Office of the Inspector General
James F. Martin
Regional Commissioner of Chicago

Inspector General

Financial-Related Audit of An Organizational Representative Payee for the Social Security Administration (A-05-00-10067)

Attached is a copy of our draft report. Our objectives were to determine whether the organizational representative payee (1) had effective safeguards over the receipt and disbursement of Social Security benefits and (2) ensured Social Security benefits were used and accounted for in accordance with the Social Security Administration’s policies and procedures.

To provide you with the opportunity to present your views relative to the validity of the facts and reasonableness of the recommendations presented, we request that you provide written comments to each recommendation within 30 days from the date of this memorandum. If you wish to discuss the draft report, please call me or have your staff contact Steven L. Schaeffer, Assistant Inspector General for Audit, at (410) 965-9700.

James G. Huse, Jr.

OFFICE OF

Executive Summary

Some individuals cannot manage or direct the management of their finances because of their age or mental and/or physical impairments. Congress granted SSA the authority to appoint Rep Payees to receive and manage these beneficiaries’ benefits and recipients’ payments. A Rep Payee may be an individual or an organization. SSA selects Rep Payees for Old-Age, Survivors and Disability Insurance (OASDI) beneficiaries or Supplemental Security Income (SSI) recipients when representative payments would serve the individual’s interests.

Rep Payees are responsible for using benefits to serve the beneficiary’s or recipient’s best interests. Their duties include:

• using benefits to meet the beneficiary’s or recipient’s current and foreseeable needs;

• conserving and investing benefits not needed to meet the individual's current needs;

• maintaining accounting records of how the benefits are received and used;

• reporting events to SSA that may affect the individual's entitlement or benefit payment amount;

• reporting any changes in circumstances that would affect their performance as a Rep Payee; and

• providing SSA an annual Representative Payee Report (RPR) accounting for how benefits were spent and invested.

The organizational Rep Payee we audited is an attorney located in Michigan. In addition to meeting SSA requirements, the Rep Payee acts as guardian for individuals who receive Social Security benefits and are incapable of caring for themselves.

Based on our examination, we concluded that the organizational Rep Payee generally (1) had effective safeguards over the receipt and disbursement of Social Security benefits and (2) ensured that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures. We determined that, for 50 sampled beneficiaries randomly selected from 424 cases, (1) the Rep Payee accurately recorded benefits it received from SSA, (2) all expenses appeared to be proper, and (3) the Rep Payee maintained source documents that allowed us to determine the expenses were reasonable and authentic. However, we could not determine whether the Rep Payee properly reported to SSA how benefits were used for certain individuals because SSA could not locate 12 of 30 RPRs we requested (see Other Matters section of this report).

From September 1999 through August 2000, the Rep Payee received $305,939 in SSA funds for the 50 sampled individuals. Except for one case, we found no problems with the Rep Payee’s accounting for and/or use of those funds. One recipient received an SSI payment of $359 for a month during which the individual exceeded the $2,000 resource limit in conserved funds and was, therefore, ineligible. This occurred because the Rep Payee improperly monitored the recipient’s conserved fund balances. Since this was an isolated error and the Rep Payee returned the funds to SSA, we have no recommendation.

SSA maintains information on Rep Payees and their beneficiaries in the Rep Payee System (RPS). When we attempted to identify the number of recipients in the Rep Payee’s care, we initially found two listings in the RPS for the Rep Payee. These listings had different zip codes and locations. When we informed SSA regional staff, they queried the RPS and found another listing of recipients for the Rep Payee under another location. Each Rep Payee should be listed once in the RPS to enable users to easily identify all recipients in a Rep Payee’s care.

Generally, the Rep Payee met its responsibilities as Rep Payee for individuals receiving OASDI benefits and SSI payments. However, SSA needs to ensure that all of the Rep Payee’s beneficiaries and recipients are listed in one location on the RPS to facilitate identifying all recipients in the Rep Payee’s care.

We recommend that SSA update the RPS to consolidate the multiple entries for this Rep Payee and include all individuals for whom this Rep Payee was selected. In addition, ensure that all individuals assigned a Rep Payee have only one Rep Payee for all SSA benefits received.

Table of Contents

Appendix B – OIG Contacts and Staff Acknowledgments

Acronyms

OASDI Old-Age, Survivors and Disability Insurance
POMS Program Operations Manual System
Rep Payee Representative Payee
RPR Representative Payee Report
RPS Representative Payee System
SSA Social Security Administration
SSI Supplemental Security Income

Introduction

Our objectives were to determine whether the organizational representative payee (Rep Payee), (1) had effective safeguards over the receipt and disbursement of Social Security benefits and (2) ensured Social Security benefits were used and accounted for in accordance with the Social Security Administration’s (SSA) policies and procedures.

Some individuals cannot manage or direct the management of their finances because of their age or mental and/or physical impairments. Congress granted SSA the authority to appoint Rep Payees to receive and manage these beneficiaries’ benefits and recipients’ payments. A Rep Payee may be an individual or an organization. SSA selects Rep Payees for Old-Age, Survivors and Disability Insurance (OASDI) beneficiaries or Supplemental Security Income (SSI) recipients when representative payments would serve the individual’s interest.

Rep Payees are responsible for using benefits to serve the beneficiary’s or recipient’s best interests. Their duties include:

• using benefits to meet the beneficiary’s or recipient’s current and foreseeable needs;

• conserving and investing benefits not needed to meet the individual's current needs;

• maintaining accounting records of how the benefits are received and used;

• reporting events to SSA that may affect the individual's entitlement or benefit payment amount;

• reporting any changes in circumstances that would affect their performance as a Rep Payee; and

• providing SSA an annual Representative Payee Report (RPR) accounting for how benefits were spent and invested.

The organizational Rep Payee we audited is an attorney who acts as guardian for individuals who have no one else to care for them. After receiving a petition that someone is incapable of caring for himself or herself, the local probate court conducts hearings to determine who shall act as guardian. As a guardian, the Rep Payee is responsible for individuals’ living conditions and medical treatment. Often, the court will designate the Rep Payee as conservator as well as guardian. As a conservator, the Rep Payee is responsible for financial matters. After becoming an individual’s guardian, the Rep Payee then applies to SSA to become a Rep Payee.

As a guardian, the Rep Payee can also petition the local probate court to be compensated for services performed. Some of the services listed in the petition are the same services performed by a Rep Payee. If the probate court approves the petition, the Rep Payee can be compensated from the individual’s account maintained by the law firm. This approval is required because of the fiduciary relationship between the court, the individual, and the guardian. SSA’s policy allows for a guardian who is also a Rep Payee to be paid from SSA funds.³ While the Rep Payee acts as both a guardian and a Rep Payee for many individuals, it receives guardianship and attorney fees by petitioning the local probate court and does not receive rep payee fees. We noted that for SSI recipients, these fees approximate what SSA would pay the Rep Payee for acting as a Rep Payee.

Our audit covered the period September 1, 1999 through August 31, 2000. To accomplish our objectives, we:

• Reviewed the Social Security Act, SSA regulations, rules, policies and procedures pertaining to Rep Payees.

• Contacted SSA Regional Office and field office staff to obtain background information about the Rep Payee’s performance as a Rep Payee.

• Obtained from SSA’s Rep Payee System (RPS) a list of individuals who were in the Rep Payee’s care and received SSA funds as of September 27, 2000 or who left the Rep Payee’s care after August 31, 1999.

• Obtained from the Rep Payee a listing of individuals who were in its care and received SSA funds as of September 27, 2000 or who left its care after August 31, 1999.

• Compared and reconciled the RPS to the Rep Payee’s listings to identify the population of SSA individuals who were in the Rep Payee’s care during September 1999 through August 2000.

• Reviewed and tested the Rep Payee’s internal controls over the receipt and disbursement of OASDI benefits and SSI payments.

• Performed the following tests for 50 sampled beneficiaries and recipients.

• Compared and reconciled benefit amounts paid according to the Rep Payee’s records to benefit amounts paid according to SSA’s payment records.

• Reviewed the Rep Payee’s accounting records to determine whether benefits were properly spent or conserved on the individual’s behalf. We also determined whether SSA was due a refund for overpaid benefits.

• Traced a sample of expenses to source documents and examined the underlying documentation for reasonableness and authenticity.

• Interviewed a sample of the Rep Payee’s beneficiaries to determine whether their basic needs were being met.

• Performed third-party confirmations of the Rep Payee’s bank account balances.

• Requested a sample of 30 RPRs from SSA to determine whether income and expenses were correctly reported to SSA and reviewed 18 of the 30 that were located by SSA.

We performed our audit of the Rep Payee in Detroit, Michigan, from October 2000 to February 2001. We conducted our audit in accordance with generally accepted government auditing standards.

Results of Review

Based on our examination, we concluded that the Rep Payee generally (1) had effective safeguards over the receipt and disbursement of Social Security benefits and (2) ensured that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures. Specifically, we determined that, for 50 sampled beneficiaries, (1) the Rep Payee accurately recorded benefits it received from SSA, (2) all expenses appeared to be proper, and (3) the Rep Payee maintained source documents that allowed us to determine the expenses were reasonable and authentic. However, we could not determine whether the Rep Payee properly reported to SSA how benefits were used because SSA could not locate 12 of 30 RPRs we requested (see Other Matters section of this report).

We selected a random sample of 50 beneficiaries and recipients from the 424 individuals who received benefits from September 1999 through August 2000. The Rep Payee received $305,939 in benefits for these 50 individuals (see table below).

Except for one case, we found no problems with the Rep Payee’s accounting for and/or use of those funds. One recipient received an SSI payment of $359 for a month during which the individual exceeded the $2,000 resource limit in conserved funds and was, therefore, ineligible. This occurred because the Rep Payee improperly monitored the recipient’s conserved fund balances. This was an isolated error and the Rep Payee returned the funds to SSA.

In 1 of the 50 cases reviewed, the Rep Payee received an SSI payment for a recipient who had exceeded the $2,000 resource limit. This occurred because the Rep Payee inadequately monitored the conserved fund balance. As a result, SSA overpaid the recipient $359 in SSI benefits for a 1-month period.

The Rep Payee maintains a separate ledger for each recipient. The Rep Payee uses these ledgers to record all checks received for the recipients and to record all payments made on the recipient’s behalf. Our review of these ledgers disclosed that the conserved fund balance for one recipient was over the $2,000 monthly resource limit allowed by the SSI program for 1 month. When we brought this to the Rep Payee’s attention, it promptly returned the $359 SSI payment to SSA. The Rep Payee stated that it would more closely monitor the SSI resource limitation, although it believed this was an isolated instance.

SSA maintains information on Rep Payees and their beneficiaries in the RPS. When we attempted to identify the number of recipients in the Rep Payee’s care, we initially found two listings in the RPS for the Rep Payee with different zip codes and locations. When we informed SSA regional staff, they queried the RPS and found another listing of recipients for the Rep Payee under another location. Each Rep Payee should be listed once in the RPS to enable users to identify all recipients in a Rep Payee’s care. SSA regional staff agreed that there should be one listing for each Rep Payee.

Conclusions and Recommendations

Generally, the Rep Payee met its responsibilities for individuals receiving OASDI benefits and SSI payments. However, SSA needs to ensure that all of the Rep Payee’s beneficiaries and recipients are listed at one location on the RPS for ease in identifying all recipients in the Rep Payee’s care.

We recommend that SSA update the RPS to consolidate the multiple entries for this Rep Payee and include all individuals for whom this Rep Payee was selected. In addition, ensure that all individuals assigned a Rep Payee have only one Rep Payee for all SSA benefits received.

Other Matters

One method SSA uses to monitor Rep Payees is the RPR. This report assists SSA in determining (1) the use of benefits during the proceeding 12-month reporting period, (2) the Rep Payee’s continuing suitability, and (3) the continuing need for representative payment. Depending on the responses, SSA may contact the Rep Payee to determine continued suitability. During our review, we found several completed RPR’s that had questionable information. In addition, we found SSA could not always obtain and retrieve completed RPRs from the Rep Payee.

In one case, the Rep Payee reported $2,600 in conserved funds to SSA as of May 1999. This should have initiated a SSA review to determine whether the recipient was eligible for payments. However, no review was performed and, as a result, benefits continued without interruption. We confirmed that no overpayment had been recorded, and it was not noted that this SSI recipient was over the resource limit. This indicates that SSA did not properly review the RPR. SSA regional staff agreed that this case should have been reviewed for further development.

To determine whether the Rep Payee properly reported to SSA how benefits were used, we requested from SSA the most recently completed RPRs for 30 of the Rep Payee’s recipients. While the Rep Payee staff provided us with 29 of the 30 RPRs we requested, SSA was unable to provide 12 of the 30 RPRs requested. Because SSA did not provide all the RPRs requested, we could not independently confirm that the Rep Payee met its reporting responsibilities. For the 12 RPRs SSA did not provide, we could not determine whether the Rep Payee properly submitted the reports and SSA lost them or if they were never submitted. The Rep Payee showed us several letters it had written in response to second and third requests by SSA for RPRs it had already sent. Our review of the 18 RPRs SSA received from the Rep Payee disclosed that the Rep Payee submitted the RPRs between 8 and 279 days late.

For 12 of the 18 RPRs SSA received from the Rep Payee, all recipient expenses were reported under 1 question. Question "C" pertains to how much was spent on other things for the recipient, such as clothing, education, medical and dental expenses, and recreation or personal items during the 12-month reporting period shown on the pre-printed RPR. The other two questions on the RPR pertain to how much was spent for food and housing ("B") and any amount saved for that year ("D").

We asked the Rep Payee about reporting all expenses under Question "C," when food and housing expenses for residing in a nursing home were separated on the recipients’ ledger. We were given a copy of Internal Revenue Service Regulation 1.213-1 (e)(V)(a) which states that, "The entire cost of nursing home care is deductible for a mentally incompetent person who is unsafe when left alone." The Rep Payee indicated it did not want to report one amount categorized as food and housing to SSA on Question "B" on the RPR, when Question "C" was used to report the same amount to the Internal Revenue Service. We believe the Rep Payee should properly classify the costs regardless of Internal Revenue Service reporting requirements. SSA regional staff agreed that the Rep Payee should appropriately allocate expenses between Questions "B" and "C."

The blank disbursement checks the Rep Payee used to pay recipient expenses were kept in an unlocked drawer. The Rep Payee told us the office doors are locked at night when the last person leaves. The Rep Payee also told us that custodial services clean the offices after normal business hours. We believe that blank disbursement checks should be maintained in a locked drawer to help prevent unauthorized use.

Appendices

Appendix A

Sampling Methodology and Results

We obtained from the Social Security Administration (SSA) Representative Payee System (RPS) and the representative payee (Rep Payee) separate listings of recipients who were in the care of the organizational Rep Payee and had received SSA funds as of September 27, 2000 or who left the Rep Payee’s care after August 31, 1999. We compared and reconciled these lists to identify the population of 424 SSA beneficiaries and recipients who were in the Rep Payee’s care from September 1999 through August 2000. From this population, we obtained a random sample of 50 cases. The Rep Payee received $305,939 in SSA funds for the 50 sampled individuals from September 1999 through August 2000.

We reviewed the random sample to determine the accuracy of the Rep Payee’s financial records. We compared and reconciled benefit amounts paid according to the Rep Payee’s records to benefit amounts paid according to SSA payment records. We also reviewed the Rep Payee’s accounting records to determine whether payments were properly spent or conserved on the beneficiaries and recipients’ behalf. We determined whether SSA was due a refund of payments that were not properly used. We traced a sample of expenses to source documents and examined the underlying documentation for reasonableness and authenticity. We also interviewed a sample of 10 Rep Payee beneficiaries to determine whether their basic needs were being met.

Specifically, we determined that, for 50 sampled cases, (1) the Rep Payee accurately recorded benefits it received from SSA, (2) all expenses appeared to be proper, and (3) the Rep Payee maintained source documents that allowed us to determine the expenses were reasonable and authentic. Except for one case, we found no problems with the Rep Payee’s accounting for and/or use of those funds. One recipient was overpaid $359 in SSI benefits for a month in which the individual was ineligible because of excess resources.

Appendix B

OIG Contacts and Staff Acknowledgments

William Fernandez, Director, Program Audit Division, (510) 970-1739
Barry Shulman, Deputy Director, Program Audit Division, (312) 353-0331

In addition to those named above: