A-13-02-22014 Alternate Format

SOCIAL SECURITY

MEMORANDUM

Date: May 29, 2003

To: Larry G. Massanari
Regional Commissioner for Philadelphia

From: Assistant Inspector General for Audit

Subject: Audit of Key Point Health Services, Inc. - An Organizational Representative Payee for the Social Security Administration (A-13-02-22014)

Attached is a copy of our final report. Our objectives were to determine whether Key Point Health Services, Inc., (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 the Social Security Administration's policies and procedures.

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 Shirley Todd, Director of General Management Audit Division, at (410) 966-9365.

Steven L. Schaeffer

OFFICE OF
THE INSPECTOR GENERAL

SOCIAL SECURITY ADMINISTRATION

AUDIT OF KEY POINT
HEALTH SERVICES, INC. -
AN ORGANIZATIONAL
REPRESENTATIVE PAYEE FOR THE
SOCIAL SECURITY ADMINISTRATION

May 2003

A-13-02-22014

AUDIT REPORT

Mission

We improve SSA programs and operations and protect them against fraud, waste, and abuse by conducting independent and objective audits, evaluations, and investigations. We provide timely, useful, and reliable information and advice to Administration officials, the Congress, and the public.

Authority

The Inspector General Act created independent audit and investigative units, called the Office of Inspector General (OIG). The mission of the OIG, as spelled out in the Act, is to:

Conduct and supervise independent and objective audits and investigations relating to agency programs and operations.
Promote economy, effectiveness, and efficiency within the agency.
Prevent and detect fraud, waste, and abuse in agency programs and operations.
Review and make recommendations regarding existing and proposed legislation and regulations relating to agency programs and operations.
Keep the agency head and the Congress fully and currently informed of problems in agency programs and operations.

To ensure objectivity, the IG Act empowers the IG with:

Independence to determine what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations based on the reviews.

Vision

By conducting independent and objective audits, investigations, and evaluations, we are agents of positive change striving for continuous improvement in the Social Security Administration's programs, operations, and management and in our own office.
Executive Summary

OBJECTIVE

Our objectives were to determine whether Key Point Health Services, Inc., (KPHS)
(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 the Social Security Administration's (SSA) policies and procedures.

BACKGROUND

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 representative payees (Rep Payee) 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.

KPHS is a private, nonprofit corporation, incorporated in April 1983 to serve adults and children with mental health concerns. KPHS has about 180 full-time employees and serves about 100 patients who receive Social Security benefits. From July 1, 2000 through June 30, 2001, KPHS received about $705,388 in benefit payments for these beneficiaries. KPHS provides psychiatric services and other mental health programs. KPHS also has a residential rehabilitation program to provide housing, support services, and living skills training. Maryland Health Partners, client resources, and entitlements provide funding for residential services.

RESULTS OF REVIEW

We could not determine whether KPHS properly used Social Security benefits for the beneficiaries' use and benefit. Our audit showed that KPHS did not (1) have effective safeguards over the receipt and disbursement of Social Security benefits and (2) ensure Social Security benefits were used and accounted for in accordance with SSA's policies and procedures. Specifically, we found that KPHS did not

establish a Rep Payee accounting system to track $705,388 in annual benefits received, disbursed, and/or conserved;

have a system of internal controls to safeguard beneficiaries' receipts and disbursements;

establish a separate bank account for beneficiaries' funds;

obtain SSA approval before using benefits to reimburse itself for prior expenses; and

establish direct deposit for beneficiary payments, leaving beneficiary checks vulnerable to loss and theft.

Also, KPHS improperly endorsed and deposited checks made payable to beneficiaries for whom KPHS was not the Rep Payee. Finally, we found that KPHS was the Rep Payee for six beneficiaries who were not recorded in SSA's Representative Payee System (RPS).

OTHER MATTERS

SSA conducted a site review at KPHS on August 29 and 30, 2001. According to the site review report, dated January 23, 2002, SSA performed an in-depth review of the accounting and recordkeeping operation. Had SSA reviewed the accounting and recordkeeping operations, it may have discovered, as we did, that KPHS did not have an adequate Rep Payee accounting system or complete supporting documentation for the beneficiary expenses.

CONCLUSIONS AND RECOMMENDATIONS

KPHS has significant internal control and accounting weaknesses, which prevent it from meeting its responsibilities as a Rep Payee. Given the seriousness of the conditions identified, we believe KPHS needs to improve several areas of its Rep Payee program.

We recommend that SSA:

1. Ensure KPHS maintains a Rep Payee accounting system, including supporting documentation, to track benefits received, spent, and conserved.

2. Ensure KPHS establishes appropriate internal controls over benefit receipts and disbursements.

3. Ensure KPHS maintains a properly titled bank account to show the funds belong to the beneficiaries.

4. Require that KPHS submit appropriate documentation that the $40,401 in benefits was used for the beneficiaries' benefit. If KPHS, is unable to do so, it should reimburse the affected beneficiaries.

5. Establish a control to ensure that KPHS obtains SSA approval before using benefits for self-reimbursement for past debts.

6. Ensure that KPHS establishes direct deposit for all beneficiaries in its care.

7. Ensure that KPHS no longer negotiates Social Security checks that are made payable to beneficiaries for whom KPHS is not the Rep Payee.

8. Determine whether the seven beneficiaries that have their checks sent directly to KPHS need a Rep Payee.

9. Correct RPS to include all beneficiaries for whom KPHS was selected as a Rep Payee. (Recommendation withdrawn per SSA comments.)

AGENCY COMMENTS

SSA agreed with all but one of our recommendations. We had recommended that SSA correct RPS to include all beneficiaries for whom KPHS was selected as Rep Payee. SSA stated that KPHS was no longer the Rep Payee for the affected beneficiaries. Since a new Rep Payee has been selected for these beneficiaries, SSA cannot change previous Rep Payee information in RPS (see Appendix A for the full text of SSA's comments).

REP PAYEE COMMENTS

KPHS stated it has improved its accounting and internal control system. KPHS also stated that direct deposit would make it difficult to control, document, and determine each payment for each beneficiary (see Appendix B for the full text of KPHS' comments).

OIG RESPONSE

We acknowledge the limitations RPS has regarding changing previous Rep Payee information. Therefore, we withdrew our recommendation. However, SSA may want to consider improving RPS to allow for such changes.

We continue to believe direct deposit provides improved safeguards over benefit payments and is an effective and efficient process that would save KPHS the time and effort of handling numerous benefit checks. Finally, we contacted KPHS' bank, and it advised us it would automatically provide individual payment information for each beneficiary in KPHS' care.

Table of Contents
Page
INTRODUCTION 1
RESULTS OF REVIEW 4
KPHS Neither Established a Representative Payee Accounting System nor Had an Effective System of Internal Controls 4
Separate Bank Account was not Established 6
Noncompliance with Creditor Payee Requirements 6
Direct Deposit was not Used 6
Improper Endorsement of Beneficiary Checks 7
Representative Payee System 7
CONCLUSIONS AND RECOMMENDATIONS 9
OTHER MATTERS 11
Representative Payee Reports 11
Social Security Administration Site Review 11
Check Cashing Arrangement with Liquor Store 12

APPENDIXES
APPENDIX A - Agency Comments
APPENDIX B - Representative Payee's Comments
APPENDIX C - OIG Contacts and Staff Acknowledgments

Acronyms
CFR Code of Federal Regulations
KPHS Key Point Health Services, Inc.
OASDI Old-Age, Survivors and Disability Insurance
POMS Program Operations Manual System
Rep Payee Representative Payee
RPR Representative Payee Report
RPS Representative Payee System
SSA Social Security Administration
SSI Supplemental Security Income
USC United States Code

Introduction

OBJECTIVE

Our objectives were to determine whether Key Point Health Services (KPHS), Inc.,
(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 the Social Security Administration's (SSA) policies and procedures.

BACKGROUND

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 representative payees (Rep Payee) to receive and manage these beneficiaries' and recipients' 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 to serve 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.

About 7.6 million individuals have Rep Payees-approximately 4.5 million are OASDI beneficiaries, 2.3 million are SSI recipients, and 800,000 are entitled to both OASDI and SSI. The following chart reflects the types of Rep Payees and the number of individuals they serve.

Type of Rep Payee Number of Rep Payees Number of Individuals Served
Individual Payees: Parents, Spouses, Adult Children, Relatives, and Others
5,333,200
6,685,100
Organizational Payees: State Institutions, Local Governments and Others
41,500
807,400
Organizational Payees: Fee-for-Service 900 104,200
TOTAL 5,375,600 7,596,700
Source: Master Representative Payee File as of January 2003.

Key Point Health Services, Inc.

KPHS is a private, nonprofit corporation, incorporated in April 1983 to serve adults and children with mental health concerns. KPHS has about 180 full-time employees. A Board of Directors meets to consult with the Chief Executive Officer and approve policy for the corporation. KPHS provides psychiatric services and other mental health programs. Patients are treated in individual, group, or family therapy. KPHS also has a residential rehabilitation program to provide housing, support services, and living skills training. Maryland Health Partners, client resources, and entitlements provide funding for residential services. KPHS serves about 100 patients that receive Social Security benefits. KPHS received about $705,388 in benefit payments from July 1, 2000 through June 30, 2001.

SCOPE AND METHODOLOGY

Our audit covered the period July 1, 2000 through June 30, 2001. To accomplish our objectives, we:

Reviewed the Social Security Act and SSA policies and procedures pertaining to Rep Payees.

Contacted SSA regional office and field office staffs to obtain background information about the Rep Payee's performance.

Obtained from SSA's Representative Payee System (RPS) a list of individuals who were in the Rep Payee's care as of June 30, 2001 or who left the Rep Payee's care after July 1, 2000.

Obtained from the Rep Payee a list of individuals who were in its care and had received SSA funds as of June 30, 2001 or who left its care after July 1, 2000.

Compared and reconciled the RPS list to the Rep Payee's list to identify the population of SSA beneficiaries who were in the Rep Payee's care from July 1, 2000 to June 30, 2001.

Reviewed the Rep Payee's internal controls over the receipt and disbursement of OASDI benefits and SSI payments.

Performed the following tests for each beneficiary and recipient:

- compared and reconciled benefit amounts received according to the Rep Payee's records to benefit amounts paid according to SSA's records;

- reviewed the Rep Payee's accounting records to determine whether benefits were properly spent or conserved on the individual's behalf; and

- traced a sample of recorded expenses to source documents and examined the underlying documentation for reasonableness and authenticity.

Interviewed a sample of beneficiaries to determine whether their basic needs were being met.

Given the lack of an accounting system and ineffective internal controls, we determined the Rep Payee's computer-processed data to be insufficiently reliable for our intended use (see the Results of Review section of this report, pages 4 and 5). We performed our audit in Bel Air and Baltimore, Maryland, between June 2001 and September 2002. We conducted our audit in accordance with generally accepted government auditing standards.

Results of Review

establish a Rep Payee accounting system to track $705,388 in annual benefits received, disbursed, and/or conserved;

have an effective system of internal controls to safeguard beneficiaries' receipts and disbursements;

establish a separate bank account for beneficiaries' funds;

obtain SSA approval before using benefits to reimburse itself for prior expenses; and

establish direct deposit for beneficiary payments, leaving beneficiary checks vulnerable to loss and theft.

SSA's Guide for Organizational Representative Payees states that a Rep Payee must establish some form of accounting system to track how much money is received; how much money is spent; and the balance saved for each beneficiary. SSA also requires that the Rep Payee's financial records and supporting documentation of beneficiary receipts and expenses are available upon request. Finally, a Rep Payee should have appropriate internal controls to ensure the accuracy, completeness and proper authorization of transactions related to the receipt and disbursement of beneficiaries' funds.

We found that KPHS had not established a Rep Payee accounting system to track individual beneficiary funds received, spent, and saved. In addition, beneficiaries' funds were deposited into KPHS' operating account and commingled with other operating funds. We also found that KPHS did not retain supporting documentation for all beneficiary expenses. KPHS only had documentation for rent, utilities and weekly allowances given to beneficiaries; however, KPHS admitted these records were unreliable.

Our audit also showed that KPHS' internal controls over the receipt and disbursement of Social Security funds were ineffective. One KPHS employee handled all of the receipt
and disbursement of Social Security funds. Disbursements under $1,000 did not require Chief Executive Officer or Chief Financial Officer review or approval. Finally, any errors or irregularities could go undetected because the same employee was responsible for beneficiaries' receipts and disbursements and reconciling KPHS' bank accounts.

As a result of the above conditions, the following events occurred.

Unidentified Beneficiary-Conserved Funds - KPHS asserted there were no conserved funds for any beneficiary in its care. Since KPHS did not keep track of all transactions for each beneficiary and retain all supporting documentation of beneficiary expenses, we applied alternative procedures to obtain some level of assurance of whether beneficiary-conserved funds existed. We used a cost-of-care amount of $34 per day, approved by the Maryland Department of Health and Mental Hygiene, to determine whether there were any conserved funds during our audit period. Applying this rate to all 111 cases, we found $592 in conserved funds for 1 beneficiary.

Improper Expenditures of Beneficiary Funds - KPHS wrote checks for clothing ($600) and to open a bank account ($200) for a beneficiary; however, the checks were made payable to a KPHS employee. The KPHS employee subsequently cashed the checks at a local liquor store. KPHS was unable to provide evidence the money was used for the beneficiary's needs.

Failure to Identify Beneficiaries' Checks Not Received, Lost, or Stolen - Our review of beneficiaries' receipts showed that KPHS did not have complete records for the $705,388 in Social Security payments it received. As a result of our audit, KPHS learned a beneficiary improperly cashed three of his own beneficiary payments at a local liquor store.

Improper Completion of Rep Payee Reports - KPHS used estimated expenditure amounts to complete the RPRs. Because KPHS did not track individual expenditures, it could not provide an accurate report of beneficiary funds spent on food, housing, clothing, medical, dental, recreation or personal items during our audit period.

KPHS informed us it had established a Rep Payee accounting system and improved its internal controls. The accounting system was instituted after the period covered by our audit. Consequently, we did not test the accounting system. In addition, we have not independently assessed the effectiveness of the internal control improvements KPHS reports it has implemented.

Social Security regulations state that any benefits that are not needed for the beneficiaries' current needs must be conserved or invested. All investments must show that the Rep Payee holds the benefits in trust for the beneficiary. SSA prefers that excess funds be invested in U.S. savings bonds or deposited in an interest- or dividend-bearing account in a bank, trust company, credit union, or savings and loan association, which is insured unde either Federal or State law. SSA policy states that a Rep Payee may establish collective checking and savings accounts to hold monies belonging to several beneficiaries. However, to protect the beneficiaries' funds, the account title must show the funds belong to the beneficiaries and not the Rep Payee.

We found that KPHS had not established a separate bank account for the beneficiaries in its care. Instead, beneficiary funds were deposited into KPHS' operating account; therefore, the account was not properly titled to show the funds belonged to the beneficiaries. A properly titled account is important because, if the Rep Payee has financial problems and/or bankruptcy occurs, beneficiary funds may not be protected. During our audit, KPHS established a proper bank account for the Social Security beneficiaries in its care.

If a beneficiary's current and reasonably foreseeable needs are met, a Rep Payee may use the beneficiary's funds to satisfy a beneficiary's past debt. However, if the Rep Payee is also a creditor, the Rep Payee must obtain SSA approval before using benefits for self-reimbursement. In doing so, SSA must establish the debt's validity, determine whether the beneficiary's current and reasonably foreseeable needs are met, and determine whether some or all of the past debt may be paid. We found that KPHS reimbursed itself $40,401 in retroactive benefits for seven beneficiaries for prior debts without SSA's approval. In addition, KPHS did not provide any evidence that these funds were only used for the beneficiaries' benefit.

Federal regulations require that all Federal payments be made by electronic funds transfer, otherwise known as direct deposit. However, the requirement to receive payments by direct deposit can be waived if it would impose a hardship on the individual. SSA's Guide for Organizational Representative Payees encourages the Rep Payee to have benefit payments direct deposited in a bank account. Direct deposit is a more secure way of receiving payments and protects beneficiaries from the loss, theft, or delays associated with mailing paper checks. For a Rep Payee, direct deposit is an effective and efficient process that saves the time and effort of handling numerous benefit checks.

Given the internal control weaknesses we previously discussed with KPHS' handling of beneficiary receipts, we reviewed 39 beneficiary payments totaling about $54,000 to ensure they were properly deposited in a KPHS bank account. We found three SSA benefit checks were improperly endorsed and cashed at a liquor store by a beneficiary.
Although we did not determine whether theft occurred, these incidents demonstrate the vulnerability of physical checks to theft. If KPHS establishes direct deposit to the beneficiary bank account for these payments, risk of theft and loss will be minimized.

According to SSA policy, a beneficiary's mailing address should generally be the address where he/she resides. Any other address is questionable and is not acceptable if it facilitates an assignment of benefits, directs checks to a location where the beneficiary cannot readily negotiate them, or permits the beneficiary to conceal information that would result in nonpayment of benefits. SSA policy also states that, if the mailing address is that of a hospital, nursing home, rest home, etc., the beneficiary may need a Rep Payee.

During our audit, we identified seven beneficiaries who had their benefit checks sent directly to KPHS. None of the seven beneficiaries had a Rep Payee; therefore, all of the checks were made payable to the beneficiaries. However, we found that KPHS improperly endorsed and deposited into its own operating account at least 100 benefit checks, totaling approximately $47,000, without any of the beneficiaries' signatures. As a result, there is a risk that beneficiary funds were improperly assigned to KPHS or these beneficiaries may need a Rep Payee to manage their funds.

We informed KPHS of our findings and requested SSA to determine whether the beneficiaries were capable of managing their own funds. If SSA determines these beneficiaries were incapable of managing their own funds, KPHS, which was not the Rep Payee of record for these beneficiaries, was not subject to SSA oversight and accountability for the use of those benefit payments.

The Omnibus Budget Reconciliation Act of 1990 requires that SSA provide for specific identification and control of all Rep Payees and the beneficiaries they serve. As a result, SSA established RPS, an on-line system for entering and retrieving information about Rep Payees and those applying to be Rep Payees. RPS contains data about Rep Payee applicants, beneficiaries in the Rep Payee's care, and the relationship between the Rep Payee and the beneficiaries. In addition, SSA uses the RPS to select a sample of beneficiaries for review during its site visits of Rep Payees.

To determine the number of beneficiaries in KPHS' care, we compared KPHS records of beneficiaries to SSA's records of beneficiaries in RPS. As a result, we identified six beneficiaries for whom KPHS served as the Rep Payee that were not recorded in RPS. We provided SSA the names of the six beneficiaries so it could take corrective action to add them to RPS.

Conclusions and Recommendations