The attached final report presents the results of our evaluation. Our objective was to analyze information concerning representative payee (Rep Payee) misuse of beneficiaries’ payments. Specifically, we were to determine whether common characteristics existed for Rep Payees who had misused beneficiary payments.

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 objective was to analyze information concerning representative payee (Rep Payee) misuse of beneficiaries’ payments. Specifically, we were to determine whether common characteristics existed for Rep Payees who had misused beneficiary payments.

Some individuals cannot manage or direct the management of their benefits because of their youth or mental and/or physical impairments. Congress granted the Social Security Administration (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 payment would serve the individual’s interests.

A Rep Payee is required to use the benefits only for the beneficiary’s use and benefit. Benefit payment misuse occurs when Rep Payees do not use benefit payments for the beneficiary’s current and foreseeable needs or do not conserve unused benefits for the beneficiary. SSA is responsible for investigating all allegations of misuse and protecting the beneficiary’s best interests. When SSA has determined that misuse has occurred, the suspected violation should be referred to the Office of the Inspector General (OIG) to consider possible criminal, civil, and/or administrative remedies.

To perform our review, we obtained and analyzed a file of 2,417 individuals identified within SSA’s Representative Payee System (RPS) as having misused approximately $12 million in beneficiary payments. SSA rendered these misuse determinations from January 1997 through December 1999.

Based on our review of data contained in the RPS, we did not identify statistically significant common characteristics that were unique to Rep Payees who misused benefit payments. However, our analysis of the RPS data identified several problems in SSA’s monitoring and oversight of these Rep Payees. Specifically, we found the following.

• Additional misuse cases may exist that should be referred to the OIG.

• SSA frequently retained Rep Payees who misused benefit payments.

• Rep Payees who misused payments and were subsequently retained as Rep Payees did not always make mandatory repayment of misused benefit payments.

• Rep Payees who were previously incarcerated misused benefit payments and continued as Rep Payees.

• Rep Payees managed benefits of others when SSA had determined they could not manage their own benefits.

When Rep Payees commit misuse, they undermine the trust placed in them to manage beneficiaries’ payments. When misuse occurs, SSA has a responsibility to remedy the situation. This includes removing the Rep Payee; obtaining repayment of misused payments; and referring misuse cases to the OIG for possible criminal, civil, and/or administrative remedies. In addition, when SSA decides to retain these Rep Payees, it should closely monitor them to ensure misuse does not occur again. Our review found that increased SSA oversight is needed of Rep Payees who misuse benefit payments.

We recommend that SSA:

In response to our draft report, SSA agreed with all of our recommendations. (See Appendix B for the full text of SSA’s comments.)

Table of Contents

APPENDIX A – Early Alert Memorandum

APPENDIX B – Agency Comments

APPENDIX C – OIG Contacts and Staff Acknowledgments

Acronyms

OI Office of Investigations

OIG Office of the Inspector General

POMS Program Operations Manual System

RPS Representative Payee System

Rep Payee Representative Payee

SSA Social Security Administration

Introduction

Our objective was to analyze information concerning representative payee (Rep Payee) misuse of beneficiary payments. Specifically, we were to determine whether common characteristics existed for Rep Payees who had misused beneficiary payments.

Some individuals cannot manage or direct the management of their benefits because of their youth or mental and/or physical impairments. Congress granted the Social Security Administration (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 payment 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,

• reporting events to SSA that may affect the beneficiary’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 accounting for how benefits were spent and invested.

Rep Payees who misuse benefit payments are indebted to the beneficiaries and have an obligation to make repayment to these beneficiaries. Rep payees may accomplish this by:

• returning the payments to SSA, in whole or in installments, to reissue to the new Rep Payee or to the beneficiary, as appropriate;

• voluntarily allowing withholding of funds from their own Social Security benefits; or

• repaying the beneficiary or new Rep Payee directly.

SSA must investigate allegations of benefit misuse, determine the facts, and protect the beneficiary’s best interests. SSA prepares "misuse determinations," which are comprehensive statements that document its decision as to whether the Rep Payee misused benefit payments. Separate misuse determinations are prepared for each affected beneficiary. Once it is determined that a Rep Payee misused benefit payments, SSA must take action to remedy or correct the beneficiary’s situation. Those actions include the following:

• appointing a new Rep Payee;

• determining a Rep Payee is no longer needed and initiating "direct payment" to the beneficiary;

• making repayment of misused benefits; and

• referring instances of benefit payment misuse to the Office of the Inspector General (OIG) for possible criminal, civil and/or administrative remedies.

To assist in investigations of the suitability of Rep Payee applicants, the Omnibus Budget Reconciliation Act of 1990 requires SSA to develop and maintain a centralized system identifying Rep Payees and the beneficiaries they serve. As a result, SSA created the Representative Payee System (RPS). The RPS is an automated system for entering and retrieving information about Rep Payees and Rep Payee applicants. The RPS also maintains information about beneficiaries in the Rep Payee’s care and the relationship between Rep Payees and beneficiaries. In addition, SSA uses the RPS to collect and maintain information on Rep Payees who have misused benefits.

SSA uses the information maintained within RPS to prevent selection of Rep Payees who have been convicted of committing SSA-related fraud, improve its selection process, prepare annual reports to Congress on Rep Payee activities, and obtain data for workload projections. The RPS is intended to provide all known information about Rep Payee applicants so a well-informed assessment of applicants’ suitability can be made.

To accomplish our objective, we:

• Reviewed SSA’s POMS and the Social Security Handbook pertaining to the policies and procedures applicable to the Representative Payment Program.

• Performed the following tests for the 2,417 Rep Payees:

• determined whether misuse cases over $5,000 were referred to the OIG, Office of Investigations (OI) for possible criminal, civil and/or administrative remedies;

• determined the number of Rep Payees who were retained as Rep Payees after misuse occurred;

• determined whether Rep Payees made mandatory repayment of misused funds;

• identified the number of Rep Payees who were incarcerated after the misuse occurred and determined whether SSA continued to make payments to the affected Rep Payees; and

• identified the number of Rep Payees who had Rep Payees managing their own Social Security benefits.

We performed our review in Baltimore, Maryland, from December 2000 to

December 2001. The entity reviewed was the Office of Operations under the Deputy Commissioner for Operations. We conducted our evaluation in accordance with Quality Standards for Inspections issued by the President’s Council on Integrity and Efficiency.

Results of Review

Based on our review of data contained in the RPS, we did not identify statistically significant common characteristics that were unique to Rep Payees that misused benefit payments. However, our analysis of the RPS data identified several problems in SSA’s monitoring and oversight of these Rep Payees. Specifically, we found the following.

• Additional misuse cases may exist that should be referred to the OIG.

• SSA frequently retained Rep Payees who misused benefit payments.

• Rep Payees who misused payments and were subsequently retained as Rep Payees did not always make mandatory repayment of misused benefit payments.

• Rep Payees who were previously incarcerated misused benefit payments and continued as Rep Payees.

• Rep Payees managed benefits of others when SSA had determined they could not manage their own benefits.

When SSA makes a misuse determination, the suspected violation should be referred to the OIG for further review and investigation. Failure to refer misuse cases to OIG precludes potential development of criminal, civil and administrative investigations that could yield court-ordered restitution, fines/penalties, and administrative action to prevent loss, achieve savings, or recover fraud loss.

SSA did not always refer Rep Payees that misused benefit payments to the OIG. To determine whether SSA properly referred misuse cases to the OIG, we judgmentally selected all Rep Payees (670) with misuse amounts over $5,000, representing over $8.5 million. Our review showed that 521 (78 percent) of those cases over $5,000 were not referred to the OIG for possible criminal, civil and/or administrative remedies. Those cases represented over $5.9 million in misused benefits.

From January 1997 through December 1999, SSA made misuse determinations involving 2,417 Rep Payees. Since our review was limited to 670 of these Rep Payees, we may not have identified all misuse cases that should have been referred to the OIG. Furthermore, cases may exist concerning misuse determinations made after December 1999 that were not referred to the OIG for possible criminal, civil and/or administrative remedies.

Generally, a Rep Payee who misuses benefit payments is no longer suitable to act as a Rep Payee. According to SSA’s policy, in rare cases, SSA may determine that payment should continue to the same Rep Payee. However, SSA policy permits this only if the Rep Payee has made repayment of the misused benefits (or has a definite plan to do so) and there is good reason to believe the Rep Payee will use benefits properly in the future.

We found that SSA retained 418 of 2,417 (17.3 percent) Rep Payees after determining they had misused benefit payments. Of these, there were 29 individuals who misused benefit payments for multiple beneficiaries. For 2 of the 29 individuals, SSA continued to retain the individuals as Rep Payees, although SSA determined that subsequent misuse occurred. By retaining these 418 Rep Payees, $3.5 million of beneficiary payments is at-risk of misuse.

When a Rep Payee misuses beneficiary payments, the Rep Payee becomes indebted to the beneficiary. A Rep Payee who has misused beneficiaries’ payments may be retained only if the Rep Payee has made repayment of the misused benefit payments (or has a definite plan to do so). A Rep Payee’s unwillingness or inability to repay misused funds increases the risk of future misuse.

Our review found that Rep Payees who were retained as a Rep Payee after committing misuse did not always make the mandatory repayment of misused benefit payments. The 418 Rep Payees SSA retained had misused benefit payments totaling $1.8 million during our review period. According to SSA’s records, the following chart shows the recovery status for the misused benefits as of September 2000.

For example, during our review, we identified a Rep Payee who misused $35,077 in benefit payments intended for the use of a minor child. The misuse determination was made in July 1997, and there has been no collection activity to date. As of November 2001, this same individual continued to receive benefits for another minor child.

Incarceration and/or having a criminal history does not necessarily prevent an individual from serving as a Rep Payee. However, we believe it is a strong indication the individual may no longer be suitable to continue as a Rep Payee. To identify incarcerated Rep Payees, SSA performs periodic matches of prisoner records with the RPS. During our review, we learned this match produces an alert that requires a manual review of RPS information to determine whether the individual is serving as a Rep Payee.

We found that 11 Rep Payees were receiving benefits on behalf of other beneficiaries after the Rep Payee misused the benefits. These Rep Payees were subsequently incarcerated. However, SSA continued to retain these individuals as Rep Payees. SSA should have been aware from the matches of prisoner records and RPS information that these individuals were incarcerated. As of June 2001, the match of prisoner records indicated these Rep Payees were no longer incarcerated, and SSA continued to pay $87,484 in benefits per year to these 11 Rep Payees.

In one instance, we identified an individual serving as a Rep Payee who misused beneficiary payments, was retained as a Rep Payee, and was subsequently convicted of an unrelated felony and confined to prison on October 26, 1999. On June 4, 2001, we notified SSA that this individual was still serving as a Rep Payee. As a result, SSA appointed the beneficiary a new Rep Payee.

Before a Rep Payee is appointed, SSA must evaluate the applicant’s ability to handle his/her own affairs. Specifically, SSA policy states "…Never appoint as payee someone who has a payee."

During our review, we identified 30 individuals who had Rep Payees, had misused another beneficiary’s benefits, and were acting as Rep Payees. These Rep Payees misused over $156,000 in benefit payments. This occurred because RPS does not prevent the appointment of individuals who have a Rep Payee as a Rep Payee. During the Rep Payee application process, RPS generates an alert "RP has RP," which indicates the applicant has a Rep Payee managing their benefit payments. However, RPS does not prevent the selection of such an individual.

On March 2, 2001, we issued an Early Alert, Representative Payees Who Have Representative Payees, to SSA (Appendix A). As a result of the information provided in our Early Alert, SSA has taken the following corrective actions. Specifically, SSA:

• Identified approximately 3,800 Rep Payees who had Rep Payees.

• Issued a memorandum to Regional Commissioners identifying the Rep Payees that had Rep Payees located within their respective regions and a draft of guidance for addressing this issue.

• Developed an Agency Intranet site for accessing and updating information pertaining to the corrective actions taken to remove these individuals as Rep Payees (appointing a new Rep Payee or making direct payment to the beneficiary).

• Initiated action to implement changes to RPS intended to prevent the selection of individuals as Rep Payees that have Rep Payees managing their own benefits.

SSA has informed us that the changes to RPS will be complete in the near future.

Conclusions and Recommendations

When Rep Payees commit misuse, they undermine the trust placed in them to manage beneficiaries’ payments. When misuse occurs, SSA must take action to remedy or correct the beneficiary’s situation. This includes removing the Rep Payee; obtaining repayment of misused benefit payments; and referring misuse cases to the OIG for possible criminal, civil, and/or administrative remedies. In addition, when SSA decides to retain these Rep Payees, close monitoring of such Rep Payees may be required to ensure benefit payment misuse does not occur again. Our review found that increased SSA oversight is needed of Rep Payees who misuse benefit payments.

We recommend that SSA:

In response to our draft report, SSA agreed with all of our recommendations. (See Appendix B for the full text of SSA’s comments.)

Other Matters

A Rep Payee who misuses benefit payments becomes indebted to the beneficiary and has an obligation to make repayment to the beneficiary. SSA rendered determinations that 2,417 Rep Payees misused benefit payments from January 1997 through December 1999. These Rep Payees misused beneficiary payments totaling almost $12 million. According to RPS, the recovery status for the $12 million is as follows.

Although SSA has broad authority to recover overpayments (such as, tax refund offsets, referral to contract collection agencies, notifying credit bureaus, and administrative offsets of future federal benefit/payments), these debt collection tools cannot be used to recover benefits misused by Rep Payees. As a result, most misused funds are not recovered and repaid to the affected beneficiaries. We support legislative proposals that would treat misused benefits as overpayments to the Rep Payee. Thus providing SSA the necessary means for recovering the misused payments.

Appendices

While conducting a review of Representative Payees (Rep Payees) who have misused beneficiaries’ funds, we found there were individuals serving as Rep Payees who had a Rep Payee to manage their own Social Security benefits. Since the Social Security Administration (SSA) has determined these individuals cannot manage their own benefits, we question why they have been selected as a Rep Payee to manage the benefits of other beneficiaries.

As part of our efforts to assist SSA in improving its oversight of Rep Payees, we have initiated the review, Analysis of Information Concerning Representative Payees Misuse of Beneficiaries’ Payments (A-13-01-11004). This review includes an analysis of Rep Payees who have a misuse indicator reflected in the Representative Payee System (RPS) for the period January 1997 through December 1999. During our initial review of this information, we identified 30 Rep Payees who had Rep Payees to manage their own SSA benefits. SSA policy precludes individuals from serving as a Rep Payee who have a Rep Payee for their own benefits.

In addition, according to the information in the RPS, these individuals misused $156,891 in benefits intended for their beneficiaries. Of that, SSA has recovered only $10,778. We are particularly concerned that individuals who are determined to be incapable of managing their own benefits and who have misused another beneficiary’s benefits are approved to serve as a Rep Payee for other individuals.

We note that SSA has taken corrective action to remove most of these individuals from serving as a Rep Payee. As of January 2001, only one individual was active as a Rep Payee. We recommend SSA take prompt action to select a new Rep Payee for this beneficiary and institute adequate controls to ensure this condition does not reoccur.

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We will make ourselves available to assist you in determining the extent of this condition. If you have any questions concerning this matter, please contact me or have your staff contact Steven L. Schaeffer, Assistant Inspector General for Audit, at (410) 965-9700.

James G. Huse, Jr.

Appendix B

Agency Comments

OIG Contact and Staff Acknowledgments

OIG Contacts

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

Acknowledgments

In addition to those named above:

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.

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.