THE STUDY WAS INITIATED BECAUSE OF A RADICAL INCREASE IN THE RATE OF REPORTED EMPLOYEE INJURIES AND THE AMOUNT OF BENEFITS BEING PAID. THE INVESTIGATION SHOWED THAT THE LABOR DEPARTMENT APPROVED MANY CLAIMS FOR BENEFITS UNDER THE FEDERAL EMPLOYEES' COMPENSATION ACT WITHOUT ADEQUATE EVIDENCE THAT THE EMPLOYEE'S DISABILITY OR DEATH WAS RELATED TO FEDERAL EMPLOYMENT. LABOR ALSO FAILED TO MONITOR EFFECTIVELY THE CONDITION AND STATUS OF INJURED EMPLOYEES TO DETERMINE WHETHER THEY REMAINED ELIGIBLE FOR THE BENEFITS RECEIVED, WHETHER THEY SHOULD RETURN TO WORK, OR WHETHER THEY SHOULD RECEIVE VOCATIONAL REHABILITATION SERVICES. INSUFFICIENT STAFF, MISMANAGEMENT, AND POOR ADMINISTRATION CONTRIBUTE TO THE PROBLEMS. WHILE LABOR HAS TAKEN SOME ACTIONS TO IMPROVE THE PROGRAM, GAO RECOMMENDS FURTHER STEPS. THE ESTABLISHMENT OF STANDARDS FOR THE TIMELY PROCESSING OF ALL CRIMES IS PROPOSED. A QUALITY ASSURANCE SYSTEM SHOULD BE INSTALLED THAT WILL PLACE AS MUCH EMPHASIS ON DECISIONS TO APPROVE OR CONTINUE COMPENSATION AS IT DOES ON DECISIONS TO REJECT, TERMINATE, OR REDUCE COMPENSATION. A MANAGEMENT INFORMATION SYSTEM SHOULD BE INSTALLED THAT WILL GIVE MANAGERS AT ALL LEVELS THE INFORMATION NEEDED TO ENSURE THAT ACTIVITIES ARE BEING CONDUCTED IN ACCORDANCE WITH THE ACT AND ESTABLISHED CRITERIA. CLAIMS EXAMINER SPECIALIZATION SHOULD ALSO BE CONSIDERED AS A MEANS TO IMPROVE THE TIMELINESS AND QUALITY OF CASE ADJUDICATION. THE APPENDIXES CONTAIN DETAILED FINDINGS AND REACTIONS FROM THE SECRETARY OF LABOR AND THE EXECUTIVE ASSOCIATE DIRECTOR FOR BUDGET OF THE OFFICE OF MANAGEMENT AND BUDGET. TABULAR DATA ARE INCLUDED. (AUTHOR ABSTRACT MODIFIED--RCB)