A-15-10-21085 - Alternate Format

MEMORANDUM

Date: September 1, 2010 Refer To:

To: The Commissioner

From: Inspector General

Subject: The Social Security Administration’s Use of Limitation on Administrative Expenses Funds (A-15-10-21085)

The attached final quick response evaluation presents the results of our review. Our objective was to review aspects of the Social Security Administration’s use of its available administrative funds.

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.

/s/

Patrick P. O’Carroll, Jr.

Attachment

QUICK RESPONSE
EVALUATION

The Social Security Administration’s
Use of Limitation on
Administrative Expenses Funds

A-15-10-21085

September 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

The objective of this evaluation was to review aspects of the Social Security Administration’s (SSA) use of its available administrative funds.

BACKGROUND

Each year, SSA prepares a budget justification to request administrative funds to process growing workloads, reduce backlogs, support and maintain staff, and meet customer service expectations. The Fiscal Year (FY) 2010 justification added that the recent economic downturn had created an unprecedented rise in initial claims receipts and exacerbated the challenges the Agency was already facing (for example, hearings backlog and improper payments). While the congressionally approved FY 2009 Omnibus Appropriations Act and the American Recovery and Reinvestment Act of 2009 provided additional resources to target the Agency’s growing workloads, SSA continues to assert more resources are needed to improve service to the public.

Congress authorizes an annual appropriation for the administrative costs SSA incurs in fulfilling the terms of the Social Security Act. These funds are appropriated under the Limitation on Administrative Expenses (LAE) account. The LAE appropriation language provides SSA with the funds needed to administer the Old-Age and Survivors Insurance, Disability Insurance (DI), and Supplemental Security Income (SSI) programs and support the Centers for Medicare and Medicaid Services in administering its programs. The functions SSA performs include issuing Social Security numbers, maintaining lifetime earnings records, processing initial claims for cash benefits, processing post-entitlement actions, and adjudicating hearings and appeals cases.

Public Law surrounding the Agency’s annual administrative expenses appropriation provides that “… unobligated balances of funds provided at the end of each fiscal year not needed for the current fiscal year shall remain available until expended to invest in the Social Security Administration information technology and telecommunications hardware and software infrastructure.” This provision allows for the transfer of millions of dollars from the current FY annual LAE appropriation to the no-year appropriated Information Technology Systems (ITS) funds for non-payroll automation and telecommunications investment costs (see Table 1).

SSA faces challenges in closing the gap between limited resources and increasing workloads. According to SSA’s Fiscal Year 2009 Justification of Estimates for Appropriations Committees, limited resources, new responsibilities, and increased workloads are threatening the Agency’s reputation for protecting the integrity of the Social Security programs and will ultimately have a dramatic effect on millions of Americans in terms of service. The unprecedented growth in SSA workloads makes it necessary that SSA effectively utilize technology. However, while enhanced automation is critical to SSA achieving its long-term goals, program integrity workloads help ensure program dollars are being spent wisely and according to the intent of the law.

Program integrity workloads include continuing disability reviews and SSI non-disability redeterminations. SSA’s program integrity workloads improve accuracy of benefit programs, protect the integrity of the Trust Funds, and ensure taxpayer money is properly used. These program integrity efforts ensure that individuals receiving benefits continue to be eligible and are being paid the correct amount.

In addition to program integrity workloads, investing in additional funds to process initial disability claims should help to reduce the disability backlog.

Results of Review
To perform our review, we obtained data on the administrative funds SSA had available in the LAE account. We found that SSA transferred $528 million of its annual unobligated LAE funds to LAE ITS no-year funds from FYs 2004 through 2008 and invested $2,845 million in ITS projects and infrastructure during the same period (see Table 1 and Appendix C).

Table 1
LAE ITS Transfers and Remaining Funds
After Assumed $25 Million Used to Process Workloads
($ in millions)

FY Annual LAE Balance Available When the FY Ended
Actual Amount Transferred to ITS from Annual LAE (As of 9/30/2009)
Remaining Amount Available for Transfer
(As of 9/30/2009)
Total Amount Available for LAE ITS Transfer (As of 9/30/2009)
Assume $25 Million Used for Workloads Each Year
Minimum Amount Still Available to Transfer to ITS Assuming $25 Million Used for Workloads
2004 $91 $136 $5 $141 $(25) $116
2005 $176 $236 $43 $279 $(25) $254
2006 $93 $96 $51 $147 $(25) $122
2007 $119 $60 $85 $145 $(25) $120
2008 $119 $0 $130 $130 $(25) $105
Total $598 $528 $314 $842 $(125) $717
Based on our review of SSA’s transfer of unobligated annual funds, investment in ITS, and available administrative funds for SSA workloads and ITS investments, the Agency had the opportunity to use more of its annual LAE funds to reduce the disability backlog and invest in program integrity workloads and thereby reduce the amounts of transferred unobligated balances.

TRANSFERS OF UNOBLIGATED ANNUAL FUNDS

SSA’s budget for ITS costs includes both annual and no-year funds. The annual funds are apportioned by OMB as part of the enacted annual appropriation. The no-year funds are apportioned by OMB each year and include the carryover of the unobligated no-year balance at the end of the previous FY, recoveries of prior-year obligations realized in the current FY, and transfers of unobligated balances from the five previous LAE annual appropriations. For example, in FY 2009, transfers could be made from FYs 2004 through 2008. Federal appropriations law allows an appropriation account to remain open for 5 years allowing for late adjustments and payments. At the end of the 5-year period, the account is closed and the funding is no longer available, including transfers to ITS.

The language included in the annual LAE appropriation does not automatically authorize the transfer of funds to ITS. Per the Agency,

We must justify our plans for doing so with the Office of Management and Budget (OMB), and we may only transfer and spend money to the extent that OMB has given us its formal approval through the apportionment process. OMB makes its decisions after examining our entire ITS budget and reviewing our submissions of the Agency’s IT Investment Portfolio (Exhibit 53s – required by OMB Circular No. A-11), and the Capital Asset Plan and Business Case Summary (Exhibit 300 – also required by OMB No. A-11). Transfer authority does not increase the ITS budget. To the contrary, it decreases the amount of current year funding we need to implement the approved budget plan. We explicitly depend on both transfer authority and current year IT funding to maintain our operating capabilities and to invest in the future.

Prior year LAE funds are available for transfer only to the extent they were not obligated in the FY and will not be needed to cover legitimate upward adjustments to contracts or other spending actions chargeable to that year. The amounts transferred to the no-year LAE account are on an ‘as needed’ basis to provide the approved level of funding for SSA’s information technology (IT) efforts. The transfers are made late in the current FY and the funds are intended to be carried over to the next FY. For example, the $170 million transferred into FY 2009 was not used in FY 2009 but became part of the funds carried over into FY 2010.

Table 2 illustrates the total amount of funds that was transferred from the LAE annual appropriation to the LAE ITS no-year appropriation in FYs 2005 through 2009.

Table 2:
ITS Transfers by Fiscal Year
($ in millions)
Annual Appropriation Transferred from Funds Transferred to No-Year Appropriation
FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 Total
FY 2004 $41 $10 $25 $20 $40 $136
FY 2005 $102 $96 $28 $10 $236
FY 2006 $36 $60 $96
FY 2007 $60 $60
FY 2008
Total $41 $112 $121 $84 $170 $528

SSA’s INVESTMENT IN ITS

The Agency uses the current year ITS annual appropriation and LAE ITS transfers to support its IT operations. Annual appropriated ITS funds are obligated before ITS no-year funds are used for ITS efforts. LAE ITS resources are used either to invest in infrastructure improvements or for current and future projects. The Agency uses between 75 and 80 percent of its ITS resources for infrastructure investments. SSA’s IT infrastructure improvements modernize the technological foundation for service delivery in the 21st century to provide a stable, secure system with continuous availability. IT project improvements are intended to result in improved productivity and business processes.

IT investment management focuses on selecting, managing, and evaluating investments that minimize risks while maximizing the return on investment. However, resources used for ITS have not always provided a proven positive return on investment to the Agency. Furthermore, the Agency has been unable to demonstrate that ITS investments achieve their intended results and address the Agency’s strategic goals, objectives, and mission, despite the continued significant ITS investment. For example, from FYs 2004 through 2008, SSA had $2,913 million available for IT investment and, of that amount, $2,845 million was obligated for ITS investment. Both SSA’s Office of the Inspector General (OIG) and Government Accountability Office (GAO) reports have revealed that SSA could improve on investment management, which includes the selection process and post-implementation review of IT projects. Specifically, GAO stated that, “. . . until it establishes oversight of all investments and fully defines policies and procedures, SSA risks not being able to select and control these investments consistently and completely, thus increasing the chance that investment will not meet mission needs in the most cost-effective and efficient manner.” SSA’s improvement of investment management will result in a more cost-effective and efficient use of LAE resources.

During our review, we asked SSA to provide examples of ITS projects that met or did not meet their intended return on investment targets as well as achieved the Agency’s goals. While SSA provided examples of ITS Investments that either met or did not meet their intended results, they were unable to show the return on investment where actual and expected results were compared. For example, the Agency provided the Telephone Systems Replacement Project (TSRP) as an investment that met the intended results. TSRP will replace the existing digital telephone switching system(s) infrastructure with voice/data telephone equipment/switching systems. TSRP provides an opportunity to converge the two independent networks (data/voice) and concurrently decrease telephone infrastructure maintenance and operations. Since its initiation, the Agency has spent $133 million on TSRP but was unable to show there was a financial return on investment with a comparison of the actual and expected results. Additionally, SSA provided examples of two ITS investments that were terminated because they did not meet the intended results, namely the Time Allocation System (TAS) and ePulling. Table 3 provides information about the two terminated SSA ITS projects and the amount of resources used during the life span of the projects.

Table 3:
Examples of Terminated ITS Projects

Name of Project

Description

Reason for Termination Resources Spent on ITS Investment
($ in millions)
TAS TAS was proposed as a replacement for District Office Work Sampling (DOWS), the current time measurement system for field offices and teleservice centers. DOWS uses sampling counts for each workload category and is regarded as statistically valid at the end of a FY. TAS uses a set of business rules to determine the amount of time spent on each workload. Information is available by person and day and is based on the computer screens, or combination of screens, that are accessed. The Office of Quality Performance (OQP) completed a TAS Time Study. The physical regional observations took place on March 2 and 3, 2009. OQP completed its analysis of the Time Study and presented the results to the Associate Commissioners on July 10, 2009 and the Deputy Commissioners on August 13, 2009. The Deputy Commissioners decided that, at that time, the Agency would not move forward to use the TAS for budget formulation and execution purposes. $35.1 Million
ePulling ePulling was an Office of Disability Adjudication and Review initiative and was expected to increase the efficiency of the electronic folder preparation process and reduce the time it takes to prepare a case for hearing. ePulling increased the case preparation time and was discontinued in August 2009. $4.6 Million

The ITS budget is managed by the Office of the Chief Information Officer (OCIO). The OCIO provides advice to the Commissioner and Deputy Commissioner of SSA to ensure IT is acquired and information resources are managed in compliance with the Clinger-Cohen Act. The OCIO also makes final IT budget recommendations to the Commissioner. The Deputy Commissioner for Systems is responsible for monitoring all development and operations projects included in the Agency IT plan. In prior years, the OCIO served as chairman of the SSA Information Technology Advisory Board, which was responsible for IT investment management. During this time, OCIO conducted only limited post-implementation reviews and did not have a process in place to define how post-implementation reviews should be carried out. The Agency’s investment board has been restructured to include OCIO oversight of both the IT acquisition budget and the IT administrative budget under a newly formed investment board called the Strategic IT Assessment and Review (SITAR) Board. The SITAR will be responsible for investment management reporting, cost-benefit analysis guidance and support, and IT performance measurement and post-implementation reviews. The new governing process of the SITAR reflects the OCIO’s desire to better align SSA’s technology investments with the agency’s strategic priorities.

SSA’s AVAILABLE ADMINISTRATIVE FUNDS FOR WORKLOADS AND ITS INVESTMENTS

According to SSA’s FY 2010 Annual Performance Plan, the Agency has a commitment to reduce the disability backlog, improve the quality of the disability process, improve service, and preserve the public’s trust in SSA’s programs. The Annual Performance Plan indicates that to maintain this commitment, additional resources are needed to fund the Agency’s workload.

Early in the budget process, the Agency has the opportunity to make different decisions to ensure administrative funds are available to provide the most cost-effective use of resources for the Agency’s growing workload, rather than transfer funds to the no-year LAE ITS appropriation at the end of the FY. In the last 10 years, SSA has left approximately 1.5 percent of the annual LAE appropriation unobligated at the end of each FY, and approximately 1.7 percent unobligated in the last 29 years (see Appendix D for percentages). Before the Social Security Online Accounting and Reporting System (SSOARS), the Agency had lapsed as low as 0.3 percent in FY 1989 and 0.7 percent in FY 1992 of the annual LAE appropriation. Since SSOARS went into production in FY 2004, SSA has lapsed at least 1 percent per year.

To illustrate, SSA can use $25 million of the current FY annual unobligated LAE funds to improve the integrity and/or service levels of the Agency. For FYs 2004 through 2008, substantial unobligated funds would still have remained to be transferred to ITS (see Table 1 for illustration of $25 million being applied to workloads). Table 4 presents examples of SSA workloads that can benefit from the use of unobligated LAE funds, to protect the integrity of the Social Security programs, improve service, and reduce its disability backlog.

Table 4:
Illustrations of Workloads That Could Benefit from the Use of Unobligated LAE Funds

Workload Description of Workload Cost Associated with Workload Benefit of Using Administrative Funds Toward Workload
Program Integrity Workloads – Continuing Disability Reviews (CDR) CDRs are periodic reevaluations to determine whether disability beneficiaries are still disabled. CDRs review medical eligibility factors for DI and SSI disability beneficiaries. SSA estimates each full medical CDR costs $1,000. Recent SSA estimates indicate that CDRs yield roughly $12 in lifetime program savings for every dollar spent. Therefore, if the $25 million of unobligated administrative funds had been used toward the CDR workload in a year, approximately 25,000 CDRs could have been completed and provide a potential lifetime benefit savings of up to $300 million. Therefore, up to $1.5 billion lifetime benefit savings could result if SSA performs 25,000 CDRs each year over a 5-year period.
Program Integrity Workloads – Redeterminations Redeterminations ensure that SSI recipients are receiving the correct payment amount based on non-medical factors of eligibility. For 2009, Cost Per Redetermination is approximately $142. SSA estimates that SSI redeterminations yield $8 in lifetime program savings for every $1 spent. Therefore, if the $25 million of unobligated administrative funds had been used toward the redetermination workload in a year, the Agency could have achieved a potential lifetime benefit savings of up to $200 million. Therefore, up to $1 billion in lifetime benefit savings could result if SSA uses $25 million for redeterminations each year over a 5-year period.
Table 4:
Illustrations of Workloads That Could Benefit from the Use of Unobligated LAE Funds

Workload Description of Workload Cost Associated with Workload Benefit of Using Administrative Funds Toward Workload
Disability Workload (DI and SSI) According to SSA, disability workloads have grown significantly over the past 5 years and will continue to increase substantially because of the current economic conditions and baby boomers reaching their disability-prone years. According to SSA, the overall cost per case to process initial disability claims in the disability determination services (DDS) would be $511. If the $25 million of unobligated administrative funds was used to process disability workloads, the Agency could have potentially processed approximately 49,000 additional disability cases per year. A rough estimate of the additional initial claims that could be processed over a 5-year period is 245,000. This would essentially assist the Agency in reducing the disability backlog.

FISCAL YEAR 2010 LAE TRANSFERS

Prior to the issuance of our final report, SSA informed the OIG that $280 million was transferred in August 2010 from unobligated prior-year 1-year LAE accounts to the ITS no-year account. The transferred LAE funds represent unobligated balances in FYs 2005 through 2009. The Agency provided documentation to support this transfer; however, we did not validate this information.

Matters for Consideration
Each year, the Agency transfers unobligated administrative funds to the ITS no-year account. There is no documentation of the return on investment of the amounts transferred to the ITS no-year account. In any of those years, the Agency could have obligated additional funds to complete more CDRs and/or redeterminations, thereby generating tangible program savings. Alternatively, the Agency could use the funds to process additional disability workloads. Given the increased workload demands facing the Agency, careful consideration should be given to using unobligated funds for these program integrity and disability service activities.

We recognize that the Agency is pursuing IT projects that are intended to increase productivity. We support the transfer of LAE funds as long as the return on investment of the transfer is equal to benefits that are achieved for existing workloads that have had a high rate of return. Therefore the Agency should have a process in place that ensures the amount available to transfer to ITS is the absolute minimum with a goal to process workloads that have a proven positive return on investment.

AGENCY COMMENTS

The Agency provided comments to the OIG on this report (see Appendix E). We have responded to the Agency’s comments and made changes to the report as appropriate. The OIG’s response is in Appendix F.

Appendices
APPENDIX A – Acronyms
APPENDIX B – Scope and Methodology
APPENDIX C – Information Technology Systems Commitments and Obligations
APPENDIX D – Unobligated Balances at Year-End
APPENDIX E – Agency Comments
APPENDIX F – OIG Response to Agency Comments
APPENDIX G – OIG Contacts and Staff Acknowledgments

Appendix A
Acronyms

CDR Continuing Disability Review
DDS Disability Determination Services
DI Disability Insurance
DOWS District Office Work Sampling
FY Fiscal Year
GAO Government Accountability Office
IT Information Technology
ITS Information Technology Systems
LAE Limitation on Administrative Expenses
OCIO Office of the Chief Information Officer
OIG Office of the Inspector General
OMB Office of Management and Budget
OQP Office of Quality Performance
Pub. L. No. Public Law Number
SITAR Strategic IT Assessment and Review
SSA Social Security Administration
SSI Supplemental Security Income
SSOARS Social Security Online Accounting and Reporting System
TAS Time Allocation System
TSRP Telephone Systems Replacement Project
U.S.C. United States Code

Appendix B
Scope and Methodology
To complete the objectives of our review, we:

• Reviewed applicable laws, audit reports, and pertinent parts of the Social Security Administration (SSA) Accounting Manual related to Limitation on Administrative Expenses (LAE).

• Reviewed SSA’s annual continuing disability review (CDR) Reports to Congress and Office of Quality Performance Website information to obtain the
o savings-to-cost ratio of CDRs and
o cost to perform a CDR.

• Reviewed SSA’s annual Performance and Accountability Report to obtain the
o savings-to-cost ratio of CDRs and
o savings-to-cost ratio of redeterminations.

• Interviewed personnel from SSA’s Office of Finance to obtain
o LAE’s unobligated funds;
o LAE’s obligated funds; and
o LAE ITS transfers, including carryovers and recoveries.

• Interviewed personnel from SSA’s Offices of the Deputy Commissioner for Systems and Chief Information Officer to obtain
o role in the LAE Information Technology Systems (ITS) budget process;
o role in the Information Technology Advisory Board; and
o examples of ITS investments.

• Interviewed personnel from SSA’s Office of Budget to obtain the ITS budget process.

• Calculated cost and savings of additional funds put toward the LAE administrative workload.

The entity reviewed was SSA’s Office of Budget. Our work was conducted at SSA Headquarters in Baltimore, Maryland, from November 2009 through April 2010. We determined that the data used in this report were sufficiently reliable given the review objective and their intended use. We conducted our review in accordance with the Council of the Inspectors General on Integrity and Efficiency’s Quality Standards for Inspections.

Appendix C
Information Technology Systems Commitments and Obligations

For Fiscal Years 2004 through 2008, the Social Security Administration had a total of $2,913 million available for information technology investment; however, of that amount, $2,845 million was obligated for Information Technology Systems (ITS) investment. The table below depicts the obligated funds for ITS investment projects during Fiscal Years 2004 through 2008.

ITS Commitments/Obligations (as of Fiscal Year End)
($ in millions)
2004 2005 2006 2007 2008 Totals
ITS Current Fiscal Year Annual Appropriation $410 $453 $458 $481 $535 $2,337
ITS No-Year Appropriation $11 $137 $76 $148 $136 $508
Totals $421 $590 $534 $629 $671 $2,845

Appendix D
Unobligated Balances at Year-End
The unobligated balance remaining at year-end represents the amount of LAE annual funds that have not been spent. The unobligated (or lapsed) funds are either transferred to ITS or remain in the annual appropriation account until it is closed.

Table 1: Lapse Percentage of LAE Appropriation by Fiscal Year (FY)

FY Annual Appropriation Received Unobligated Balance, Available
(as of Year End) Unobligated Balance as a Percentage of Appropriation
(Lapse Percent) Obligated Balance as a Percentage of the Annual Appropriation
1980 $2,354,100,000.00 $28,801,000.00 1.2% 98.8%
1981 $2,763,550,000.00 $51,459,751.00 1.9% 98.1%
1982 $2,982,973,000.00 $54,763,329.00 1.8% 98.2%
1983 $3,408,451,000.00 $106,544,000.00 3.1% 96.9%
1984 $3,423,861,000.00 $89,644,433.00 2.6% 97.4%
1985 $3,787,515,000.00 $167,226,000.00 4.4% 95.6%
1986 $3,809,547,000.00 $49,099,704.00 1.3% 98.7%
1987 $3,614,602,000.00 $79,071,705.00 2.2% 97.8%
1988 $3,584,114,000.00 $16,908,415.00 0.5% 99.5%
1989 $3,554,457,440.00 $10,775,963.00 0.3% 99.7%
1990 $3,837,389,000.00 $23,146,719.00 0.6% 99.4%
1991 $4,157,309,000.00 $89,570,284.00 2.2% 97.8%
1992 $4,550,450,000.00 $31,589,749.00 0.7% 99.3%
1993 $4,813,100,584.00 $44,241,429.00 0.9% 99.1%
1994 $5,194,285,000.00 $57,434,420.00 1.1% 98.9%
1995 $5,404,037,756.00 $70,460,796.00 1.3% 98.7%
1996 $5,647,074,000.00 $113,537,310.00 2.0% 98.0%
1997 $5,872,737,000.00 $205,083,109.00 3.5% 96.5%
1998 $5,894,040,000.00 $105,480,180.00 1.8% 98.2%
1999 $5,988,019,000.00 $147,590,093.00 2.5% 97.5%
2000 $6,111,871,000.00 $145,640,316.32 2.4% 97.6%
2001 $6,583,000,000.00 $97,203,519.30 1.5% 98.5%
2002 $7,092,334,796.00 $67,158,444.26 0.9% 99.1%
2003 $7,846,011,791.00 $62,346,620.87 0.8% 99.2%
2004 $8,268,571,956.00 $90,741,455.51 1.1% 98.9%
2005 $8,681,040,136.00 $175,776,355.96 2.0% 98.0%
2006 $9,055,821,000.00 $92,804,969.01 1.0% 99.0%
2007 $9,241,228,811.00 $118,572,872.63 1.3% 98.7%
2008 $9,712,645,935.00 $118,666,885.76 1.2% 98.8%
We determined the average percentage of unobligated and obligated balances at year end over 5, 10, and 29 years. The calculation is as follows:
Table 2: Average Percentage of Unobligated and Obligated Annual LAE Funds

Description Unobligated Balance as a Percentage of Appropriation
(Lapse Percent) Obligated Balance as a Percentage of the Annual Appropriation
Average Percentage Over 29 Years (1980 - 2008) 1.7% 98.3%
Average Percentage Over 10 Years (1999 - 2008) 1.5% 98.5%
Average Percentage Over 5 Years (2004 - 2008) 1.3% 98.7%

Appendix E
Agency Comments

From: Hall, Stephanie
Sent: Wednesday, July 28, 2010 1:41 PM
To: Schaeffer, Steve
Subject: OIG Draft Quick Response Evaluation: SSA's Use of Limitation on Administrative Expenses Funds - Audit #22010063

Note to Steve Schaeffer

Steve,

Thank you for the opportunity to review the draft quick response evaluation report on this subject. We have attached our comments on the report.

If your staff have any questions, please contact Candace Skurnik on extension 54636.

Stephanie Hall
Assistant Deputy Commissioner
for Budget, Finance and Management

COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL (OIG) DRAFT “QUICK RESPONSE EVALUATION: SOCIAL SECURITY ADMINISTRATION’S USE OF LIMITATION ON ADMINISTRATIVE EXPENSES FUNDS” (A-15-10-21085)

Thank you for the opportunity to review the subject report. We offer the following comments.

General Comments

On page 1 you state: “The objective of this evaluation was to review aspects of the Social Security Administration’s (SSA) use of its available administrative funds.”

This is a rather broad objective, but you present essentially two major themes in the report concerning the way we spend our Limitation on Administrative Expenses (LAE) dollars. First, you suggest that we could have used LAE funding more effectively by financing additional workloads and doing more program integrity work – i.e., continuing disability reviews (CDR) and disability redeterminations. Second, you state that where we have spent LAE dollars on Information Technology Systems’ (ITS) projects, those projects have not always yielded positive returns on investments and that we must improve oversight of our investments. We address your two major points below.

Effective Use of LAE Funding

You state on page 2 of the report:

“Public Law surrounding the Agency’s annual administrative expenses appropriation provides that … unobligated balances of funds provided at the end of each fiscal year not needed for the current fiscal year shall remain available until expended to invest in the Social Security Administration information technology and telecommunications hardware and software infrastructure. This provision allows for the transfer of millions of dollars from the current FY annual LAE appropriation to the no-year appropriated Information Technology System (ITS) funds for non-payroll automation and telecommunications investment costs.”

Comment

This language has been included in our annual LAE appropriation for several years, but it does not automatically authorize us to transfer funds to ITS, nor to spend those funds. We must justify our plans for doing so with the Office of Management and Budget (OMB), and we may only transfer and spend money to the extent that OMB has given us its formal approval through the apportionment process. OMB makes its decisions after examining our entire ITS budget and reviewing our submissions of the Agency’s IT Investment Portfolio (Exhibit 53s – required by OMB Circular No. A-11), and the Capital Asset Plan and Business Case Summary
(Exhibit 300 – also required by OMB No. A-11).

Transfer authority does not increase the ITS budget. To the contrary, it decreases the amount of current year funding we need to implement the approved budget plan. We explicitly depend on both transfer authority and current year IT funding to maintain our operating capabilities and to invest in the future. Recent investments such as iClaim and the Retirement Estimator are examples where we successfully implemented new processes that paved the way for enhancing our internet presence, improving service to the public, and conserving field office resources.

Page 3, 2nd paragraph reads:

“Based on our review of SSA’s transfer of unobligated annual funds, investment in ITS, and available administrative funds for SSA workloads and ITS investments, the Agency had the opportunity to use more of its annual LAE funds to reduce the disability backlog and invest in program integrity workloads and thereby reduce the amounts of transferred unobligated balances.”

Comment

Above this paragraph in “Table 1,” you illustrate how we could have used $25 million more in each of five prior fiscal years to process additional disability and program integrity workloads. Your example is completely arbitrary. We have focused intently on disability workloads and honored our commitment to Congress and the American public to make disability processing a top priority. This year alone we reassessed our LAE resources and approved the hiring of 900 new employees, virtually all for front-line positions in field offices. We targeted many of these additional resources to our most stressed offices.

Throughout the report and in the “Matters for Consideration,” you make statements such as “the Agency could have obligated additional funds” during a current year and processed more disability and program integrity workloads. We disagree with your after the fact oversimplification of the appropriation process. We have never intentionally lapsed funding for the purpose of eventually transferring money to ITS. Each year, we obligate about 99 percent of our LAE appropriation. Given the inevitability of legitimate increases to prior year obligations, it is neither a sound nor common fiduciary practice to obligate an entire current fiscal year appropriation. You, yourself, exercise the same sound practice of allowing approximately
1 percent of OIG appropriated funds to lapse each year.

There are many challenges to effectively utilizing LAE funds, and routinely, prolonged continuing resolutions (CR) contribute to those challenges. We consistently operate under a CR at the beginning of each year and often do not receive an appropriation until more than one-fourth of a fiscal year has elapsed. This necessarily drives the date of funds availability into later quarters. Nevertheless, when we finally receive our appropriations, we allocate nearly all annual LAE funds to components based on their estimated needs. In addition, we review, re-evaluate, and if needed, reallocate funds a minimum of three times a year. We compare hiring to component plans, re-price payroll costs, and re-evaluate other objects expenditures during this process.

To maximize our use of funding, we recently developed a Current Year Spending Report that reflects spending rates for payroll, other objects, and staffing. We analyze the data, investigate
trends, and reallocate funds where necessary. In conjunction with this, local managers and analysts regularly monitor workload reports to make sure we are on track to meet or exceed budgeted workload goals; this includes work processed, work pending, productivity, and processing time targets. Workload performance goals include targeted funding for our program integrity workloads. Our Office of Budget meets monthly with components and shares information on the status of current and future fiscal year budgets.

Each year, we redistribute funds amongst components based on emerging programmatic priorities. At the same time we consider the longer-term impact of funding commitments for subsequent fiscal years. Your $25 million per year example fails to consider our actual experience in planning and executing our budget and, therefore, your example does not improve our budget process. For example, you do not consider the long-term implications of hiring additional staff to handle disability cases and program integrity workloads; hiring that might result in exponentially greater costs for the yet-to-be determined budgets in the future. In addition, you do not take into account that we have a limited amount of physical space, and we may not be able to house more staff in our field offices.

Page 3 – Table 1

Comment

You should make it clear that once a fiscal year has ended, single year appropriated funds may not be used to finance future years’ activity. As discussed, the Congress expressly provided that, with OMB approval, unused funds transfer to a “no-year” ITS account. We cannot use these funds for any other purpose. Throughout the report, you discuss how we might have used prior year funds to process workloads. A reader may infer from your words that today, we could use prior year funds for that purpose. We cannot as appropriation law forbids it. We suggest you include an explanation that once a year has closed, funds appropriated in that year are no longer available for new spending. This relates specifically to Table 1 on page 3 (shown below)

Table 1
LAE ITS Transfers and Remaining Funds
After Assumed $25 Million Used to Process Workloads
($ in millions)

(FY)
Actual Amount Transferred to ITS from Annual LAE (As of 9/30/2009) Remaining Amount Available for Transfer
(As of 9/30/2009
Total Amount Available for LAE ITS Transfer
Assume $25 Million Used for Workloads Each Year Minimum Amount Still Available to Transfer to ITS Assuming $25 Million Used for Workloads
2004 $136 $5 $141 $(25) $116
2005 $236 $43 $279 $(25) $254
2006 $96 $51 $147 $(25) $122
2007 $60 $85 $145 $(25) $120
2008 $0 $130 $130 $(25) $105
Total $528 $314 $842 $(125) $717

This presentation is misleading. It gives the reader an impression that amounts reflected in the fourth column of the report were available for spending during each of the related fiscal years. This was not the case. For example, FY 2004 shows $141 million available for transfer. While it is technically accurate that $141 million was ultimately available for transfer, that full amount was not available on the last day of FY 2004. In fact, at September 30, 2004, only $91 million went unspent, and at that point in time only $91 million at a maximum was considered available for that fiscal year. The additional $50 million in recoveries did not accrue until after the close of FY 2004. For example, reimbursable work authorizations to the General Service Administration may be subsequently cancelled.

By law, after the close of the fiscal year, we cannot spend our annual appropriations. Specifically, after September 30, 2004, neither that $50 million nor the $91 million could ever be used to finance workloads. The total $141 million was available only for transfer to the ITS account with OMB approval.

The following exhibits the amounts available at the close of each fiscal year. We contrast those balances with the numbers presented in your Table 1

($ in Millions)
FY Balance Available When the FY Ended Total Balance Available (Table 1) Difference
2004 $91 $141 $50
2005 $176 $279 $103
2006 $93 $147 $54
2007 $119 $145 $26
2008 $119 $130 $11
Total $598 $842 $244

Additional Comment:

We recognize that significant dollars remained available at the end of each fiscal. But as a percentage of our overall budget, the numbers are small. As the table below shows, we typically lapse just over one percent of our total LAE appropriation.

($ in Millions)
FY Appropriation Lapsed % Lapsed
2004 $ 8,270 $ 91 1.10%
2005 $ 8,730 $176 2.02%
2006 $ 9,058 $ 93 1.03%
2007 $ 9,242 $119 1.29%
2008 $ 9,713 $119 1.23%

BENEFITS OF INFORMATION TECHNOLOGY PROJECTS

Page 5, 2nd paragraph, 2nd and 3rd sentences read:

“However, resources used for ITS have not always provided a proven positive return on investment to the Agency. Furthermore, the Agency has been unable to demonstrate that ITS investments achieve their intended results and address the strategic goals, objectives, and mission of the Agency, despite the continued significant ITS investment.”

Also, page 7, 6th sentence reads:

“During this time OCIO conducted only limited post-implementation reviews and did not have a process in place to define how post-implementation reviews should be carried out.”

Comment

The “return on investment” and “post-implementation review” (PIR) themes dominate your report. We believe this duplicates much of what you reported in a prior Quick Response Evaluation (QRE) titled “The Social Security Administration’s Post-Implementation Review” (A-14-10-30105) and provides no additional guidance to us. We commented on that report in June 2010 and described plans for strengthening our PIR processes. In this current report, you again assert that we are not able to determine our expected return on investments. While we agree that we must improve IT investment management practices, we have already started to do so. We are concerned that you paint a one-sided picture that does not fully reflect the findings in your June report or the report of Government Accountability Office (GAO) which we also discussed in our comments to you on June 10.

Page 5, SSA’s Investment in ITS

Comment:

In this section, you indicate that we have not been able to demonstrate that ITS investments have achieved their intended results in addressing the strategic goals, objectives, and missions of the agency. While you (see QRE A-14-10-30105) and GAO previously found that we could improve our IT investment management processes, you do not state that you both also noted our significant progress in this area. In addition, we have provided specific performance measures and expected benefits for each major investment in every one of the Exhibit 300, Capital Asset Plan and Business Case Summary, we have submitted to OMB. We published these performance measures online at http://it.usaspending.gov/. While we agree that we have the opportunity to make significant progress, and we remain committed to doing so, we do not agree with your sweeping generalizations.

Page 6, 2nd Paragraph

Comment:

In reading this section, it appears you define return on investment as solely related to dollars, but dollars are not necessarily the best measure for assessing the success of infrastructure and operating investments. We have committed a majority of the ITS budget to those types of investments, including the Telephone Systems Replacement Project (TSRP). You state that “the Agency has spent $133 million on TSRP but was unable to show there was a return on investment.” That statement is misleading. We were experiencing unacceptable failure rates with field phone systems, and repairs were difficult and expensive because of the age and variety of systems. Therefore, we implemented TSRP to update our technology, maintain telephone service, and avoid costly investments to keep the old technology running.

With TSRP, we conducted a comprehensive alternatives analysis before we decided on an approach. We did not develop a financial return on investment per se, but we can certainly support a strong business case; and pending workloads would be much larger today without good phone service in our hearing offices. Simply put, we decided which course to pursue, and we managed the project successfully to obtain the benefits we expected.

Page 7, Table 3: Examples of Terminated ITS Projects

Comment:

This display seems to contradict your findings that we lack an oversight process for IT investments. The table has descriptions of the terminated Time Allocation System (TAS) and ePulling projects; but it also provides the reasons why we terminated those projects. We presented these examples to you to demonstrate that we are performing oversight and to express that we recognize when projects are unlikely to produce desirable returns on investments. Our salient point is that we terminated the projects because they were not providing the expected returns. In the case of ePulling, the technology was not viable for our purposes. In the case of TAS, we were not able to take advantage of the new data provided by the system.

You do not make any specific point in mentioning the two projects in Table 3. Your information is factual, but spurious. We do not claim that all of our projects succeed. Meaningful returns must be assessed at a portfolio, or higher, level, except when we use them for oversight purposes. To do otherwise would create significant disincentives to the managed risk taking we must undertake to move the Agency forward.

Final Remark

You imply throughout the report that the only meaningful way to state anticipated benefits is through a monetary return on investment. We do not agree with this notion. Had you asked us why we pursued TSRP, ePulling, TAS, or any other ITS investment, we could have provided you with our business case justification. You did not pose the question. In fact, as noted in “Scope and Methodology,” the only information you sought concerned our roles in the budget process, our roles on the information technology advisory board (ITAB), and examples of ITS investments.

We have acknowledged repeatedly that we need to improve our ability to forecast costs and benefits and to follow up with actual measures once we deploy the investments. Sometimes this will equate to a simple return on investment; more often, however, we will view it in the larger context of contributions to the Agency’s mission. As indicated above, we remain committed to improving our ability to track and report on a full range of performance measures for all of our significant investments.

Appendix F
OIG Response to Agency Comments

From: Schaeffer, Steve
Sent: Friday, August 13, 2010 10:39 AM
To: Gallagher, Michael HQ DCBFM
Subject: FW: Response to Comments - QRE: The SSA's Use of LAE (A-15-10-21085)

Michael,

Thank you for your recent comments on our QRE: The Social Security Administration’s Use of Limitation on Administrative Expenses (A 15 10 21085). We have modified the report accordingly and have attached our response to your comments. Please contact us if you have any questions.

Thanks

Steven L. Schaeffer

COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL (OIG) DRAFT “QUICK RESPONSE EVALUATION: SOCIAL SECURITY ADMINISTRATION’S USE OF LIMITATION ON ADMINISTRATIVE EXPENSES FUNDS” (A-15-10-21085)

Thank you for the opportunity to review the subject report. We offer the following comments.

General Comments

On page 1 you state: “The objective of this evaluation was to review aspects of the Social Security Administration’s (SSA) use of its available administrative funds.”

Effective Use of LAE Funding

You state on page 2 of the report:

Comment

OIG Response to Agency Comments: We added a substantial portion of the language above to page 4 of the report.

Page 3, 2nd paragraph reads:

Comment

OIG Response to Agency Comments: Per feedback received from the Office of Budget, we updated Table 4 on page 11 with the cost-per-case for disability workloads including payroll and other costs.

Page 3 – Table 1

Comment

Table 1
LAE ITS Transfers and Remaining Funds
After Assumed $25 Million Used to Process Workloads
($ in millions)

The following exhibits the amounts available at the close of each fiscal year. We contrast those balances with the numbers presented in your Table 1

OIG Response to Agency Comments: We updated language in the report on page 3, footnote #10 to include “The amount would be obligated during the FY and consequently decrease the unobligated amount available for transfer at the end of each FY” to provide a clear understanding that the $25 million would be obligated prior to close of each fiscal year.

Additionally, we updated Table 1 on page 3 to include the “Balance Available When the FY Ended” column and a footnote to clarify (see footnote #8).

Additional Comment:

($ in Millions)
FY Appropriation Lapsed % Lapsed
2004 $ 8,270 $ 91 1.10%
2005 $ 8,730 $176 2.02%
2006 $ 9,058 $ 93 1.03%
2007 $ 9,242 $119 1.29%
2008 $ 9,713 $119 1.23%

OIG Response to Agency Comments: We updated language on page 9, 2nd paragraph and added an appendix with the historical information of the obligated and unobligated LAE appropriation using the data obtained from the Office of Finance.

BENEFITS OF INFORMATION TECHNOLOGY PROJECTS

Page 5, 2nd paragraph, 2nd and 3rd sentences read:

Also, page 7, 6th sentence reads:

“During this time OCIO conducted only limited post-implementation reviews and did not have a process in place to define how post-implementation reviews should be carried out.”

Comment

OIG Response to Agency Comments: As previously stated on page 8, footnote #20, “Per the Agency, the OCIO has only conducted post-implementation reviews for iClaims and ePulling.” Additionally, on the top of page 9, we reference the new SITAR process.

Page 5, SSA’s Investment in ITS

Comment:

OIG Response to Agency Comments: See comment above.

Page 6, 2nd Paragraph

Comment:

OIG Response to Agency Comments: We updated the language on page 7, 2nd paragraph to explain that while we asked for the information, SSA was not able to provide data on their “financial returns on IT investments with a comparison of actual and expected results.”

Page 7, Table 3: Examples of Terminated ITS Projects

Comment:

OIG Response to Agency Comments: None

Final Remark

OIG Response to Agency Comments: None

Appendix G
OIG Contacts and Staff Acknowledgments
OIG Contacts

Victoria Vetter, Director, Financial Audit Division
Deborah Kinsey, Audit Manager

Acknowledgments

In addition to those named above:

Yvasne Simmons, Senior Auditor

For additional copies of this report, please visit our Website at www.socialsecurity.gov/oig or contact the Office of the Inspector General’s Public Affairs Staff Assistant at (410) 965-4518. Refer to Common Identification Number
A-15-10-21085.

DISTRIBUTION SCHEDULE

Commissioner of Social Security
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.