MEMORANDUM

Date: August 20, 2009 Refer To:

To: The Commissioner

From: Inspector General

Subject: Characteristics of Representative Payees That May Increase the Risk of Benefit Misuse (A-09-08-38055)

OBJECTIVE

Our objective was to determine whether certain characteristics of representative payees resulted in an increased risk of benefit misuse.

BACKGROUND

Some individuals cannot manage or direct the management of their finances because of their youth or mental and/or physical impairments. Congress granted the Social Security Administration (SSA) the authority to appoint representative payees to receive and manage these beneficiaries’ benefit payments.[1] A representative payee may be an individual or an organization. SSA selects representative 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.

SSA’s primary concern is to select a representative payee who will best serve the beneficiary’s interests; and preference is normally given to a parent, legal guardian, spouse, or other relative of a beneficiary.[2] SSA considers payments to a representative payee to have been used for the benefit of the beneficiary if they were spent on the beneficiary’s current maintenance—which includes the costs incurred in obtaining food, shelter, clothing, medical care, and personal comfort items.[3] Misuse of benefits occurs when representative payees neither use benefits for the current and foreseeable needs

of beneficiaries nor conserve benefits for beneficiaries.[4] Finally, representative payees must report any changes to SSA that may affect beneficiaries’ entitlement or amount of payment.[5]

The Social Security Protection Act of 2004 requires that SSA conduct a one-time survey to determine how payments to individual representative payees are being managed and used on behalf of the beneficiaries in their care.[6] In September 2004, SSA contracted with the National Academy of Sciences (NAS) to complete the required study. One of the objectives of the study was to identify the types of representative payees that have the highest risk of misuse. In July 2007, NAS issued a report on Improving the Social Security Representative Payee Program: Serving Beneficiaries and Minimizing Misuse that identified several characteristics of individual representative payees that may be potential indicators of misuse or poor performance.

To determine whether the NAS characteristics increase the risk of misuse, we identified all individual representative payees who served 14 or fewer beneficiaries. From this, we identified a population of 3,329 representative payees who had at least 3 of the following characteristics.

§ The payee served between 4 and 14 beneficiaries.

§ At least one beneficiary was not a relative of the representative payee.

§ The payee had self-employment income.

§ The payee had no earnings from employment (that is, wages).

§ The payee was under age 50 and had annual earnings less than $9,973.[7]

At the time of our review, these 3,329 representative payees managed approximately $125.2 million in annual benefits for 17,288 beneficiaries. From this population, we selected for review a sample of 60 representative payees who managed the benefits of 332 beneficiaries (see Appendix C).

RESULTS OF REVIEW

We found the NAS characteristics should be used to identify representative payees who have an increased risk of benefit misuse. We also found the characteristics were reliable indicators of poorly performing representative payees. Our review disclosed that 42 of the 60 representative payees[8] engaged in 1 or more practices that increased the risk of benefit misuse. Specifically, we found:

§ 5 would not confirm whether 11 beneficiaries were in their care during our audit. We referred these cases to SSA for appropriate action.

§ 39 did not maintain adequate documentation to support expenditures for 194 beneficiaries who received $1.2 million in annual benefit payments.

§ 2 did not provide for the basic needs of 4 beneficiaries.

§ 8 acted as conduit payees for 20 beneficiaries.

§ 9 did not report events affecting the benefit payments of 21 beneficiaries, which resulted in overpayments totaling $109,474.

§ 1 acted as a “de facto” representative payee for 3 beneficiaries without SSA’s knowledge.

The remaining 17 representative payees generally maintained adequate documentation to support beneficiaries’ expenditures; used benefits for beneficiaries’ current and foreseeable needs; and properly reported events that may have affected benefit payments.

Beneficiaries Who May Not Have Been in Their Representative Payees’ Care

To determine whether beneficiaries were in the representative payees’ care, we requested personal interviews with each beneficiary. We confirmed that 316 of the beneficiaries were in the care of their representative payees. However, we were unable to confirm whether 11 beneficiaries were in the care of 5 representative payees. The 5 representative payees received approximately $73,000 in benefits on behalf of the 11 beneficiaries. Of these, three did not have documentation to support beneficiaries’ expenditures. The remaining two representative payees provided only limited documentation to support beneficiary expenditures; however, SSA had previously determined that one of these representative payees committed benefit misuse of $4,628 for a beneficiary previously in her care.

We referred these cases to SSA to confirm whether the beneficiaries were in the representative payees’ care and to take necessary action. Following is a summary of the five representative payee cases.

§ A woman in Roxbury, Massachusetts, who was under age 50 with earnings below the poverty level, was representative payee for seven beneficiaries. During our review, she refused to allow us to interview four beneficiaries. As a result, we could not confirm whether the four beneficiaries were still in her care or their needs were being met. In addition, a beneficiary no longer in the representative payee’s care alleged the representative payee had not paid her bills on time and had misused her benefits.

§ A self-employed woman in Mableton, Georgia was representative payee for four beneficiaries. At the time of our review, she refused to be interviewed and did not provide documentation for beneficiary expenditures. Subsequently, SSA appointed a new representative payee for three of the beneficiaries. We requested that SSA contact the new representative payee and interview the three beneficiaries to determine whether benefit misuse may have occurred.

§ A woman in Chicago, Illinois with no earnings was representative payee for seven beneficiaries. During our review, we were unable to interview two beneficiaries because one refused to be interviewed and the other was allegedly out of town. The representative payee, who provided limited documentation to support beneficiary expenses, did not respond to SSA’s subsequent requests to interview the beneficiaries. SSA has agreed to continue follow-up actions to resolve this case.

§ A woman in Baltimore, Maryland, who previously misused benefits totaling $4,628, claimed she had never served as a representative payee for a beneficiary who, according to SSA’s records, was in her care from December 2006 through October 2007. We determined the representative payee had endorsed and cashed the beneficiary’s checks, totaling $5,213. When we interviewed the beneficiary, she would not confirm misuse had occurred. However, the beneficiary’s new representative payee informed us the beneficiary had alleged the prior representative payee had stolen and mismanaged her benefits.

§ A self-employed man in Salem, Massachusetts was representative payee for 13 beneficiaries. During our review, one of the beneficiaries refused to be interviewed, and the representative payee provided only limited documentation to support beneficiary expenditures. We requested that SSA interview the beneficiary to confirm whether he was in the representative payee’s care and to determine whether his needs were being met.

Representative Payees Did Not Have Support for Beneficiary Expenses

SSA requires that representative payees keep records and report on how funds were spent by completing an annual Representative Payee Report.[9] SSA uses the Report to monitor how representative payees spent and/or saved the benefits on behalf of beneficiaries, and to identify situations where representative payment may no longer be appropriate or the representative payee may no longer be suitable.[10]

During our review, we found that 39 representative payees did not have adequate records to support how beneficiary funds were spent. These payees received about $1.2 million on behalf of 194 beneficiaries. This consisted of 15 representative payees who did not maintain documentation of expenditures for 70 beneficiaries and 24 representative payees who provided limited documentation of expenditures for 124 beneficiaries. Of the 39 representative payees, 31 either had no earnings or were under age 50 and had earnings below the poverty level.

Characteristics	Unsupported Expenditures
	*Number of Representative Payees*	*Number of Beneficiaries*
No Earnings	14	75
Under Poverty Level	17	73
Self-employed	8	46
Total	39	194

According to SSA, the source of a representative payee’s income is a factor in determining how likely the payee will use the benefits in the beneficiary’s best interest. A representative payee who does not have a reliable source of income is more likely to divert the beneficiary’s funds for their own use.[11] In addition, during our review, we identified practices followed by the representative payees that significantly increased the risk of benefit misuse. This included operating on a cash basis and/or commingling beneficiary funds with their own funds.

§ A woman in Pinole, California with no earnings who was representative payee for five beneficiaries operated on a cash basis and provided limited and questionable documentation for beneficiary expenditures. For example, the representative payee provided us receipts for monthly rental payments of $950 for the residence in which she lived with four beneficiaries. The receipts showed the rent was paid to a third party, a realtor, who when interviewed, claimed that she owned the residence. However, we learned the home was actually owned by another beneficiary who lived in the residence.

§ A self-employed woman in Lancaster, Texas was representative payee for
12 beneficiaries who resided in an assisted living facility that she owned and operated. The representative payee maintained limited support for beneficiary expenditures and commingled beneficiaries’ funds with her personal accounts. In addition, we learned the representative payee had filed for bankruptcy on several occasions, and had a $76,000 Internal Revenue Service tax lien. In December 2008, we referred this case to SSA for appropriate action. SSA decided to appoint new representative payees for all the beneficiaries in the representative payee’s care.

Representative Payee Performance

We found that 42 of the 60 representative payees did not meet their responsibilities to the beneficiaries in their care. Specifically, representative payees did not always provide for beneficiaries’ basic needs, acted as conduit payees, did not report events that affected a beneficiary’s eligibility or payment amount, charged inappropriate fees, and/or did not inform SSA that they were acting as a “de facto” representative payees for beneficiaries in their care.

Failure to Meet Beneficiaries’ Needs - Through our interviews and observations, we found that the representative payees generally met the beneficiaries’ needs. However, the needs of four beneficiaries in the care of two representative payees were not met. One beneficiary was forced to sleep in the representative payee’s garage and was provided only one meal per day. SSA appointed a new representative payee for the beneficiary. We also found that three beneficiaries were living in an unsanitary environment. Specifically, the three beneficiaries, two of whom were minors, were living in a trailer with at least eight dogs. While we interviewed the beneficiaries, we observed animal waste throughout the living quarters. We discussed our observations with SSA staff, and they agreed that the case should be referred to the local Department of Human Services for appropriate action. The Department of Human Services investigated the living conditions and instructed the representative payee to take corrective action.

Conduit Payees - According to SSA policy, a conduit payee turns over the full amount of benefits to the beneficiary or another person without giving any direction or instruction on how to use the funds.[12] Conduit payees do not exercise control over the funds and cannot accurately account for how the funds are spent. When a conduit payee is identified, SSA is required to determine whether a new representative payee is needed or the beneficiary is capable of receiving direct payment.[13] During our review, we found that 8 representative payees were acting as conduit payees for 20 beneficiaries who received approximately $112,000 in annual benefits. A representative payee in Chicago, Illinois, turned over the entire $785 monthly benefit to one of the beneficiaries in her care without giving any direction on how to use the benefits. In addition, the representative payee did not maintain a bank account or any records of how the benefits were spent. Consequently, the representative payee no longer controlled the funds nor could she account for how the funds were used. As a result of our review, SSA appointed a new representative payee for the beneficiary.

Unreported Work and Earnings - Our review disclosed that five representative payees did not report to SSA when beneficiaries had work and earnings that affected their entitlement to benefits. As a result, SSA established overpayments totaling $87,222 for six beneficiaries, and suspended benefits for another eight beneficiaries pending its determination of whether they remain eligible for disability benefits.

§ A representative payee in Lehighton, Pennsylvania did not report that a beneficiary in her care had worked and earned over $18,000 in 2007 while receiving disability benefits. As a result, the beneficiary and his three children were overpaid $39,929.

§ A representative payee in Salem, Massachusetts did not report that a beneficiary in his care had earned over $45,000 in 2006 and $48,000 in 2007 while receiving disability benefits. During our interview, the representative payee stated that he was aware of the beneficiary’s work. However, he did not report it to SSA because the beneficiary informed the representative payee that she had previously reported the earnings to SSA. As a result of the representative payee’s failure to report the earnings, the beneficiary was overpaid $43,105.

Institutionalized Beneficiaries - We found that four representative payees did not report when beneficiaries in their care had been institutionalized—three beneficiaries were incarcerated, and one beneficiary was in a State-funded institution. As a result, the beneficiaries were overpaid $21,002. For example, a beneficiary in Sacramento, California was overpaid $7,760 because his representative payee did not report his incarceration to SSA in a timely manner. In addition, the representative payee, who was also entitled to disability benefits, was overpaid $32,000 because she did not report her own work and earnings while collecting disability benefits.

Monitoring Conserved Funds - Under the SSI program, a recipient is limited to countable resources totaling $2,000 to remain eligible for payments. If this resource limit is exceeded, the recipient may no longer be eligible for benefits. A representative payee must notify SSA if a recipient’s resources exceed $2,000 at the beginning of any payment month.[14] During our review, we found that two representative payees did not adequately monitor resource limits for four SSI recipients. As a result, one recipient was overpaid $1,250, and the remaining three recipients were referred to SSA for appropriate action.

Inappropriate Fees - A representative payee in Rhode Island was charging each of the seven beneficiaries in his care monthly fees ranging from $25 to $43 to manage their Social Security benefits. This fee was in addition to a monthly fee he received as their court-appointed guardian. The representative payee was not authorized, as required by SSA policy,[15] to collect a fee for his representative payee services. Furthermore, SSA does not allow representative payees to collect fees if they are already receiving compensation, including court or guardianship fees for performing representative payee services.[16] We also found that the representative payee improperly charged each beneficiary $250 for his efforts related to our review. We referred this case to SSA for appropriate action.

Acting as a Representative Payee Without SSA’s Knowledge - We found that a representative payee had been managing approximately $32,000 in annual benefits for three beneficiaries without SSA’s knowledge. Although he was their court-appointed guardian, he did not complete an SSA representative payee application. Consequently, SSA was unaware the beneficiaries may have been incapable and were in his care. SSA requires that individuals complete an application to become a representative payee on a beneficiary’s behalf. SSA uses the application information to evaluate the applicant's qualifications and suitability to serve as a representative payee.[17] We referred this case to SSA for appropriate action.

CONCLUSION AND RECOMMENDATIONS

SSA should use the five NAS characteristics we reviewed to identify representative payees with an increased risk of benefit misuse. Most notably, we found those representative payees with limited or no earned income and who served beneficiaries who were not related to the representative payee were subject to a higher risk of benefit misuse. Moreover, many of these representative payees engaged in questionable practices, such as failing to maintain documentation to support expenses, operating on a cash basis, or commingling beneficiary funds with their own funds. These practices further increased the risk of benefit misuse. Therefore, we recommend that SSA:

1. Ensure corrective actions are taken for the representative payees and beneficiaries identified by our audit.

2. Use the five NAS characteristics to evaluate whether representative payee applicants are suitable and will serve the best interests of beneficiaries.

3. Consider additional monitoring of representative payees who have one or more of the NAS characteristics.

AGENCY COMMENTS AND OIG RESPONSE

SSA agreed with Recommendations 1 and 3. SSA partially agreed with Recommendation 2, stating that as soon as it completes an analysis of the NAS characteristics and our findings, it can better determine any necessary changes to its representative payee polices and procedures. We believe SSA’s response and planned actions adequately address our recommendations. The Agency’s comments are included in Appendix D.

/s/

Patrick P. O’Carroll, Jr.

Appendix B

Scope and Methodology

We obtained a data extract from the Social Security Administration’s (SSA) Representative Payee System (RPS) of individual representative payees who were serving 14 or fewer beneficiaries as of September 2007. We then obtained earnings information for each of the representative payees identified from SSA’s Master Earnings File (MEF). We then identified only those representative payees who resided within the 48 contiguous United States and managed at least $800 in monthly benefits. Using this information, we identified a population of 3,329 representative payees who had at least 3 of the following characteristics.

· The payee served between 4 and 14 beneficiaries.

· At least one beneficiary was not a relative of the payee.

· The payee had self-employment income.

· The payee had no earnings from employment (that is, wages).

· The payee was under age 50 and had annual earnings less than $9,973.

The 3,329 representative payees managed approximately $125.2 million in annual benefit payments for 17,288 beneficiaries.

To accomplish our objective, we

· reviewed the applicable sections of the Code of Federal Regulations, U.S. Code, and SSA’s Program Operations Manual System;

· reviewed the National Academy of Sciences’ report, Improving the Social Security Representative Payee Program: Serving Beneficiaries and Minimizing Misuse, issued in July 2007;

· obtained and reviewed queries from SSA’s RPS, Master Beneficiary Record (MBR), Supplemental Security Record (SSR), MEF, Numident, Prisoner Update Processing System, and the Fugitive Felon SSA Control File;

· obtained and reviewed personal reports from the LexisNexis Website for each representative payee in our sample;

· interviewed the selected representative payees;

· conducted financial reviews and interviewed the beneficiaries who were in the representative payees’ care in Calendar Year 2007 and observed their living conditions;

· worked with SSA field offices to locate representative payees who did not respond to our telephone calls or letters;

· referred cases to SSA to confirm whether 27 beneficiaries were in their representative payees’ care; and

· interviewed SSA employees from the Office of Income Security Programs.

We determined the computer‑processed data from the RPS, MBR, and SSR were generally 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 objective.

We performed audit work in Boston, Massachusetts; New York, New York; Philadelphia, Pennsylvania; Baltimore, Maryland; Falls Church, Virginia; Atlanta, Georgia; Birmingham, Alabama; Chicago, Illinois; Dallas, Texas; Kansas City, Missouri; and Richmond, California, between March 2007 and April 2009. The entity audited was the Office of Income Security Programs under the Deputy Commissioner for Retirement and Disability Policy.

We conducted this 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 objectives.

Appendix C

Sampling Methodology and Results

We obtained a data extract from the Social Security Administration’s (SSA) Representative Payee System (RPS) of individual representative payees who were serving 14 or fewer beneficiaries as of September 2007. We obtained earnings information for each of the representative payees identified from SSA’s Master Earnings File (MEF). We then identified those representative payees that resided within the 48 contiguous United States and managed at least $800 in monthly benefits. Using this information, we identified a population of 3,329 representative payees who had at least 3 of the following characteristics.

· The payee served between 4 and 14 beneficiaries.

· At least one beneficiary was not a relative of the payee.

· The payee had self-employment income.

· The payee had no earnings from employment (that is, wages).

· The payee was under age 50 and had annual earnings less than $9,973.

We randomly selected a sample of 60 representative payees (20 each in 3 strata) who resided within 120 miles of 1 of our offices. For each sampled representative payee, we conducted a financial review to determine proper use of benefits and whether misuse may have occurred. We also interviewed the representative payees to determine whether they understood their responsibilities for the beneficiaries in their care. Finally, we interviewed the beneficiaries and observed their living conditions to determine whether their needs were being met. The following tables provide the details of our population, sample, and sample results.

Table 1 – Population and Sample Size

Strata Description

Number of Representative Payees

Number of Representative Payees Within 120 Miles

of One of Our Offices

Sample Size

Payee had no

earnings from employment

1,741

414

Payee had

self-employment income

1,182

291

Payee was under age 50 and had annual earnings less than $9,973

406

Total

3,329

800

Table 2 – Sample Results

Description of Issue	Number of Representative Payees[18]	Number of Beneficiaries	Annual Benefits Managed	Amount Overpaid
Payee would not confirm whether beneficiaries were in their care	5	11	$73,004	Unknown
Payee did not meet the beneficiaries’ needs	2	4	$31,694	N/A
Payee did not maintain documentation of benefit expenditures	39	194	$1,228,114	N/A
Payee acted as conduit	8	20	$112,368	N/A
Individual was a de facto payee	1	3	$31,698	N/A
Payee failed to notify SSA of reportable events	9	21	$110,042	$109,474[19]

[1] 42 U.S.C. § 405(j) and 42 U.S.C. § 1383(a).

[2] SSA, Program Operations Manual System (POMS), GN 00502.105.

[5] A Guide for Representative Payees, SSA Publication No. 05-0076, January 2009.

[6] The Social Security Protection Act of 2004, Pub.L. No. 108-203, § 107.

[7] This is a modification of the NAS characteristic “payee under 50 years of age.” We made this modification because we believe representative payees in this age group with limited earnings may have a higher risk of benefit misuse. The $9,973 is the poverty threshold for Calendar Year 2005 for an individual. At the time of our review, 2005 was the most recent year that all earnings information had been posted to SSA’s Master Earnings File .

[8] Because of an on-going criminal investigation, we did not interview one representative payee or any of the five beneficiaries who were in his care.

[14] A Guide for Representative Payees, SSA Publication No. 05-0076, January 2009 and SSA, POMS,

SI 01110.001 and SI 01110.003.

[18] There were 42 representative payees who had 1 or more errors.

[19] The amount overpaid occurred over a 34-month period (February 2006 through November 2008).

AUDIT REPORT

MEMORANDUM

Appendix A

Appendix B

Appendix C

Appendix D

Appendix E

OIG Contacts

MBR	Master Beneficiary Record
MEF	Master Earnings File
NAS	National Academy of Sciences
OASDI	Old-Age, Survivors and Disability Insurance
OIG	Office of the Inspector General
POMS	Program Operations Manual System
RPS	Representative Payee System
SSA	Social Security Administration
SSI	Supplemental Security Income
SSR	Supplemental Security Record
U.S.C.	United States Code