Office of Audit - A-01-96-61071

The Social Security Administration (SSA) selects a representative payee to receive and use funds on behalf of a beneficiary where it appears that it will serve the beneficiary`s best interests. A representative payee must apply the payments it receives for the use and benefit of the entitled individual. The benefits are properly applied if they are spent for the beneficiary`s current and reasonably foreseeable needs, or saved and invested for the beneficiary, if current needs are being met.

The Massachusetts Department of Social Services (DSS) is the representative payee for children who are placed in its custody and are eligible for Retirement, Survivors and Disability Insurance (RSDI) and/or Supplemental Security Income (SSI) benefits. As the representative payee, DSS is responsible for: (1) accounting for the benefits received and used for each individual beneficiary; (2) using the benefits received only for the food, shelter, clothing, medical care, and personal items of the beneficiary; (3) notifying SSA of any event that will affect the amount of benefits or the right of the beneficiary to receive benefits; (4) submitting to SSA, upon request, a written report accounting for the benefits received; and (5) notifying SSA of any change in the representative payee`s circumstances that would affect performance of the payee responsibilities.

Our objective was to determine whether SSA ensured that DSS, as a representative payee, had adequate procedures to account for benefits received for the children in its care. Specifically, we focused on whether DSS: (1) accounted for the funds of each beneficiary, (2) monitored the individual accounts for events reportable to SSA, and (3) submitted written reports to SSA as required.

At the time of our audit, SSA`s regional office (RO) was working closely with DSS to design and implement system changes to correct accounting weaknesses and resolve cases where DSS needed to refund benefits to SSA. The RO began working with DSS in January 1995 when the RO became aware of weaknesses in DSS` accounting system. In March 1995, SSA suspended benefits for 86 beneficiaries because of DSS` failure to complete redetermination forms. Prior to 1995, however, SSA had not properly monitored the performance of DSS to ensure accountability for the benefits it received as a representative payee.

Even though SSA was working with DSS to correct the accounting weaknesses identified, in 67 of 187 cases we sampled, DSS should have returned funds to SSA because the beneficiary left DSS or beneficiary funds exceeded the eligibility resource limit. For the 187 cases, SSA paid $2.02 million to DSS of which $361,292 (18 percent) should have been returned. Projecting these results to the 1,335 SSA beneficiaries in DSS` custody as of October 1995, we estimate that $1.6 million is due to be refunded to SSA.

DSS` accounting system, implemented in July 1995, did not detect payments that were made to beneficiaries who were no longer eligible for benefits. Although this system significantly improved DSS` accounting, we found the following:

During our review, DSS was implementing changes to its systems that were intended to address the payment errors and reporting issues we identified. SSA should review and monitor the payments and reporting requirements of DSS to ensure that issues we identified are corrected. Specifically, we recommend that SSA:

In response to our draft report, SSA agreed with our recommendations. Specifically, SSA stated that: (1) DSS returned $2.4 million in conserved or overpaid funds; (2) SSA issued reporting instructions to DSS; and (3) SSA established a schedule for redeterminations and payee accounting forms.

The Social Security Act established a number of programs whose broad objectives include providing for the material needs of individuals and families, protecting aged and disabled persons against the expenses of illnesses that could otherwise exhaust their savings, keeping families together, and giving children the opportunity to grow up in health and security. SSA is primarily responsible for implementing two of these programs: the RSDI program and the SSI program. The RSDI program is designed to provide retirement benefits to fully insured individuals who have reached the minimum retirement age, survivors benefits to dependents of fully insured wage earners in the event the family wage earner dies, and to disabled wage earners and their families. The SSI program provides income and disability coverage to financially needy individuals who are aged, blind or disabled.

Under both the RSDI and SSI programs, SSA normally makes benefit payments directly to the beneficiary; however, in some cases, it is necessary to send the payment to a representative on the beneficiary`s behalf. SSA`s policy regarding the appointment of a representative payee is that every beneficiary has the right to manage his or her own benefit payments. However, where it appears that it would serve the best interests of a beneficiary, SSA will select either a person or organization to receive benefit payments for the use and benefit of the beneficiary, regardless of the legal competency of the beneficiary.

A representative payee must apply the payments for the use and benefit of the entitled individual. The RSDI and SSI benefits are properly disbursed if they are spent for the beneficiary`s current and reasonably foreseeable needs, or saved and invested for the beneficiary, if current needs are being met. The representative payee is responsible for knowing and making provisions for the total needs of the beneficiary. Current needs should never be sacrificed to pay other expenses, to conserve or invest benefits, or to accumulate benefits for a future purpose. A representative payee who has accumulated savings from the benefits and ceases to serve as payee will be required to turn over the benefits and any interest earned on the benefits to SSA for transfer to the new payee.

Under the foster care program, the Massachusetts DSS often applies for RSDI and SSI benefits on behalf of the children placed in its custody. Once these children become eligible for benefits, DSS becomes their representative payee. As the representative payee, DSS is responsible for accounting for the benefits received on behalf of the children in its custody. These responsibilities include: (1) accounting for the benefits received and used for each individual beneficiary; (2) using the benefits received only for the food, shelter, clothing, medical care, and personal items of the beneficiary; (3) notifying SSA of any event that will affect the amount of benefits the beneficiary receives or the right of the beneficiary to receive benefits; (4) submitting to SSA, upon request, a written report accounting for the benefits received; and (5) notifying SSA of any change in the representative payee`s circumstances that would affect performance of the payee responsibilities.

Under the SSI program, a recipient is limited to $2,000 in resources to remain eligible for benefits. If this resource limit is exceeded, benefit payments to that recipient are suspended. Such benefits will resume if the recipient`s resources later fall below the limit. Since the representative payee is responsible for notifying SSA of any event that affects the right of the beneficiary to receive benefits, the representative payee must notify SSA if a recipient`s resources exceed the limit in any given month.

Massachusetts regulations require DSS to set aside 25 percent of the RSDI and SSI benefits received each month for the personal needs of the beneficiary. These funds cannot be used to reimburse DSS for the costs associated with foster care, but must be used for personal items for the beneficiary. If the beneficiary does not use the funds for personal items, the funds are accumulated and conserved for the beneficiary`s future personal needs.

To keep records of the benefit payments received, spent, or held for beneficiaries in its custody, DSS contracted with Public Consulting Group (PCG). Beginning in July 1993, PCG managed SSA funds for beneficiaries in foster care, maintaining separate accounting records for each beneficiary in DSS` custody.

Our review was conducted in accordance with generally accepted government auditing standards. Our objective was to determine whether SSA ensured that DSS had adequate procedures to account for RSDI and SSI funds as a representative payee for children in its care. Specifically, we determined whether DSS: (1) accounted for the funds of each beneficiary as received; (2) monitored the individual accounts with regard to events which should have been reported to SSA; and (3) submitted written reports to SSA as requested.

We assessed the internal control procedures necessary to meet our audit objective. These were DSS` internal controls for accounting for benefits on behalf of beneficiaries in its custody; identifying events which may affect the amount of benefits or the right to receive benefits and notifying SSA of such events; and submitting SSA reports required of representative payees.

Our audit period began with the date the beneficiary became eligible for RSDI and SSI benefit payments and ended with payments made through September 1995. For those beneficiaries who had been receiving benefits for more than 5 years, our audit period began with payments made in October 1990. We performed our review between January and July 1996 in Boston, Massachusetts.

DSS had not met its responsibilities as representative payee for beneficiaries receiving RSDI and SSI benefits. DSS had not accounted for the benefits received, reported events affecting the amount of benefits or the right to receive benefits, and submitted written reports to SSA as required. At the time of our audit, SSA`s RO was working closely with DSS to design and implement system changes to correct accounting weaknesses and resolve cases where DSS needed to refund benefits to SSA. The RO began working with DSS in January 1995 when the RO became aware of weaknesses in DSS` accounting system. In March 1995 SSA suspended benefits for 86 beneficiaries because of DSS` failure to complete redeterminations forms. Prior to 1995, however, SSA had not properly monitored the performance of DSS to ensure accountability for the benefits it received as a representative payee.

Even though SSA was working with DSS to correct the accounting system weaknesses identified, in 67 of 187 cases we sampled, DSS retained funds which were due to SSA. The funds should have been returned to SSA primarily due to the beneficiary leaving DSS` custody or exceeding the SSI resource limit. For the 187 cases, $2.02 million was paid to DSS from October 1990 through September 1995 of which $361,292 (18 percent) should have been returned to SSA.

As of October 1995, DSS represented 1,335 SSA beneficiaries for whom DSS was paid about $14.3 million during our audit period. Projecting the results of our review to the 1,335 beneficiaries, we estimate SSA overpaid DSS about $1.6 million. (See Appendix A)

As shown in the following table, in 67 cases DSS had received funds which should be returned to SSA. In 50 of these cases, the beneficiaries had left DSS` custody, resulting in an overpayment. In some of these cases, DSS had continued to receive benefits for over 5 years after the beneficiaries left custody. In one case, the beneficiary was adopted in 1988, but DSS was still receiving RSDI benefits for this child in 1995.

			Reason for Overpayment
	Cases Reviewed	Cases Overpaid	Left Custody	Resource Limit Exceeded	SSA Clerical Error	Benefit Payments Due SSA	Conserved Funds Due SSA
RSDI Only	97	34	34	---	---	$163,656	$ 49,241
SSI Only	80	29	14	14	1	$ 97,595	$ 17,354
Concurrent	10	4	2	1	1	$ 32,853	$ 593
TOTAL	187	67	50	15	2	$294,104	$ 67,188
Total to be Refunded to SSA						$361,292

In 15 of the remaining cases, DSS had not reported that the beneficiaries exceeded the SSI program resource limits, resulting in an overpayment. Also, in two cases, due to clerical errors, SSA overpaid on the beneficiaries` accounts. In one of these cases, the beneficiary was being paid SSI benefits under two separate Social Security numbers (this case was referred to the Office of Investigations). For the other case, the beneficiary was concurrently eligible, but the RSDI and SSI benefits were not offset for a 4-month period, resulting in an overpayment.

A representative payee is accountable for the use of the benefits received and must keep records of expenditures made on behalf of the beneficiary and file accounting reports to SSA. In July 1993, DSS contracted with PCG to provide the accounting for SSA benefits received for beneficiaries in its custody. The accounting system implemented by PCG in July 1995 is an improvement over the system used previously by DSS, but weaknesses still exist.

DSS is required by Massachusetts law to set aside 25 percent of the RSDI and/or SSI benefit payment for the personal needs of the beneficiary. As part of its monthly accounting, PCG automatically credits 25 percent of the benefit payment to a personal needs account and charges the remaining 75 percent of the payment to reimburse DSS for costs incurred to care for the beneficiary. When automatically charging 75 percent of the benefit payment to reimburse DSS, no regard is given to the actual expenses incurred by DSS for the care of the beneficiary. In 50 of 187 cases, there were no actual expenses for the beneficiaries because the beneficiaries had left DSS` custody.

A beneficiary leaving DSS` custody is a reportable event to SSA as it may affect the right of the beneficiary to receive benefits. For example, if a SSI beneficiary is adopted, that beneficiary may no longer be eligible for SSI benefits since resources become available to the beneficiary from the adoptive parents. Further, if a beneficiary were to run away from his or her foster home, that beneficiary would not be eligible to receive benefits due to his or her whereabouts being unknown. SSA does not pay benefits under such circumstances and suspends the payments until the beneficiary returns. Accordingly, any change in custody must be reported to SSA immediately. Under DSS` system, such events were not always reported.

A change in custody was not reported to SSA because the accounting system implemented by PCG did not interface with DSS` case management system for tracking the location of the beneficiary. During our audit period, the only way that PCG would know that actual expenses paid by DSS were less than 75 percent of the benefit payment would be to manually screen DSS records for each beneficiary each month. Such manual screening would have been labor intensive and time consuming for the 1,335 beneficiaries represented by DSS.

To correct its representative payee accounting system, DSS implemented a reporting system where any change for a beneficiary will be printed on a monthly exception report. This report will then be used to screen for events which require adjustment to the accounting entries and/or must be reported to SSA. This report was being implemented at the time of our audit and was not available for review.

DSS allocates 25 percent of the benefit payment each month for current or future personal needs of the beneficiary. Once the conserved funds accumulated for personal needs exceed $2,000, the beneficiary is no longer eligible for SSI benefits. DSS accumulated funds for beneficiaries in excess of the $2,000 limit and did not notify SSA. This occurred because DSS did not have a mechanism in place to indicate when a beneficiary exceeded the resource limit.

In 15 of the 187 cases we sampled, DSS continued to receive SSI payments for beneficiaries who had exceeded the resource limit. In these cases, the resources accumulated above $2,000 for several reasons: (1) 25 percent of the benefit payment must be set aside for personal needs each month; (2) many personal items were paid for by DSS for all foster care children and were not paid for with funds conserved for personal needs; and (3) DSS did not routinely expend funds for personal needs because the case workers with knowledge of the items needed by the beneficiary did not know that funds were available or have easy access to those funds. In this regard, while 19 percent of SSA funds paid to DSS during our audit period were accumulated for personal needs, only 4 percent were spent for personal needs items. We did not determine whether the personal needs of the beneficiaries were being met; however, DSS agreed that its system needed improvement to ensure that case workers had knowledge of and access to beneficiary funds set aside to meet personal needs.

To correct this system weakness, DSS plans to provide case workers with access to conserved funds so that personal needs items can be obtained for beneficiaries and to implement an automatic alert when the accumulated resources of the beneficiary reach $1,500. This alert will notify DSS that conserved funds are approaching the resource limit and allow time for the case worker to identify additional personal needs and use those funds before the beneficiary exceeds the resource limit and becomes ineligible. This mechanism was not implemented at the time of our review so we could not determine whether it will be effective.

Also, if after the above measures are implemented, the conserved funds still exceed $2,000, DSS will have to be aware of the situation and report it to SSA in order to comply with its representative payee responsibilities.

After contracting with DSS to handle the accounting of SSA benefits, PCG conducted a review of individual beneficiary accounts to ensure that the balances were accurate. In conducting this review, PCG audited each beneficiary`s record of the amount received from SSA, the amount expended for care, the amount expended for personal items, and the amount conserved for the beneficiary`s future needs. In conducting this review, PCG compared the amount of benefits reimbursed to DSS for care against the actual expenses incurred by DSS to ensure that DSS did not use beneficiary funds for costs which were not actually incurred. This review identified many cases where SSA was due a refund of benefits. However, the review did not identify all cases where a refund was due because, in reviewing the costs to be reimbursed to DSS from beneficiary accounts, PCG considered a Medicaid management fee as an expense. This fee is an allowable Medicaid expense and should have been charged to the Medicaid program and not reimbursed from beneficiaries` funds. Officials at PCG agreed that this expense should not have been reimbursed from beneficiary funds and planned to review and adjust accounts where the fee had been improperly reimbursed from beneficiary funds.

For most of our audit period, DSS` system was not adequate to account for beneficiary funds and SSA did not monitor DSS adequately to identify these weaknesses. In this regard, we found that SSA had not ensured that annual representative payee accountings and beneficiary redeterminations were completed as required by SSA policies and procedures. If the required accounting reports and redeterminations had been completed, SSA would have been alerted to changes in beneficiaries` eligibility and the weaknesses in DSS` accounting system.

Under its written policies and procedures, SSA is required to obtain an annual accounting from all representative payees. When a payee does not respond to the initial or second request for a representative payee accounting form, SSA procedures require that a claims representative contact the payee to find out why the completed form was not returned and conduct an interview with the payee to complete the form, if necessary. The procedures further state that if the payee does not respond to, or will not cooperate with efforts to obtain and approve an accounting report, a change of payee may be in the beneficiary`s best interest because the nonresponse may indicate that the payee is trying to conceal poor performance.

Additionally, SSA is required to conduct a periodic redetermination of recipients` eligibility factors to be sure that they are still eligible for and receiving the correct SSI payment. Redeterminations are scheduled based on the likelihood of changes in the recipient`s circumstances that may affect eligibility or the payment amount. For the beneficiaries in our review, the likelihood of erroneous payment was considered by SSA to be medium or high. When the profile is medium or high, the redetermination of eligibility is to be conducted annually by field office staff. If a representative payee does not comply with the annual redetermination request, SSA should follow up by telephone or home visit. If the representative payee still fails to comply, SSA should determine whether a new representative payee is needed and/or suspend SSI benefits until the information is provided.

In 22 of 33 SSI cases where DSS was overpaid, the required annual accounting forms and/or redeterminations had not been conducted and recorded on SSA`s automated files. For some of these cases, accounting forms had not been completed for 4 years and redeterminations had not been completed for 3 years. In 15 of the 22 cases, there is no record in SSA`s files that the request was sent to DSS as required. In these cases, we were not able to determine whether the requests were sent and not recorded or whether they were ever sent to DSS. In the remaining seven cases, SSA had documented the request for the annual accounting from DSS, but DSS had not responded to the request. We could not obtain similar data for RSDI cases, since no record is kept showing when the last accounting was performed and redeterminations are not required. Had the accounting forms and redeterminations been followed up on and completed as required, SSA would have been alerted to changes in beneficiaries` eligibility and accounting system weaknesses at DSS. However, prior to March 1995, any problems noted were not acted upon and did not result in a site visit or any adverse actions as is required for all representative payees who do not respond to SSA requests.

SSA has not ensured that DSS met its responsibilities as representative payee for RSDI and SSI beneficiaries. Specifically, SSA did not monitor the performance of DSS to ensure that DSS accounted for the benefits received, reported events affecting the amount of benefits or the right to receive benefits, and submitted reports required of all representative payees when requested. However, at the time of our audit, SSA RO was working closely with DSS and PCG to design and implement system changes to correct the weaknesses described above and to resolve the cases where DSS needed to return funds to SSA.

In response to our draft report, SSA agreed with our recommendations (see Appendix B). Specifically, SSA stated that:

¹ This requirement does not apply to State and Federal institutions, such as State hospitals.

We obtained a listing from the Social Security Administration (SSA) regional office of all Retirement, Survivors and Disability Insurance and/or Supplemental Security Income beneficiaries with the Department of Social Services (DSS) as their representative payee as of October 1995. In addition, a listing was provided by DSS of those SSA beneficiaries on its accounting records as of January 1996. A comparison of the two lists resulted in a population of 1,141 cases included on both lists, 157 cases on SSA`s list which DSS listed as closed, 28 beneficiaries who were only on SSA`s list, and 9 beneficiaries on the two lists with more than one Social Security number assigned. Using a stratified sample design, we randomly sampled 100 of the 1,141 cases, 50 of the 157 cases, and reviewed all of the 28 and 9 cases. For the 187 cases we reviewed, SSA had paid DSS $2.02 million during our audit period.

	Strata 1	Strata 2	Strata 3	Strata 4	Total
Strata Name	Both Lists	SSA Open, DSS Closed	SSA Only	Multiple SSNs	Total
Population Size	1,141	157	28	9	1,335
Sample Size	100	50	28	9	187
Number of Errors	23	36	7	1	67
Population Dollars	$1,062,558	$587,609	$239,727	$128,018	$2,017,912
Error Dollars	$80,286	$195,732	$79,942	$5,332	$361,292

Overall, for 67 beneficiaries, DSS was holding $361,292 which was overpaid and due back to SSA. Projecting the results of our review to the population of 1,335 SSA beneficiaries with DSS as their representative payee as of October 1995, we estimate that of approximately $14.3 million paid to DSS during our audit period, about $1.6 million should be returned to SSA. At the 90 percent confidence level, the precision of these estimates is plus or minus 11.7 percent and 25.5 percent, respectively.

Gary A. Kramer, Director
Roger J. Normand, Director
Rona Rustigian, Acting Audit Manager
David Mazzola, Auditor
Jodi Connor, Auditor

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	Last reviewed or modified Monday Jan 14, 2008