THE INSPECTOR GENERAL
SOCIAL SECURITY ADMINISTRATION
THE SOCIAL SECURITY
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.
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.
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.
Date: August 3, 2009 Refer To:
To: The Commissioner
From: Inspector General
Subject: The Social Security Administration’s Unprocessed Annual Earnings Enforcement Selections (A 09 08 18047)
Our objectives were to (1) assess the Social Security Administration’s (SSA) progress in resolving approximately 2.5 million Earnings Enforcement selections and (2) quantify the amount of improper payments for the affected beneficiaries.
Social Security benefits are intended to replace, in part, earnings an individual or family loses because of retirement, disability, or death. However, in some cases, retired beneficiaries may continue to work while receiving Social Security benefits. In those instances, Title II of the Social Security Act (Act) requires that SSA use an Annual Earnings Test (AET) to measure the extent of beneficiaries' retirement and determine the amount, if any, to be deducted from their monthly benefits. The Act provides for a two tier earnings test: one for beneficiaries under full retirement age and another for beneficiaries in the year they attain full retirement age.
Beneficiaries whose total annual earnings are equal to or less than the annual exempt amount will receive full benefits for the year. Beneficiaries who are younger than full retirement age and earn an amount in wages, self employment income, or both over the annual exempt amount receive reduced benefits. The annual exempt amount for
beneficiaries under full retirement age was $12,000 in 2005. Generally, for every $2 beneficiaries earn over the annual exempt amount, SSA is required to deduct $1 in benefits.
To ensure compliance with the AET provisions, SSA compares beneficiaries’ reported earnings that are recorded on SSA’s Master Beneficiary Record (MBR) with earnings that were reported by employers that are recorded on SSA’s Master Earnings File (MEF). This process, called the Earnings Enforcement Operation (EEO), is designed to detect over- or underpayments that may have occurred during the year.
Our 2007 audit of the AET disclosed SSA had not adjusted the benefit payments of all beneficiaries who were identified by the EEO. As a result, SSA overpaid about $313 million to 89,300 beneficiaries and underpaid about $35 million to 12,800 beneficiaries for Calendar Years (CY) 2002 through 2004. In addition, we found SSA had not processed approximately 2.1 million of the 2.5 million Earnings Enforcement selections for CYs 1996 through 2005. We made several recommendations to improve the EEO, including that SSA review and process, as appropriate, all Earnings Enforcement selections pending since 1996.
RESULTS OF REVIEW
SSA had not made significant progress to resolve the 2.5 million Earnings Enforcement selections. Of the approximately 2.1 million Earnings Enforcement selections that were pending at the time of our prior audit, we found SSA had only processed about 337,500 (16.1 percent). In addition, our review disclosed there was a substantial number of improper payments in the backlog for the affected beneficiaries.
Based on a random sample of 275 beneficiaries, we estimate SSA
• overpaid about $956 million to 616,459 beneficiaries and
• underpaid about $245 million to 181,312 beneficiaries (see Appendix C).
Records Identified by EEO Not Processed
The AET process involves two automated steps after the beneficiaries who are subject to enforcement are identified. First, the EEO program determines the amount of earnings that are used for the AET (called enforceable earnings). The records are then screened to ensure they meet the AET criteria for processing. For example, the EEO program determines whether the enforceable earnings are greater than the annual exempt amount and different from the amount recorded on the MBR. Second, if the records meet the EEO screening criteria, the records are processed through SSA’s Automated Job Stream (AJS 3) program. The AJS 3 makes necessary changes to the beneficiary records, which includes establishing over- or underpayments. In addition, AJS 3 sends notices to the beneficiaries to inform them of the actions taken. Any EEO selections not processed by AJS 3 require review and manual processing. For example, SSA may need to verify questionable earnings by contacting employers.
After the Office of Systems identified the records subject to enforcement, we found the Office of Quality Performance (OQP) removed about 37 percent of the selected records from the process during CYs 1996 through 2005. The remaining records were returned to the Office of Systems and processed, as required by SSA policy. According to OQP, it removed these records to identify ways of automating the processing of EEO selections that would otherwise require manual intervention. OQP also stated it removed EEO selections that were susceptible to error (for example, wages earned before an individual's entitlement to benefits) if they were automatically processed by AJS 3.
Our 2007 audit disclosed that of the 2.5 million beneficiary records OQP removed for CYs 1996 through 2005, it had only processed 425,354 records as of May 2007. Therefore, 2.1 million beneficiary records subject to the AET were not processed. The following table summarizes the number of beneficiary records OQP removed from the EEO and the number of beneficiary records still pending for CYs 1996 through 2005.
CY Number Removed
by OQP Number Pending
as of May 2007 Number Pending
as of February 2009
1996 206,873 143,641 143,641
1997 239,618 148,427 148,427
1998 281,525 168,674 168,674
1999 319,523 248,776 248,776
2000 369,767 344,561 344,561
2001 225,922 211,463 211,463
2002 212,014 198,577 198,577
2003 227,764 209,957 209,957
2004 202,478 190,100 0
2005 207,550 203,504 56,105
Total 2,493,034 2,067,680 1,730,181
As a result of our 2007 audit, in March 2007, OQP established a workgroup to evaluate options for addressing the backlog and improving the EEO. The workgroup consisted of SSA employees from the Offices of Operations, Systems, and Policy. The workgroup’s actions have resulted in a reduction in the backlog and modifications to the current EEO. Specifically, OQP reported it processed all the 2004 records and 151,445 of the records for CY 2005. However, OQP had not developed a plan for processing the remaining backlog of 1.7 million records for CYs 1996 through 2003. SSA is concerned these backlogged cases could not be automated and would require manual processing. Beginning in CY 2006, SSA reduced the number of EEO selections that require OQP review and increased the number of records that could be automatically processed by AJS-3. Finally, OQP provided information that showed a 37-percent reduction in the number of records it removed from the EEO in CY 2006 as compared to CY 2005.
Unprocessed OQP Backlog Resulted in Improper Payments
Our audit determined there was a substantial number of improper payments in the backlog of EEO selections for the affected beneficiaries. Specifically, we found SSA improperly paid 88 (32 percent) of the 275 beneficiaries in our sample: 68 were overpaid $105,432, and 20 were underpaid $26,996. Based on our sample results, we estimate SSA overpaid about $956 million to 616,459 beneficiaries and underpaid about $245 million to 181,312 beneficiaries (see Appendix C).
For example, one beneficiary in our sample was overpaid $3,223 because her actual earnings of $17,966 in 2003 exceeded the annual exempt amount of $11,520. SSA had not previously reduced her benefits because her estimated earnings were less than the annual exempt amount. Another beneficiary in our sample was underpaid $761 because she overestimated her 2001 earnings. SSA deducted $761 of monthly benefits in 2001 because she had estimated total earnings of $11,228, $548 more than the annual exempt amount. However, her actual earnings for 2001 were less than the annual exempt amount. The following table summarizes the number and amount of improper payments in our sample.
CY Number of Overpayments Amount of Overpayments Number of Underpayments Amount of Underpayments
1996 1 $ 424 2 $ 442
1997 7 5,566 1 593
1998 3 5,695 3 663
1999 6 6,318 3 6,206
2000 11 10,688 2 702
2001 7 8,965 3 3,027
2002 8 6,959 0 0
2003 12 26,140 1 3,147
2004 6 19,302 3 5,678
2005 7 15,375 2 6,538
Total 68 $105,432 20 $26,996
We encourage SSA to develop a cost-effective plan to process the backlogged cases. We believe SSA should focus its efforts on underpayments, large overpayments, and beneficiaries in current pay status. For example, in our sample of 275 beneficiaries, we found 21 were deceased and 59 were in terminated pay status for reasons other than death. As a result, it may be more cost-effective for SSA to initially process overpayments for individuals who are currently receiving benefits since collection is more likely.
CONCLUSIONS AND RECOMMENDATION
We found SSA had not made significant progress to resolve the backlog of about 2.5 million beneficiary records that were subject to the AET. Based on our sample results, we estimate SSA overpaid about $956 million to 616,459 beneficiaries and underpaid about $245 million to 181,312 beneficiaries. These payment errors occurred because SSA did not process all beneficiary records identified by the EEO.
We are encouraged that SSA has taken steps to reduce the backlog and improve the EEO. OQP staff stated they had processed all the Earnings Enforcement selections in the backlog for CY 2004 and about 73 percent of the selections for CY 2005. OQP also provided information that showed a 37-percent reduction in the number of records it removed from the EEO in CY 2006 as compared to CY 2005. However, OQP has not presented a plan on how to resolve the beneficiary records pending for CYs 1996 through 2003. These unprocessed records represent about 67 percent of the total records OQP removed from the EEO for CYs 1996 through 2005.
We recommend that SSA develop a cost-effective plan to process, as appropriate, the backlogged Earnings Enforcement selections for CYs 1996 through 2003.
SSA agreed with our recommendation. The Agency’s comments are included in Appendix D.
Patrick P. O’Carroll, Jr.
APPENDIX A – Acronyms
APPENDIX B – Scope and Methodology
APPENDIX C – Sampling Methodology and Results
APPENDIX D – Agency Comments
APPENDIX E – OIG Contacts and Staff Acknowledgments
Act Social Security Act
AET Annual Earnings Test
AJS Automated Job Stream
CY Calendar Year
EEO Earnings Enforcement Operation
MBR Master Beneficiary Record
MEF Master Earnings File
OIG Office of the Inspector General
OQP Office of Quality Performance
POMS Program Operations Manual System
SSA Social Security Administration
U.S.C. United States Code
Scope and Methodology
Our audit covered beneficiaries identified by the Earnings Enforcement Operation (EEO) for the period January 1, 1996 to December 31, 2005. To accomplish our objectives, we
• reviewed the applicable sections of the Social Security Act and the Social Security Administration’s (SSA) Program Operations Manual System;
• interviewed staff from SSA’s Office of Quality Performance (OQP);
• selected a random sample of 275 beneficiary records from the 2,493,034 records OQP removed from the EEO for Calendar Years (CY) 1996 through 2005;
• reviewed queries from SSA’s Master Beneficiary Record, Master Earnings File, and Payment History Update System to determine whether the Agency properly adjusted benefits based on actual earnings;
• referred 165 beneficiary records to OQP to determine the amount of any over or underpayments to the affected beneficiaries; and
• reviewed the decisions OQP made on 165 beneficiary records in our sample.
OQP provided the total number of beneficiary records removed from the EEO for CYs 1996 through 2005. We determined these computer-processed data were sufficiently reliable for our intended use. We conducted tests to determine the completeness and accuracy of the data. These tests allowed us to assess the reliability of the data and achieve our audit objectives.
We performed audit work in Richmond, California, from September 2008 through March 2009. The entity audited was OQP under the Deputy Commissioner for Quality Performance.
We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
Sampling Methodology and Results
We obtained a database from the Social Security Administration’s (SSA) Office of Quality Performance (OQP) of all beneficiary records it had removed from the Earnings Enforcement Operation as of May 2007. From this database, we extracted all beneficiary records that OQP removed for Calendar Years (CY) 1996 through 2005. We also screened the database to eliminate any records that were selected more than once for each year. This resulted in a population of 2,493,034 beneficiary records.
From the population of 2,493,034 records, we randomly selected a sample of 275 beneficiaries for review. For each beneficiary, we determined whether SSA had properly adjusted benefits based on actual earnings. In addition, OQP reviewed 165 of the beneficiaries to determine the amount of any over- or underpayment that should have been established.
Of the 275 beneficiaries in our sample, we found SSA overpaid $105,432 to 68 beneficiaries and underpaid $26,996 to 20 beneficiaries for CYs 1996 through 2005. Projecting these results to the population of 2,493,034 beneficiaries, we estimate SSA overpaid about $956 million to 616,459 beneficiaries and underpaid about $245 million to 181,312 beneficiaries. The following tables provide the details of our sample results and statistical projections.
Table 1: Population and Sample Size Number
Population Size 2,493,034
Sample Size 275
Table 2: Overpayments Number Amount
Sample Results 68 $105,432
Point Estimate 616,459 $955,802,039
Projection Lower Limit 510,709 $702,482,021
Projection Upper Limit 732,478 $1,209,122,057
Note: All projections are at the 90 percent confidence level.
Table 3: Underpayments Number Amount
Sample Results 20 $26,996
Point Estimate 181,312 $244,734,349
Projection Lower Limit 121,454 $121,909,955
Projection Upper Limit 259,091 $367,558,742
Note: All projections are at the 90 percent confidence level.
Date: June 22, 2009 Refer Refer To: S1J 3
To: Patrick P. O'Carroll, Jr.
From: James A. Winn /s/ Jo Tittel for
Chief of Staff
Subject: Office of the Inspector General (OIG) Draft Report, "The SSA's Unprocessed Annual Earnings Enforcement Selections" (A-09-08-18047)--INFORMATION
Thank you for the opportunity to review and comment on the draft report. We appreciate OIG’s efforts in conducting this review. Attached is our response to the report findings and recommendation.
Please let me know if we can be of further assistance. Please direct staff inquiries to
Candace Skurnik, Director, Audit Management and Liaison Staff, at extension 54636.
COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL (OIG) DRAFT REPORT, "THE SSA'S UNPROCESSED ANNUAL EARNINGS ENFORCEMENT SELECTIONS" (A-09-08-18047)
We reviewed the subject report. The report should fully explain the effects of the adjustment of the reduction factor and delayed retirement credits on monthly benefits. These adjustments influence the total dollar value of any overpayments or underpayments that result from the enforcement actions.
Develop a cost-effective plan to process, as appropriate, the backlogged Earnings Enforcement selections for calendar year’s (CY) 1996 through 2003.
We agree. We plan to keep current with future enforcement selections. Working the backlogged Earnings Enforcement selections for CY’s 1996 through 2003 manually is cost-prohibitive. In addition, analysis has shown that even when manually processed, a large number of the backlogged cases will result in no change. Therefore, to the extent possible, we will automate the processing of these backlogged Earnings Enforcement selections.
OIG Contacts and Staff Acknowledgments
James J. Klein, Director, San Francisco Audit Division
Jack H. Trudel, Audit Manager
In addition to those named above:
Jim Sippel, Senior Auditor
For additional copies of this report, please visit our web site 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 09 08 18047.
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.