SOCIAL SECURITY ADMINISTRATION

DUALLY ENTITLED BENEFICIARIES
WHO ARE SUBJECT TO GOVERNMENT
PENSION OFFSET AND THE WINDFALL
ELIMINATION PROVISION

September 2008

A-09-07-27010

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 10, 2008

To: The Commissioner

From: Inspector General

Subject: Dually Entitled Beneficiaries who are Subject to Government Pension Offset and the Windfall Elimination Provision (A-09-07-27010)

OBJECTIVE

Our objective was to determine whether the Social Security Administration (SSA) properly imposed the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP) for dually entitled beneficiaries.

BACKGROUND

The Social Security Act includes two provisions that reduce Social Security monthly benefits paid to individuals who receive a pension based on Federal, State, or local government employment that was not covered by Social Security. The WEP eliminates "windfall" Social Security benefits for retired and disabled workers receiving pensions from employment not covered by Social Security. Under this provision, a modified benefit formula is used to determine a wage earner's monthly Social Security benefit. The GPO provision reduces monthly Social Security benefits for spouses, divorced spouses, and surviving spouses who receive a pension based on their own work for a Federal, State or local government that was not covered by Social Security. The GPO reduction is generally equal to two-thirds of the government pension. Dually entitled beneficiaries, those entitled to retirement benefits (based on their own earnings) and spousal benefits (based on another person's earnings) at the same time, are subject to both the WEP and GPO provisions.

To identify individuals who may be subject to WEP and GPO, SSA primarily relies on applicants to report whether they are receiving, or will receive in the future, a pension based on non-covered earnings. However, for retired Federal employees, SSA receives monthly pension data from the Office of Personnel Management.

As of March 2007, we estimate there were approximately 153,900 dually entitled beneficiaries with WEP imposed on their retirement or disability benefit and approximately 170,000 dually entitled beneficiaries with GPO imposed on their spousal benefit.

RESULTS OF REVIEW

We found that SSA needs to improve its controls and procedures to ensure GPO and WEP are properly imposed for dually entitled beneficiaries. Based on our review of 2 random samples of 200 beneficiaries, we estimate that SSA overpaid about

$269.8 million in retirement benefits to 8,500 beneficiaries because WEP was not properly applied, and

$184.8 million in spousal benefits to 8,460 beneficiaries because GPO was not properly imposed.

Finally, unless SSA takes action to identify and correct these payment errors, we estimate it will pay about $53.2 million in overpayments annually (see Appendix C).

These errors occurred because SSA did not have controls in place to ensure the pension information it maintained for dually entitled beneficiaries was annotated to all its records. Our sample results are summarized below.

WEP Payment Errors

Generally, if GPO has been applied to the spousal benefit, WEP should be applied to the retirement benefit. However, under certain conditions, individuals may be granted exceptions from WEP. For example, WEP does not apply to beneficiaries who were eligible for retirement benefits before 1986 or to individuals with 30 or more years of "substantial earnings." If WEP does not apply, the reason for an exception must be annotated to the MBR, which contains the beneficiary's entitlement and payment information. Finally, SSA should also document in its records any evidence it reviewed to assess the applicability of WEP.

We estimate there were about 170,000 dually entitled beneficiaries with GPO imposed on their spousal benefit. Our review of a random sample of 200 of these beneficiaries disclosed that SSA did not reduce the retirement benefits of 10 beneficiaries in accordance with the WEP requirements. In addition, we found that SSA did not have adequate paper or electronic documentation to support whether an exception to WEP applied. As a result, the 10 beneficiaries were overpaid $317,447. Based on our sample results, we estimate that 8,500 dually entitled beneficiaries were overpaid about $269.8 million (see Appendix C).

These 10 errors occurred because, when the individuals filed for retirement benefits, they did not disclose they were receiving a pension based on noncovered earnings or would receive a pension in the future, or SSA did not document pension information in its records. However, we found that SSA had obtained pension information when the individuals filed for spousal benefits. Although SSA reduced the payments for the spousal benefit in accordance with the GPO provision, it did not take corrective actions to reduce the retirement benefit in accordance with WEP or document that an exception to WEP applied. Finally, we found that these errors were not prevented or detected because SSA did not have a control in place to ensure pension information was annotated to both retirement and spousal records (that is, MBRs) for dually entitled beneficiaries.

For example, one beneficiary in our sample initially filed for retirement benefits in July 1986 before receiving a noncovered pension. SSA's records contained no information indicating the beneficiary would be receiving a noncovered pension in the future. In September 2002, the beneficiary filed for survivor's benefits. At that time, SSA documented the beneficiary was eligible for the pension beginning in September 1986 and reduced the payments for the spousal benefit effective September 2002 in accordance with the GPO provision. However, the noncovered pension information was not documented on the retirement benefit. Consequently, WEP was not applied to the retirement benefit in accordance with its provision. As a result, SSA overpaid the beneficiary $40,300 from September 1986 to December 2007.

GPO Payment Errors

Generally, if WEP has been applied to an individual's retirement benefit, GPO should be applied to the spousal benefit. However, under certain conditions, individuals receiving spousal benefits may be granted exceptions from GPO. For example, GPO does not apply to individuals who were covered by both a government retirement system and Social Security throughout their last 60 months of employment of Federal, State, and local government service or if the individual is receiving a non-covered military reserve pension. If GPO does not apply, the reason for an exception must be annotated to the MBR, and documentation supporting the exception should be in SSA's records.

We estimate there were about 153,900 dually entitled beneficiaries with WEP applied to their retirement benefits. Our review of a random sample of 200 beneficiaries disclosed that SSA did not reduce the spousal benefits of 11 beneficiaries in accordance with the GPO provision. In addition, we found that SSA did not have adequate paper or electronic documentation to support whether an exception to GPO applied. As a result, the 11 beneficiaries were overpaid $240,198. Based on our sample results, we estimate that 8,460 dually entitled beneficiaries were overpaid approximately $184.8 million (see Appendix C).

For the 11 beneficiaries, SSA had obtained and recorded information about the noncovered pensions on the beneficiaries' retirement records (that is, MBRs) and reduced the benefit payments in accordance with WEP. However, because of administrative oversight, SSA had not used the information to reduce the spousal benefit in accordance with the GPO provision or document that an exception to GPO applied. Finally, we found that these errors were not prevented or detected because SSA did not have a control in place to ensure pension information was annotated to both payment records (that is, MBRs) for dually entitled individuals.

For example, one beneficiary in our sample started receiving retirement and spousal benefits in April 1999. The pension information was documented on the retirement record but not on the spousal record. WEP was applied to the retirement benefit when the beneficiary started receiving the noncovered government pension. However, GPO was not applied to the spousal benefit. As a result, SSA overpaid the beneficiary $49,000 between April 1999 and December 2007.

CONCLUSION AND RECOMMENDATIONS

SSA needs to improve its controls and procedures to ensure GPO and WEP are properly imposed for dually entitled beneficiaries. Specifically, our review identified an estimated 8,500 beneficiaries who were overpaid about $269.8 million in retirement benefits because WEP was not properly applied and 8,460 beneficiaries who were overpaid about $184.8 million in spousal benefits because GPO was not properly imposed. Finally, unless SSA takes corrective action to identify and correct these payment errors, we estimate it will pay approximately $53.2 million in overpayments annually (see Appendix C).

We recommend that SSA:

1. Take corrective action to establish overpayments or determine whether a WEP or GPO exception applies for the beneficiaries identified by our audit.

2. Identify and take corrective action on the population of dually entitled beneficiaries who may be overpaid because WEP or GPO was not properly imposed.

3. Improve controls to ensure that pension information based on non-covered employment for dually entitled beneficiaries is properly recorded on all beneficiary payment records (that is, MBRs).

4. Remind employees to review pension information on all SSA payment records for dually entitled beneficiaries.

AGENCY COMMENTS

SSA agreed with all of our recommendations. See Appendix D for the text of SSA's comments.

Patrick P. O'Carroll, Jr.

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

Appendix A
Acronyms

GPO Government Pension Offset
MBR Master Beneficiary Record
OIG Office of the Inspector General
POMS Program Operations Manual System
SSA Social Security Administration
WEP Windfall Elimination Provision

Appendix B
Scope and Methodology
We obtained two data extracts from which we identified two populations. The first population consisted of 8,500 dually entitled Old-Age, Survivors and Disability Insurance beneficiaries who had Government Pension Offset (GPO) data recorded on their spousal or surviving spousal benefit. The second population consisted of 7,695 Old Age, Survivors and Disability Insurance beneficiaries who had Windfall Elimination Provision (WEP) data recorded on their record. We randomly selected a sample of 200 beneficiaries from each population.

To achieve our objective, we

reviewed the applicable sections of the Social Security Act, U.S. Code, and the Social Security Administration's (SSA) Program Operations Manual System;

interviewed SSA employees from the Western Program Service Center and Baltimore, Maryland;

reviewed prior audit reports pertaining to GPO and WEP;

obtained necessary files from the Master Beneficiary Record, Detailed Earning Query, Modernized Claims System, and Modernized Development Worksheet;

reviewed SSA's paperless system, Shared Process System, and the Non Disability Repository for Evidentiary Documents for supporting documentation; and

obtained and reviewed case folders, as needed.

We determined whether the computer-processed data were sufficiently reliable for our intended use. We conducted tests to determine the completeness and accuracy of the data. These tests allowed us to assess the reliability of the data and achieve our audit objectives.

We performed our work in Richmond, California, between September 2007 and May 2008. The entities reviewed were the Offices of Operations and Systems. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective.

Appendix C
Sampling Methodology and Results
We obtained two data extracts from a 5 percent segment of the Master Beneficiary Record (MBR). The data extracts consisted of

1. spouse and surviving spouse beneficiaries who had Government Pension Offset (GPO), and

2. retirement beneficiaries whose benefits were based on the Windfall Elimination Provision (WEP).

Spouses with GPO

We refined this population to include only beneficiaries who had an initial entitlement date after 1985 and were entitled to a retirement benefit. This resulted in a population of 8,500 beneficiaries. From this population, we randomly selected a sample of 200 beneficiaries for review. For each beneficiary in our sample, we determined whether the Social Security Administration (SSA) properly applied WEP to the retirement benefits by reviewing information from the MBR, Master Earnings File, Modernized Claims System and the Modernized Development Worksheet. In addition, we reviewed SSA's Paperless System, Shared Process System, and the Non Disability Repository for Evidentiary Documents. Finally, we obtained and reviewed case folders, as necessary.

Of the 200 beneficiaries in our sample, we found that SSA overpaid $317,447 to 10 beneficiaries. This occurred because their retirement benefits were subject to WEP. Estimating these results to all 20 segments of the MBR, SSA overpaid about $269.8 million to 8,500 beneficiaries. The following tables provide the details of our sample results, statistical projections, and estimates.

Table 1: Population and Sample Size Number
Population Size (data extract from 1 segment) 8,500
Sample Size 200
Estimated Number in Universe (Population Size x 20 segments) 170,000

Table 2: Overpayments Number Amount
Sample Results (for 1 segment) 10 $317,447
Point Estimate (for 1 segment) 425 $13,491,480
Projection - Lower Limit 235 $6,256,354
Projection - Upper Limit 705 $20,726,605
Population Estimate (Point Estimate x 20 segments) 8,500 $269,829,600
Note: All projections are at the 90-percent confidence level.
To estimate the annual amount of overpayments that would occur if SSA does not take corrective action to identify and correct payment errors related to the improper application of WEP, we used our population estimates and the average overpayment amount in 2007 for our sampled beneficiaries. Using this methodology, we estimate that SSA will overpay about $21 million ($2,469 x 8,500 = $20,986,500) in retirement benefits.

Retirees with WEP

We refined this population to include beneficiaries who were also entitled to a spousal benefit. This resulted in a population of 7,695 beneficiaries. From this population, we randomly selected a sample of 200 beneficiaries for review. For each beneficiary in our sample, we determined whether SSA properly imposed GPO to the spousal benefit by reviewing information from the MBR, Master Earnings File, Modernized Claims System and the Modernized Development Worksheet. In addition, we reviewed SSA's Paperless System, Shared Process System, and the Non Disability Repository for Evidentiary Documents. Finally, we obtained and reviewed case folders, as necessary.

Of the 200 beneficiaries in our sample, we found that SSA overpaid $240,198 to 11 beneficiaries. This occurred because their spousal benefits were subject to GPO. Estimating these results to all 20 segments of the MBR, SSA overpaid about $184.8 million to 8,460 beneficiaries. The following tables provide the details of our sample results, statistical projections, and estimates.

Table 3: Population and Sample Size Number
Population Size (data extract from 1 segment) 7,695
Sample Size 200
Estimated Number in Universe (Population Size x 20 segments) 153,900

Table 4: Overpayment Payments Number Amount
Sample Results (for 1 segment) 11 $240,198
Point Estimate (for 1 segment) 423 $9,241,646
Projection - Lower Limit 242 $3,831,505
Projection - Upper Limit 684 $14,651,788
Population Estimate (Point Estimate x 20 segments) 8,460 $184,832,920
Note: All projections are at the 90-percent confidence level.

To estimate the annual amount of overpayments that would occur if SSA does not take corrective action to identify and correct payment errors related to the improper application of GPO, we used our population estimates and the average overpayment amount in 2007 for our sampled beneficiaries. Using this methodology, we estimate that SSA will overpay about $32.2 million ($3,810 x 8,460 = $32,232,600) in spousal benefits.

Appendix D
Agency Comments

MEMORANDUM

Date: August 28, 2008

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

From: David V. Foster /s/ (Jim Winn for David Foster)
Executive Counselor to the Commissioner

Subject: Office of the Inspector General (OIG) Draft Report, "Dually Entitled Beneficiaries Who Are Subject to Government Pension Offset and the Windfall Elimination Provision" (A-09-07-27010)-INFORMATION

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

Please let me know if we can be of further assistance. Staff inquiries may be directed to Candace Skurnik, Director, Audit Management and Liaison Staff, at (410) 965-4636.

COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL (OIG) DRAFT REPORT, "DUALLY ENTITLED BENEFICIARIES WHO ARE SUBJECT TO GOVERNMENT PENSION OFFSET AND THE WINDFALL ELIMINATION PROVISION" (A-09-07-27010)

Thank you for the opportunity to review and comment on the draft report. We support initiatives that help strengthen our ability to ensure good stewardship for our programs. We are encouraged that the review found that we are making accurate payments to 95 percent of the population. For the remaining 5 percent, we do not believe the results of this review provide enough evidence to estimate or project overpayment amounts. Below are our responses to the specific recommendations.

Recommendation 1

Take corrective action to establish overpayments or determine whether a Windfall Elimination Provision (WEP) or Government Pension Offset (GPO) exception applies for the beneficiaries identified by our audit.

Response

We agree. Once we receive the cases from OIG, we will review the information and take necessary action.

Recommendation 2

Identify and take corrective action on the population of dually entitled beneficiaries who may be overpaid because WEP or GPO was not properly imposed.

Response

We agree in principle, but before committing to review possibly 300,000 records, we would have to carefully examine the cases identified in this audit to determine if such a large scale review is truly warranted. Given the information we presently have, we are not convinced the overpayment problem is as extensive as you suggest. For instance, in the example cited on page 4, the overpayment (from 1986 to 2002) could not have been prevented based on the criteria in the study since the beneficiary did not file for the Widow(er)'s Insurance Benefit until 2002. Regarding the 10 WEP and 11 GPO cases in this review, an exemption may have applied, but was not documented. Therefore, we will defer extensive action on this recommendation until we have had the opportunity to review the cases in greater detail.

Recommendation 3

Improve controls to ensure that pension information based on non-covered employment for dually entitled beneficiaries is properly recorded on all beneficiary payment records (that is, Master Beneficiary Records).

Response

We agree in principle. The best approach for obtaining and recording this type of information would be to establish computer matches between our records and State/local pension information. However, at the present time, a match program of this type is not possible due to limited systems resources. In the interim, we believe our review of the cases and the issuance of a reminder will help improve controls.

Recommendation 4

Remind employees to review pension information on all payment records for dually entitled beneficiaries.

Response

We agree. We will issue a reminder that will include information on any specific patterns or trends obtained from our review of the cases.

Appendix E
OIG Contacts and Staff Acknowledgments
OIG Contacts
James J. Klein, Director, San Francisco Audit Division, (510) 970-1739
Joseph Robleto, Audit Manager, (510) 970-1737
Acknowledgments
In addition to those named above:
Manfei Lau, 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 Staff Assistant at (410) 965-4518. Refer to Common Identification Number A-09-07-27010.

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.