MEMORANDUM

The attached final report presents the results of our review. Our objectives were to (1) summarize common findings and recommendations from the six Office of the Inspector General (OIG) financial-related audits of representative payees (Rep Payees), (2) identify significant issues related to the Social Security Administration’s (SSA) oversight of Rep Payees, and (3) determine the status of SSA’s corrective actions taken in response to the OIG's December 13, 2000 memorandum, On-site Reviews of Representative Payees.

Please comment within 60 days from the date of this memorandum on corrective action taken or planned on each recommendation. If you wish to discuss the final 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.

Attachment

Executive Summary

Our objectives were to (1) summarize common findings and recommendations from the six Office of the Inspector General (OIG) financial-related audits of representative payees (Rep Payees), (2) identify significant issues related to the Social Security Administration’s (SSA) oversight of Rep Payees, and (3) determine the status of SSA’s corrective actions taken in response to the OIG's December 13, 2000 memorandum, On-site Reviews of Representative Payees.

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

Rep Payees are responsible for using benefits in the beneficiary’s best interests.

We performed six financial-related audits of Rep Payees (Appendix A). We audited the following three types of Rep Payees:

1. organizational Rep Payees (fee-for-service),
2. organizational Rep Payees (non-fee-for-service), and
3. individual Rep Payees (serving more than 50 beneficiaries).

The objectives of the audits were to determine whether the Rep Payees (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 SSA policies and procedures.

Of the six Rep Payees audited, we determined that four Rep Payees 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. The two remaining Rep Payees had problems meeting both of these objectives.

Specifically, we found:

• Two Rep Payees had notable accounting system internal control weaknesses.

• Five Rep Payees failed to monitor and report changes that affected benefit eligibility, which resulted in about $880,537 in benefit overpayments for 272 beneficiaries between September 1999 and August 2000.

• Two Rep Payees improperly handled beneficiaries’ conserved funds. Conserved funds were either held in a non-interest bearing account or were not returned to SSA when the Rep Payee was no longer serving as the Rep Payee.

• Two Rep Payees improperly charged fees totaling $874.

In addition, for five of the Rep Payees, SSA incorrectly recorded in its Representative Payee System (RPS) the number of beneficiaries in the Rep Payee’s care and/or had listed the Rep Payee multiple times in the RPS.

We identified several issues related to SSA’s oversight of Rep Payees that warrant the attention of Agency management. These issues concern the potential benefits of using stored value cards (SVC) or similar technology and problems associated with the annual Representative Payee Reports (RPR).

Given the nature of the problematic conditions we identified during our six audits, we believe SSA should consider the use of SVCs to provide improved safeguards over how Rep Payees spend and account for beneficiary payments. Specifically, SVCs could enable SSA to obtain spending information directly from the SVC/credit card company on the type and amount of expenses the Rep Payee incurred. This information could be available electronically and could be reviewed at various intervals (weekly, monthly, and annually).

Using SVCs could also result in significant administrative savings to SSA. SVCs could eliminate the need for about 7 million RPRs that are mailed annually and processed at a cost of about $52 million. This could also eliminate the costs associated with storing and retrieving paper RPRs.

While planning our financial-related audits, we identified and reported two conditions to SSA on December 13, 2000 that warranted the immediate attention of SSA management. They involved:

1. SSA’s use of standardized interview questions during its on-site reviews of Rep Payees without approval from OMB.
2. Language on Rep Payee forms giving SSA the right to review the Rep Payees’ financial records when needed.

We recommended that SSA:

1. Obtain OMB approval for beneficiary and Rep Payee interview forms it uses during its on-site reviews of Rep Payees.
2. Modify the Request to be Selected as Payee and the Representative Payee Report with language that clearly states the Rep Payee’s acknowledgment of its obligation to provide SSA access to the Rep Payee’s financial records.

SSA agreed with our first recommendation. It obtained OMB approval for the use of its on-site interview forms on May 29, 2001. With respect to our second recommendation, SSA revised the Request to be Selected as Payee to explicitly authorize SSA access to the Rep Payee’s financial records. However, SSA has not revised the Representative Payee Report to state the Rep Payee agrees to allow SSA access to its financial records.

Four of the Rep Payees we audited generally had effective safeguards over the receipt and disbursement of Social Security benefits and ensured that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures. The two remaining Rep Payees had problems meeting both of these objectives. Recommendations for improvement were made, most notably in monitoring and reporting changes in beneficiary circumstances to SSA. See Appendices A-1 through A-6 for the specific recommendations for each of the six audits. In addition, SSA needs to consider the use of SVCs or similar technology as an opportunity to realize significant administrative savings and to improve internal controls over Rep Payees. Finally, in response to our memorandum, On-site Reviews of Representative Payees, SSA has implemented the first recommendation and part of our second recommendation.

Below are selected recommendations we previously reported to the appropriate SSA Regional Commissioners and are presented here for informational purposes only.

We recommended that SSA require the affected Rep Payees to:

In addition we recommended that SSA take corrective actions to:

7. Consolidate the multiple entries in RPS and update RPS to include all beneficiaries in a Rep Payee’s care.

We recommend that SSA:

1. Take appropriate follow-up actions to ensure the Rep Payees implement the 29 OIG recommendations made from the 6 audits.
2. Pilot the use of SVC or similar technology for Rep Payees.

SSA agreed with Recommendation 1 but disagreed with Recommendation 2. In its response, SSA concluded that stored value cards would be time-consuming and labor-intensive for Rep Payees. SSA also stated that many landlords, small businesses and service providers had no means of processing SVCs. (See Appendix C for the full text of SSA’s comments.)

We continue to believe SSA should conduct a pilot of SVC use for Rep Payees. A pilot on the use of SVCs supports the President’s Management and Performance Plan for "electronic government" and the Paperwork Reduction Act of 1995. In addition, the success of similar initiatives in other agencies has significantly reduced operating expenses (U.S. Military) as well as program fraud (Department of Agriculture).

We believe SSA’s conclusions about SVCs are premature. The purpose of performing the pilot is to determine the feasibility, any limitations, necessary modifications, costs, benefits, legal implications, etc., of SVCs. Given the problems our audits and investigations of Rep Payees continue to identify, as well as SSA’s inability to retrieve over 50 percent of Representative Payee Reports, we believe SSA should determine whether such technology has limited or widespread potential use for SSA’s Representative Payment Program.

Table of Contents

Appendix B – OIG Memorandum, On-site Reviews of Representative Payees

Appendix C – Agency Comments

Appendix D – OIG Contacts and Staff Acknowledgment

Acronyms

BCDSS Baltimore City Department of Social Services

EBT Electronic Benefits Transfer

HBS Hale Barnard Services

IG Inspector General

OASDI Old-Age, Survivors and Disability Insurance

OIG Office of the Inspector General

OMB Office of Management and Budget

PRA Paperwork Reduction Act

Rep Payee Representative Payee

RPS Representative Payee System

RPR Representative Payee Reports

SSA Social Security Administration

SSI Supplemental Security Income

SVC Stored Value Card

USDA United States Department of Agriculture

Introduction

Our objectives were to (1) summarize common findings and recommendations from the six Office of the Inspector General (OIG) financial-related audits of representative payees (Rep Payees), (2) identify significant issues related to the Social Security Administration’s (SSA) oversight of Rep Payees, and (3) determine the status of SSA’s corrective actions taken in response to the OIG's December 13, 2000 memorandum, On-site Reviews of Representative Payees.

Some individuals cannot manage or direct the management of their finances because of their youth or mental and/or physical impairments. Congress granted SSA the authority to appoint Rep Payees to receive and manage these beneficiaries’ 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 in the beneficiary’s best interests. Their duties include:

• using benefits to meet the beneficiary’s current and foreseeable needs;
• conserving and investing benefits not needed to meet the beneficiary’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.

Since 1996, our audits have identified weaknesses in SSA’s monitoring of and accounting for Rep Payees, and our investigative work provides examples of Rep Payees that have committed misuse. For example, our December 1996 evaluation report, Monitoring Representative Payee Performance: Non-Responding Payees, identified several problems with Rep Payees who do not respond to and complete the RPRs. As a result, we recommended that SSA determine why Rep Payees do not complete the RPRs; determine whether SSA staff are properly processing alerts for Rep Payees who do not complete the RPRs; and develop procedures to ensure Rep Payees complete the RPRs.

In May 2000, the Inspector General (IG) testified before Congress and expressed concern over the lack of accountability and oversight of SSA’s Rep Payees. No case better exemplifies the weaknesses in SSA’s monitoring of Rep Payees than the Aurora Foundation, in which the Rep Payee embezzled over $300,000 in Social Security payments. The IG testified that, during the Aurora Foundation’s final year in operation, SSA was only able to secure 12 of the required 140 RPRs. Missing RPRs reflect a lack of program oversight on behalf of SSA. After the hearings, Congress asked SSA to provide monthly status reports on its efforts to monitor and improve the Representative Payment Program.

For these reasons, we performed six financial-related audits of Rep Payees (Appendix A). We audited three types of Rep Payees:

• organizational payees (fee-for-service),
• organizational payees (non-fee-for-service), and
• individual payees (serving more than 50 beneficiaries).

The objectives of the audits were to determine whether Rep Payees (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 SSA policies and procedures.

The six Rep Payees we audited were:

• Hale Barnard Services, a fee-for-service Rep Payee in Boston, Massachusetts;
• Baltimore City Department of Social Services (BCDSS), an organizational Rep Payee in Baltimore, Maryland;
• an individual Rep Payee in Decatur, Georgia;
• an organizational Rep Payee in Detroit, Michigan;
• an individual Rep Payee in Prague, Oklahoma; and
• Outreach, Inc., a fee-for-service Rep Payee in San Jose, California.

To accomplish our objectives, we reviewed and analyzed the results of the six OIG financial-related audits of Rep Payees to identify significant issues related to SSA oversight of Rep Payees. In addition, we researched the potential benefits of using stored value cards (SVC) in SSA’s Rep Payee program. We also determined the status of SSA’s corrective actions taken in response to our December 13, 2000 memorandum, On-site Review of Representative Payees (Appendix B).

We performed our review in Baltimore, Maryland, from July to November 2001.

Results of Review

These audits revealed the existence of some problematic conditions that needed corrective action. In addition, after reviewing the results of our six financial-related audits, we identified several issues related to SSA’s oversight of Rep Payees that warrant the attention of Agency management. Furthermore, SSA has taken action in response to our memorandum concerning data collection and access to Rep Payees’ financial information.

Of the six Rep Payees audited, we determined that four Rep Payees 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.

The two remaining Rep Payees had problems related to these objectives. Although one Rep Payee ensured that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures, our audit showed that significant improvements were needed for its safeguards over the receipt and disbursement of Social Security benefits. Our work also indicated that the other Rep Payee did not have effective safeguards to properly account for beneficiary benefits. Further, this Rep Payee did not ensure that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures.

Our audits found the following:

• two Rep Payees had notable accounting internal control weaknesses,
• five Rep Payees failed to monitor and report changes that affected benefit eligibility,
• two Rep Payees improperly handled beneficiaries’ conserved funds, and
• two fee-for-service Rep Payees improperly charged fees.

In addition, for five of the Rep Payees, SSA incorrectly recorded the number of beneficiaries in the Rep Payee’s care and/or had listed the Rep Payee multiple times in its Representative Payee System (RPS).

Rep Payees are required to keep accurate and complete records to show how much they received in SSA benefits and how that money was used. Annually, a Rep Payee is required to report this information to SSA by completing and returning the RPR. Records must be kept for 2 years from the time the Rep Payee completes the RPR.

Two Rep Payees did not have adequate accounting internal controls to ensure the accuracy and completeness of recorded benefit receipts and disbursements. Some of the reported weaknesses included (1) the subsidiary ledger was not reconciled to the general ledger; (2) bank statements were not reconciled to subsidiary ledgers; (3) beneficiary funds were commingled with Rep Payee’s own operating funds; and (4) cash disbursements were not properly accounted for. The effect of these weaknesses for 1 Rep Payee was a recorded error in benefit receipts and disbursements in 41 of 50 cases (82 percent) in our sample.

One of a Rep Payee’s primary responsibilities is to notify SSA of any change that will affect the amount of benefits the beneficiary receives or the beneficiary’s right to receive benefits. The Rep Payee must report changes within 10 days after the month in which the change occurred. For example, some of the changes a Rep Payee must report to SSA are:

• receipt of other Government benefits,
• change of child custody,
• imprisonment or commitment to an institution,
• change in income or resources, and
• marriage.

Five of the six Rep Payees we audited failed to report changes that affected benefit eligibility. These reportable events included (1) receipt of another Government benefit, (2) resources over $2,000, (3) a change in living condition, and (4) the deaths of beneficiaries. The Rep Payees indicated they failed to report changes because they were unaware of their responsibility to notify SSA or the Rep Payee did not have procedures in place to identify reportable events. Not reporting these events resulted in an estimated $880,537 in benefit overpayments for 272 beneficiaries between September 1999 and August 2000.

Rep Payees are required to conserve or invest benefits not needed for the beneficiary's immediate or foreseeable needs. These funds may be deposited in an interest-bearing or dividend-bearing account in a bank, trust company, credit union, or savings and loan association that is insured under either Federal or State law. For each beneficiary, Rep Payees should place conserved funds in excess of $150 in interest-yielding investments. In addition, a Rep Payee who is no longer serving as the Rep Payee must transfer the beneficiary’s conserved funds to a successor Rep Payee, SSA, or the beneficiary.

Two Rep Payees improperly handled the beneficiary’s conserved funds. For example, conserved funds were not properly titled, were held in a non-interest-bearing account, in an underinsured account, or were not returned to SSA when the Rep Payees were no longer serving as the Rep Payee. In our opinion, these problems were the result of a high turnover in Rep Payee personnel. One Rep Payee stated it had problems with its bank and therefore had not deposited beneficiaries’ conserved funds into savings accounts.

One Rep Payee did not earn interest on beneficiaries’ savings. The Rep Payee held $665,062 in a non-interest-bearing checking account, and the account was not properly titled to show the fiduciary relationship between the Rep Payee and the beneficiaries in its care. Also, the Rep Payee held about $53,052 for 28 individuals, including 7 who had died and 21 who were assigned to new Rep Payees or were no longer eligible for benefits. Another Rep Payee did not invest $1,665,400 of beneficiaries’ conserved funds into savings accounts and did not return about $864,000 in conserved funds to SSA when the Rep Payee was no longer serving as the Rep Payee. The conserved funds balances ranged from $2 to over $35,000.

Some organizational Rep Payees may collect a fee from the individual’s total Social Security benefits. To collect a fee, an organization must be a community-based, nonprofit social service agency, bonded or licensed, and serving at least five beneficiaries. The organization cannot be a creditor of the beneficiary. The fee charged is the lesser of 10 percent of the monthly benefit amount or $28. However, current benefits may not be used to collect fees for prior months. In addition, Rep Payees are prohibited from charging a fee if no SSA payment is received in the month.

For the two fee-for-service Rep Payees audited, we found that both had improperly charged fees. For example, the Rep Payees charged fees during months in which no benefits were received, used current benefits to retroactively charge fees for prior months, collected fees when funds were not available for payment, and failed to charge the lesser of $28 per month or 10 percent of benefits received. The improper fee charges totaled $874 for 9 of the 113 individuals reviewed.

The Omnibus Budget Reconciliation Act of 1990 requires SSA to develop a system to maintain data about all Rep Payees and the individuals they serve. As a result, SSA established the RPS, which is an on-line system for entering and retrieving information about Rep Payees and those applying to be Rep Payees. The RPS contains data about Rep Payee applicants; individuals in the Rep Payee’s care; and the relationship between the Rep Payee and the individuals.

In addition, SSA uses the RPS to select Rep Payees for an on-site review. Specifically, SSA periodically selects from RPS all fee-for-service Rep Payees, all organizational Rep Payees serving more than 100 beneficiaries and individual Rep Payees serving more than 20 beneficiaries for on-site reviews. From the selected Rep Payees, SSA obtains a sample of beneficiaries for review.

We found that SSA had erroneous information in RPS for five of the Rep Payees we audited. This included:

• beneficiaries in the Rep Payee’s care were not recorded in RPS,
• Rep Payees were listed multiple times in RPS, and
• Rep Payees were improperly classified as a non-fee-for-service Rep Payee when in fact it was a fee-for-service Rep Payee or as an organizational Rep Payee when in fact it was an individual Rep Payee.

We found some errors occurred because several individuals had been with the Rep Payee before RPS was implemented. These individuals were omitted when RPS was initially established.

Erroneous information in RPS could result in a Rep Payee not being identified for an

on-site review. For example, this could occur if a Rep Payee is listed multiple times in RPS and the listing indicates it is managing payments for beneficiaries less than the number of beneficiaries required for an on-site review. In addition, all beneficiaries in a Rep Payee’s care may not be properly identified for review.

Another problem occurs when fee-for-service Rep Payees are not properly classified in RPS. As a result, the Rep Payee does not receive information from SSA concerning fee increases.

The following chart identifies the beneficiaries not recorded in RPS, the number of multiple listings in RPS for each Rep Payee and the Rep Payees that were improperly classified.

One of the key elements in the President’s Management and Performance Plan is "electronic Government" (e-Government). E-Government is the use of digital technologies to transform Government operations to improve effectiveness, efficiency, and service delivery. The Office of Management and Budget (OMB) has established a task force to begin implementing the President’s initiative and is requesting agencies to identify high payoff e-Government opportunities.

We believe the use of SVCs is an e-Government opportunity that SSA should consider for its Representative Payment Program. SSA is already participating in a product similar to SVC through the Electronic Benefits Transfer (EBT) Program sponsored by the Department of Treasury. About 50,000 beneficiaries/recipients are voluntarily participating in this Program. The EBT Program has reduced administrative costs by eliminating costs associated with printing and mailing benefit checks.

Other Federal agencies have also been using SVCs/EBT for several years. For example, the U.S. Department of Agriculture (USDA) issues over 80 percent of its food stamp benefits using EBT. EBT creates an electronic record of each food stamp transaction, making it easier to identify and document instances where food stamps are "trafficked," or exchanged for cash, drugs or other illegal goods. The use of EBT has made it easier for USDA to detect large-scale trafficking, a type of program fraud. The USDA reported a 19-percent decline in food stamp trafficking due in part to EBT.

In another example, the U.S. Army completed its 1 millionth SVC transaction in May 1999 as part of a recently completed project intended to provide a more efficient system to disburse initial pay to "basic trainees." About 125,000 cards had been issued totaling about $40 million in SVC transactions. The use of SVCs reduced the administrative time required to pay trainees. In addition, the SVCs saved time by eliminating the need to cash checks, money orders and credit vouchers. The SVC program manager reported cardholder fraud at about 1 for every 10,000 cards issued.

Use of the SVCs could provide improved safeguards over Rep Payees’ use of Social Security benefits. Specifically, SVCs could enable SSA to obtain spending information directly from the SVC/credit card company on the type and amount of expenses the Rep Payee incurred. This information could be available electronically and could be reviewed at various intervals (weekly, monthly, and annually). In addition, SVCs could provide SSA and Rep Payees the ability to monitor balances and purchases by reviewing on-line statements or by calling a voice response telephone line. Since balances and purchases are electronically captured, the RPR may no longer be needed.

Some potential benefits of using the SVC could include:

• Eliminating the RPR and providing significant administrative savings of costs for mailing and processing RPRs. Almost 7 million RPRs are mailed and processed annually at a cost of about $52 million.

• Eliminating the costs and problems associated with storing and retrieving RPRs.

• Enabling SSA to obtain spending information directly from the SVC company on the type and amount of expenses the Rep Payee incurred. This information could be available electronically and be reviewed at various intervals (weekly, monthly, and annually).

• Allowing SSA to identify instances of questionable expenses, unusual spending patterns and establishing merchant blocking to prevent Rep Payees from making purchases with certain vendors.

• Tracking conserved fund balances and, as such, allowing SSA to quickly identify instances when SSI recipients have resources over $2,000.

• Identifying conserved fund balances that should be returned to SSA.

• Supporting the Paperwork Reduction Act (PRA) of 1995 by minimizing the paperwork burden for individuals, businesses, institutions, and other persons resulting from the collection of information by or for the Government.

One method SSA uses to monitor Rep Payees is the RPR. The RPR is intended to assist SSA in determining the (1) use of benefits during the proceeding 12-month reporting period, (2) continued suitability of the Rep Payee, and (3) continued need for representative payment. Depending on the Rep Payee’s responses, SSA may contact the Rep Payees to determine their continued suitability. During our reviews, we found several completed RPRs that had questionable information. We also found that SSA could not always retrieve completed RPRs.

The following table shows how many RPRs were and were not received received during our audits.

In our December 13, 2000 memorandum, On-site Reviews of Representative Payees (Appendix B), we alerted SSA to two conditions we identified while we were planning our financial-related audits of Rep Payees. Those conditions pertained to SSA’s use of standardized questions during on-site reviews and access to Rep Payees’ financial records.

As part of our financial-related audits of Rep Payees, we interviewed a sample of beneficiaries. In developing our interview questions, we learned OMB had to approve the questionnaire we planned to use to collect information from the beneficiaries. These requirements are set forth in PRA. The PRA minimizes the paperwork burden resulting from the collection of information by or for the Government. We proceeded accordingly and obtained OMB approval.

While planning the financial-related audits of Rep Payees, we determined that SSA did not receive OMB approval for collecting certain information while performing its on-site reviews of Rep Payees. On-site reviews consist of a visit with the Rep Payee, a review of the accounting records for a sample of beneficiaries, and interviews with beneficiaries to determine whether needs are being met. During these reviews, SSA uses standardized questions for collecting information from beneficiaries and Rep Payees. SSA did not submit the standardized questions to OMB for approval, in accordance with the PRA.

We were concerned that SSA undermined the PRA goals, objectives, and protections granted to the public by not obtaining OMB clearance for these interview questions. As a result, we recommended that SSA obtain OMB approval for the beneficiary and Rep Payee interview forms it uses during its on-site reviews of Rep Payees. SSA agreed with our recommendation and received clearance from OMB to use its standardized interview forms on May 29, 2001.

In planning our audits, we also anticipated that some Rep Payees might refuse to provide us their financial accounting records of benefits received and spent on behalf of beneficiaries. Therefore, we reviewed relevant legal criteria as well as SSA policies and procedures to determine whether Rep Payees are required to provide this information. Based on our review of these criteria, we found that there was no explicit language stating that a Rep Payee is obligated to allow SSA access to the Rep Payee’s financial records of benefits received and spent on the beneficiary’s behalf. Absent such language, there is an increased risk that Rep Payees may refuse SSA access to such records.

Consequently, we recommended that SSA modify language contained in its Request to be Selected as Payee and the Social Security Administration Representative Payee Report accordingly. We recommended that the language make it clear that a Rep Payee agrees to allow SSA access to the Rep Payee’s financial records of benefits received and spent on a beneficiary’s behalf.

Our review found that SSA revised the Request to be Selected as Payee to explicitly authorize SSA access to the Rep Payee’s financial records. However, SSA has not revised the RPR to state the Rep Payee agrees to allow SSA access to its financial records.

Conclusions and Recommendations

Four of the Rep Payees we audited generally had effective safeguards over the receipt and disbursement of Social Security benefits and ensured that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures. However, the two remaining Rep Payees had problems related to these objectives. Although one Rep Payee ensured that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures, our audit showed that significant improvements were needed for its safeguards over the receipt and disbursement of Social Security benefits. The other Rep Payee did not have effective safeguards over the receipt and disbursement of Social Security benefits and did not ensure that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures. Recommendations for improvement were made, most notably in monitoring and reporting changes in beneficiary circumstances to SSA. See Appendices A-1 through A-6 for the specific recommendations for each of the six audits. Also, SSA should consider the use of SVCs or similar technology as an opportunity to realize significant administrative savings and improve internal controls over Rep Payees. Finally, in response to our memorandum, On-site Reviews of Representative Payees, SSA has implemented the first recommendation and part of our second recommendation.

Summary of Previous OIG Recommendations

Below are selected recommendations we previously reported to the appropriate SSA Regional Commissioners and are presented here for informational purposes only.

We recommended that SSA require the affected Rep Payees to:

We recommend that SSA:

1. Take appropriate follow-up actions to ensure the Rep Payees implement the 29 OIG recommendations made from the 6 audits.
2. Pilot the use of SVC or similar technology for Rep Payees.

SSA agreed with Recommendation 1 but disagreed with Recommendation 2. In its response, SSA concluded that stored value cards would be time-consuming and labor-intensive for Rep Payees. SSA also stated that many landlords, small businesses and service providers had no means of processing SVCs. (See Appendix C for the full text of SSA’s comments.)

We continue to believe SSA should conduct a pilot of SVC use for Rep Payees. A pilot on the use of SVCs supports the President’s Management and Performance Plan for "electronic government" and the Paperwork Reduction Act of 1995. In addition, the success of similar initiatives in other agencies has significantly reduced operating expenses (U.S. Military) as well as program fraud (Department of Agriculture).

We believe SSA’s conclusions about SVCs are premature. The purpose of performing the pilot is to determine the feasibility, any limitations, necessary modifications, costs, benefits, legal implications, etc., of SVCs. Given the problems our audits and investigations of Rep Payees continue to identify, as well as SSA’s inability to retrieve over 50 percent of Representative Payee Reports, we believe SSA should determine whether such technology has limited or widespread potential use for SSA’s Representative Payment Program.

Appendices

Appendix A

Hale Barnard Services (HBS) is a non-profit, non-sectarian organization headed by a volunteer Board of Directors. Through its disability program, HBS serves individuals of all ages, backgrounds and disabilities who are eligible for benefits from the Social Security Administration (SSA). HBS received benefit payments of $397,733 from September 1, 1999 through August 31, 2000 for 63 SSA beneficiaries.

We found that HBS:

• Had effective safeguards over the receipt and disbursement of Social Security benefits, and ensured that Social Security benefits were used and accounted for in accordance with SSA policies and procedures.

We recommended that SSA:

1. Ensure that HBS returns funds paid for recipients who were ineligible due to excess resources.
2. Re-emphasize procedures with HBS for notifying SSA when events occur that affects the eligibility or the amount of monthly benefits for individuals in its care.

SSA agreed with our recommendations and stated that corrective actions had already been taken. Specifically, SSA staff began recovery of the overpayments identified, and held a meeting with HBS representatives where they reviewed HBS’ reporting responsibilities as a Rep Payee.

This representative payee (Rep Payee) is the guardian for most of the individuals in our audit. A guardian ensures an individual’s physical needs are met. Other guardians for the beneficiaries in our audit included family members, caregivers, and Government agencies, such as the Department of Veterans Affairs and the Dekalb County's Division of Family and Children Services. The Rep Payee received benefit payments of $352,051 from September 1, 1999 through August 31, 2000 for 53 SSA beneficiaries.

We found that the Rep Payee:

• Had effective safeguards over the receipt and disbursement of Social Security benefits, and ensured that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures.

• Did not notify SSA of changes in an individual's eligibility due to excess resources, leading to an overpayment of $8,092 in SSI payments, including $4,596 in our audit period and $3,496 outside the audit period. We also found two cases where disabled beneficiaries had significant earnings that were never reported by the Rep Payee.

We found that SSA:

• Incorrectly recorded the number of beneficiaries in the Rep Payee’s care and listed the Rep Payee multiple times in its Representative Payee System (RPS).

• Needed to improve communications with other Government agencies, such as the Department of Veterans Affairs and the local county, who are also involved with individuals under the Rep Payee's care.

We recommended that SSA:

1. Ensure that the Rep Payee returns funds paid for recipients who were ineligible due to excess resources.
2. Re-emphasize procedures with Rep Payee for notifying SSA when events occur that affects the eligibility of individuals in its care.
3. Update the RPS to consolidate the multiple entries for this Rep Payee and include 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.
4. Take timely action on program-related issues reported to SSA by the Rep Payee, such as excessive resources and dual Rep Payees.
5. Consider changing its method of communication and information sharing with other Government agencies, such as assigning a point of contact between SSA and other agencies assisting the individuals under the Rep Payee’s care.

SSA agreed with our recommendations and stated it had already initiated corrective actions.

The organizational Rep Payee is an attorney who is acting as guardian for individuals who have no one else to care for them. As a guardian, the Rep Payee is responsible for the individual's living conditions and medical treatment. Often, the court will designate the Rep Payee the individual’s conservator as well as their guardian. As a conservator, the Rep Payee is responsible for the financial matters.

We found that the Rep Payee:

• Generally, had effective safeguards over the receipt and disbursement of Social Security benefits, and ensured Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures.

• Did not notify SSA of changes in an individual's eligibility due to excess resources, which resulted in a SSI overpayment of $359 for one individual. This occurred because the Rep Payee improperly monitored the recipient’s conserved fund balances.

• We found that SSA incorrectly listed the Rep Payee multiple times in its RPS.

We recommended 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, SSA should ensure that all individuals assigned a Rep Payee have only one Rep Payee for all SSA benefits received.

SSA agreed with our recommendation. The Agency added that the multiple listings for this Rep Payee have been consolidated.

Outreach, Inc., is a nonprofit, organizational Rep Payee located in San Jose, California. Incorporated in 1979, the Rep Payee provides transportation, financial and social services to elderly, disabled, and low-income individuals and families in Santa Clara County, California. Since 1990, Outreach, Inc., has operated as a fee-for-service Rep Payee to individuals who receive payments under the Old-Age Survivors Disability Insurance and Supplement Security Income programs. Outreach Inc., received benefit payments of about $3.5 million from September 1, 1999 through August 31,2000 for 495 SSA beneficiaries.

We found that Outreach Inc.:

• Generally, had effective safeguards over the receipt and disbursement of Social Security benefits, and ensured that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures.

• Held $632,894 in conserved funds that were uninsured, and $665,062 was in a non-interest-bearing account.

• Did not return $53,052 of conserved funds timely for 28 individuals who were no longer in its care.

• Did not report to SSA that 24 recipients had conserved funds in excess of the SSI resource limit of $2,000, resulting in overpayments totaling $34,968.

• Received incorrect payments totaling $10,320 after the death of three individuals.

• Commingled burial and nonburial funds for 38 SSI recipients and did not report the use of burial funds for nonburial purposes for 15 recipients. This resulted in three recipients being subject to penalties totaling $3,500.

• Issued payments in excess of conserved funds for 87 individuals, resulting in a deficit of $1,423 as of August 31, 2000.

• Charged excessive Rep Payee fees totaling $790 for 8 of the 50 individuals in our sample.
  
• We found that SSA recorded incorrect information in its RPS for Outreach, Inc., including the number of times listed in RPS, type of Rep Payee, and number of individuals in its care.

We recommended that SSA direct Outreach, Inc.:

1. To amend the title of its checking account to obtain Federal Deposit Insurance Corporation coverage of $100,000 for each individual.
2. To take action to ensure (1) any individuals with conserved funds in excess of $100,000 are fully protected against loss and (2) all individuals earn interest on their conserved funds in accordance with SSA policy.
3. To return conserved funds to the affected beneficiary, SSA or the new Rep Payee for individuals no longer in its care.
4. To establish controls to determine when individuals no longer in its care have conserved funds and ensure these funds are returned in a timely manner.
5. To return SSI payments for recipients who were ineligible due to excess resources.
6. To develop procedures for identifying SSI recipients with excess resources and reporting them to SSA.
7. To return incorrect payments received on behalf of deceased individuals.
8. To develop procedures for identifying erroneous payments to deceased individuals and returning these funds in a timely manner.
9. To obtain a separate bank account for SSI recipients with burial funds and report withdrawals from these funds to the Agency. Also, assess penalties for withdrawal of burial funds used for other purposes.
10. To reimburse individuals with negative balances for conserved funds and establish controls to ensure payments to individuals do not exceed their conserved fund balances.
11. To reimburse individuals for excessive Rep Payee fees and provide guidance to Outreach on the proper collection of fees for payee services.
12. To update RPS to consolidate the multiple entries for Outreach and include all individuals for whom Outreach was selected as Rep Payee.

SSA agreed with all of our recommendations.

The Social Services Administration of the State of Maryland Department of Human Resources administers social services in each of Maryland’s 23 counties and Baltimore City through local departments of social services. The Baltimore City Department of Social Services (BCDSS) provides such services as adoption, foster care, protective services to children and families, and services to families with children. BCDSS received benefit payments of about $1.8 million from September 1, 1999 through August 31, 2000 for 481 SSA beneficiaries. All of the beneficiaries are children who either live in a foster care home, a group home, or an institution.

We found that BCDSS:

• Did not have effective safeguards over the receipt and disbursement of Social Security benefits and did not ensure that Social Security benefits were used and accounted for in accordance with SSA’s policies and procedures.

• Did not have adequate financial accounting controls to ensure the accuracy and completeness of recorded benefit receipts and disbursements. BCDSS did not record, or incorrectly recorded, benefit receipts and/or disbursements in
  41 (82 percent) of the 50 beneficiary records we reviewed.

• Needed improved safeguards over benefit receipts – Our review showed that BCDSS received approximately 481 monthly benefit payments by check, and those checks were vulnerable to theft and/or loss.

• Did not adequately monitor and report to SSA changes in beneficiaries’ circumstances that could have affected their eligibility. Our audit tests identified an estimated 236 changes in beneficiary circumstances BCDSS did not report to SSA. As a result, we estimated beneficiary overpayments of $807,520 between September 1999 through August 2000.

• Did not always respond to SSA marriage questionnaires concerning children’s entitlement to benefits. As a result, 18 children may have had their benefits incorrectly terminated. We estimated these children were underpaid a total of about $35,000 between September 1999 through August 2000.

• May have improperly spent about $1.6 million in beneficiary conserved funds on other foster children. This was because BCDSS had not updated its subsidiary ledger for the last 3 years.

• Did not return conserved funds to SSA beneficiaries who were no longer in their care. BCDSS’ financial records showed $864,000 in conserved funds due to former SSA beneficiaries. However, BCDSS had taken no action to pay the affected beneficiaries, new Rep Payees, or SSA, as required.

We found that SSA incorrectly recorded in its RPS the number of beneficiaries in BCDSS’ care.

We recommended that SSA require BCDSS to:

1. Implement accounting controls to ensure that all benefit receipts and disbursements are accurately recorded.
2. Establish direct deposit for all beneficiaries in BCDSS’ care.
3. Ensure that it implements controls to monitor and report to SSA all changes in circumstances that affect the amount of benefits beneficiaries receive or the right of beneficiaries to receive benefits. In addition, BCDSS should take corrective action to identify and repay all overpayments due to changes in beneficiaries’ circumstances.
4. Determine the entitlement status of all beneficiaries who may have had their benefits incorrectly terminated because BCDSS did not return a questionnaire. Ensure BCDSS establishes controls to receive and respond to all SSA questionnaires.
5. Determine the accuracy of its estimated $1.6 million in beneficiary conserved funds. Thereafter, SSA should determine the impact on the affected beneficiaries’ eligibility for benefits and take appropriate corrective actions.
6. Implement controls to ensure it transfers conserved funds for beneficiaries who are no longer in its care to new Rep Payees, SSA, or the beneficiaries. In addition, BCDSS should determine the accuracy of the $864,000 of conserved funds due SSA beneficiaries who are no longer in its care. As appropriate, pay any conserved funds to the affected beneficiaries, new Rep Payees, or SSA.

We recommended that SSA:

7. Update RPS to include all beneficiaries in BCDSS’s care.

SSA agreed with or will consider all of our recommendations and provided additional technical comments on the audit methodology, findings, and recommendations.

The Rep Payee is a Residential Care Facility licensed by the Oklahoma State Department of Health to have a maximum of 37 beds. According to the Rep Payee, all residents have some type of mental disorder. The Rep Payee received benefit payments of $188,927 from September 1, 1999 through August 31, 2000 for 51 SSA beneficiaries.

We found that the Rep Payee:

• The Rep Payee did not follow policies and procedures SSA recommended for tracking and accounting for beneficiary and recipient funds. Our review showed that the Rep Payee did not (1) use separate bank accounts for individual funds; (2) have procedures in place that allowed her to provide beneficiaries and recipients with an up-to-date reporting of how their funds were spent; and (3) adequately account for cash disbursements.

• We found that SSA incorrectly listed the Rep Payee multiple times in its RPS.

We recommended that SSA:

1. Work with the Rep Payee to determine the appropriate level of documentation to account for and report on the receipt and disbursement of SSA benefits in accordance with SSA’s policies and procedures, including procedures to properly account for and safeguard individual funds and accurately complete RPRs. These procedures should clearly address the need for timely, accurate cash logs as well as the need to establish and maintain individual ledger sheets as deemed appropriate.
2. Ensure that multiple identities are not used for this Rep Payee in RPS.

SSA agreed with both of our recommendations. Specifically, SSA will ask its local field office to (1) work with the Payee to ensure proper recordkeeping and accurate RPRs and (2) consolidate the RPS entries and classify this Rep Payee as an organization.

OIG Memorandum, On-Site Reviews of Representative Payees

Agency Comments

We appreciate OIG's efforts in conducting this review. Our comments on the report content and recommendations are attached.

Appendix D

OIG Contacts and Staff Acknowledgments

OIG Contacts

Shirley E. Todd, Director, General Management Audit Division, (410) 966-9365
Jim Klein, Audit Manager, (410) 965-9739

Acknowledgments

In addition to the persons named above:

Randy Townsley, Senior Auditor
Kimberly Beauchamp, Writer-Editor

The Office of Audit (OA) conducts comprehensive financial and performance audits of the Social Security Administration’s (SSA) programs and makes recommendations to ensure that program objectives are achieved effectively and efficiently. Financial audits, required by the Chief Financial Officers Act of 1990, assess whether SSA’s financial statements fairly present the Agency’s financial position, results of operations, and cash flow. Performance audits review the economy, efficiency, and effectiveness of SSA’s programs. OA also conducts short-term management and program evaluations focused on issues of concern to SSA, Congress, and the general public. Evaluations often focus on identifying and recommending ways to prevent and minimize program fraud and inefficiency.

OEO supports the OIG by providing information resource management; systems security; and the coordination of budget, procurement, telecommunications, facilities and equipment, and human resources. In addition, this office is the focal point for the OIG’s strategic planning function and the development and implementation of performance measures required by the Government Performance and Results Act. OEO is also responsible for performing internal reviews to ensure that OIG offices nationwide hold themselves to the same rigorous standards that we expect from SSA, as well as conducting investigations of OIG employees, when necessary. Finally, OEO administers OIG’s public affairs, media, and interagency activities, coordinates responses to Congressional requests for information, and also communicates OIG’s planned and current activities and their results to the Commissioner and Congress.

The Office of Investigations (OI) conducts and coordinates investigative activity related to fraud, waste, abuse, and mismanagement of SSA programs and operations. This includes wrongdoing by applicants, beneficiaries, contractors, physicians, interpreters, representative payees, third parties, and by SSA employees in the performance of their duties. OI also conducts joint investigations with other Federal, State, and local law enforcement agencies.

The Counsel to the Inspector General provides legal advice and counsel to the Inspector General on various matters, including: 1) statutes, regulations, legislation, and policy directives governing the administration of SSA’s programs;
2) investigative procedures and techniques; and 3) legal implications and conclusions to be drawn from audit and investigative material produced by the OIG. The Counsel’s office also administers the civil monetary penalty program.