To assess the Social Security Administration`s
(SSA) policies and practices for paying and monitoring large underpayments
to representative payees.
Beneficiaries may become entitled to large underpayments
if delays occur in processing their initial application or in cases
where suspended benefits are reinstated. Large underpayments are
defined as payments of $4,000 or more (Program Operations Manual
System (POMS) GN 00502.183). Some difficulties have been noted
with the issuance of large underpayments to beneficiaries who have
representative payees (hereinafter called payees), such as payees
not using these payments in the best interest of the beneficiary.
SSA has the authority to appoint payees to receive and manage payments
on the behalf of beneficiaries who cannot manage their own finances.
SSA has procedures in place to protect the beneficiary`s interests
in regard to issuing large underpayments to a payee. If field office
(FO) personnel determine it is in the best interest of the beneficiary,
large underpayments can be issued in installments.
Claims representatives (CR) were interviewed to ascertain
the procedures they follow for issuing large underpayments to payees.
Data from the Supplemental Security Record (SSR) and the Master Beneficiary
Record (MBR) were analyzed to determine the extent of installment
use for large underpayments issued to payees.
Half of the CRs contacted had not used installment
Most CRs asked payees to verify expenditures.
Most CRs would like to see improvements in the process for making large underpayments.
SSA should give CRs the option of using an automated
installment payment system. An automated system would make it easier
for CRs to use installments when they believe such a payment plan
would better serve the beneficiary, and would also meet the requirements
of the Personal Responsibility and Work Opportunity Reconciliation
Act of 1996. We also recommend that CRs be reminded of the current
procedures relating to the release of large underpayments to payees.
SSA states that CRs can designate a title II underpayment
to a payee through an automated process. The Office of Systems has
determined that an automated installment process for title XVI is
possible and cost-effective. A decision on the priority level of
creating such an installment process is expected by May 1997. The
SSA has also released updated installment procedures that describe
the installment process, including when installment payments should
be considered. The Office of the Inspector General`s response
to SSA`s comments is on page 10.
To assess SSA`s policies and practices for paying
and monitoring large underpayments to representative payees.
Beneficiaries may become entitled to large underpayments
(also referred to as retroactive payments) in addition to their regular
monthly payments if delays occur in processing initial applications
or in cases where suspended benefits are reinstated. Large underpayments
are defined as payments of $4,000 or more (POMS GN 00502.183). Many
delayed initial payments result from awards by SSA Administrative
Law Judges (ALJ). The ALJs adjudicate appeals filed by claimants
who have received an unfavorable decision regarding eligibility.
On average, it takes 18 months from the time a claimant files for
benefits to a decision by an ALJ. Large underpayments also may become
payable due to court or other appeal decisions.
In most cases, SSA pays benefits directly to Old-Age,
Survivors, and Disability Insurance (OASDI) beneficiaries and Supplemental
Security Income (SSI) recipients. However, sections 205(j)(1) and
1631(a)(2) of the Social Security Act authorize SSA to appoint payees
to receive and manage payments on the behalf of beneficiaries who
cannot manage their own finances. Among those required to have a
payee are: children under the age of 18 (unless the child is age
15 or older and is legally emancipated); legally incompetent adults;
medically incapable beneficiaries; and individuals entitled to disability
benefits who have a drug addiction or alcoholism (DA&A) condition
and are incapable of managing their benefits.
Payees can be parents, spouses, other relatives, legal
guardians, friends, and public or private organizations or institutions.
Payees are responsible for spending payments only for the use and
benefit of the entitled individual, for submitting an annual accounting
report to SSA of how the benefits were used, and for properly conserving
unspent funds. CRs in SSA FOs are responsible for selecting payees,
explaining how to fulfill their responsibilities, and evaluating
and resolving questionable payee accounting situations. According
to SSA operating instructions, representative payees are provided
broad discretionary authority for using benefits in the manner that
is in the best interest of the beneficiary. Currently, more than
4.3 million OASDI beneficiaries and almost 2 million SSI recipients
receive benefits through representative payment. Some of these individuals
receive OASDI and SSI benefits concurrently and may be counted twice
in the above figures.
SSA has procedures in place to protect the beneficiary`s
interests in regard to issuing large payments to a payee. SSA instructs
its FOs to conduct personal contact follow-ups at 3-month intervals
for "probable high risk or questionable" payees. A probable
high risk or questionable payee may be someone who is not related
to the beneficiary or who does not demonstrate a knowledge of the
beneficiary`s needs. In some cases, SSA may postpone paying any
portion of an underpayment until after an evaluation of the payee`s
use of monthly benefits.
Generally, in cases where accumulated funds total more
than $4,000, SSA may pay the underpayment in installments instead
of issuing a single large payment. According to section GN 00502.183
of POMS, if ". . . the beneficiary`s interests are best
served by paying accumulated funds in installments over a period
of time . . . ," the CR should do so. A recent change in the
law mandated the use of installments for SSI recipients receiving
large underpayments, but decisions about releasing accrued benefits
to beneficiaries--other than title II beneficiaries receiving direct
payment--not specified in the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 and other laws are left to the discretion
of CRs in the SSA FOs.
Also, CRs establish and control follow-up dates to
monitor payees when they feel they are warranted. These follow-up
meetings are mandated when the payee is a convicted felon or the
payee has a questionable payee service history (POMS GN 00502.185).
Problems With Large Underpayments Have Been Cited
Despite SSA`s efforts, problems with payees` use
of large payments still exist. During our preliminary research, FO
staff indicated that they believed many payees may not be using underpayments
solely for their beneficiaries. Staff have anecdotally reported underpayments
being used for questionable purposes such as buying mobile homes
or family cars not in the beneficiary`s name, taking vacations,
furnishing entire households, and, in one case, throwing an elaborate
party. Some staff specifically cited Zebley-class cases as most troublesome.
A 1990 Supreme Court decision in Sullivan v. Zebley (493 U.S. 521)
required SSA to reevaluate 400,000 denied SSI applications for children
from as early as 1980. The payees for many of these children received
very large underpayments, a number of which exceeded $30,000. Staff
also stated that it is difficult to find reliable payees for recipients
receiving disability benefits based on drug or alcohol addiction.
According to POMS, SSA has several methods for monitoring
how a payee manages an underpayment. Each payee is responsible for
submitting a yearly accounting report of how they spent the benefits
they received. Also, as previously mentioned, CRs may arrange meetings
with questionable payees at 3-month intervals to monitor their performance.
Lastly, for SSI cases, SSA may obtain information about how payees
spend large underpayments through the redetermination process. During
this process, SSA assesses the recipient`s continuing eligibility,
including whether resources are within the allowable limits--$2,000
for individuals and $3,000 for couples. When a large underpayment
exceeds the resource limit, SSI recipients are given 6 months to "spend
down" or otherwise dispose of large underpayments exceeding
the limit. A redetermination is scheduled approximately 7 months
after the first payment is received.
Two different analyses were performed for this study.
First, CRs were contacted to ascertain how they work with payees
managing a large underpayment. Second, SSA data bases containing
beneficiary information were analyzed in an attempt to identify common
characteristics of beneficiaries with payees who have received large
Field Office Interviews
CRs in SSA FOs were interviewed to ascertain the procedures
they follow for issuing large underpayments to payees. We used a
cluster sample of 65 FOs to conduct these interviews. The cluster
sample of the FOs is a methodology used by SSA`s Office of Research
and Statistics to produce representative samples of FOs. Two CRs
from each office were interviewed; one dealing primarily with OASDI
cases and the other with SSI cases. The CRs selected for interviews
were those who, in the opinion of the FO manager, have had the most
experience with large underpayments received by payees. Structured
discussion guides were used to interview the staff by telephone about
their perception of current policies and practices, and their suggestions
SSA Data Review
We requested data on all beneficiaries who received,
through a payee, a large OASDI or SSI underpayment of at least $4,000
between April 1, 1994 and April 1, 1995. The characteristics of the
beneficiaries were analyzed for those with underpayments of at least
$4,000 and an additional analysis was performed for those beneficiaries
with underpayments more than $10,000. The subsample of underpayments
more than $10,000 was examined because the funds are deemed to be
more vulnerable to improper use or misuse due to the larger amount.
We also requested information on how many large underpayments were
paid out in installments.
These data were extracted from the SSR, MBR, Representative
Payee System (MRPF), and Payment History Update System (PHUS). Data
included, but was not limited to: type of payee and custody, characteristics
of beneficiaries, amount of underpayment(s), and number of installment
Our review was conducted from April 1995 to October
1995. This inspection was conducted in accordance with the Quality
Standards for Inspections issued by the President`s Council on
Integrity and Efficiency.
Fifty-two percent of CRs contacted reported they had
never used installments to disburse a large underpayment to a payee.
This was true even though 68 percent of the CRs reported difficulty
in finding reliable payees for beneficiaries receiving disability
payments due to alcoholism, drug addiction, or mental illness. These
were the most prevalent diagnoses for disabled beneficiaries in our
sample population. Some CRs also felt that payees for these types
of beneficiaries were more likely to improperly use or misuse benefits.
Even though they reported these difficulties, 57 percent
of the CRs who had not used installments said they had not felt the
need to use them. Twenty-two percent said they had not had much experience
with large underpayments, so they had not had an occasion to use
them. (See Figure 1).
Some CRs were not certain when installments could be used.
Twelve percent of the CRs who had not used installments believed
they were to be used only for DA&A cases and they had not had
any DA&A cases. Six percent reported they were not even aware
that installments could be used for large underpayments. The remaining
CRs had not used installments because they believed it was either "a
real hassle" or the underpayment was generally needed to pay
expenses that accrued while SSA was reaching a decision on the
CRs who used installments did so infrequently. Payees for OASDI
beneficiaries rarely received a large underpayment through installments.
Less than one percent of large underpayments made to payees for
OASDI beneficiaries were through installments. For the period April
1994 through April 1995, $501 million was released to payees for
OASDI beneficiaries who were awarded an underpayment of more than
$4,000. However, only $74,000 (less than one percent) was released
through installment payments.
Payees for SSI recipients were more likely to receive large
underpayments through installments than those for OASDI beneficiaries.
We found that 28 percent of the payees for SSI recipients received
large underpayments through installments. Payees for SSI recipients
who were awarded an underpayment of $4,000 or more between April
1994 and April 1995 received a total of $447 million, with $125
million (28 percent) released through installments.
Interviews with CRs confirmed that they infrequently used installments
to disburse large underpayments. (See Figure 2.) One in four reported
having used installments for only 1 percent of their caseloads
of beneficiaries with payees. Another 17 percent used installments
for between 2 and 5 percent of their caseloads. Only a few other
CRs (5 percent) used installments for slightly larger percentages
of their caseloads.
Two-thirds of the CRs who conducted follow-up meetings with
payees asked them to verify the expenditures made with a large
underpayment. They asked the payees to verify expenditures through
three methods. Equal proportions of CRs who met with payees either
asked for receipts to verify the expenditures, relied on a combination
of receipts and allegation (the payee`s word), or simply accepted
allegation to explain how the money was spent.
Half of the CRs who met with payees did so within 3 months
of the release of a large underpayment. The other half did so usually
within 6 months. This was because most of the payees who were asked
to meet with CRs were those representing SSI beneficiaries. Practically
all of these meetings were a result of the redetermination process,
where SSI beneficiaries` cases were reviewed by SSA staff.
Redeterminations generally occur 6 to 7 months after the awarding
A majority of CRs (62 percent) who met with payees said they
were always able to justify their expenditures. The CRs reported
that payees always manage to come up with explanations in cases
where evidence of expenditures was not required because they realized
their beneficiary`s benefits may be suspended if they did not
give a reasonable explanation.
Seventy-two percent of the CRs interviewed believed the process
of making large underpayments to payees can be improved and offered
suggestions on how to do it. The most often mentioned recommendation
(53 percent) was the increased use of installments. Some of the
CRs believed an installment process should be mandated for all
large underpayments. Others felt that once an underpayment exceeds
a certain dollar amount, $5,000 for example, installments should
The CRs reported they would be more inclined to use installments
if they were automated. It was the CRs perception that installments
are automated for DA&A cases only and installments for all
other types of cases have to be done manually. According to their
descriptions, in the manual process the CR has to fill out a one-time
payment action, have a manager sign off on it, and then manually
enter the amount of the installment each month into the system.
The CR must initiate the installment payment every month. The CRs
reported there was no incentive for them to use installments, since
using them takes time away from work for which they are measured.
It is important to note that the installment process differs
for title II beneficiaries and title XVI recipients. The CRs perception
of a monthly manual entry to release an installment payment accurately
reflects the title XVI process only. Title II installment payments
are handled differently. A benefit authorizer in a payment center
can initiate title II installment payments for a given period of
time. The authorizer only has to make one entry in the MADCAP system
and then installment payments will be released for a certain dollar
amount for a given time period. However, for installment payments
to begin for title II beneficiaries, the district office has to
contact the payment center through a telephone call or teletype
message. So, while installment payments are less labor intensive
for title II beneficiaries than title XVI recipients, the CRs in
the FO are not able to electronically initiate installment payments
for either program.
The CRs also had other suggestions to improve the process.
Twenty-nine percent believed there has to be closer monitoring
of the payees. They believed that there may be improper use of
large underpayments since the payees were frequently not required
to specifically account for expenditures. They suggested requiring
receipts (and not accepting allegation) for large purchases and
contacting the beneficiaries to ensure that their payees are using
the benefits properly.
Ten percent of the CRs felt that the payees need more guidance
in managing large underpayments. Often, payees were given large
sums of money when they were not accustomed to managing such large
amounts. This problem was compounded when SSI beneficiaries only
had 6 months to spend down to the resource limit. Another 10 percent
found that there were not enough reliable payees. They suggested
recruiting more organizational payees or creating an established
pool of reliable payees to choose from.
The CRs contacted were genuinely concerned with ensuring the
proper use of large underpayments received by payees. Many of the
CRs had witnessed improper use of benefits and some had dealt with
misuse. They stated that the use of installments through an automated
process would help to ensure the proper use of Social Security
benefits. Accordingly, we recommend that SSA:
1. Give CRs the option of using automated installments
when releasing all large underpayments to representative payees.
An automated process that allows CRs to initiate installment
payments would make it easier for them to use installments when
they feel such a plan would better serve the beneficiary. Additionally,
installments allow a payee more time to spend a large underpayment.
This would particularly assist SSI beneficiaries and their payees
since the entire sum of the underpayment would not have to be spent
down to the resource limit in 6 months.
Section 221 of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 (Public Law 104-193), signed into law
on August 22, 1996, mandates the use of installment payments for
underpayments going to SSI recipients if the underpayments are
12 times the Federal benefit rate (FBR). The FBR is the maximum
Federal SSI benefit amount before any applicable exclusions--$5,640
based on 1996 rates. Large underpayments are to be made in three
or less installment payments made at 6-month intervals.
While our review focused on large underpayments released to
payees, we believe that an automated system that allows for CRs
to initiate installment payments for any beneficiary or recipient,
regardless of payee status, would help ensure that all beneficiaries` funds
are spent properly. An automated system would also help implement
the regulations called for in the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996. The automated system should
be designed to allow for the release of payments in accordance
with the new law.
We realize that all cases of large underpayments do not warrant
the use of installment payments. For example, SSA does not have
legal authority to use installment payments for title II beneficiaries
who do not have a payee. (These beneficiaries can request the use
of installments). While we are not recommending the mandated use
of installments, we are recommending that CRs have the option to
use an automated system to release large underpayments in installments
when they feel installments will best serve the interest of the
beneficiary or where a beneficiary requests installments.
2. Remind CRs of the current options for issuing large
underpayments to payees.
One-fifth of the CRs interviewed were unsure when they could
use installments. Some of these CRs reported not even being aware
that they could use installments. We understand that new POMS citations
providing guidance on when to use installments were released in
January 1997. Training sessions highlighting all options for
releasing large underpayments would help to ensure that installments
will be used when it would be appropriate to do so.
SSA states that CRs can designate a title II underpayment to
a payee through an automated process. The Office of Systems has
determined that an automated installment process for title XVI
is possible and cost-effective. A decision on the priority level
of creating such an installment process is expected by May 1997.
The SSA has released updated installment procedures that describe
the installment process, including when installment payments should
be considered. These new procedures were released in March 1997.
The SSA plans on releasing an electronic mail message announcing
the updated procedures and calling attention to the installment
We believe that an automated installment process that allows
for CRs to initiate installment payments for any beneficiary, regardless
of program or payee status, will help to ensure that all beneficiaries
funds are spent properly. The CR should be able to initiate installment
payments through the automated process. Currently, benefit authorizers
initiate installment payments for title II beneficiaries only after
the district office requests the use of installment payments through
a telephone call or teletype message. We believe that CRs should
be allowed to initiate all installment processes from their intelligent
work stations when they deem it appropriate. We feel this will
ensure the most efficient use of installment payments.