OFFICE OF
THE INSPECTOR GENERAL

SOCIAL SECURITY ADMINISTRATION

CONTROLS OVER OLD-AGE,
SURVIVORS, AND DISABILITY
INSURANCE REPLACEMENT CHECKS

May 2006 A-02-05-15080
AUDIT REPORT

Mission

We improve SSA programs and operations and protect them against fraud, waste, and abuse by conducting independent and objective audits, evaluations, and investigations. We provide timely, useful, and reliable information and advice to Administration officials, the Congress, and the public.

Authority

The Inspector General Act created independent audit and investigative units, called the Office of Inspector General (OIG). The mission of the OIG, as spelled out in the Act, is to:

Conduct and supervise independent and objective audits and investigations relating to agency programs and operations.
Promote economy, effectiveness, and efficiency within the agency.
Prevent and detect fraud, waste, and abuse in agency programs and operations.
Review and make recommendations regarding existing and proposed legislation and regulations relating to agency programs and operations.
Keep the agency head and the Congress fully and currently informed of problems in agency programs and operations.

To ensure objectivity, the IG Act empowers the IG with:

Independence to determine what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations based on the reviews.

Vision

By conducting independent and objective audits, investigations, and evaluations, we are agents of positive change striving for continuous improvement in the Social Security Administration's programs, operations, and management and in our own office.

MEMORANDUM

Date: May 31, 2006 Refer To:

To: The Commissioner

From: Inspector General

Subject: Controls Over Old-Age, Survivors, and Disability Insurance Replacement
Checks (A-02-05-15080)

OBJECTIVE

Our objective was to determine the effectiveness of the Social Security Administration’s (SSA) controls over the Old-Age, Survivors, and Disability Insurance (OASDI) replacement check process for beneficiaries who had previously negotiated multiple monthly benefit checks.

BACKGROUND

When a beneficiary or representative payee reports to SSA that he or she did not receive an OASDI benefit check, a replacement check can be provided. The cashing of both an original and replacement check for the same month by the same beneficiary is referred to as a double check negotiation (DCN). Usually, when a beneficiary or a representative payee reports that a check was not received, a replacement check is issued before the status of the original check is known. If the beneficiary had a DCN within the last 24 months, and the beneficiary either claimed forgery unsuccessfully or did not make a forgery claim, SSA should not issue a replacement check until the status of the original check is known.

To meet our objective, we obtained a file of 8,497 beneficiaries with 2 or more duplicate-check events recorded on SSA’s Payment History Update System (PHUS) between October 2001 and May 2004. From this population, we focused on beneficiaries who had three or more DCNs. We sampled 100 beneficiaries with 3 or 4 DCNs and 50 beneficiaries with 5 or more DCNs. We compared the overpayments identified on the PHUS to overpayments posted on SSA’s Recovery of Overpayments Accounting and Reporting (ROAR) system and noted any differences. See Appendix B for additional information on the background, scope and methodology of our review.

RESULTS OF REVIEW

We found that the controls over the OASDI replacement check process were not fully effective in preventing the improper recording of DCNs and ensuring that SSA recovers the correct amount of overpayments related to DCNs. Based on our review, we estimate 1,146 beneficiaries had DCNs totaling $1,201,799 that were not properly recorded on their PHUS records. Although inaccurate PHUS postings do not lead to actual monetary losses for SSA, they affect the integrity of the data SSA staff can use to determine whether a beneficiary has prior DCNs.

Overpayments related to DCNs are tracked for recovery by SSA’s ROAR system. We compared our sample DCN-related overpayments from the PHUS to those recorded in the ROAR. We found inaccurate overpayment amounts recorded in the ROAR and estimate that 800 beneficiaries did not have $549,849 in DCN-related overpayments correctly posted to their ROARs.

Our review also found that the Master Beneficiary Record (MBR) special messages used to alert staff that beneficiaries had previous DCNs were often missing. In some instances when the special messages were present, SSA inappropriately issued replacement checks to beneficiaries prior to receiving confirmation from Treasury of the status of the original checks.

ACCURACY OF PHUS RECORDS

For our 150 sample cases, we reviewed the PHUS to determine if SSA staff properly annotated all DCNs. Our review identified more DCNs for these cases than were recorded in the PHUS. Instead of the 620 DCNs expected based on our data extract, we found the 150 sample cases actually had 639 DCNs.

While there is a net difference of 19 DCNs, the number of errors that occurred was greater since we found some cases had too few DCNs recorded and some cases had too many DCNs. Specifically, we found 79 DCNs, totaling $46,300, should have been recorded, but were not. For example, one beneficiary had three DCNs on the PHUS totaling $1,904. However, our analysis determined that the beneficiary actually had six DCNs totaling $6,963. Based on the results of our analysis, we project that there was an additional $641,740 that should have been recorded as DCNs.

Conversely, we found 60 DCNs totaling $39,717 had been recorded, but these DCNs did not actually occur. For example, we determined that one beneficiary had two DCNs of $991 and $1,003. However, the PHUS record for the beneficiary listed three DCNs for $9,919, $991 and $1,003. Based on the results of our review, we estimate that $560,059 was erroneously recorded as DCNs, even though DCNs had not occurred.

In total, we estimate that $1,201,799 of DCNs were improperly recorded on the PHUS. See Appendix C for details of our sample results and projections.

ACCURACY OF ROAR RECORDS

Once we independently calculated the DCN-related overpayments for our sample cases, we compared our results to overpayment amounts recorded in the ROAR. Through our review of 150 sample beneficiaries, we found that the ROAR contained inaccurate overpayment postings. In 37 cases, the DCN-related overpayments recorded in the ROAR were less than the amounts we identified. Specifically, the ROAR did not include $28,796 of overpayments incurred by the 37 beneficiaries due to DCNs. Based on these results, we project that 483 beneficiaries were overpaid $346,551 more than was recorded.

Conversely, we found 25 beneficiaries’ amounts recorded in ROAR were higher than the DCN amount we identified. The 25 beneficiaries had $17,127 recorded in excess of the actual amounts overpaid. For example, we determined that a beneficiary had four DCNs totaling $3,840. However, the beneficiary’s ROAR had DCN-related overpayments totaling $4,800. Based on our sample results, we estimate that 317 beneficiaries’ overpayments were overstated by a total of $203,298.

In total, we estimate $549,849 of DCN-related overpayments were improperly recorded in the ROAR. See Appendix C for details of our sample results and projections.

SPECIAL MESSAGES

SSA staff did not annotate the MBR with a special message for 105 of our 150 sample cases, even though a special message was warranted. Under SSA’s current operating procedures, these cases of misuse should have been documented with special messages.

Of our 150 sample cases, 42 had special messages posted to their MBRs. However, in each of these 42 cases, the special messages should have been recorded earlier. Furthermore, 10 of these 42 cases involved beneficiaries who incurred DCNs after the special messages were posted. For example, a beneficiary had DCNs in April and July 2003 even though a special message was posted to his MBR in November 2002. We concluded that the remaining 3 sample cases did not have DCNs, so no special messages were needed.

CONCLUSION AND RECOMMENDATIONS

Based on our review, we believe opportunities exist for SSA to improve controls over the OASDI replacement check process for beneficiaries who had previously negotiated multiple monthly benefit checks. Specifically, SSA could more effectively record DCNs that occurred and the special messages indicating past DCNs. The accurate recording of DCN events by SSA staff is necessary to ensure the integrity of SSA’s data and the proper collection of DCN-related overpayments.

To help detect and prevent DCNs in the future, and ensure the recovery of DCN-related overpayments, we recommend SSA ensures that its staff:

1. Correctly record all DCN events on the PHUS.

2. Correctly record all DCN-related overpayments on the ROAR and initiate appropriate overpayment collection activities.

3. Correctly annotate the MBR with special messages for all OASDI beneficiaries who negotiate both the original and replacement benefit checks.

4. Initiate replacement checks only after the status of the original check is confirmed when a special message indicates past misuse of the replacement check process in the prior 24 months.

AGENCY COMMENTS

The Agency agreed with our recommendations and has already initiated corrective action. The Agency’s comments are included in Appendix D.

Patrick P. O’Carroll, Jr.

Appendices
APPENDIX A – Acronyms
APPENDIX B – Background, Scope and Methodology
APPENDIX C – Sample Results and Projections
APPENDIX D – Agency Comments
APPENDIX E – OIG Contacts and Staff Acknowledgments

Appendix A
Acronyms

DCN Double Check Negotiation
GN General
MBR Master Beneficiary Record
OASDI Old-Age, Survivors, and Disability Insurance
OIG Office of the Inspector General
OPSOS Office of Public Service and Operations Support
PHUS Payment History Update System
POMS Program Operations Manual System
ROAR Recovery of Overpayments Accounting and Reporting
SM Systems and Methods
SSA Social Security Administration
TC Teleservice Chapter
Treasury Department of the Treasury
TSCOG Teleservice Center Operating Guide

Appendix B
Background, Scope and Methodology

BACKGROUND

When a beneficiary or representative payee reports to SSA that he or she did not receive an OASDI benefit check, a replacement check can be provided. Once reported, SSA staff review Payment History Update System (PHUS) queries to determine if a check was issued. Additionally, staff reviews the Master Beneficiary Record (MBR) to determine whether a check was due and for the presence of a special message that the beneficiary has a history of double check negotiation (DCN) within the past 24 months.1 If a special message is not present on the MBR, SSA staff should review queries to determine whether the beneficiary is possibly misusing the replacement check process. If SSA records indicate possible misuse, the employee should issue the replacement check and initiate a review for a possible DCN.

Usually, when a beneficiary or a representative payee reports that a check has not been received, a replacement check is issued before the status of the original check is known. If the beneficiary had a confirmed DCN within the last 24 months, and the beneficiary either claimed forgery unsuccessfully or did not make a forgery claim, SSA should not issue a replacement check until the status of the original check is known. The Department of the Treasury (Treasury) is responsible for determining the status of the original check and notifying SSA of the results of its determination.

If a DCN has been confirmed by Treasury, SSA staff should record the overpayment on the Recovery of Overpayments Accounting and Reporting (ROAR) system, send an overpayment notice, and begin recovery of the overpaid amount. The ROAR system tracks the collection activity and recovery of overpayments. Additionally, staff annotates the PHUS to signify that a DCN has occurred. When a DCN occurs, after forgery has been ruled out, SSA staff should annotate the MBR with a special message indicating the misuse of the replacement check process. The special message assists SSA staff in the future if a beneficiary who previously abused the process makes a request for a replacement check. The special message will indicate that a replacement check should not be issued until after completion of an investigation of the status of the original check by Treasury. SSA’s current policy related to issuing a replacement check when a special message indicates a prior DCN is the result of a settlement agreement reached in 1997.

SCOPE AND METHODOLOGY

Our objective was to determine the effectiveness of the Social Security Administration’s (SSA) controls over the Old-Age, Survivors, and Disability Insurance (OASDI) replacement check process for beneficiaries who had previously negotiated multiple monthly benefit checks. We obtained a nationwide data file of 8,497 beneficiaries with 2 or more duplicate-check events posted to the PHUS between October 2001 and May 2004. From this population, we focused on beneficiaries who had three or more DCNs recorded on the PHUS. To accomplish our objective we:

Researched relevant Program Operations Manual System (POMS) and Teleservice Center Operating Guide (TSCOG) procedures. Specifically, we researched POMS references General (GN) 02406.002, GN 02406.003, GN 02406.150 (A), GN 02406.300, GN 02604.405 and TSCOG references Teleservice Chapter (TC) 25001.020 and TC 205001.030.

Performed a nationwide data extract of beneficiaries with two or more duplicate- check events (event “010”) posted to the Payment History Update System (PHUS) between October 2001 and May 2004. Separated the results of the extract into two simple random samples: those with three to four duplicate-check events; and those with five or more duplicate-check events. The first sample included only beneficiaries with three or four duplicate-check events recorded on the PHUS. Any beneficiaries with more than four duplicate check events were included in our second sample—beneficiaries with five or more duplicate-check events.

Selected a sample of 100 cases of the 1,742 beneficiaries with 3 to
4 duplicate-check events and analyzed Recovery of Overpayments
Accounting and Reporting (ROAR) system, Master Beneficiary Record (MBR)
and PHUS records as of January 2005, to determine whether the DCNs were accurate, overpayment amounts were reflected correctly on the ROAR and special messages were correctly posted to the MBR. These 1,742 beneficiaries had
5,652 DCNs totaling $2,975,936 in overpayments.

Selected a sample of 50 cases of the 333 beneficiaries with 5 or more
duplicate-check events and analyzed ROAR, MBR and PHUS records, as of October 2004, to determine whether the DCNs were accurate, overpayment amounts were reflected correctly on the ROAR and special messages were correctly posted to the MBR. These 333 beneficiaries had 2,023 DCNs totaling $969,089 in overpayments.

Through our analysis, we identified the number of DCNs and corresponding overpayments that occurred for each sampled beneficiary. We then compared the overpayments identified on the PHUS to overpayments posted on the ROAR and noted any differences. Additionally, we reviewed the MBR for special messages to indicate past DCNs within the prior 24 months.

We provided the results of our analysis to staff in the Division of Operations Analysis and Customer Service—a component of the Office of Public Service and Operations Support (OPSOS)—which is under the Deputy Commissioner for Operations. We discussed our results with the staff and reviewed a number of the conclusions reached. Per this review process, we did not count replacement payments that were still under Treasury review as DCNs. OPSOS staff agreed with our methods and the results of the cases they reviewed.

We performed our audit in the New York Office of Audit between September 2004 and March 2005. We found the data used for this audit were sufficiently reliable to meet our objective. The entities audited were SSA’s Field Offices, Teleservice Centers and Program Service Centers under the Deputy Commissioner for Operations. Our audit was performed in accordance with generally accepted government auditing standards.

Appendix C
Sample Results and Projections

Sample Results and Projections

3 to 4 Double Check Negotiations (DCN) 5 or more DCNs Total
Population size (Beneficiaries) 1,742 333 2,075
Sample size 100 50 150
Attribute Results and Projections
Beneficiaries with unrecorded DCNs 31 15 46
Point estimate 540 100 640
Projection lower limit 411 67
Projection upper limit 684 139

Beneficiaries with DCNs recorded in error 21 21 42
Point estimate 366 140 506
Projection lower limit 255 103
Projection upper limit 499 179
Total beneficiaries with DCNs not properly recorded on the PHUS
1,146

Beneficiaries with DCN overpayments not posted to ROAR 22 15 37
Point estimate 383 100 483
Projection lower limit 271 67
Projection upper limit 518 139

Beneficiaries with DCN overpayments recorded in error to ROAR 14 11 25

Point estimate 244 73 317
Projection lower limit 153 44
Projection upper limit 363 110
Total beneficiaries with DCNs not properly posted to ROAR
800
Variable Results and Projections

Beneficiaries with Unrecorded DCNs $30,983 $15,317 $46,300
Point estimate $539,729 $102,011 $641,740
Projection lower limit $332,906 $42,793
Projection upper limit $746,552 $161,230

Beneficiaries with DCNs recorded in error $27,467 $12,250 $39,717
Point estimate $478,473 $81,586 $560,059
Projection lower limit $172,966 $50,410
Projection upper limit $783,979 $112,761
Total of DCNs not properly recorded on the PHUS
$1,201,799

Beneficiaries with DCN overpayments not posted to ROAR $14,383 $14,413 $28,796
Point estimate $250,559 $95,992 $346,551
Projection lower limit $156,173 $28,791
Projection upper limit $344,944 $163,192

Beneficiaries with DCN overpayments recorded in error to ROAR $8,293 $8,834 $17,127
Point estimate $144,464 $58,834 $203,298
Projection lower limit $71,216 $28,798
Projection upper limit $217,712 $88,869
Total of DCNs not properly posted to ROAR
$549,849
Note: All projections were calculated at the 90-percent confidence level.

Appendix D
Agency Comments

SOCIAL SECURITY

MEMORANDUM

Date: May 15, 2006

To: Patrick P. O'Carroll, Jr.
Inspector General

From: Larry W. Dye
Chief of Staff

Subject: Office of the Inspector General (OIG) Draft Report, "Controls Over Old-Age, Survivors, and Disability Insurance Replacement Checks" (A-02-05-15080)—INFORMATION

We appreciate OIG’s efforts in conducting this review. Our comments on the draft report’s recommendations are attached.

Please let me know if you have any questions. Staff inquiries may be directed to
Ms. Candace Skurnik, Director, Audit Management and Liaison Staff, at extension 54636.

Attachment:
SSA Response

COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL’S (OIG) DRAFT REPORT, “CONTROLS OVER OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE REPLACEMENT CHECKS” (A-02-05-15080)

Thank you for the opportunity to review and provide comments on this draft report. Historically, double check negotiation (DCN) has been a difficult issue. One of the difficulties is that there is a lag period between the time a beneficiary/recipient alleges non-receipt and the time that it takes the Department of Treasury (Treasury) to decide on a case, which is necessary for the Agency to determine whether a true DCN exists.

The report indicates that the Payment History Update System (PHUS) did not match the results in the Recovery of Overpayments Accounting and Reporting (ROAR). The information found in the PHUS includes any and all DCNs on a beneficiary’s record, regardless of whether they are true DCNs or not. The ROAR contains information about DCN overpayments that are true DCNs. As only true DCNs will appear on the ROAR, comparing PHUS DCN data to ROAR DCN overpayments is not likely to yield a match. Beneficiaries do not always cash both checks; therefore, comparing the two sources (PHUS to ROAR) could falsely indicate that the Agency may not be processing or pursuing overpayments for some DCNs.

To assist Agency representatives in the development of DCNs, a “DCN Process” desk guide was prepared and released on January 31, 2006 (Administrative Message (AM) 06024-REV). The desk guide includes background, best practices for processing and suggestions for DCN prevention or deterrents. We believe this will be a valuable tool to assist employees in handling DCN situations and reducing the number of duplicate payments being issued.

Recommendation 1

Correctly record all DCN events on the PHUS.

Comment

We agree. The Agency has already addressed this issue in special instructions to employees (Emergency Message (EM)-03028 (effective March 24, 2003) and the DCN Process desk guide - AM 06024-REV (released January 31, 2006)). The Agency also provided DCN training and a non-receipt refresher course provided in December 2004. During the training, the language for DCN abuse was explained in detail.

Recommendation 2

Correctly record all DCN-related overpayments on the ROAR and initiate appropriate overpayment collection activities.

Comment

We agree. The Agency has already addressed this issue through an automated action based on the disposition of the replacement payment received from Treasury. At the Payment Service Center, the actions are completely automated and require no manual intervention by an employee.

Additionally, as stated for recommendation 1, SSA has already provided DCN non-receipt refresher training.

Recommendation 3

Correctly annotate the Master Beneficiary Record (MBR) with special messages for all Old-Age, Survivors, and Disability Insurance beneficiaries who negotiate both the original and replacement benefit checks.

Comment

We agree. In February 2006, the Program Operations Manual System instruction
GN 02406.150 was updated to provide instructions regarding the language to place in the Remarks and Special Message fields when DCN abuse is detected. Additionally, Transmittal Number 3, effective November 2004, revised Teleservice Center operating procedure TC 25001.040 to include instructions to annotate DCN abuse in the Special Message field on the MBR. Individual Regional Offices have also produced Program Circulars (BOS 04-016 GS, effective May 14, 2004) to remind all TSC and FO employees to annotate the MBR with a special message when handling a DCN case. Although we have issued reminders in the past, we will continue to issue reminders via EMs, AMs and Program Circulars, as deemed necessary.

Recommendation 4

Initiate replacement checks only after the status of the original check is confirmed when a special message indicates past misuse of the replacement check process in the prior 24 months.

Comment

We agree. As indicated in our response to recommendations 1 and 3, we have already instructed employees to initiate replacement checks only when a true DCN is not on the record. Reminders have already been issued and we will continue to issue reminders via EMs, AMs and Program Circulars, as deemed necessary.

Appendix E
OIG Contacts and Staff Acknowledgments
OIG Contacts

Tim Nee, Director, (212) 264-5295

Vicki Abril, Audit Manager, (212) 264-0504

Acknowledgments

In addition to those named above:

Christine Hauss, Program Analyst

Robert Blake, Senior Auditor

For additional copies of this report, please visit our web site at www.socialsecurity.gov/oig or contact the Office of the Inspector General’s Public Affairs Specialist at (410) 965-3218. Refer to Common Identification
Number A-02-05-15080.

DISTRIBUTION SCHEDULE

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Office of Management and Budget, Income Maintenance Branch
Chairman and Ranking Member, Committee on Ways and Means
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Social Security Advisory Board

Overview of the Office of the Inspector General
The Office of the Inspector General (OIG) is comprised of our Office of Investigations (OI), Office of Audit (OA), Office of the Chief Counsel to the Inspector General (OCCIG), and Office of Resource Management (ORM). To ensure compliance with policies and procedures, internal controls, and professional standards, we also have a comprehensive Professional Responsibility and Quality Assurance program.
Office of Audit
OA conducts and/or supervises financial and performance audits of the Social Security Administration’s (SSA) programs and operations and makes recommendations to ensure program objectives are achieved effectively and efficiently. Financial audits assess whether SSA’s financial statements fairly present SSA’s financial position, results of operations, and cash flow. Performance audits review the economy, efficiency, and effectiveness of SSA’s programs and operations. OA also conducts short-term management and program evaluations and projects on issues of concern to SSA, Congress, and the general public.

Office of Investigations
OI conducts and coordinates investigative activity related to fraud, waste, abuse, and mismanagement in SSA programs and operations. This includes wrongdoing by applicants, beneficiaries, contractors, third parties, or SSA employees performing their official duties. This office serves as OIG liaison to the Department of Justice on all matters relating to the investigations of SSA programs and personnel. OI also conducts joint investigations with other Federal, State, and local law enforcement agencies.

Office of the Chief Counsel to the Inspector General
OCCIG provides independent legal advice and counsel to the IG on various matters, including statutes, regulations, legislation, and policy directives. OCCIG also advises the IG on investigative procedures and techniques, as well as on legal implications and conclusions to be drawn from audit and investigative material. Finally, OCCIG administers the Civil Monetary Penalty program.
Office of Resource Management
ORM supports OIG by providing information resource management and systems security. ORM also coordinates OIG’s budget, procurement, telecommunications, facilities, and human resources. In addition, ORM is the focal point for OIG’s strategic planning function and the development and implementation of performance measures required by the Government Performance and Results Act of 1993.