A-13-10-20125 - Alternate Format

OFFICE OF
THE INSPECTOR GENERAL

SOCIAL SECURITY ADMINISTRATION

The Social Security Administration’s
Oversight of Employer Representative Payees

May 2010

A-13-10-20125

CONGRESSIONAL RESPONSE
REPORT

May 28, 2010

The Honorable Jim McDermott
Chairman, Subcommittee on
Income Security and Family Support
Committee on Ways and Means
House of Representatives
Washington, D.C. 20515-6348

Dear Mr. McDermott:

In a January 14, 2010 letter, you asked that we provide information about the Social Security Administration’s (SSA) oversight of representative payees who also act as employers to the beneficiaries they serve. Specifically, we were requested to provide information regarding SSA’s

• actions to monitor Hill Country Farms, Incorporated, before the news of the beneficiaries’ living conditions became public;
• actions to monitor Hill Country Farms, Incorporated, after the news of the beneficiaries’ living conditions became public;
• procedures for selecting representative payees;
• measures to prevent a similar scenario from occurring;
• changes to its procedures in light of the Hill Country Farms, Incorporated, situation;
• contract with National Disability Rights Network and the work completed; and
• actions, if any, regarding the payees reviewed by National Disability Rights Network.

The attached report provides the information requested. My office is committed to combating fraud, waste, and abuse in SSA’s operations and programs. Thank you for bringing your concerns to my attention. To ensure SSA is aware of the information provided to your office, we are forwarding a copy of this report to the Agency.

If you have any questions concerning this matter, please call me or have your staff contact Misha Kelly, Congressional and Intra-governmental Liaison at (202) 358-6319.

Sincerely,

/s/

Patrick P. O’Carroll, Jr.
Inspector General

Enclosure

cc:
Michael J. Astrue

May 28, 2010

The Honorable Earl Pomeroy
Chairman, Subcommittee on Social Security
Committee on Ways and Means
House of Representatives
Washington, D.C. 20515-6348

Dear Mr. Pomeroy:

In a January 14, 2010 letter, members of Congress asked that we provide information about the Social Security Administration’s (SSA) oversight of representative payees who also act as employers to the beneficiaries they serve. Specifically, we were requested to provide information regarding SSA’s

If you have any questions concerning this matter, please call me or have your staff contact Misha Kelly, Congressional and Intra-governmental Liaison at (202) 358-6319.

Sincerely,

/s/

Patrick P. O’Carroll, Jr.
Inspector General

Enclosure

cc:
Michael J. Astrue

May 28, 2010

The Honorable John Linder
Ranking Member, Subcommittee on
Income Security and Family Support
Committee on Ways and Means
House of Representatives
Washington, D.C. 20515-6348

Dear Mr. Linder:

If you have any questions concerning this matter, please call me or have your staff contact Misha Kelly, Congressional and Intra-governmental Liaison at (202) 358-6319.

Sincerely,

/s/

Patrick P. O’Carroll, Jr.
Inspector General

Enclosure

cc:
Michael J. Astrue

May 28, 2010

The Honorable Sam Johnson
Ranking Member, Subcommittee on Social Security
Committee on Ways and Means
House of Representatives
Washington, D.C. 20515-6348

Dear Mr. Johnson:

If you have any questions concerning this matter, please call me or have your staff contact Misha Kelly, Congressional and Intra-governmental Liaison at (202) 358-6319.

Sincerely,

/s/

Patrick P. O’Carroll, Jr.
Inspector General

Enclosure

cc:
Michael J. Astrue

May 2010

Mission

By conducting independent and objective audits, evaluations and investigations, we inspire public confidence in the integrity and security of SSA’s programs and operations and protect them against fraud, waste and abuse. We provide timely, useful and reliable information and advice to Administration officials, Congress and the public.

Authority

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

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

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

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

Vision

We strive for continual improvement in SSA’s programs, operations and management by proactively seeking new ways to prevent and deter fraud, waste and abuse. We commit to integrity and excellence by supporting an environment that provides a valuable public service while encouraging employee development and retention and fostering diversity and innovation.

Background
OBJECTIVE

Our objective was to provide information regarding the Social Security Administration’s (SSA) oversight of representative payees who also act as employers for the beneficiaries they serve.

BACKGROUND

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

In a January 2010 letter, the Chairmen and Ranking Members of the House Subcommittees on Social Security and Income Security and Family Support, Committee on Ways and Means, wrote “…there were numerous media reports regarding SSA beneficiaries who worked for Henry’s Turkey Service. One article questioned whether the Texas-based Henry’s Turkey Service paid mentally disabled men a pittance to work for an Iowa meat processing plant and stated that the men were housed in deplorable conditions by the job broker. Since many of these men were Social Security beneficiaries, [the Subcommittee members] were concerned about whether SSA has appropriate monitoring in place to ensure other beneficiaries are not in the same situation.”

Members of the two Subcommittees requested information about SSA’s oversight of representative payees who also act as employers to the beneficiaries they serve. Information requested pertained to seven specific issues concerning SSA’s Representative Payment Program. See Appendix B for the scope and methodology of our review.

Results of Review
Issue 1: SSA’s Actions to Monitor Hill Country Farms, Incorporated (HCF), Prior to the News of the Beneficiaries’ Living Conditions Becoming Public

From 1979 to 2009, the Agency reported its monitoring as (a) working with the payee concerning “in-kind room and board,” and the physical location of beneficiaries; (b) providing information about Impairment-Related Work Expenses (IRWE); (c) discussing responsibilities and questions with the payee; and (d) receiving the annual payee accounting reports.

In December 1979, SSA staff provided HCF guidance regarding in-kind room and board as it related to wage payments. At that time, the Agency acknowledged workers (beneficiaries) lived, and were employed at, HCF in Goldthwaite, Texas, and other locations.

On February 16, 1984, the Agency reported it issued a “special determination” regarding the value of IRWE for beneficiaries working at HCF. The special determination described work performed, identified the level of work supervision, and provided a computation for determining IRWE amounts. In addition, there were memorandums approving the IRWE computation.

In April 1997, SSA staff met with HCF staff to explain reporting responsibilities of, and answer questions for, the representative payee. During this meeting, it was acknowledged (1) beneficiaries worked for $65 or less each month; (2) beneficiaries were moving between Goldthwaite, Texas, and Atalissa, Iowa; (3) a “flat fee” was charged for room and board at both locations; and (4) HCF would report moves of SSA beneficiaries to the Agency when the move involved 1 full calendar month or longer.

Lastly, SSA reported that HCF returned Representative Payee Reports (RPR) for its beneficiaries. Representative payees must annually complete and submit an RPR for each beneficiary served. The RPR is intended to assist SSA in determining the use of benefit payments during the preceding 12-month reporting period. SSA reported HCF completed and returned appropriate RPRs for its beneficiaries. Further, Agency staff stated their review of the RPRs did not indicate any problems with this payee.
SSA reported that, as of March 2010, HCF had not been subject to an on-site payee review. According to Agency staff, before June 2000, SSA limited its on-site monitoring to State mental institutions. The Social Security Protection Act of 2004 requires that SSA conduct periodic site reviews of certain types of representative payees. However, HCF did not meet the criteria for SSA’s triennial representative payee on-site review because it served fewer than 50 beneficiaries.

Issue 2: SSA’s Actions to Monitor HCF, Incorporated, After the News of the Beneficiaries’ Living Conditions Became Public

In February 2009, several news articles reported substandard living conditions for HCF beneficiaries working in Iowa. At that time, according to SSA, HCF was representative payee for 26 beneficiaries: 20 in Iowa and 6 in Texas. As of February 27, 2009, the Agency reported that new payees had been appointed for all 26 beneficiaries.

According to SSA, beginning in June 2009, actions were taken to recover beneficiaries’ conserved funds from HCF. On June 25, 2009, the Agency reported receiving conserved funds for 16 of the 26 beneficiaries. SSA requested the conserved funds for the remaining 10 beneficiaries. SSA received information on July 10, 2009, from the former payee about the funds; however, HCF had not returned conserved funds for the 10 remaining beneficiaries.

SSA submitted information pertaining to the 10 beneficiaries’ conserved funds to our Office of Investigations for review. After SSA’s referrals regarding the conserved funds, our Office of Investigations suspended its work because other law enforcement agencies were investigating HCF.

Issue 3: SSA’s Current Procedures for Selecting Representative Payees

According to Agency policy,

SSA's guiding principle in the decision of whether or not to certify payments through a representative payee is to ensure the physical, mental, and emotional well-being of the beneficiary in a manner which both preserves dignity and protects basic rights. A beneficiary who is incapable of managing or directing someone else to manage funds should be paid through a third party. This third party is called a representative payee or sometimes simply, a payee. The decision to appoint a representative payee is never made as a convenience or choice of the beneficiary or from a desire to protect a beneficiary, but rather it is a decision based on the beneficiary's capability.

Once it is decided a beneficiary needs a payee, Agency policy states “…all applicants must be carefully screened and considered before a selection is made to ensure that the beneficiary’s best interest is served.” Further, policy indicates Agency staff uses preference lists when selecting a payee for minor child and adult beneficiaries. Some of the applicants identified on the preference list include a parent or other relative with custody or someone who shows strong concern; a spouse or legal guardian; or a public or nonprofit agency or institution.

According to SSA policy, Agency staff also uses information obtained on the representative payee application to evaluate the applicant's qualifications and suitability to serve as payee. SSA is legally required to verify identity and Social Security number information supplied by payee applicants. Also, verifying other information, such as income and custody, may help determine an applicant’s suitability.

To assist in the payee selection process, Agency policy indicates SSA’s Representative Payee System (RPS) contains data about payees' past performance and criminal history. The Agency reported RPS contains some criminal history information for some payees. According to the Agency, RPS does not necessarily provide a complete criminal history for any person. The policy further states RPS “…helps the Agency fulfill its legal duty to investigate applicants” and “…make well informed payee selection decisions.” For example, RPS will facilitate verification of

• Social Security number and employer identification number;
• receipt of Social Security and Supplemental Security Income benefit payments; and
• whether the applicant has a history of criminal activity, poor payee performance, or misuse.

Due to the time constraints for this review, we did not confirm whether Agency staff complied with policy when making decisions on selecting new representative payees. Further, we did not confirm whether the selection of HCF as a payee complied with Agency policy.

Issue 4: SSA’s Measures to Prevent a Similar Scenario from Occurring

The Agency reported it took action to ensure other employer payees were not exploiting beneficiaries. SSA stated it identified 2,527 representative payees who employed beneficiaries. According to SSA staff, the Agency requested that State Protection and Advocacy (P&A) agencies review these employers and identify any potentially problematic payees. Agency staff indicated P&As receive grants from SSA to provide advocacy and other services disabled beneficiaries need to secure or regain gainful employment. Staff further explained the P&As are a source of information about employer payees; and SSA used information provided by the P&As and its own internal screening processes to select 328 payees for further review.

Emergency instructions were issued to SSA field offices, and the Agency reported its staff conducted special reviews of the selected payees. The Agency reported these special reviews required that staff visit working beneficiaries at their places of employment. The reviews also included visits to the beneficiaries’ residences if the payees also provided housing. The Agency affirmed all 328 reviews of employer payees were completed by October 2009. SSA reported these special reviews did not uncover any significant problems related to the employers’ performance as representative payees.

Our review of information recorded on SSA’s Representative Payee Monitoring Website indicated no significant problems were identified during the special reviews. However, we did not independently determine whether SSA staff followed policies and procedures when performing these reviews. We requested SSA provide information about actions taken to ensure its staff complied with policies and procedures when conducting these reviews. Based on the Agency’s April 26, 2010 response, we do not believe there is a quality review process in place to ensure compliance.

In a March 2010 report, we discussed the working and living conditions of Social Security beneficiaries served by payees who may have also been acting as employers or job placement/referral services. We conducted site visits to review working and/or living conditions of certain beneficiaries served by 48 payees. With one exception, we concluded the working and living conditions for the beneficiaries were adequate. We continue to believe such payee-beneficiary relationships should be subject to periodic special monitoring. Further, we reported, and SSA agreed, “…that payees who are employers or are providing job placement/referral services should continue to receive special oversight, especially when they act as landlords. This will provide added protection to our most vulnerable beneficiaries.”

In addition to these special reviews, the Agency contracted with the National Disability Rights Network (NDRN) to review 350 employer representative payees by the end of Fiscal Year 2010. The P&As—not the Agency—are scheduled to complete these 350 reviews this year.

Issue 5: SSA’s Changes to its Procedures in Light of HCF, Incorporated Situation

SSA reported it continues to monitor employer payees using its existing partnership with the P&As and NDRN. According to the Agency, the P&As are positioned to assist beneficiaries with issues outside SSA’s purview and expertise. When conducting the employer-payee reviews, SSA stated the P&As will follow procedures patterned on the emergency instructions issued for its special reviews. The Agency reported that results from the additional 350 employer-payee reviews will provide significant information to assist SSA in determining what additional changes, if any, are needed in its procedures.

An internal quality control process is important to ensure the employer-payee reviews conducted by the P&As follow appropriate procedures. Using an independent process to assess compliance will enable SSA to determine whether the reviews were conducted as intended. The Agency stated that a quality review process is in place. However, we have not verified that this process ensures the P&As complied with policies and procedures when conducting these reviews. Once the P&A reviews are completed, we plan to examine a sample of the reviews performed by both the Agency and the P&As. Our work will focus on determining whether the reviews complied with applicable policies and procedures.

Issue 6: SSA’s Contract with the NDRN and Work Completed to Date

SSA reported on September 30, 2009 it awarded a contract to NDRN for $2.1 million for base year services. According to the Agency, “Under the contract, NDRN trains and assists the P&As in their investigations and monitoring of representative payees. As part of the contract, NDRN will also reimburse the P&As for costs associated with reviewing the 350 employer-payees.” Further, SSA reported it sets policy for all representative payee activity, and NDRN uses this policy to oversee the efforts of the P&As in conducting employer-payee reviews.

The contract states the P&As are to complete employer-payee reviews, prepare summaries, and submit their findings electronically to NDRN. NDRN submits reports to SSA staff as reviews are completed. SSA regional office staff performs follow-up activities when reviews indicate inappropriate or illegal activities that are within SSA’s purview. If reviews identify concerns that pertain to other regulatory authorities, such as violations of the Fair Labor Standards Act (FLSA), the P&As will forward referrals to the appropriate Federal, State, or local agencies.

Of the 350 employer-payee reviews included in the contract, as of December 2009, SSA had identified 324 employer payees for review. However, in March 2010, the Agency reported it reduced the number of payees identified for review from 324 to 321. As of March 19, 2010, NDRN had completed 55 reviews. SSA indicated it will identify the remaining 29 payees for review in collaboration with NDRN and the P&As. The payees identified must be approved by NDRN and SSA before the review is authorized.

Issue 7: SSA’s Actions Regarding the Payees Reviewed by NDRN

Of the 55 employer-payee reviews completed as of March 2010, SSA stated that 53 representative payees “…execute and administer their responsibilities appropriately.” SSA indicated it received reports on two employer representative payees that identified possible misuse of funds and/or violations of the FLSA. Misuse of beneficiaries’ funds occurs when the payee neither uses benefits for the current and foreseeable needs of the beneficiary nor conserves remaining benefits for the future needs of the beneficiary. In addition, section 214(c) of the FLSA authorizes employers, after receiving a certificate from the Department of Labor (DoL), Wage and Hour Division, to pay special minimum wages to workers who have disabilities.

According to the Agency, one report identified significant problems, including possible misuse of benefits and possible violations of the FLSA. As of April 2010, SSA reported its staff was determining whether misuse had occurred. Furthermore, the P&As reported the employer payee possibly violated the FLSA by paying sub-minimum wages without a current certificate from DoL. SSA indicated this information was referred to DoL for further action in March 2010. Another report indicated possible violations of the FLSA occurred because the employer payee also possibly paid sub-minimum wages without a current certificate issued by DoL. The Agency reports this matter was also referred to DoL for further action in March 2010.

Conclusions
Between 1979 and 2009, before news reports surfaced about the beneficiaries’ living conditions, the Agency had contact with HCF regarding specific eligibility issues. However, the Agency reported HCF had not been subject to an on-site payee review.

In February 2009, several news articles reported substandard living conditions for HCF beneficiaries working in Iowa. The Agency reported that, as of February 27, 2009, new representative payees had been appointed for the beneficiaries. SSA received conserved funds for many, but not all, of the beneficiaries.

Since the HCF situation came to light, SSA has taken action to increase monitoring of payees who are also employers. In 2009, SSA reported its staff conducted special reviews of 328 employer payees. The Agency reported it did not detect significant problems related to performance of duties for these representative payees. Further, SSA has contracted with NDRN to review 350 additional employer payees.

We believe an internal quality control process is important to ensure the employer payee reviews conducted by SSA staff and P&As follow appropriate procedures. Once the P&A reviews are completed, we plan to examine a sample of the reviews performed by both the Agency and the P&As. Our work will focus on determining whether the reviews complied with applicable policies and procedures.

Appendices
APPENDIX A – Acronyms
APPENDIX B – Scope and Methodology

Appendix A
Acronyms

DoL Department of Labor
FLSA Fair Labor Standards Act
HCF Hill Country Farms, Incorporated
IRWE Impairment-Related Work Expenses
NDRN National Disability Rights Network
OIG Office of the Inspector General
P&A State Protection and Advocacy
POMS Program Operations Manual System
Pub. L. No. Public Law Number
RPR Representative Payee Report
RPS Representative Payee System
SSA Social Security Administration
U.S.C. United States Code

Appendix B
Scope and Methodology

We collected and reviewed information specific to the issues identified in the January 14, 2010 letter from the Chairmen and Ranking Members of the House Subcommittees on Social Security and Income Security and Family Support. The letter requested our assistance in determining whether the Social Security Administration (SSA) was performing adequate oversight of its representative payees.

To achieve our objective, we:

• Reviewed applicable Federal laws and regulations and SSA’s policies and procedures.

• Coordinated with SSA’s Office of Public Service and Operations Support to identify actions to monitor Hill Country Farms, Incorporated, (HCF) before and after news of the beneficiaries’ living conditions became public.

• Obtained information from our Office of Investigations regarding the actions taken by SSA to monitor HCF before and after the news of the beneficiaries’ living conditions became public.

• Coordinated with SSA’s Offices of Income Security Programs, Supplemental Security Income, and Representative Payee Policy for (1) current procedures for selecting representative payees; (2) measures to prevent a similar scenario from occurring; and (3) changes to Agency procedures in light of the HCF situation.

• Obtained information from SSA’s Office of Employment Support Programs, Office of Beneficiary Outreach and Employment Support, regarding the contract with the National Disability Rights Network, the work completed to date, and actions taken for the payees reviewed.

The entities reviewed were the Offices of the Deputy Commissioners for Operations and Retirement and Disability Policy. We performed our review in Baltimore, Maryland, in March and April 2010. We conducted our review in accordance with the Council of the Inspectors General on Integrity and Efficiency’s Quality Standards for Inspections.

DISTRIBUTION SCHEDULE

Commissioner of Social Security
Office of Management and Budget, Income Maintenance Branch
Chairman and Ranking Member, Committee on Ways and Means
Chief of Staff, Committee on Ways and Means
Chairman and Ranking Minority Member, Subcommittee on Social Security
Majority and Minority Staff Director, Subcommittee on Social Security
Chairman and Ranking Minority Member, Committee on the Budget, House of Representatives
Chairman and Ranking Minority Member, Committee on Oversight and Government Reform
Chairman and Ranking Minority Member, Committee on Appropriations, House of Representatives
Chairman and Ranking Minority, Subcommittee on Labor, Health and Human Services, Education and Related Agencies, Committee on Appropriations,
House of Representatives
Chairman and Ranking Minority Member, Committee on Appropriations, U.S. Senate
Chairman and Ranking Minority Member, Subcommittee on Labor, Health and Human Services, Education and Related Agencies, Committee on Appropriations, U.S. Senate
Chairman and Ranking Minority Member, Committee on Finance
Chairman and Ranking Minority Member, Subcommittee on Social Security Pensions and Family Policy
Chairman and Ranking Minority Member, Senate Special Committee on Aging
Social Security Advisory Board

Overview of the Office of the Inspector General
The Office of the Inspector General (OIG) is comprised of an Office of Audit (OA), Office of Investigations (OI), Office of the Counsel to the Inspector General (OCIG), Office of External Relations (OER), and Office of Technology and Resource Management (OTRM). To ensure compliance with policies and procedures, internal controls, and professional standards, the OIG also has a comprehensive Professional Responsibility and Quality Assurance program.
Office of Audit
OA conducts financial and performance audits of the Social Security Administration’s (SSA) programs and operations and makes recommendations to ensure program objectives are achieved effectively and efficiently. Financial audits assess whether SSA’s financial statements fairly present SSA’s financial position, results of operations, and cash flow. Performance audits review the economy, efficiency, and effectiveness of SSA’s programs and operations. OA also conducts short-term management reviews and program evaluations on issues of concern to SSA, Congress, and the general public.
Office of Investigations
OI conducts investigations related to fraud, waste, abuse, and mismanagement in SSA programs and operations. This includes wrongdoing by applicants, beneficiaries, contractors, third parties, or SSA employees performing their official duties. This office serves as liaison to the Department of Justice on all matters relating to the investigation of SSA programs and personnel. OI also conducts joint investigations with other Federal, State, and local law enforcement agencies.
Office of the Counsel to the Inspector General
OCIG provides independent legal advice and counsel to the IG on various matters, including statutes, regulations, legislation, and policy directives. OCIG also advises the IG on investigative procedures and techniques, as well as on legal implications and conclusions to be drawn from audit and investigative material. Also, OCIG administers the Civil Monetary Penalty program.
Office of External Relations
OER manages OIG’s external and public affairs programs, and serves as the principal advisor on news releases and in providing information to the various news reporting services. OER develops OIG’s media and public information policies, directs OIG’s external and public affairs programs, and serves as the primary contact for those seeking information about OIG. OER prepares OIG publications, speeches, and presentations to internal and external organizations, and responds to Congressional correspondence.
Office of Technology and Resource Management
OTRM supports OIG by providing information management and systems security. OTRM also coordinates OIG’s budget, procurement, telecommunications, facilities, and human resources. In addition, OTRM is the focal point for OIG’s strategic planning function, and the development and monitoring of performance measures. In addition, OTRM receives and assigns for action allegations of criminal and administrative violations of Social Security laws, identifies fugitives receiving benefit payments from SSA, and provides technological assistance to investigations.