SOCIAL SECURITY ADMINISTRATION

ACCURACY OF
TITLE II DISABILITY INSURANCE BENEFITS
PROCESSED WITH
WORKERS' COMPENSATION SETTLEMENTS

August 2008

A-04-07-17059

AUDIT REPORT

Mission

By conducting independent and objective audits, evaluations and investigations, we inspire public confidence in the integrity and security of SSA's programs and operations and protect them against fraud, waste and abuse. We provide timely, useful and reliable information and advice to Administration officials, 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

We strive for continual improvement in SSA's programs, operations and management by proactively seeking new ways to prevent and deter fraud, waste and abuse. We commit to integrity and excellence by supporting an environment that provides a valuable public service while encouraging employee development and retention and fostering diversity and innovation.

MEMORANDUM

Date: August 13, 2008

To: The Commissioner

From: Inspector General

Subject: Accuracy of Title II Disability Insurance Benefits Processed with Workers' Compensation Settlements (A-04-07-17059)

OBJECTIVE

Our objective was to determine the payment accuracy of Title II Disability Insurance (DI) claims with offsets related to workers' compensation (WC) lump sum settlements. Specifically, our work focused on DI claims in which the WC benefits were annotated as "not proven" in Social Security Administration (SSA) systems.

BACKGROUND

SSA administers the Old-Age, Survivors and Disability Insurance program under Title II of the Social Security Act, as amended (Act). Section 223 of the Act requires that SSA provide monthly DI benefits to individuals who meet specific disability requirements.

Workers injured on the job may qualify for DI benefits in addition to benefits under State and Federal WC programs. In general, injured workers receive compensation for lost wages through State WC programs. Each State administers its own WC program. State WC agencies generally adjudicate claims and act as the depository for WC disability claim records. However, employers may purchase WC insurance from private insurance companies, receive it through a State insurance fund, or elect self-insurance.

When an injured worker qualifies for both State WC and Federal DI benefits, the combined benefits could result in workers receiving more in disability payments than they earned before they became disabled. To prevent this, Congress enacted the WC offset provision under section 224 of the Act, which requires that SSA reduce DI benefits by the amount of any other disability benefit paid under any law or plan of the United States, a State, or a political subdivision. In this instance, SSA reduces the DI benefit based on an offset calculation set forth in its policy and procedures.

State WC benefits are paid via weekly, biweekly, or monthly payments and/or with lump sum settlements. A lump sum settlement is typically based on the remaining WC payments due the disabled worker. To process a DI claim with a lump sum settlement, SSA must prorate the lump sum WC settlement based on facts presented in the settlement agreement.

The following DI claim example illustrates how SSA prorates a lump sum WC settlement and offsets the DI benefits. For example, an injured worker is awarded a lump sum settlement of $130,000, including attorney fees and medical expenses totaling $21,000. The worker's life expectancy is 396 months. SSA records indicate the individual (beneficiary) is eligible for a $1,069 monthly DI benefit. Table 1 provides the steps in the proration of the lump sum settlement with the resulting WC offset.

Table 1: Proration of a WC Lump sum Settlement with DI Offset
Steps to Prorate Lump Sum Settlement and Offset Amount
Gross Lump Sum Settlement Amount $130,000
Deduct Excludable Expenses-Attorney Fees and Medical Expenses $21,000
Net Lump Sum Amount-or Amount Paid to the Beneficiary $109,000
Computed Monthly WC Benefit-Net Lump Sum Amount Divided by Life Expectancy ($109,000/396) $275

Monthly DI Benefit Before WC Offset $1,069
Deduct Computed Monthly WC Benefit $275
Monthly DI Benefit Payable-after WC offset $794

Our previous audits, which are detailed in Appendix B, revealed weaknesses in the payment calculations of Title II DI claims involving WC benefits. Generally we determined that most of the payment errors resulted from human error. For example, we noted that SSA personnel did not always verify the amount of WC payments made to the DI beneficiary by the State or insurance carrier. This information is essential in calculating the amount to be offset. Additionally, we noted that SSA personnel misinterpreted or incorrectly applied the amount of WC payments, including lump sum settlements, to the offset calculation. Based on the payment errors identified in previous audit work, we encouraged SSA to explore alternate methods for obtaining, standardizing and applying State WC information.

In June 2004, SSA implemented the Title II Redesign Release 3 (Redesign) to improve the automated processing of Title II initial claims applications and post-entitlement actions, both of which involve WC offset claims. The Redesign streamlined the WC offset process to reduce manual actions and expanded the Master Beneficiary Record (MBR) to include details of the settlement. Specifically, the Redesign added a data field in which staff could record whether the lump sum settlement information was verified with the State, insurance carrier or court. MBRs established before the Redesign did not contain fields for specific information regarding lump sum settlements. As a result, redesigned MBRs were annotated with a "not proven" status in the WC verification field. The "not proven" status remains on the MBR until a claim requires an action and the lump sum settlement data are verified.

Because the Redesign assigned the "not proven" status to these WC claims, information was not available to indicate whether the WC information was properly verified-as required by SSA policies and procedures. Generally, SSA policy states that if the claimant cannot provide proof of State WC benefits, verification should be obtained from the insurance carrier, a State WC agency, or the Courts. WC verification can be in various forms such as a

printout of benefits from an insurance carrier or State records,
WC award notice,
court order,
copy of a benefits check, or
a WC settlement agreement.

Because the MBR indicates the WC lump sum settlements were not verified in these cases, we were concerned that SSA staff may have calculated the WC offsets using incorrect information, which would lead to payment errors.

SCOPE AND METHODOLOGY

For the period January 1, 1998 through May 5, 2006, we identified 30,250 Title II DI claims that SSA considered for a WC offset action and the WC lump sum settlement was coded "not proven" on the MBR. From this population, we randomly selected a sample of 250 cases for our review. To determine the accuracy of these 250 cases, we:

reviewed WC lump sum settlement verification available in SSA's records,
obtained WC verification from States,
verified WC benefits with the injured worker, and
determined whether the verified WC data agreed with the WC rates recorded on the MBR.

If the verified WC lump sum data did not agree with the WC rates recorded on the MBR, we

calculated the WC offset based on the proven WC benefits data, and
compared the total benefits paid to the total benefits owed.

Further information regarding our scope and methodology as well as our sampling methodology and results is in Appendices C and D, respectively.

RESULTS OF REVIEW

We commend SSA's continued efforts to improve the payment accuracy of DI claims with a WC offset. Only 1 of the 250 sampled cases that had a "not proven" status assigned after the Redesign had a material payment error-a $26,000 overpayment. Moreover, SSA recorded accurate WC lump sum settlement information on the MBR for 212 of the 250 (84.8 percent) cases. However, for the remaining 38 cases (15.2 percent), SSA recorded incorrect WC lump sum information on the MBR. For 37 of the 38 cases, the incorrect WC information did not cause a material payment error. Based on the 38 cases identified above, we estimate that approximately 4,600 cases have incorrect WC lump sum settlement data recorded on the MBR (see Appendix D).

Although a payment error did not occur in most of the cases with incorrect WC information in this sample, our prior audit work has shown that cases with incorrect WC data are at a greater risk of error. Given the high incidence of incorrect payment data and the propensity for these cases to have errors, we encourage SSA to continue pursuing efforts to mitigate the risk of incorrect WC information being input to the system-thereby, reducing the risk of related payment errors.

INCORRECT WORKERS' COMPENSATION DATA-NO PAYMENT ERROR

SSA reported the incorrect WC lump sum settlement information on the MBR for 38 (15.2 percent) of our 250 sampled cases. However, payment errors did not occur in 37 of these cases. The primary reasons that payment errors did not occur were (1) the proration of the lump sum benefits ended before the DI benefits began and (2) the beneficiary had high average current earnings-in either situation a WC offset was not applicable. In several other cases, the WC information recorded on the MBR was not significantly different from the verified WC information, thus a material payment error did not occur. While payment errors did not occur for these 37 cases, we believe cases with incorrect WC information are at risk of having WC offset calculation errors that result in payment errors.

BENEFICIARY OVERPAID

SSA overpaid one beneficiary $26,000. The payment error occurred because SSA (1) recorded and used the incorrect lump sum settlement information and (2) did not account for an annuity that was awarded as part of the settlement. Specifically, SSA used a higher settlement amount and fewer expenses (medical and attorney) to prorate the WC benefits for offset. The lump sum proration error alone would not have resulted in a WC offset because the beneficiary had high average current earnings. However, SSA did not recognize a 5-year annuity paid in monthly installments of $1,114. Had SSA included the monthly annuity in the WC offset calculation, the beneficiary's DI benefits would have been offset. The combined WC offset calculation errors resulted in a $26,000 overpayment. Table 2 compares the WC data recorded on the MBR to the verified lump sum settlement data.

Table 2: Comparison of MBR Data to Verified WC Data
Workers' Compensation Data MBR
Lump sum
Data Verified-Lump sum Data
Lump sum Amount $50,000 $65,000
Less: Medical and Attorney Expenses $12,500 $50,000
Net: Lump sum Amount $37,500 $15,000
Annuity Payment (monthly) $0 $1,114

CONCLUSIONS AND RECOMMENDATIONS

We acknowledge SSA's commitment to improving the payment accuracy of the DI claims with WC offset-one of the Agency's more complex workloads. The Redesign assigned a "not proven" status to the MBRs of DI claims involving certain WC lump sum settlements, thereby causing doubt as to whether the WC information was accurate. However, our review determined that only 1 of the 250 sampled cases had a material payment error-a $26,000 overpayment. Further, the WC information was accurate for 212 of the 250 (84.8 percent) sampled DI claims. While we are encouraged that only 1 material payment error existed in the sampled cases, we remain concerned that 38 cases (15.2 percent) had incorrect WC information, which increases the risk of payment errors. As stated in our prior audits, we encourage SSA to continue to explore all possible avenues to improve the processing of DI claims with WC offsets. Accordingly, we recommend that SSA:

1. Collect the $26,000 overpayment from the beneficiary whose DI benefits were improperly offset.

AGENCY COMMENTS AND OIG RESPONSE

The Agency agreed with our recommendation. The full text of the Agency's comments is included in Appendix E.

Patrick P. O'Carroll, Jr.

Appendices
APPENDIX A - Acronyms
APPENDIX B - Prior Audit Reports
APPENDIX C - Scope and Methodology
APPENDIX D - Sampling Methodology and Results
APPENDIX E - Agency Comments
APPENDIX F - OIG Contacts and Staff Acknowledgments

Appendix A
Acronyms

DI Disability Insurance
MBR Master Beneficiary Record
POMS Program Operations Manual System
SSA Social Security Administration
U.S.C. United States Code
WC Workers' Compensation

Appendix B
Prior Audit Reports

Social Security Administration, Office of the Inspector General
Reports Related to Payment Accuracy in Disability Insurance Claims Involving Workers' Compensation Offsets
Common Identification Number Report Title Date Issued
A-04-98-62001 The Social Security Administration Incorrectly Paid Attorney Fees on Disability Income Cases When Workers' Compensation Payments Were Involved March 2000
A-06-03-13022 The Social Security Administration's Workers' Compensation Data Match with the State of Texas April 2003
A-08-02-12064 Pending Workers' Compensation: The Social Security Administration Can Prevent Millions in Title II Disability Overpayments June 2003
A-04-02-21054 Title II Disability Insurance Benefits with Workers' Compensation Underpayment Errors Exceeding $70,000 July 2003
A-04-03-13042 The Social Security Administration's Clean-up of Title II Disability Insurance Cases with a Workers' Compensation Offset October 2004
A-06-05-15024 The Social Security Administration's Match of Disability Insurance Records with Texas Workers' Compensation Payment Data August 2005
A-08-05-25132 Follow-up of Pending Workers' Compensation: The Social Security Administration Can Prevent Millions in Title II Disability Overpayments September 2005
A-04-05-15042 Payments Resulting from Disability Insurance Actions Processed via the Social Security Administration's Manual Adjustment, Credit, and Award Processes April 2006
A-14-06-16049 Implementation of Workers' Compensation in Title II Redesign Release 3 June 2006
A-04-05-15133 Title II Disability Insurance Benefits with a Workers' Compensation Offset November 2006

Appendix C
Scope and Methodology
We reviewed a random sample of 250 Disability Insurance (DI) claims from a population of 30,250 DI cases the Social Security Administration (SSA) considered for a workers' compensation (WC) offset action, and the WC lump sum settlement was coded "not proven" in the SSA records between January 1, 1998 and May 5, 2006.

To accomplish our audit objective, we:

Interviewed SSA personnel regarding procedures to process DI/WC offset claims.
Reviewed relevant laws and SSA's policies and procedures.
Reviewed previous reports pertaining to DI claims with a WC offset.
Queried SSA's Master Beneficiary Record; Payment History Update System; and Retirement, Survivors, and Disability Insurance Payment History and Worksheet.

For each of the 250 sampled cases, we:
Obtained SSA's DI case folder and paperless file and reviewed all relevant documents related to the WC offset. When WC verification was not available, we obtained WC verification from the responsible State or verified the WC benefits with the injured worker.

For cases whose WC verification did not agree with the data recorded in SSA systems, we:
Completed SSA's Interactive Comps Facility screen to calculate the WC offset and resulting DI benefits.
Prepared an SSA Form 2204 to compare the total benefits paid to the total benefits owed.

The SSA entities reviewed were the Offices of Income Security Programs and Disability Programs under the Deputy Commissioner for Retirement and Disability Policy. The electronic data used for this audit were sufficiently reliable to meet our audit objectives. Our tests of internal controls were limited to gaining an understanding of the laws, regulations and policies that govern the processing of DI claims with a WC offset and performing the audit steps identified above. We conducted our audit from January 2007 to February 2008 in Atlanta, Georgia, and Baltimore, Maryland. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards required that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix D
Sampling Methodology and Results

Sampling Methodology

We reviewed a random sample of 250 Disability Insurance (DI) claims for which the Social Security Administration (SSA) considered a workers' compensation (WC) offset action, and the WC lump sum settlement was coded "not proven" on the Master Beneficiary Record (MBR). We selected our sample from a universe of 30,250 Title II DI cases with a "not proven" status that met our selection criteria during the period January 1, 1998 through May 5, 2006.

Sampling Results

Estimation of DI Claims (MBRs) With Incorrect WC Lump Sum Data

Attribute Appraisal Projections
Population and Sample Data Number of Cases
Population 30,250
Sample Size 250
Cases with Incorrectly Recorded WC Data on the MBR 38
Projection to Population Number of Cases
Lower Limit 3,509
Point Estimate 4,598
Upper Limit 5,877

Note: All projections were made at the 90-percent confidence level.

Appendix E
Agency Comments

MEMORANDUM

Date: July 23, 2008

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

From: David V. Foster
Executive Counselor to the Commissioner

Subject: Office of the Inspector General (OIG) Draft Report, "Accuracy of Title II Disability Insurance Benefits Processed with Workers' Compensation Settlements" (A-04-07-17059) --INFORMATION

We appreciate OIG's efforts in conducting this review. Our response to the report findings and recommendation is attached.

Please let me know if we can be of further assistance. Direct inquiries to Ms. Candace Skurnik, Director, Audit Management and Liaison Staff, at extension 54636.

SSA Response

COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL (OIG) DRAFT REPORT, "ACCURACY OF TITLE II DISABILITY INSURANCE BENEFITS PROCESSED WITH WORKER'S COMPENSATION SETTLEMENTS" (A-04-07-17059)

Thank you for the opportunity to review and comment on the draft report. We appreciate your acknowledgement of our efforts to improve the processing of disability claims with Worker's Compensation (WC) offset. Although we have made great strides, as indicated in your review, there is still concern regarding the accuracy of the WC information. We made systems changes and provided training to our employees; however, additional work is still necessary to improve this workload. We will continue to explore and improve our methods for obtaining, standardizing, and applying WC information.

Recommendation 1

Collect the $26,000 overpayment from the beneficiary whose Disability Insurance benefits were improperly offset.

Comment

We agree. We will begin the overpayment collection process once we obtain the necessary information on the particular claim involved.

Appendix F
OIG Contacts and Staff Acknowledgments
OIG Contacts
Kimberly A. Byrd, Director, Southern Audit Division, (205) 801-1650
Frank Nagy, Audit Manager, (404) 562-5552
Acknowledgments
In addition to those named above:
Valerie Ledbetter, Senior Auditor
Brennan Kraje, Statistician
Charles Lober, Information Technology Specialist

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-04-07-17059.

Overview of the Office of the Inspector General
The Office of the Inspector General (OIG) is comprised of an Office of Audit (OA), Office of Investigations (OI), Office of the Counsel to the Inspector General (OCIG), Office of External Relations (OER), and Office of Technology and Resource Management (OTRM). To ensure compliance with policies and procedures, internal controls, and professional standards, the OIG also has a comprehensive Professional Responsibility and Quality Assurance program.

Office of Audit
OA conducts 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 reviews and program evaluations on issues of concern to SSA, Congress, and the general public.

Office of Investigations
OI conducts investigations 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 liaison to the Department of Justice on all matters relating to the investigation of SSA programs and personnel. OI also conducts joint investigations with other Federal, State, and local law enforcement agencies.

Office of the Counsel to the Inspector General
OCIG provides independent legal advice and counsel to the IG on various matters, including statutes, regulations, legislation, and policy directives. OCIG 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. Also, OCIG administers the Civil Monetary Penalty program.

Office of External Relations
OER manages OIG's external and public affairs programs, and serves as the principal advisor on news releases and in providing information to the various news reporting services. OER develops OIG's media and public information policies, directs OIG's external and public affairs programs, and serves as the primary contact for those seeking information about OIG. OER prepares OIG publications, speeches, and presentations to internal and external organizations, and responds to Congressional correspondence.

Office of Technology and Resource Management
OTRM supports OIG by providing information management and systems security. OTRM also coordinates OIG's budget, procurement, telecommunications, facilities, and human resources. In addition, OTRM is the focal point for OIG's strategic planning function, and the development and monitoring of performance measures. In addition, OTRM receives and assigns for action allegations of criminal and administrative violations of Social Security laws, identifies fugitives receiving benefit payments from SSA, and provides technological assistance to investigations.