OFFICE OF
THE INSPECTOR GENERAL

SOCIAL SECURITY ADMINISTRATION

TITLE II UNDERPAYMENTS
FOR DECEASED
BENEFICIARIES

July 2004

A-03-03-13014

AUDIT REPORT

Mission

We improve SSA programs and operations and protect them against fraud, waste, and abuse by conducting independent and objective audits, evaluations, and investigations. We provide timely, useful, and reliable information and advice to Administration officials, the Congress, and the public.

Authority

The Inspector General Act created independent audit and investigative units, called the Office of Inspector General (OIG). The mission of the OIG, as spelled out in the Act, is to:

Conduct and supervise independent and objective audits and investigations relating to agency programs and operations.
Promote economy, effectiveness, and efficiency within the agency.
Prevent and detect fraud, waste, and abuse in agency programs and operations.
Review and make recommendations regarding existing and proposed legislation and regulations relating to agency programs and operations.
Keep the agency head and the Congress fully and currently informed of problems in agency programs and operations.

To ensure objectivity, the IG Act empowers the IG with:

Independence to determine what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations based on the reviews.

Vision

By conducting independent and objective audits, investigations, and evaluations, we are agents of positive change striving for continuous improvement in the Social Security Administration's programs, operations, and management and in our own office.

MEMORANDUM

Date: July 21, 2004

To: The Commissioner

From: Acting Inspector General

Subject: Title II Underpayments for Deceased Beneficiaries (A-03-03-13014)

OBJECTIVE

Our objective was to determine whether the Social Security Administration (SSA) was capturing the Social Security numbers (SSN) of individuals claiming Title II underpayments after a beneficiary had died to ensure (1) the payment was made to an appropriate party and (2) required information was shared with the Internal Revenue Service (IRS).

BACKGROUND

Death underpayments occur when an accrued Title II benefit amount has not been paid or a final benefit payment that was issued to a deceased beneficiary is returned. The death underpayment can be claimed by third parties such as auxiliary beneficiaries, or individuals who are entitled to the underpayment.

During Calendar Years (CY) 2001 and 2002, SSA processed 103,745 death underpayments outside of the Title II system and used the manual One-Check-Only (OCO) and Single Payment System (SPS) to make these payments. Prior to
May 2002, SSA processed death underpayments through the OCO payment system until it was replaced with SPS. The change to SPS occurred based in part on the results of a prior Office of the Inspector General audit, which identified several vulnerabilities and internal control weaknesses with the OCO payment system. The SPS was designed to reduce the number of inputs required for payments made outside of the Title II system. Further, it was created to ensure the timeliness of payments, prevent duplicate and erroneous payments, and document management information.

SCOPE AND METHODOLOGY

Our audit focused on death underpayments issued during CYs 2001 and 2002 and processed through the OCO and SPS payment systems. We tested the death underpayment data for accuracy and completeness and determined it to be sufficiently reliable to accomplish our objectives except as disclosed in the findings of this report. We provide a full description of our scope and methodology in Appendix D and our sampling methodology in Appendix E. The SSA entities reviewed were the Offices of the Deputy Commissioner for Systems and Operations. We conducted our audit from July 2003 to February 2004 in Philadelphia, Pennsylvania in accordance with generally accepted government auditing standards.

RESULTS OF REVIEW

Our review of death underpayments processed outside of the Title II system during CYs 2001 and 2002 found that 51 percent were processed without capturing payees' SSNs. This occurred because (1) SSA does not require the payee's SSN to issue death underpayments, and (2) when SSNs are known, SSA does not always enter them into its payment systems when processing the payments. Due to the omission of the payees' SSNs, approximately $73 million in Social Security payments were reported to the IRS by SSA without the appropriate SSN. Although SSA processed a substantial number of death underpayments without the payees' SSNs, based on our review of 100 randomly sampled death underpayments, the payments were paid to the appropriate next of kin or legal representative. However, SSA could have located, in most cases, the payees' SSNs within the Agency's own records. Based on our sample results, we project that SSA could have located the SSNs for 97 percent of the death underpayments processed without the payees' SSNs. Finally, we found death underpayments were not always coded properly within SSA's systems and dates of death of primary beneficiaries were not recorded on their Numident records.

UNDERPAYMENTS PROCESSED WITHOUT THE SSNs

During CYs 2001 and 2002, SSA processed 103,745 death underpayments totaling about $135 million through the OCO and SPS payment systems, of which 51 percent (52,858) were issued to payees without capturing their SSNs. We determined this by reviewing the Payment History Update System (PHUS), which contains historical records of Title II payment-related actions. PHUS showed the data field used to capture the payee's SSN was left blank when the payments were processed.

Generally, we found that SSA does not require payees to provide their SSN when claiming a death underpayment. When SSA determines that a death underpayment is due and it is not evident in SSA's system who is entitled to receive the underpayment, a notice is sent to the family of the deceased to determine the appropriate next of kin. The notice requires that the next of kin provide proof of his/her relationship to the deceased beneficiary such as certified birth and marriage certificates. However, the notice does not request the next of kin to provide their SSN. It only requests that the deceased beneficiary's claim number be placed on the back of documents submitted as proof of relationship.

Moreover, the Claim for Amounts Due in the Case of a Deceased Beneficiary (SSA-1724 form) that is frequently used by payees to claim the death underpayment includes a data field to capture their SSN, but the SSN is not mandatory for processing the claim. The form allows them to either leave the field blank or write unknown. In Fiscal Year 1998, the Center for Security and Integrity (CSI) within the Mid-Atlantic Social Security Center (MATSSC) recognized this was a weakness and recommended the form be revised to make the SSN mandatory. This revision would reduce the risk of fraudulent payments and provide the IRS with a means to ensure that the payees report the income. The CSI based its recommendation on an investigation of a SSA employee who fraudulently issued death underpayments to friends and family members using the SSA-1724 form. We followed up with the Office of Income Security Programs, which is responsible for implementing the recommendation, and were told that the SSA-1724 form had not been revised as of January 2004. The staff member stated that the form would be revised in the near future but could not tell us when this would occur although it has been over 5 years since CSI made its recommendation.

Furthermore, the OCO and SPS payment systems used to process the death underpayments include a field to capture the payee's SSN, but this field is optional. SSA staff can leave the field blank and continue to process and issue a payment although they received the payee's SSN. In fact, the instructions for the SPS payment system state that the payee's SSN is only mandatory if the payee is receiving Social Security Income payments.

Tax Implications

The Social Security Benefit Statement (SSA-1099 form) is used to notify payees and the IRS that SSA benefits received during the year may be taxable. The amount shown on the SSA-1099 form is derived from the payments that appear on the PHUS records. The payee's SSN is required on the SSA-1099 form to ensure that the income is properly reported to the IRS. For the 52,858 death underpayments, the SSA-1099 forms that were issued to payees did not include their SSNs. Consequently, approximately $73 million in Social Security payments were reported to the IRS by SSA without the appropriate SSN. We contacted IRS management to confirm the importance of the payee's SSN on the SSA-1099 form and they concurred that without the payee's SSN, the IRS has no knowledge that the individual should be reporting taxable income for a given tax year.

DEATH UNDERPAYMENT PAID TO THE APPROPRIATE PARTY

In our sample of 141 death underpayments totaling about $3 million that were processed without the payees' SSNs (see Table 1), we found that the payments were paid to the appropriate next of kin or legal representative. This was determined by reviewing evidence provided to SSA as proof of relationship to the deceased such as birth, marriage, and death certificates, and legal documents appointing an individual as the legal representative of the deceased beneficiary's estate. Further, we reviewed Numident and the Master Beneficiary Records (MBR) where the relationship between payee and the deceased beneficiary had previously been established. For example, in one case our review of the Numident and MBR records showed that a $22,110 death underpayment was correctly paid to the mother of a minor child who was receiving benefits under her father's Social Security record. In addition, the MBR showed the mother had been the representative payee for the deceased father who had been receiving disability benefits.

Table 1: Summary of Sampled Death Underpayments
Payment Systems 100 Sampled Payments 41 Sampled
Payments Total Sampled Payments
Number of Payments Amount of Payments Number of Payments Amount
of Payments Total Number of Payments Total Amount of Payments
SPS 40 $ 38,338 17 $1,123,797 57 $1,162,135
OCO 60 $104,151 24 $1,718,399 84 $1,822,550
Total 100 $142,489 41 $2,842,196 141 $2,984,685

Furthermore, we determined that most (70 percent) of the sampled death underpayments were issued because the deceased beneficiaries' final benefit payments were returned to the Agency the month of their death. For a complete list of the reasons the 100 sampled death underpayments were issued see Appendix G.

Locating Payees' SSNs

Despite the fact that it appears that the sampled death underpayments were paid to the appropriate parties, SSA could have located the payees' SSNs within its own records. Of our 100 randomly selected death underpayments, we were able to locate the payees' SSNs for 97 of these payments by reviewing completed SSA-1724 forms or querying SSA's Alpha-Index File. For the remaining three payments, two payments related to the estate of the deceased beneficiary and we were not able to locate the SSN for the third payment. Based on our sample results, we project that SSA could have located the SSNs for 97 percent (approximately 51,232) of the death underpayments processed without the payees' SSNs. The following is the results of our search.

For 55 underpayments, the payees' SSNs were located by querying the Alpha-Index File. The SSNs were missing because the payees did not include their SSNs on the SSA-1724 form or other documents submitted to SSA. These 55 payments project to approximately 29,049 payments that could have been identified by querying the Alpha-Index File.

For 42 underpayments, the SSNs were included on the SSA-1724 form. For example, in one case the parent of the deceased completed a SSA-1724 form to claim a $24,509 death underpayment. The parent included her SSN on the SSA-1724 form but when the payment was processed through the OCO payment system, SSA staff failed to enter the SSN in the field used to capture this data. These 42 payments project to approximately 22,183 payments where the payees included their SSNs on the SSA-1724 form.

For two underpayments, SSA should have used the deceased beneficiaries' SSNs since the payees were the legal representatives of the deceased beneficiaries' estate. We did not project these payments to the population.

For one underpayment, the SSN could not be located. However, we were able to determine based on the evidence provided to SSA that the underpayment was paid to the appropriate next of kin.

Figure 1 is a graphic representation of the results for the 100 sampled death underpayments.

OTHER DISCREPANCIES FOUND WITH DEATH UNDERPAYMENTS

While reviewing death underpayments processed without capturing payees' SSNs, we discovered (1) 986 payments that appeared to have been incorrectly coded as death underpayments and (2) 1,415 payments that were processed although the primary beneficiaries' dates of death were not recorded on SSA's Death Master File (DMF). To focus our analysis better, we reviewed these payments separately.

Possible Lump Sum Death Payments

SSA processed 986 payments totaling $251,430 that appear to have been incorrectly coded as death underpayments. Our review of the PHUS records for 50 sample payments found that all were actually lump sum death payments (LSDP). The LSDP is a non-taxable payment of $255 payable to a surviving spouse or child who is eligible to receive benefits under the deceased beneficiary's Social Security record. The PHUS records showed that initially SSA staff tried to process these payments as LSDPs, but the payments were either returned because of incomplete addresses or cancelled. When SSA staff processed these payments for the second time, they incorrectly entered the code used to process death underpayments. Furthermore, we found that 9 of the 50 sampled payments had been erroneously issued more than once. For three payments, the LSDP was issued twice to the same family member because SSA staff had overlooked the initial payment when processing the second payment. For six payments, the LSDP was issued twice to different family members. These payments were issued to both the spouse and child of the deceased and thus were not paid in accordance to POMS. These erroneous payments may have been prevented if they were properly coded.

Payments Processed with No Date of Death

SSA processed 1,415 death underpayments totaling about $1.8 million where the dates of death of the primary beneficiaries were not included on the SSA's DMF. When SSA receives notification of a death (for a beneficiary or auxiliary beneficiary), it should be recorded on the Agency's Numident record and become part of the DMF. Therefore, we reviewed the primary beneficiaries' MBR records to determine their status and found the following.

For 734 death underpayments, the primary beneficiaries were deceased and their benefits had been terminated. However, the Numident records for 10 sample payments did not include their dates of death. Therefore, we referred the 734 payments to SSA so that the Numident records could be updated with the primary beneficiaries' death information.

For 521 death underpayments, the primary beneficiaries were currently receiving Title II benefits. Our detailed review of the MBR and other pertinent documents for 10 sample payments found (1) 5 payments were issued correctly based on the deaths of the auxiliary beneficiaries, (2) 2 payments were incorrectly coded as death underpayments and were actually refunds paid to the primary beneficiaries, and (3) 3 payments were incorrectly issued under another person's Social Security record; however, when we reviewed the MBR and supporting documentation for the correct beneficiaries, we determined that the payments were valid and paid to the appropriate next of kin. We referred the five sample cases that were processed incorrectly to SSA for resolution.

For 160 death underpayments, the payment status on the primary beneficiaries' MBR records showed they had not received any Social Security benefits. Our sample of 10 payments found that the death underpayments were generated based on the death of the auxiliary beneficiaries and that the primary beneficiaries had been deceased since before 1967.

CONCLUSION AND RECOMMENDATIONS

Our review found that 51 percent of the death underpayments processed in CYs 2001 and 2002 did not include payees' SSNs. Since SSA did not obtain the payees' SSNs for the death underpayments, approximately $73 million in Social Security payments were reported to the IRS by SSA without the appropriate SSN. Although we found that death underpayments were paid to the appropriate parties, SSA could have located majority of the payees' SSNs within its own records. Finally, we found SSA incorrectly coded LSDPs in our sample as death underpayments and failed to record the dates of the death of primary beneficiaries on their Numident records.

We recommend SSA:

1. Require the collection of the SSN from all claimants of death underpayments to ensure taxable income is reported to the IRS by SSA.

2. Ensure that the SSA-1724 form is revised to make the payee's SSN a mandatory field and develop completion instructions in POMS.

3. Ensure that the SPS payment system is revised to make the payee's SSN a mandatory field.

4. Educate benefit authorizers on the correct procedures for processing LSDPs and death underpayments.

5. Make the necessary corrections for the payments that were referred during the audit.

AGENCY COMMENTS AND OIG RESPONSE

SSA concurred with all 5 recommendations, noting that the Agency is already revising the SSA-1724 form and correcting the underpayments we referred. The Agency noted that a maximum of 85 percent of Social Security payments not reported to the IRS would be subject to income tax. We have adjusted the report to address this comment. Furthermore, SSA noted its concern that we were suggesting that the Agency assign an SSN to an otherwise ineligible person for the purpose of receiving a death underpayment. We are not suggesting such a policy. While we anticipate most individuals applying for the death underpayment will have their own SSN, in those circumstances where an SSN was never assigned to an individual, we believe SSA should document the reason for the missing SSN in SPS.

Patrick P. O'Carroll, Jr.

Appendices

APPENDIX A - Acronyms
APPENDIX B - Additional Background
APPENDIX C - Flowchart of Death Underpayment Process
APPENDIX D - Scope and Methodology
APPENDIX E - Sampling Methodology
APPENDIX F - Sampling Results and Projections
APPENDIX G - Reasons for Death Underpayments
APPENDIX H - Example of Form SSA-1724
APPENDIX I - Agency Comments
APPENDIX J - OIG Contacts and Staff Acknowledgments

Appendix A
Acronyms

CSI Center for Security and Integrity
CY Calendar Year
DMF Death Master File
IRS Internal Revenue Service
LAF Ledger Account File
LSDP Lump Sum Death Payment
MACADE Manual Adjustment Credit and Award Data Entry
MATSSC Mid-Atlantic Social Security Center
MBR Master Beneficiary Record
OASDI Old-Age, Survivors and Disability Insurance
OCO One-Check-Only
OIG Office of the Inspector General
PHUS Payment History Update System
POMS Program Operations Manual System
SPS Single Payment System
SSA Social Security Administration
SSN Social Security Number

Forms
SSA-1724 Claim for Amounts Due in the Case of a Deceased Beneficiary
SSA-1099 Social Security Benefit Statement

Appendix B
Additional Background

Form SSA-1724

Payees are required to submit a written request to claim a death underpayment along with evidence that proves they are entitled to receive the underpayment. At least one of the payees entitled to receive a portion of the underpayment must submit the written request. No particular form is required; however, the Claim for Amounts Due in the Case of a Deceased Beneficiary (SSA-1724 form) was designed for this purpose. The SSA-1724 form requests information such as (1) the relationship of the applicant to the deceased; (2) whether the deceased had a surviving spouse living in the same household at the time of death; and (3) the number of persons in the highest class of priority.

Prior Audit

In a prior Office of the Inspector General (OIG) audit report we found weaknesses with the manual One-Check-Only (OCO) system, which was the system used to process Title II payments that were not paid through the Manual Adjustment Credit and Award Data Entry system. The OIG audit report identified the following findings:

SSA's controls for processing OCO payments do not meet the standards for management controls as established by the Federal Managers' Financial Integrity Act of 1982 and promulgated by the Office of Management and Budget Circular A-123, Management Accountability and Control.

The duties of preparation and approval of OCO payment authorization forms among Program Service Center employees are not separated.

Not all eight Program Service Centers require the position titles after a signature on a payment authorization form.

The Falcon system, which is the automated system by which SSA records all OCO payments, does not provide an audit trail to identify the individual who initiates the OCO payment.

Access controls over the Falcon system at six Program Service Centers do not minimize the risk of unauthorized access.

SSA concurred with majority of the recommendations, but decided in May 2002 to replace the manual OCO system with the automated Single Payment System (SPS). According to SSA, the SPS was designed to ensure proper payment reviews and incorporate a database for all OCO payments. Further, it was created to reduce the number of inputs required for payments made outside of the Title II system, ensure the timeliness of payments, prevent duplicate and erroneous payments, and document management information

Appendix C
Flowchart of Death Underpayment Process

Appendix D
Scope and Methodology

To meet our objective we:

Reviewed Social Security Administration (SSA) policies and procedures for processing death underpayments through the following payments systems:
(1) One-Check-Only (OCO) and (2) Single Payment System (SPS).

Reviewed a July 1996 Center for Security and Integrity investigation report of a SSA employee who fraudulently issued death underpayments to field and family members.

Reviewed prior SSA Office of the Inspector General reports related to death underpayments and the OCO system.

Obtained a data extract of 103,745 Title II death underpayments issued in CYs 2001 and 2002 from SSA's Payment History Update System (PHUS) and divided the population of 55,310 payments issued without the payees' SSNs into the 4 groups. (see Appendix E for more information on the sampling methodology)

Sampled 100 death underpayments issued for $1 - $49,999 that were randomly selected and all 41 death underpayments issued for $50,000 or more and for these payments we:

Reviewed SSA records to include the Numident, Master Beneficiary Record (MBR), Alpha-Index File, PHUS, and various documents scanned into the Paperless system to determine (1) if the correct payee received the payment, (2) if the payments were coded correctly, (3) the death status of the beneficiary, and (4) the valid SSN for the payee;

Reviewed SSA-1099 forms issued for all sampled death underpayments to determine if the required information shared with the IRS; and

Projected the results of our 100 randomly sampled death underpayments (see Appendix F for the projected results).

Sampled 95 death underpayments that were randomly selected and for these payments we reviewed SSA records to include the Numident, MBR, PHUS, and various documents scanned into the Paperless system to determine (1) if the payments were properly coded and (2) whether the beneficiaries were actually deceased.

Reviewed beneficiary case files for sample death underpayments as appropriate.

Appendix E
Sampling Methodology

For Calendar Years 2001 and 2002, we obtained a data extract of 103,745 Title II death underpayments totaling about $135 million from the Social Security Administration's (SSA) Payment History Update System, where 55,310 were processed without the payees' SSNs. To focus our analysis better, we divided the population into four groupings. The sample underpayments reviewed in all 4 groupings were randomly selected except in Grouping 1, where we conducted an exhaustive review of the 41 underpayments that were $50,000 and above. We projected our results for the underpayments ranging from $1 - $49,999 in Grouping 1.

Grouping 1: Death Underpayments
Strata Number of Occurrences Dollar Value Sample Size Type of Sample
$1 - $49,999 52,817 $70,049,990 100 Random
$50,000 & Above 41 $2,842,197 41 Exhaustive
Total 52,858 $72,892,187 141

Grouping 2: Possible Lump Sum Death Payments
Amount Number of Occurrences Dollar Value Sample Size Type of Sample
$255.00 986 $251,430 50 Random

Grouping 3: Payments Processed with
No Date of Death on Death Master File
Deceased Status Number of Occurrences Dollar Value Sample Size Type of Sample
Living 521 $561,449 10 Random
No LAF Code 160 $125,889 10 Random
Deceased 734 $1,093,006 10 Random
Total 1,415 $1,780,344 30

Grouping 4: Payments without Names and Addresses
Number of Occurrences Dollar Value Sample Size Type of Sample
51 $93,155 15 Random
Note: We did not conduct any further analysis of grouping four because we found SSA made manual corrections to prevent the payments from being issued.

Appendix F
Sampling Results and Projections

For the 52,817 Title II death underpayments contained in our sample population, we randomly selected a sample size of 100 payments from the Social Security Administration's (SSA) Payment History Update System (PHUS). Based on our sample results, we project that SSA could have located the Social Security numbers (SSN) for 97 percent (approximately 51,232) of the death underpayments processed without the payees' SSNs by reviewing the completed SSA-1724 forms or querying SSA's Alpha-Index File. For the remaining three payments, two payments related to the estate of the deceased beneficiary and we were not able to locate the SSN for the third payment. We did not project these three payments. The chart below provides a detailed breakdown of the results of our sample along with the attribute projections.

Sample Results and Projections

Population size in items - PHUS 52,817
Sample size in items 100
Attribute Projections
Sample cases - Number of SSNs identified through SSA records 97
Projection - Number of SSNs identified through SSA records 51,232
Projection lower limit 48,821
Projection upper limit 52,381
Sample cases - Number of SSNs Located by Querying the Alpha-Index File 55
Projection - Number of SSNs Located by Querying the Alpha-Index File 29,049
Projection lower limit 24,453
Projection upper limit 33,526
Attribute Projections
Sample cases - Number of SSNs Included on the SSA-1724 form 42
Projection - Number of SSNs Included on the SSA-1724 form 22,183
Projection lower limit 17,776
Projection upper limit 26,782
Note: All projections are at the 90-percent confidence level.

Appendix G
Reasons for Death Underpayments

Most of the sampled Title II death underpayments were issued because the deceased beneficiaries' final benefit payments were returned to the Agency the month of their death. Specifically, 70 of the 100 sampled death underpayments were issued because of returned payments as shown in the table below. The remaining 30 death underpayments were issued because of (1) unpaid benefits prior to death, (2) reconsideration of benefits, and (3) refund of the Supplementary Medical Insurance.

Reasons for Death Underpayments
Reasons Number of Death Underpayments
Returned Payments 70
Unpaid Benefits (1) 25
Reconsideration of Benefits (2) 3
Refund of Supplementary Medical Insurance (3) 2
Total 100
Note:(1) The types of unpaid benefits included disability payments and Automatic Earnings Reappraisal Operation adjustments, which are benefit increases that are computed automatically within SSA's systems.
(2) For these payments, the deceased beneficiary's benefits were initially denied, terminated, or incorrectly computed.
(3) The Supplementary Medical Insurance is known as Part B of Medicare and is a voluntary insurance provided under Title XVIII of the Social Security Act.

Appendix H
Example of Form SSA-1724 (Claims for Amounts Due in the Case of a Deceased Beneficiary)

Appendix I
Agency Comments

SOCIAL SECURITY

MEMORANDUM

Date: July 2, 2004

To: Patrick P. O'Carroll, Jr.
Acting Inspector General

From: Larry W. Dye
Chief of Staff

Subject: Office of the Inspector General (OIG) Draft Evaluation Report "Title II Underpayments for Deceased Beneficiaries" (A-03-03-13014) - INFORMATION

We appreciate OIG's efforts in conducting this review. Our comments on the draft report content and recommendations are attached.

Please let me know if we can be of further assistance. Staff inquiries may be directed to
Candace Skurnik, Director, Audit Management and Liaison Staff, at extension 54636.

Attachment:
SSA ResponseCOMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL (OIG) DRAFT EVALUATION REPORT "TITLE II UNDERPAYMENTS FOR DECEASED BENEFICIARIES" (A-03-03-13014)

Thank you for the opportunity to review and comment on the draft report. We appreciate the thorough analysis and acknowledge that we can strengthen the payment reporting and accounting process for Title II deceased beneficiaries. We have already begun to address a number of the issues contained in the report and a description of those efforts is provided in our comments to the recommendations below.

While we agree with the analysis and conclusions presented in the report, we believe that the dollar amount of the problem is exaggerated. On Page 4 of the report, under the section "Tax Implications," the fifth sentence of the paragraph says that "…almost $73 million of potentially taxable income was not reported to IRS by SSA." According to the first table on page E-1, this figure represents the total dollar value of death underpayments in the sample. Death underpayments are still Social Security benefits, and only a maximum of 85 percent of Social Security benefits may be subject to income tax. It appears that a figure of no greater than $62 million of potentially taxable income would be appropriate. Of course, 85 percent is a maximum and, for most people, the tax liability will be even less. Therefore, we suggest that OIG estimate the actual amount of taxable income.

Recommendation 1

Require collection of the Social Security number (SSN) from all claimants of death underpayments to ensure taxable income is reported to the Internal Revenue Service (IRS) by SSA.

Response

We agree with this recommendation to the extent that we should collect SSNs for all payees who have SSNs. However, as worded, the recommendation raises a key concern for us as it implies that we would assign an SSN to an otherwise ineligible person for the purpose of receiving a one-time underpayment. We do not consider a one-time only payment a valid reason for assigning an SSN. Therefore, we will collect SSNs of individuals who are receiving one-time payments if they have an SSN; however, we will not assign an SSN for the sole purpose of receiving a payment.

Recommendation 2

Ensure that the SSA-1724 form is revised to make the payee's SSN a mandatory field and develop completion instructions in POMS.

Response

We agree that a payee's SSN must be provided if the payee has an SSN. Form SSA-1724 is being revised to make the collection of the SSN mandatory for payees who have SSNs. We expect that the form revision will be completed by the first quarter of fiscal year 2005.

Recommendation 3

Ensure that the SPS payment system is revised to make the payee's SSN a mandatory field.

Response

We agree. This recommendation supports the policy change for requiring the SSN from all payees who have SSNs. However, as noted in our response to Recommendation 1, override capability will be needed for those instances where the person receiving the underpayment does not have an SSN and is deemed ineligible to obtain one.

Recommendation 4

Educate benefit authorizers on the correct procedures for processing Lump Sum Death Payments and death underpayments.

Response

We agree. We will issue instructions and reminders once the new procedures discussed in Recommendations 1 and 2 are ready for release.

Recommendation 5

Make the necessary corrections for the payments that were referred during the audit.

Response

We agree. We have already referred these accounts to the jurisdictional processing center for correction.

Appendix J
OIG Contacts and Staff Acknowledgments
OIG Contacts
Walter Bayer, Director
Cylinda McCloud-Keal, Audit Manager

Acknowledgments
In addition to those named above:
Frank Trzaska, Auditor-in-Charge
Virginia Montelpare, Auditor
Charles Zaepfel, Computer Specialist
Annette DeRito, Writer-Editor

Overview of the Office of the Inspector General

The Office of the Inspector General (OIG) is comprised of our Office of Investigations (OI), Office of Audit (OA), Office of the Chief Counsel to the Inspector General (OCCIG), and Office of Executive Operations (OEO). To ensure compliance with policies and procedures, internal controls, and professional standards, we also have a comprehensive Professional Responsibility and Quality Assurance program.

Office of Audit

OA conducts and/or supervises 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 and program evaluations and projects on issues of concern to SSA, Congress, and the general public.

Office of Investigations

OI conducts and coordinates investigative activity 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 OIG liaison to the Department of Justice on all matters relating to the investigations of SSA programs and personnel. OI also conducts joint investigations with other Federal, State, and local law enforcement agencies.

Office of the Chief Counsel to the Inspector General

OCCIG provides independent legal advice and counsel to the IG on various matters, including statutes, regulations, legislation, and policy directives. OCCIG 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. Finally, OCCIG administers the Civil Monetary Penalty program.

Office of Executive Operations

OEO supports OIG by providing information resource management and systems security. OEO also coordinates OIG's budget, procurement, telecommunications, facilities, and human resources. In addition, OEO is the focal point for OIG's strategic planning function and the development and implementation of performance measures required by the Government Performance and Results Act of 1993.