Labor Union LM-2 Audit & OLMS Compliance — DC, Maryland & Virginia

Form LM-2 (Labor Organization Annual Report) is the detailed annual financial disclosure report required by the Labor-Management Reporting and Disclosure Act (LMRDA) to be filed with the DOL's Office of Labor-Management Standards (OLMS). Labor unions with annual receipts of $250,000 or more must file Form LM-2. The LM-2 requires itemized disclosure of all receipts over $5,000, all disbursements over $5,000, officer compensation, direct and indirect business transactions, and loans to officers. It must be filed within 90 days of the union's fiscal year-end.

OLMS compliance audits examine labor unions for: (1) accuracy of LM-2/LM-3 reporting — whether all receipts and disbursements were properly disclosed, (2) proper authorization and documentation of officer and employee expense reimbursements, (3) adequacy of fidelity bonds covering officers who handle union funds, (4) per capita tax payments to parent unions — a common LM-2 error source, (5) election compliance under LMRDA Title IV, and (6) fiduciary duty compliance — whether union funds were used solely for legitimate union purposes.

Under Section 501 of the LMRDA, union officers, agents, shop stewards, and other representatives are fiduciaries of the union. Their duties include: (1) holding and administering union money and property solely for the benefit of the union and its members, (2) refraining from dealing with the union in a way that creates a conflict of interest, (3) not acquiring or holding any pecuniary interest that conflicts with the union's interests, and (4) accounting to the union for any personal profit received through conduct contrary to these duties.

Section 502 of the LMRDA requires that every officer and employee of a labor organization who handles funds or property of the union be bonded (fidelity bonded) for at least 10% of the funds handled in the prior year, with a minimum of $1,000 and a maximum of $500,000. The bond must be obtained from a surety company on the Department of the Treasury's Circular 570 approved list. OLMS audits routinely check whether the bond amount is adequate given the total funds handled by covered officers in the prior year.

The most common LM-2 errors include: (1) per capita tax to parent unions — miscalculating the per capita payment or misclassifying it, (2) failure to itemize disbursements over $5,000, (3) officer compensation — failing to include all forms of compensation (salary, allowances, reimbursed expenses), (4) loans to officers — not properly disclosing any loans to officers or employees, (5) direct and indirect business transactions — failing to disclose business relationships between the union and companies owned by officers, and (6) incorrect trust fund disclosures related to welfare and pension plans.

Under the LMRDA, failure to file a required report (LM-2, LM-3, or LM-4) is a federal crime punishable by a fine of up to $10,000, imprisonment up to one year, or both. Filing a false LM-2 — knowingly making false statements or misrepresenting financial information — is a more serious offense, punishable by a fine of up to $10,000 and up to five years imprisonment. OLMS refers cases involving willful violations to the DOL Office of Inspector General and the FBI.

Form T-1 (Trust Annual Report) must be filed by a labor organization that is required to file an LM-2 and that has a 'significant interest' in a trust — generally defined as either: (1) the union alone, or in combination with other labor organizations, appoints or selects a majority of the trust's governing board, or (2) the union contributes more than 50% of the trust's annual receipts. Trusts covered by Form T-1 include welfare funds and strike funds. Pension plans covered by ERISA are exempt from T-1 filing but are subject to Form 5500 requirements.

OLMS uses two primary selection methods: (1) random selection — a statistical sample of LM-2 filers is selected each year for compliance audit regardless of any specific indicators of problems, and (2) targeted selection — OLMS analyzes LM-2 data for anomalies such as unusually large officer expense reimbursements, large loans to officers, significant undisclosed disbursements, or complaints filed by union members. All unions filing LM-2 reports are potentially subject to audit at any time.