SOCIAL SECURITY ADMINISTRATION

FOLLOW-UP REVIEW
OF CONTROLS OVER
SUPPLEMENTAL SECURITY INCOME
REPLACEMENT CHECKS

September 2006 A-05-06-26058

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: September 6, 2006

To: The Commissioner

From: Inspector General

Subject: Follow-up Review of Controls over Supplemental Security Income Replacement Checks (A-05-06-26058)

OBJECTIVE

Our objective was to determine the status of corrective actions the Social Security Administration (SSA) has taken to address the recommendations in our September 2003 report, Controls Over Supplemental Security Income (SSI) Replacement Checks (A-05-03-13010).

BACKGROUND

In 1972, Title XVI of the Social Security Act (The Act) established the SSI program. SSI is a nationwide Federal cash assistance program administered by SSA that guarantees a minimum level of income to financially needy individuals who are aged blind or disabled. SSI payments are financed from the general fund of the United States Department of the Treasury (Treasury).

SSA has procedures to replace monthly SSI checks that recipients claim were not received. Usually, when nonreceipt is reported, the payment is replaced with a courtesy disbursement/replacement check before Treasury determines the status of the original payment. However, SSA may choose to direct Treasury to investigate the status of the original check before issuing a replacement check. This option can be exercised in two situations:
• SSA has information that an individual either misused or abused the replacement check process within the last 24 months, or

• SSA has information that the individual is unsure if the check was received.

A double check negotiation (DCN) occurs when a person cashes two checks for the same month in a 24-month period that results in an overpayment with no forgery involved. Further investigation of the DCN is often needed to determine if both checks were actually cashed by the representative payee or recipient (referred to by SSA as a true DCN) or if forgery by an unauthorized individual was involved.

Our September 2003 audit determined that the number of DCNs and related overpayments increased to a significant level in recent years. We estimated that SSA could realize about $137.5 million in program savings over a 5-year period if SSA took additional actions to deter individuals from initiating multiple DCNs and recovered related overpayments timely.

With regards to the recommendations in our September 2003 report, SSA agreed to:

• Develop a national replacement check refresher training package for employees.

• Work with the Office of the Inspector General (OIG) to build an Administrative Sanctions flag into the electronic Form SSA-8551 (OIG Referral of Potential Violation).

• Support a study sponsored by Treasury to determine why Social Security beneficiaries and SSI check recipients are reluctant to sign up for direct deposit.

• Develop action plans to assist field offices (FO) with high numbers of DCNs by improving front-end processing. Also, ensure that FOs refer individuals with multiple DCNs to the OIG for potential prosecution or, if declined, to regional offices (RO) for administrative sanctions.

• Work with the Treasury’s Financial Management Service to obtain DCN information.

RESULTS OF REVIEW

Our review disclosed that SSA implemented corrective actions to generally address the recommendations in our September 2003 report. With respect to obtaining DCN information from Treasury, SSA anticipates working with Treasury in Fiscal Year (FY) 2007 to develop a process to exchange DCN information.

While SSA took corrective actions, we found that SSA would benefit by taking additional steps to prevent and recover DCN overpayments. During this follow-up audit, we reviewed records for 338 SSI recipients who had 3 or more DCNs in a quarter during the 12 month period ending March 31, 2005. We found that the SSI records did not always contain the required remark about the case involving DCN abuse. Also, SSA rarely followed procedures to recover DCN overpayments at the maximum allowable rate. Furthermore, over one-third of the SSI recipients with multiple DCNs were under the care of a representative payee. Also, we found that SSA seldom changed representative payees even though they abused the DCN process.

CORRECTIVE ACTIONS TAKEN BY SSA ON PRIOR RECOMMENDATIONS

With respect to the recommendations in our 2003 report, we found that:

• SSA conducted replacement check refresher training for its employees in December 2004 via Interactive Video Training. The training emphasized true DCNs as well as the required inputs, messages, processing, and options to prevent multiple DCNs. The training also described the various system stop payment inputs and outlined the correct procedures for photocopy requests and the policy for unnegotiated checks.

• SSA issued policy and procedures reminders for administrative sanctions. Additionally, an administrative sanctions flag was built into the electronic SSA-8551, OIG Referral of Potential Violation.

• SSA participated in Federal initiatives to promote direct deposit and electronic transfers accounts. For example, SSA and Treasury sent payment envelope inserts that explained direct deposit to SSI recipients that receive benefits by mail. Additionally, SSA participated in a research study sponsored by Treasury to determine why Social Security beneficiaries and SSI check recipients are reluctant to sign up for direct deposit. According to SSA, the percentage of SSI payments that were issued by direct deposit increased from 51 percent in 2002 to almost 56 percent in 2005.

• SSA provided DCN data to the ROs on a regular basis for review and follow-up. We also found that some ROs provided updates to SSA Central Office on the actions taken to process the DCN data. Furthermore, staff at three of the four ROs we interviewed indicated that they further disseminated the DCN data to FOs for review and follow-up. For example, to address concerns about the volume of DCNs at one FO, staff at the Chicago RO instituted management review and approval procedures for all replacement check cases, and they requested that the FO report the actions taken every week until improvements were made.

• SSA agreed to work with Treasury to obtain DCN information. However, SSA and Treasury have not yet developed a process to exchange DCN information. Moreover, SSA informed OIG that it plans to begin the planning and analysis for a DCN exchange process in FY 2007.

SSA’s efforts, including the actions taken to address our prior audit recommendations, have successfully reduced the total number of SSI DCNs. As shown in Chart 1, the total number of SSI DCNs decreased 18 percent from 135,269 in March 2002 to 110,916 in March 2005.

Despite the decline in total SSI DCNs, the number of one-time SSI DCNs increased 17 percent from 69,973 in March 2002 to 82,122 in March 2005, as shown in Chart 2. Our review did not disclose why the increase occurred. However, SSA’s current procedures direct Treasury to determine the status of the original payment before a replacement check is issued when SSA has information that an individual either misused or abused

the replacement check process within the last 24 months. For these one-time DCNs, SSA would not have information on misuse or abuse. Therefore, SSA is limited in its ability to prevent one-time DCNs.

REVIEW OF RECIPIENTS WITH THREE OR MORE DCNs

As part of this follow-up audit, we reviewed 338 records for SSI recipients who had 3 or more DCNs in any quarter during the 12-month period ending March 31, 2005. These recipients negotiated true DCNs that resulted in overpayments of $698,678. We found that the SSI records did not always contain the required remark about DCN abuse. We also found that SSA rarely followed procedures to recover DCN overpayments at the maximum allowable rate. Furthermore, we found that over one-third of the SSI recipients with multiple DCNs were under the care of a representative payee. However, we also found that SSA seldom changed representative payees even though they abused the DCN process. The table below summarizes the number of DCNs for the 338 SSI recipients.

Number of DCNs SSI Recipients
3 140
4 111
5 56
6 20
7 10
8 1
Total 338

Remarks on the SSI Record

We found that for 93 of the 338 recipients in our review, the SSI record did not contain the required remark about the case involving DCN abuse. SSA policy states that the phrase “DCN Abuse – Input as C-stop until mm/yy” should be added in the remarks field if after 60 days an appeal is not filed or an overpayment is not protested. SSA should remind employees to enter appropriate remarks on SSI records that involve DCN abuse.

DCN Overpayment Recovery Rates

While SSA has taken overpayment recovery actions on the 338 recipients with DCN overpayments, we found that SSA rarely applied the 100 percent recovery option. Rather, SSA recovered the majority of the DCN overpayments at the minimum rate of 10 percent. The following table summarizes the overpayment recovery rates for the 338 recipients at the time of our review.

DCN Overpayment
Recovery Rates Number of Recipients
Not recovered 19
Less than 10 percent (1 to 9 percent) 20
At 10 percent 199
Greater than 10 percent (11 to 99 percent) 60
At 100 percent 18
Installment and cross-program recovery 21
Refund 1
Total 338

SSA policy states that DCN overpayments can be collected at 100 percent if the individual was determined to be at fault because he or she cashed both the original and replacement check payments. In February 2006, SSA instructed employees to emphasize to recipients that “overpayments for cashing duplicate checks cannot be waived” and “100 percent withholding would apply.” SSA should ensure that true DCN overpayments are recovered at the 100 percent rate when feasible.

Representative Payee Determinations

Our review disclosed that 125 of the 338 SSI recipients with multiple DCN abuses received benefits through a representative payee. As reflected in the table below, the representative payee was a parent or relative for 110 of the 125 recipients. SSA instructions state that a change in representative payee should be considered if the payee caused the DCN. However, we found that only 9 of 125 recipients had representative payee changes following DCN abuse. We could not specifically attribute the change in representative payee solely to multiple DCN abuse because SSA’s Representative Payee System (RPS) only provides generic descriptions of the reason a representative payee is terminated, such as "Direct Payment," "More Suitable Payee," or "Custody Change." The RPS does not state that the change in representative payee was due to DCN abuse. SSA should remind employees to consider a representative payee change to avoid future DCNs when the representative payee abuses the replacement check process.

Representative
Payee SSI
Recipients
Parent 84
Grandparent 6
Spouse 2
Child 1
Relative 17
Agency/Organization 6
Other 9
Total 125

CONCLUSION AND RECOMMENDATIONS

We recognize that SSA has taken actions to address the recommendations in our prior report. However, SSA would benefit by taking additional steps to prevent and recover DCN overpayments. Therefore, we recommend that SSA:

1. Work with Treasury to design and implement a process to exchange DCN information.

2. Remind FO employees to enter the required remarks on SSI records that involve DCN abuse.

3. Ensure that true DCN overpayments are recovered at the 100 percent rate when feasible.

4. Remind FO employees to determine if a change in the representative payee is warranted when DCN abuse is confirmed.

AGENCY COMMENTS

SSA agreed with our recommendations. The Agency’s comments are included in Appendix D.

Patrick P. O’Carroll, Jr.
Appendices
APPENDIX A – Acronyms

APPENDIX B – Scope and Methodology

APPENDIX C – Population and Review Results

APPENDIX D – Agency Comments

APPENDIX E – OIG Contacts and Staff Acknowledgments

Appendix A
Acronyms

The Act Social Security Act
C.F.R. Code of Federal Regulations
DCN Double Check Negotiation
FO Field Office
OIG Office of the Inspector General
POMS Program Operations Manual System
RO Regional Office
RPS Representative Payee System
SSA Social Security Administration
SSI Supplemental Security Income
SSR Supplemental Security Income Record
TCIS Treasury Check Information System
Treasury United States Department of the Treasury
U.S.C. United States Code

Appendix B
Scope and Methodology

To accomplish our objective we:

• Reviewed pertinent sections from:
▪ Program Operations Manual System GN 02402, GN 02406, GN 02604,
SI 02201, SI 02220, SM 01315, and SM 01601
▪ 20 Code of Federal Regulations Sections 416.101 and 416.110
▪ 42 United States Code Sections 1381 and 1383
▪ Sections 1601 and 1631 of The Social Security Act

• Reviewed the Social Security Administration (SSA) Office of the Inspector General audit report Controls Over Supplemental Security Income Replacement Checks (CIN: A-05-03-13010).

• Interviewed SSA staff from the Office of the Deputy Commissioner for Operations to determine the status of corrective actions SSA took on the prior audit recommendations. We also interviewed staff at the Atlanta, Chicago, Dallas, and San Francisco Regional Offices. We selected the four regions with the highest number of double check negotiation (DCN) occurrences in their respective service areas during April 2004 through March 2005. Additionally, we interviewed SSA field office staff at the Memphis (Downtown) and Milwaukee (North) offices.

• Reviewed SSA replacement check trend information for the period April 2001 through March 2005.

• Obtained four quarterly data files from the Office of Operations of Supplemental Security Income recipients who had DCNs from April 2004 through March 2005, and reviewed Supplemental Security Income Records (SSR) for recipients with three or more DCNs.

We conducted our audit in Chicago, Illinois; Memphis, Tennessee; and Milwaukee, Wisconsin between October 2005 and March 2006. We determined that the data used for this audit were sufficiently reliable to meet our audit objectives. The entity audited was the Office of Operations. We conducted our audit in accordance with generally accepted government auditing standards.

Appendix C
Population and Review Results

Social Security Administration (SSA) provided 4 quarterly double check negotiation (DCN) files which contained 110,916 DCNs that occurred during the audit period April 2004 through March 2005. The file contained 383 unique Social Security numbers (SSN) for Supplemental Security Income recipients with 3 or more DCN occurrences in any quarter between April 2004 and March 2005.

We reviewed the Supplemental Security Income Records (SSR) for all 383 recipients. We also reviewed the SSR fields that contained remarks, direct deposit information, representative payee (if any), payment history, and overpayment/recovery decisions.

We found that the number of DCN occurrences for the 383 records in the data file we obtained from SSA corresponded with the DCNs recorded on each recipient’s SSR records. However, we noted that in couples' cases, SSA combined the total number of DCNs for both spouses under the SSN of one member of the couple. Consequently, if both members of a couple had three or more DCNs during the audit period both individuals were included in our review; however, if neither spouse had three or more DCNs during the audit period, we excluded both cases in our review. As a result, we added 2 spouses and excluded 47 couples from our universe, resulting in an audit population of 338 recipients.

Appendix D
Agency Comments

MEMORANDUM

Date: August 30, 2006 Refer To: S1J-3

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

From: Larry W. Dye
Chief of Staff

Subject: Office of the Inspector General (OIG) Draft Report, "Follow-Up Review of Controls Over Supplemental Security Income Replacement Checks" (A-05-06-26058)--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, “FOLLOW-UP REVIEW OF CONTROLS OVER SUPPLEMENTAL SECURITY INCOME REPLACEMENT CHECKS”
(A-05-06-26058)

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 make a forgery determination, which is necessary for SSA to determine whether a true DCN exists.

In October 1997, a new non-receipt policy was established as a result of the Robinson-Reyf Settlement Agreement. The policy change required that SSA process a request for a replacement check to be released immediately for non-receipt of recurring present month and previous month benefit checks when DCN abuse was not present. If the beneficiary/recipient is unable to determine if a benefit check was received and they are a known and proven abuser of the non-receipt reporting system, SSA forwards the replacement check request to Treasury to determine the status of the first check before a replacement check is issued. In March 2003, additional changes to the procedure were released in an Emergency Message (EM) 03028 and are now reflected in the Telephone Support Center Operating Guide. This change shows how the 800 number agents process non-receipt allegations when a DCN abuse alert message is indicated on the Supplemental Security Record (SSR). When the alert message is present, agents should determine if the DCN date is within the 24-month period. If it is, then agents should send the request for a replacement check to Treasury for investigation.

Additionally, in February 2006 a desk guide, DCN Process, was released via an Administrative Message (AM) 06024-REV. This desk guide was created as a result of the Cooperative Efforts Workgroup, which completed a project to review the DCN process in the Program Service Centers, Field Offices (FO) and Teleservice Centers. The purpose of the review was to ascertain best practices and promote adoption of these best practices. The review identified best practices to improve control mechanisms and to improve inter-component coordination. Process flaws were also identified that could contribute to claimant abuse of the DCN process. We believe that these findings, which have been incorporated into the 2006 desk guide, will be a valuable tool in reducing employee time in handling DCN situations as well as reducing the number of duplicate payments being issued.

Recommendation 1

Work with Treasury to design and implement a process to exchange DCN information.

Comment

We agree. We are currently awaiting the availability of Treasury resources to discuss this proposed interface. Treasury currently is working on the implementation of the Treasury Check Information System.

Recommendation 2

Remind Field Office (FO) employees to enter the required remarks on Supplemental Security Income records that involve DCN abuse.

Comment

We agree. We have reminded FO employees of the proper procedures for annotating the system regarding DCN abuse through EM-03028 (March 2003), AM-06024 REV (January 2006) and Interactive Video Training (December 2004) on the non-receipt and DCN issues.

Recommendation 3

Ensure that true DCN overpayments are recovered at the 100 percent rate when feasible.

Comment

We agree. The current policy allows the FO discretion in whether to apply 100 percent withholding and does not make it mandatory. We will release an AM to remind FO employees of the current withholding policy of 100 percent where the beneficiary/recipient was determined to be at fault unless the FO determines 100 percent withholding to be inappropriate. The FOs are in the best position to assess the impact on the beneficiary to determine an appropriate percentage withholding for repayment of a DCN.

Recommendation 4

Remind FO employees to determine if a change in representative payee is warranted when DCN abuse is confirmed.

Comment

We agree. We will release an AM to remind FOs to determine if a change in representative payee is warranted in all cases where DCN abuse is confirmed. It should be noted that 84 of the 125 representative payee cases in this review were the parents of the beneficiary. It may not be feasible to change a payee when the current payee is very high on the representative payee preference list unless SSA has established misuse beyond a doubt.

Early this year, we developed a proposal to consider an automated way to create a “smart alert” system to notify technicians of identified DCN abusers. Currently, the proposal is under review for consideration of development. If we are successful in finding a way to identify DCN abusers through automation, we can establish a set of concrete rules governing DCN abusers which can include a mandate that a determination be made as to whether a change in representative payee is warranted in all cases where DCN abuse is confirmed.

Appendix E
OIG Contacts and Staff Acknowledgments
OIG Contacts

Mark Bailey, Director, Chicago Audit Division (816) 936-5591

Teresa S. Williams, Audit Manager, Chicago, Illinois (312) 353-0331

Acknowledgments

In addition to those named above:

Elizabeth Juárez, Auditor-in-Charge

Kenneth Bennett, Information Technology Specialist

Cheryl Robinson, Writer-Editor

For additional copies of this report, please visit our web site at www.ssa.gov/oig or contact the Office of the Inspector General’s Public Affairs Specialist at (410) 965-3218. Refer to Common Identification Number A-05-05-26058.

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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.