 
5 (All Other Disbursements). In Item 69, the labor organization stated 
that it had excluded certain confidential information from Schedule 15, 
but included the information in the totals. This same labor 
organization's total disbursements were $12,811,076. On a related 
matter, OLMS review of Form LM-2 filings has found that many major 
receipts and disbursements that do not qualify for the confidentiality 
exception, 68 FR 58499-500, are being included on Line 3 (total All 
Other Receipts) of Summary Schedule 14 (Other Receipts) or on Line 5 
(total All Other Disbursements) of Summary Schedules 15 
(Representational Activities) or 19 (Union Administration). Labor 
organizations are usually describing the general type of information 
that was omitted from the schedule in Item 69 (Additional Information), 
but the name of the payer/payee, date, and amount of the transaction(s) 
is not included. The Department believes that narrowing, clarifying, or 
removing the confidentiality exception will provide labor organization 
members with clearer information regarding these receipts and 
disbursements. A member now can only obtain specific information about 
these confidential transactions by requesting such information directly 
from the labor organization.
    The Department specifically invites comments on whether all 
transactions greater than $5,000 should be identified by amount and 
date in the relevant

[[Page 27353]]

schedules, permitting, however, labor organizations, where acting in 
good faith and on reasonable grounds, to withhold information that 
otherwise would be reported, in order to prevent the divulging of 
information relating to the labor organization's prospective organizing 
or negotiation strategy.
    Schedule 23--Other Receipts: This schedule, currently numbered 
Schedule 14, will be renumbered Schedule 23. No other changes will be 
made to this schedule.
    Schedule 24--Representational Activities: This schedule, currently 
numbered Schedule 15, will be renumbered Schedule 24. No other changes 
will be made to this schedule.
    Schedule 25--Political Activities and Lobbying: This schedule, 
currently numbered Schedule 16, will be renumbered Schedule 25. No 
other changes will be made to this schedule.
    Schedule 26--Contributions, Gifts and Grants: This schedule, 
currently numbered Schedule 17, will be renumbered Schedule 26. No 
other changes will be made to this schedule.
    Schedule 27--General Overhead: This schedule, currently numbered 
Schedule 18, will be renumbered Schedule 27. No other changes will be 
made to this schedule.
    Schedule 28--Union Administration: This schedule, currently 
numbered Schedule 19, will be renumbered Schedule 28. No other changes 
will be made to this schedule.
    Schedule 29--Benefits: This schedule, currently numbered Schedule 
20, will be renumbered Schedule 29. As described above in the 
discussion regarding the proposed changes to Schedule 11 and Schedule 
12, those benefits inuring to officers and employees of the labor 
organization will be listed next to the corresponding officer's or 
employee's name. Apart from this change, the same disbursements that 
were disclosed on Schedule 20 will be disclosed on the new Schedule 29. 
These include direct and indirect disbursements associated with direct 
and indirect benefits to members and members' beneficiaries.
    The Department proposes that its rule take effect 30 days after 
publication and apply prospectively to labor organization's fiscal 
years beginning on or after the effective date of a final rule 
promulgated after this notice of proposed rulemaking.
    Even though the Department is proposing at this time to change only 
the specific schedules identified above, it specifically requests 
comment on the appropriateness of the current functional categories and 
whether modifications to these categories are needed in order to 
provide labor organization members and the public with additional 
useful information.

B. Proposed Procedure and Standards to Revoke the Simplified Reporting 
Option Where Appropriate in Particular Circumstances

1. Introduction
    The Department proposes to establish standards and procedures for 
revoking the simplified report filing privilege provided by 29 CFR 
403.4(a)(1) for those labor organizations that are delinquent in their 
Form LM-3 filing obligation, fail to cure a materially deficient Form 
LM-3 report after notification by OLMS, or where other situations exist 
where revoking the Form LM-3 filing privilege furthers the purposes of 
LMRDA section 208. The Department anticipates that the vast majority of 
situations where revocation occurs will be for delinquency or material 
deficiency. (See Regulatory Flexibility Analysis below; the Department 
there estimates that of the 96 cases per year in which the simplified 
reporting privilege will be revoked all but two will be for delinquency 
or deficiency.) In granting the Secretary the authority to establish 
simplified forms, section 208 also authorizes the Secretary to revoke a 
labor organization's privilege to file such forms when the Secretary 
determines, after investigation, due notice, and an opportunity for a 
hearing, ``that the purposes of this section would be served [by 
revocation].'' The Department's primary method of enforcement to obtain 
a timely and complete report, a civil action seeking a court order that 
the labor organization file an adequate report, is a time-consuming 
process that permits the evasion of the reporting requirements to 
continue for lengthy periods, denying members the timely disclosure of 
this financial information, without which they are unable to properly 
oversee the operations of their labor organization and, where they 
believe appropriate, to timely change its leadership, policies, or 
both.
    The proposed procedure will effectuate the Department's authority 
to revoke a labor organization's existing Form LM-3 filing privilege if 
it fails to timely file a Form LM-3 or files a Form LM-3 that is 
materially deficient. A delinquent filer has, by definition, failed to 
accurately disclose its financial condition and operations, as required 
by section 201(b). A materially deficient filing that remains 
uncorrected also violates section 201(b). The Department proposes that 
Form LM-2, rather than the less detailed Form LM-3, is the appropriate 
level of financial disclosure for labor organizations whose Form LM-3 
filings are delinquent or materially deficient. The Form LM-2 not only 
requires more detail in general than the Form LM-3, but the Form LM-2 
requires information that may be particularly pertinent to situations 
where possible financial mismanagement or embezzlement is suspected.
    In the absence of an established procedure, the Department's 
ability to revoke a labor organization's privilege to file a simplified 
report has been hindered--no matter how egregious a labor 
organization's noncompliance with its reporting obligations, or obvious 
the indications of financial mismanagement, embezzlement, or corruption 
within that organization. The procedures set forth in this proposal 
will remedy this shortcoming in the Department's reporting system.\9\
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    \9\ The proposed revocation procedures will not affect labor 
organizations with annual receipts less than $10,000. While section 
208 allows the Secretary to revoke the privilege of such labor 
organizations to file the highly simplified Form LM-4, the 
Department is not proposing at this time to apply such procedure to 
Form LM-4 filers.
---------------------------------------------------------------------------

    The Department's goal in revoking the filing privilege is to 
promote greater financial transparency. The proposed rule fulfills that 
goal by requiring the affected labor organizations to file the standard 
reporting form, Form LM-2, which requires more detailed financial 
information than the Form LM-3. This additional financial information 
will assist members of labor organizations and OLMS investigators in 
reviewing the labor organization's funds and assets during the 
reporting period and enable them to determine whether additional 
scrutiny of the labor organization's finances is in order, for example, 
by requesting an explanation of the accounting, examining the 
underlying records of various transactions, or both.\10\
---------------------------------------------------------------------------

    \10\ OLMS intends to continue its regular practice of contacting 
Form LM-3 filers at the end of their fiscal year about their filing 
obligation, and, in doing so, it will inform them of the potential 
revocation of their privilege to file the Form LM-3 if they are 
delinquent in filing the form, file a Form LM-3 that is materially 
deficient, or for other appropriate cause. The instructions to the 
Form LM-3 already inform labor organization officers of their 
statutory obligation to file the completed forms with OLMS within 90 
days after the end of their labor organization's fiscal year.
---------------------------------------------------------------------------

2. Reason for the Proposal
    The Department's enforcement experience has shown that the failure 
of labor organizations to file the annual Form LM-3 on time and without 
material deficiencies is often an indicator of larger problems about 
the

[[Page 27354]]

way such organizations maintain their financial records, and may be an 
indicator of more serious financial mismanagement. For example, the 
labor organization may delay filing a Form LM-3 to avoid making timely 
public disclosures about financial improprieties of officers, such as 
the diversion of funds for personal use. Even if the Department 
eventually succeeds in encouraging a delinquent labor organization to 
file the required form, the lack of specificity in Form LM-3 may permit 
significant management problems to remain undetected. The greater 
detail required by the Form LM-2 makes it more difficult to hide such 
problems.
    The Department's enforcement experience reveals various reasons for 
delinquent filings, such as a labor organization's failure to maintain 
the records required by the LMRDA; inadequate office procedures; 
frequent turnover of labor organization officials and their often part-
time status; uncertainty of first-time officers about their reporting 
responsibilities under the LMRDA and their inexperience with 
bookkeeping, recordkeeping, or both; an ``inherited bookkeeping mess;'' 
an inattention generally to ``paperwork;'' overworked or under-trained 
officers; an officer's unwillingness to question or report apparent 
irregularities due to the officer's own inexperience or concern about 
the repercussions of reporting such matters; or a conscious ef