Audit Report - A-13-97-61007

Office of Audit

Unresolved Internal Revenue Service Alerts - A-13-97-61007 - 1/21/97

TABLE OF CONTENTS

EXECUTIVE SUMMARY

INTRODUCTION

FINDINGS

5B Alert Cases Are Vulnerable to Fraud and Abuse

Overpayments

SSA Field Office Staff Are Not Fully Utilizing Resources

Possible Avenue to Recover Title XVI Overpayments

Barriers Impede Development of Alerts

RECOMMENDATIONS

APPENDICES

List of Contributors

EXECUTIVE SUMMARY

PURPOSE

The purpose of this study was to determine the number and characteristics of suspended or terminated Supplemental Security Income (SSI) records having an unresolved Internal Revenue Service (IRS) alert indicator.

BACKGROUND

The SSI program is administered by the Social Security Administration (SSA) and provides cash assistance to people who are aged, blind, or disabled whose income and resources are limited. Since SSI eligibility is based on need, the SSA must be aware of any changes in recipients` income or resources. The Tax Reform Act of 1984 provides for SSA to receive financial information from the IRS to help detect unreported nonwage information, such as pensions, interest, and dividends. When IRS records indicate possible income or resources not reported on their SSI records, an alert is generated (referred to as a 5B alert) and the recipient`s SSI record is annotated. The SSA field offices (FO) are required to verify the information with the recipient or the financial institution and adjust or terminate the benefits if warranted. If the recipient fails to cooperate with SSA, benefits are suspended and eventually terminated without determining whether an overpayment exists for the earlier period.

From a 5 percent sample of all SSI records, we requested those pertaining to recipients with a suspended or terminated record containing a 5B alert. We obtained and reviewed financial records for these individuals and analyzed the information for possible overpayments and potential fraud. We also surveyed a sample of SSA FOs to obtain their perspectives of the 5B alert process.

FINDINGS

In 1992, There Were Approximately 143,000 Recipients That Had A Terminated SSI Record With An Unresolved 5B Alert.

There were 7,152 recipients in our sample (which projects to 143,040 5B alerts, 2.6 percent of the SSI population) that were not fully developed or resolved before payments were stopped. Even though SSA has since revised its alert selection procedures and enhanced the efficiency of the 5B alert program, we believe that the 5B alert process remains vulnerable to fraud and abuse due to SSA`s limited authority to investigate IRS alert cases.

Seventeen Of The 42 SSI Recipients For Which We Obtained Income And Resource Information May Have Received Overpayments.

According to SSA, an average overpayment for an SSI recipient with a 5B alert is $1,094. The potential overpayments in the cases we reviewed were $2,178.

SSA’s FO Staff Are Not Following Program Operations Manual System (POMS) Procedures In Some Cases Or Fully Utilizing Resources Available To Them For Processing 5B Alerts.

One-fourth of the FOs do not fully develop 5B alerts. Two-thirds of the FOs do not impose financial penalties for recipients who do not report all resources. Also, variations exist in applying administrative finality which restricts SSA to 24 months after the SSI record is terminated to take corrective action on an overpaid case, except where fraud or similar fault exists.

One-Third Of The Sampled Recipients With 5B Alerts Also Receive Social Security Benefits, A Possible Avenue To Recovering SSI Overpayments.

Recovery of overpaid title XVI funds can be made from Social Security benefits, but currently only when beneficiaries request this means of repayment.

FOs Identified Barriers That Impede The Development Of 5B Alerts.

FO staff identified many barriers that inhibit timely and complete development of 5B alerts, including difficulties in obtaining information from financial institutions and a lack of staff to process them.

RECOMMENDATIONS

SSA has taken steps to enhance the efficiency of the 5B alert program. This change will reduce the number of alerts by up to 75 percent. However, we believe there are additional steps that SSA can take to improve program effectiveness.

SSA should:

• consider requiring FOs to develop previous 5B alerts to the extent possible prior to allowing recipients to be re-entitled to SSI;
• encourage increased utilization of financial penalties for those recipients who receive overpayments detected by 5B alerts;
• provide refresher training for FO staff to ensure compliance with SSA procedures for developing 5B alerts;
• determine whether work unit credits for developing 5B alerts adequately reflect the effort extended by FO staff;
• continue to work towards legislative changes permitting nonvoluntary recovery of overpayments by adjusting Social Security benefits;
• pursue legislative changes in the SSI program to simplify resource and income eligibility requirements;
• build on SSA`s working relationship with national banking associations to improve cooperation and support for this workload by financial institutions; and
• refer all suspected fraud cases to the Office of the Inspector General (OIG).

AGENCY COMMENTS

SSA concurs with the intent of our recommendations to maximize the intended benefit from procedures related to overpayments detectable by IRS alerts. The Agency expressed concerns about the methodology we used and some of the contents of the report. We have addressed those concerns in the Recommendations section of the report.

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INTRODUCTION

PURPOSE

The purpose of this study was to determine the number and characteristics of suspended or terminated SSI records having an unresolved IRS alert indicator.

BACKGROUND

Legal Basis

The SSI program is authorized by title XVI of the Social Security Act (SSI for the aged, blind, and disabled) under legislation passed in 1972. The SSI provides cash assistance to people who are aged, blind, or disabled and whose income and resources are limited.

Because SSI benefits are needs-based, SSA, which administers the SSI program, must be aware of changes in recipients` income or resources. The Tax Reform Act of 1984 provides for SSA to receive financial information on recipients` nonwage earnings (pensions, unemployment compensation, interest, dividends, bank accounts, trusts, or stocks) through computer interfaces with IRS. Three times a year, SSA performs a match of SSI recipients against the most recent IRS data available to determine if there is a need to adjust or terminate payments. The law permits SSA to suspend payments to a recipient who does not respond to requests for it`s review of their financial records.

Developing a 5B Alert

When IRS data indicates SSI recipients have income or resources not reported on their SSI records, this generates what is referred to as a 5B alert. This alert produces a diary that is maintained on the SSI record. The diary alerts the field staff that they must verify with the recipient the unreported source of income or resources and may need to adjust or terminate the recipient`s benefits. The servicing FO contacts the SSI recipient to request permission to review his or her monthly financial income records to verify the source of income.

There are instances when a 5B alert may not indicate an overpayment. Examples include:

1. resources below program limits,
2. an increase due to burial funds which are excluded from the definition of resources,
3. a recipient can prove that funds in a joint account belong to another party,
4. funds are part of a plan for achieving self-support which are excluded from an eligibility determination, or
5. the case was in nonpay status during the alert period in question.

To determine if there is an overpayment, a recipient`s financial records must be reviewed. The Right to Financial Privacy Act of 1978, Public Law 95-630, restricts SSA`s access to financial records unless the recipient provides authorization voluntarily. If the recipient cooperates, the case is developed and, if overpayments are identified, payment adjustments are made. If the recipient does not respond or refuses to cooperate, SSA is required to give 30 days notice prior to taking adverse action. If there is no response to it`s initial request and follow-up, SSA is required to suspend payments beginning with the next month or the following month for the recipient failing to provide evidence of continuing eligibility.

In cases where recipients do not provide voluntary consent to the review of their financial records, there are four other mechanisms through which the Government may obtain access to financial records:

1. administrative summons or subpoena,
2. search warrant,
3. judicial subpoena, and
4. a formal written request.

The majority of these mechanisms are not available to all Government agencies. Administrative requests are commonly used in connection with legitimate law enforcement inquiries. OIG may access financial records through administrative subpoena. OIG`s Office of Investigations (OI) may also utilize search warrants and judicial subpoenas with the Department of Justice approval. Although SSA Regional Commissioners have administrative subpoena power, it is rarely used. SSA FOs can only use customer authorization.

When a recipient has failed to cooperate and payments have been suspended for 12 months, the record is terminated. If the recipient files a new application after the record is terminated, there is no requirement for SSA to investigate or resolve the prior alert. Twenty-four months after the 5B alert is terminated, the record is barred from being corrected due to administrative finality except in cases where fraud or similar fault (knowingly concealing information that is material to an SSA determination) can be established.

An SSA FO can make similar fault determinations and refer cases to OI when it appears that fraud is involved. Fraud referral guidelines are found in SSA POMS.

METHODOLOGY

We obtained and reviewed sections of POMS that pertain to IRS alerts and interviewed SSA regional office personnel that are involved in the implementation and interpretation of SSA policy. We surveyed a sample of FOs to obtain their perspectives of the 5B alert process. We also visited an SSA FO where we interviewed SSA FO personnel who are directly involved in SSI and handle IRS alerts.

From one segment (a 5 percent sample) of the SSI population, we requested those records that had been terminated or suspended with 5B alerts along with any other records for those individuals. There were 7,093 recipients in this sample segment that had a single 5B alert while 59 had multiple alerts which is roughly 2.57 and .03 percent, respectively, of the general SSI population. From the sample, we selected two sub-samples of recipients, one with single alerts and the other with multiple alerts. Table 1 explains the breakdown of our sub-samples and the cases we were able to actually review as part of our inspection.

Table 1

For each recipient with either single or multiple 5B alerts, we obtained case files and financial records when possible. We also obtained a SSI Record Display (SSIRD) for each recipient, which contains information on payment status, denial codes, resources, eligibility date, earned income, and overpayment/underpayment amounts.

Financial Information

We contacted the recipients in our sample to request permission to obtain information regarding resources and income from their financial institution. We submitted administrative subpoenas to those financial institutions when a recipient did not provide authorization. Further, we submitted administrative subpoenas to "other entities" such as insurance companies or trading companies, requesting financial information.

SSA FO Survey

We surveyed a sample of FOs with 5B alerts to obtain their perspectives of the alert process. From a universe of 638, we randomly selected a sample of 105 FOs. We requested the name of an individual in each office who was knowledgeable in the processing of 5B alerts. We mailed a survey instrument to each individual and then analyzed the responses.

The 5 percent sample of the SSI population was selected during 1992. The FO survey was conducted during 1993. The SSIRDs for the alert cases were obtained during 1993. The case files for the alert cases were reviewed during 1994. Our review was conducted in accordance with the Quality Standards for Inspections issued by the President`s Council on Integrity and Efficiency.

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FINDINGS

IN 1992, THERE WERE APPROXIMATELY 143,000 RECIPIENTS THAT HAD A TERMINATED SSI RECORD WITH AN UNRESOLVED 5B ALERT. THE 5B ALERT CASES ARE VULNERABLE TO FRAUD AND ABUSE.

In our sample, there were 7,152 recipients which projects to 143,040 5B alerts that were not fully developed or cleared by SSA FOs, or 2.6 percent of the SSI population. As a result of our review and analysis, we found that the 5B alert process is vulnerable to abuse and fraud due to SSA`s limited authority to investigate 5B alerts. Our analysis of the SSI records and financial information revealed some possible overpayments. We were not able to conclusively establish that overpayments existed in these cases because we did not contact the recipients to determine ownership of the income/resources.

• One recipient received a check for $25,120.82, 6 months prior to his or her date of entitlement. The recipient withdrew $8,816, 2 months prior to the date of entitlement. Deposits amounting to $14,738 were made to the account after SSI payments were terminated.
• Another recipient had over $9,000 in savings accounts which was withdrawn the month prior to the date of entitlement.
• A deposit of $83,793 was made to a recipient`s account 3 months after SSI payments were terminated.

Some reasons the SSI payments in our sample were terminated include: excess resources or income (22 percent and 27 percent respectively); failure to provide required reports to resolve the alert (24 percent); and death of the recipient (9 percent). The cases above are being reviewed for fraud and overpayment recovery and may be referred to OIG, OI.

SEVENTEEN OF THE 42 SSI RECIPIENTS FOR WHICH WE OBTAINED INCOME AND RESOURCE INFORMATION MAY HAVE RECEIVED OVERPAYMENTS.

The resource limitation for individuals on SSI is a $2,000 average monthly account balance. According to SSA, an average overpayment for an SSI recipient with a 5B alert is $1,094. We found in our inspection that the average possible overpayment for those recipients with average monthly account balances over $2,000 was $2,178. This involved both recipients with single and multiple unresolved IRS alerts.

There currently is no requirement that the FO develop an unresolved 5B alert on a prior record when a recipient comes in to reapply for SSI. Although not required, the majority of the FOs surveyed do check the previous record and attempt to develop such alerts. Table 2 details single and multiple unresolved IRS alert cases in our sample that may have incurred overpayments. For our analysis, overpayments were estimated by reviewing financial records for months where recipients` received SSI payments when their account balances were over $2,000. The average SSI payment was multiplied by the number of months when their account balance exceeded $2,000 to estimate the overpayment.

Table 2

THE SSA FO STAFF ARE NOT FOLLOWING POMS PROCEDURES OR FULLY UTILIZING RESOURCES AVAILABLE TO THEM FOR PROCESSING 5B ALERTS.

We found that some FOs are not following POMS procedures in documenting, clearing, and retaining 5B alerts.

• Twenty-five FOs (24 percent) do not document the case files with reasons for not fully developing an alert, nor do they clear these cases from the system when appropriate.
• Seventy-nine (75 percent) of the 105 FOs surveyed continued to retain the 5B alert information in the file for developed cases. According to the Computer Matching and Privacy Protection Act of 1988, Public Law 100-503, the FO is required to destroy the 5B alert upon completion of development.

The FOs are not fully utilizing financial penalties and similar fault determinations.

• Sixty-nine (66 percent) of the FOs surveyed do not impose penalty deductions, while 28 (27 percent)) impose these 10 percent of the time or less.
• Fifty-eight (55 percent) never make a determination of similar fault and 31 (30 percent) make such a determination in 10 percent or less of the time in their cases.

We found variation among FOs in terms of how they describe and apply administrative finality rules.

• The claims representatives go back 26 months from the date on the actual alert. If that is not available, they use the 5B diary date on the SSIRD."
• "We use 25 months prior to the run-date selection of the 5B alert."
• "Go back 23 months from date the diary is set, per POMS, unless fraud is involved."

ONE-THIRD OF THE RECIPIENTS WITH 5B ALERTS ALSO RECEIVE SOCIAL SECURITY BENEFITS WHICH CREATES A POSSIBLE AVENUE TO RECOVER TITLE XVI OVERPAYMENTS.

Recovery of overpaid title XVI funds can be made from title II benefits if the recipient agrees to make repayment by decreasing these benefits. Under current legislation, recovery in this manner can only be utilized in cases when beneficiaries volunteer to offset their Social Security payments.

FO STAFF IDENTIFIED BARRIERS THAT IMPEDE THE TIMELY DEVELOPMENT OF 5B ALERTS.

Problems obtaining financial information include:

• Staff in 20 of the surveyed FOs (19 percent) stated that financial institutions were resistant to responding to information requests. Another 13 FOs (12 percent) responded that they received mixed responses from financial institutions. Other comments about information requests from financial institutions include: being slow to respond, incomplete, old and incorrect information, and costly to obtain.
• Staff in 88 of the FOs (84 percent) stated that financial institutions indicated many of the account numbers that appear on the 5B alert are invalid.
• Eighty-six of the FOs (82 percent) have been unable to obtain information from financial institutions in some cases. The primary reasons given for not providing information were that the account number was invalid, requested information was too old, too time-consuming, bank records were unavailable, mergers made locating information difficult, amount of fee reimbursement too low, and they refused to respond in spite of the fee SSA was willing to pay.
• Financial institutions are required to report interest income monthly so it can be recorded on the recipient`s SSI record. Some amounts are as low as 11 cents per month. Resources in excess of $61 must be reported. The FOs responded this becomes a burden on financial institutions to report these small amounts.
• There are instances in which FOs do not attempt to contact the financial institution listed on the 5B alert because they know that it is chronically uncooperative.

Other problems include:

• Seventeen FOs (16 percent) responded that recipients do not cooperate.
• Sixty-three of the FOs (60 percent) listed problems such as lack of staff and time to work the alerts, time-consuming, tolerances are too low, duplicate postings occur, and they do not receive results in relation to time spent.
• Approximately one-third (39 percent) of the FOs surveyed do not receive training for processing 5B alerts.
• Seventy-seven FOs (73 percent) stated the process was not effective in preventing overpayments.
• Although IRS alert information is usually accurate, errors do occur. For instance, bank accounts, Social Security numbers, and recipient names do not always match. The FOs noted that double postings sometimes occur.
• The FOs do not receive work unit measurement credits for developing 5B alerts.

Problems with the fraud referral of cases include:

• Eighty of the FOs (76 percent) surveyed are not making fraud referrals to OIG. Another 22 (21 percent) make these less than 10 percent of the time. Many have stopped making fraud referrals because they claim that little can be done with them and they believe it is a waste of time. As a result, staff in 73 of the FOs (70 percent) stated that there is little or no potential for additional fraud referrals.
• Many cases are not pursued because the overpayment amounts are below the threshold set by many U.S. Attorneys. There is no provision for referring cases where the overpayment amount is unknown, such as noncooperation in developing the 5B alerts. Further, many cases are not pursued because the recipients are elderly or disabled and their cases are difficult to prosecute.

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RECOMMENDATIONS

While SSA has taken steps to enhance the efficiency of the 5B alert program, we believe there are additional steps that SSA can take to improve program effectiveness.

SSA should:

1. Require FOs to develop previous 5B alerts prior to allowing recipients to be re-entitled to SSI.

Currently there is no requirement that FOs resolve a 5B alert on a previous record when a recipient files a new application. At a minimum, the applicant should provide an explanation of the unreported income.

2. Encourage increased utilization of financial penalties for those recipients who receive overpayments detected by 5B alerts.

The FOs should consider increased efforts to: (a) impose penalty deductions and make similar fault determinations and (b) place cases in suspense status to a much greater degree than they are now for recipients who receive overpayments based on FO development of a 5B alert.

3. Provide refresher training for FO staff to ensure compliance with POMS on working 5B alerts and resolving them in a timely and thorough manner.

Since one-third of the FOs indicate they do not receive training on 5B alerts, and one-fourth do not fully develop these alerts, refresher training could address proper development of 5B alerts and provide a greater awareness of the legal requirements of computer matching and administrative finality.

4. Consider establishing work unit credits for FO staff developing 5B alerts.

Recognizing 5B workload activities by FO staff could be accomplished by establishing and reporting work unit measurement credits.

5. Work towards recovering overpayments by adjusting Social Security benefits when possible.

Since one-third of the recipients with 5B alerts receive Social Security benefits, SSA FO staff should use this method of offset, where possible, to recover SSI overpayments.

6. Pursue legislative changes to simplify both resource and income reporting requirements.

Simplifying or increasing the required reporting amount on income and resources will reduce the burden on financial institutions, as well as FO staff.

7. Establish a working relationship with national banking associations to ensure cooperation and support on the part of the financial institutions.

This would facilitate and simplify obtaining information from financial institutions in order to process the 5B alerts. In addition, it would be beneficial in locating institutions if an on-line address directory for financial institutions is accessible that would be continually updated.

8. Refer all cases of suspected fraud to OIG.

AGENCY COMMENTS AND OIG RESPONSE

SSA comments to our draft report are contained in their entirety at Appendix A. SSA is in agreement with recommendations three through eight and has identified action either underway or planned to implement those recommendations.

The Agency points out that increased matching tolerances and a profiling system have significantly reduced the 5B alert workload and would significantly reduce the number of alerts (143,000) we identified in our study. We agree.

The Agency also questions whether there were overpayments in the 17 cases we identified, pointing out that the resources may not be owned by the recipient or may not be countable. In these cases we went directly to the financial institutions involved to obtain income and resource information. We requested each recipient to sign a consent form giving permission to the financial institution to release the information on their income and resources.

There is also concern that our finding that FOs are not clearing 5B alerts is not supported by any specific data in the report. Our conclusions are based on a random sample of district and branch offices. Each office was requested to have a knowledgeable staff person respond to our survey questions. We based our conclusions on the responses from these individuals to a wide range of questions concerning SSA operations relative to 5B alerts.

We recommended that SSA, "Require FOs to develop previous 5B alerts to the extent possible prior to allowing recipients to be reentitled to SSI." (Recommendation 1) We continue to believe this recommendation is in accordance with SSA’s plans to concentrate on the most productive alerts.

SSA is concerned that our recommendation to, "Encourage increased utilization of financial penalties for those recipients who incur overpayments detected by 5B alerts" (Recommendation 2) infers that FOs should be encouraged to apply more penalties for 5B cases than others. It is not our intent that FOs apply more financial penalties for 5B cases. We are only recommending that penalties be applied when appropriate. The staff of surveyed FOs told us that they are not applying financial penalties.

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APPENDICES

APPENDIX B

LIST OF CONTRIBUTORS

This evaluation report was prepared by the Office of Audit under the direction of Scott Patterson, Director, Evaluations and Technical Services. Project staff included Brenda Stup, Senior Evaluator. Special thanks to the following individuals from the Department of Health and Human Services/Office of Inspector General, for their contributions through the formal draft stage of this project:

Kansas City Region

James H. Wolf, Regional Inspector General
Jennifer E. Collins, Project Leader
Perry A. Seaton, Program Analyst
Hugh R. Owens, Program Analyst

Headquarters

Barbara R. Tedesco, Mathematical Statistician
Linda M. Moscoe, Program Analyst