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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
                 SOCIAL SECURITY REPRESENTATIVE PAYEES

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 4, 2000

                               __________

                             Serial 106-57

                               __________

         Printed for the use of the Committee on Ways and Means

                    U.S. GOVERNMENT PRINTING OFFICE
66-526 CC                   WASHINGTON : 2000

                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    Subcommittee on Social Security

                  E. CLAY SHAW, Jr., Florida, Chairman

SAM JOHNSON, Texas                   ROBERT T. MATSUI, California
MAC COLLINS, Georgia                 SANDER M. LEVIN, Michigan
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               BENJAMIN L. CARDIN, Maryland
KENNY HULSHOF, Missouri
JIM McCRERY, Louisiana

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________

                                                                   Page

Advisory of April 25, 2000, announcing the hearing...............     2

                               WITNESSES

Social Security Administration:
    Susan M. Daniels, Ph.D., Deputy Commissioner, Disability and 
      Income Security Programs; accompanied by Larry Massanari, 
      Regional Commissioner, Philadelphia, Pennsylvania..........     5
    Hon. James G. Huse, Jr., Inspector General, Office of the 
      Inspector General..........................................    36

                                 ______

Coleman, Nancy, Federal Advisory Board, and American Bar 
  Association....................................................    49
Maryland Association of Community Services for Persons with 
  Developmental Disabilities, Inc., Diane McComb.................    62
Mental Health Association of York County, Ann Sparks.............    60
National Association of Reimbursement Officers, Reginald Glover..    57
West Virginia Legal Services Plan, Inc., Garry G. Geffert........    64

                       SUBMISSIONS FOR THE RECORD

National Alliance for the Mentally Ill, Arlington, VA, and Sue 
  Davis, Scottsdale, AZ, statement...............................    77
Reese, Dawn, Harrisburg, PA, statement...........................    80

                 SOCIAL SECURITY REPRESENTATIVE PAYEES

                              ----------                              

                         THURSDAY, MAY 4, 2000

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:10 a.m. in 
room B-318, Rayburn House Office Building, Hon. E. Clay Shaw 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY
FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE

April 25, 2000

No. SS-16

    Shaw Announces Hearing on Social Security Representative Payees

    Congressman E. Clay Shaw, Jr., (R-FL), Chairman, Subcommittee on 
Social Security of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on Social Security 
representative payees. The hearing will take place on Thursday, May 4, 
2000 , in room B-318 of the Rayburn House Office Building, beginning at 
10:00 a.m.
      
    Oral testimony at this hearing will be from invited witnesses only. 
Witnesses will include representatives of the Social Security 
Administration (SSA), including Social Security's Inspector General, as 
well as organizations that serve as representative payees for 
beneficiaries. However, any individual or organization not scheduled 
for an oral appearance may submit a written statement for consideration 
by the Committee and for inclusion in the printed record of the 
hearing.
      

BACKGROUND:

      
    Social Security and Supplemental Security Income (SSI) benefits are 
distributed to more than 50 million Americans, including many 
determined to be unable to manage their own financial affairs. In such 
cases, SSA will work with the beneficiary and his or her family or 
other responsible individuals to locate a ``representative payee,'' 
often called a ``rep payee.'' Rep payees are individuals or 
organizations that have been approved and designated by SSA to receive 
a recipient's benefits directly from SSA on the recipient's behalf. The 
primary purpose of the rep payee is to safeguard a recipient's monthly 
benefits and ensure the money is spent on the beneficiary's needs. 
According to SSA, more than 6.5 million Social Security and SSI 
beneficiaries have rep payees.
      
    SSA has a variety of systems in place to ensure the responsibility 
and trustworthiness of individuals and organizations that serve as rep 
payees. Despite such protections, in certain instances the systems have 
failed to prevent the misuse of benefit payments. Given the degree of 
responsibility and trust afforded rep payees, such breaches have 
resulted in significant harm to beneficiaries, and have led to 
concerted efforts to stem further abuse. Most recently, SSA submitted 
draft legislation to Congress on February 22, 2000, suggesting specific 
changes to improve the oversight and the effectiveness of the rep payee 
program.
      
    In announcing the hearing, Chairman Shaw stated: ``Social Security 
beneficiaries who depend on rep payees to handle their affairs are 
among the most vulnerable people Social Security serves. This hearing 
will help us assess Social Security's procedures to protect 
beneficiaries, how and why these procedures sometimes fall short, and 
ways to better protect beneficiaries in the future.''
      

FOCUS OF THE HEARING:

      
    The hearing will examine current eligibility requirements for rep 
payees, SSA's oversight systems, instances in which those systems 
failed to protect beneficiaries from fraud and abuse, and suggestions 
for improving beneficiary protections. Witnesses will review 
legislative proposals, including those made by SSA, for improving the 
rep payee program and its protections for beneficiaries.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
May 18, 2000 , to A.L. Singleton, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Social Security office, room B-316 
Rayburn House Office Building, by close of business the day before the 
hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                

    Chairman Shaw. Good morning and welcome to today's hearing.
    More than 50 million people receive Social Security and SSI 
benefits because they can not work due to age or disability. 
Despite those limitations, most beneficiaries are still able to 
handle their financial affairs for themselves.
    Today's hearing is about the more than six million 
beneficiaries who can not. They are left in the especially 
vulnerable position of having to trust others to manage their 
affairs for them.
    The Social Security Administration has called the people 
they turn to for help, representative payees, or rep payees, 
for short. In most cases, the rep payee is a family member; for 
example, a parent receiving a SSI check for their child.
    There are about 45,000 organizations, including local 
government agencies and nonprofit groups, that serve as rep 
payees for more than 750,000 beneficiaries, when relatives or 
friends can not be found or can not be counted on.
    Any allegation of abuse by someone in such a position of 
trust would be disturbing. But recent revelations of abuse 
involving organizations that serve as rep payees are especially 
troubling; in fact, they are sickening.
    In one recent case in West Virginia, a rep payee for more 
than 100 beneficiaries stole their Social Security benefits and 
any other assets he could get his hands on. One beneficiary 
lost $60,000 in his savings account, and ending up living in 
her car. Another elderly woman lost her home, and later was 
threatened with removal from her nursing home.
    The man who did this is now headed for jail. We should 
throw the book at anyone who would abuse such a position of 
trust. But this case has raised a number of troubling questions 
about who can become a rep payee and how the Social Security 
Administration makes sure rep payees are doing their job.
    This hearing is designed to answer these questions, so we 
can make some common sense changes to this program in the weeks 
ahead. In the process, we will work with the SSA and SSA's 
Inspector General, as well as responsible voices in the 
beneficiary and rep payee community. I am sure everyone here 
agrees that even one case of abuse is one too many.
    But we also need to remember that examples of abuse are 
fortunately rare, especially compared with the millions of 
honest and trustworthy rep payees that are out there. We 
certainly do not want to scare off the millions of family 
members, friends, churches, and civil groups who voluntarily 
take on this tough but important duty. That would result in an 
even greater tragedy than some of the horror stories that we 
have seen in recent months.
    Mr. Matsui.
    Mr. Matsui. Thank you very much, Mr. Chairman. I appreciate 
the fact that you are holding these hearings on certainly what 
you have stated is a very serious problem. The $7.5 million may 
not seem like a lot of money from Congressional or executive 
branch standards. But it certainly is, when it is down to the 
individual level.
    And we have to make sure that whatever legislation that we 
look to, that we make sure that we keep the beneficiary, that 
is, the Social Security recipient, whole because that person 
certainly has done nothing wrong and is totally blameless for 
whatever losses that he or she may sustain.
    And, second, as the Chairman has said, we have to make sure 
that those that commit the act, that is the representative 
payee, are held accountable and responsible, and that we are in 
a position to collect the money from that individual or group 
or entity or organization, when in fact an abuse actually 
occurs.
    And so I look forward to working with the Chairman, and 
certainly the administration and others, to make sure that we 
address this very pressing problem.
    And, again, Mr. Chairman, I would like to thank you for 
holding these hearings. I think it is critical that we really 
address this in the way that you are suggesting.
    Thank you.
    Chairman. Shaw. This morning we have our first panel, who 
is seated in front of us. Dr. Susan Daniels is an old friend of 
this Committee, who is the Deputy Commissioner of the 
Disability and Income Security Programs. She is accompanied by 
Larry Massanari, who is the Regional Commissioner, from 
Philadelphia, Pennsylvania.
    Dr. Daniels.

  STATEMENT OF SUSAN M. DANIELS, PH.D., DEPUTY COMMISSIONER, 
   DISABILITY AND INCOME SECURITY PROGRAMS, SOCIAL SECURITY 
   ADMINISTRATION; ACCOMPANIED BY LARRY MASSANARI, REGIONAL 
            COMMISSIONER, PHILADELPHIA, PENNSYLVANIA

    Ms. Daniels. Thank you.
    Mr. Chairman, Mr. Matsui, thank you for inviting me here 
today to talk to you about the Social Security rep payee 
program, particularly as it relates to organizational payees.
    Today, I will discuss a few general features of the 
program: Our recent changes that we have implemented to 
strengthen the payee program, legislation we have sent to 
Congress in order to improve the program; and of course, I will 
take your questions when I am done.
    As you stated earlier, almost all the representative payees 
provided much needed help to our beneficiaries in a careful, 
compassionate and totally voluntary basis. Eighty-four percent 
of the payees are family members or friends. Only one in ten 
thousand representative payee cases each year results in some 
form of misuse.
    I can truthfully tell you that millions of Americans are 
being assisted, mostly by family and friends, in a way that can 
make all of us proud. Nevertheless, it is no consolation to any 
beneficiary that may have lost his or her benefits; nor, is it 
acceptable to us.
    In the early nineties and toward the middle of the 
nineties, we recognized that the representative payee 
population was changing. In 1995 and 1996, SSA chartered an 
advisory Committee to conduct research and hearings on 
representative payee issues. We also asked the Office of the 
Inspector General to review and make recommendations to improve 
our representative payee program.
    Both the advisory Committee and the OIG made several 
recommendations: From how to select a representative payee to 
the kinds of monitoring program we ought to have. SSA evaluated 
these recommendations within the framework of our competing 
priorities and our financial limitations and resources.
    We have implemented most of the recommendations: The 
development and distribution of a handbook for organizational 
payees; issuing instructions to our field office to tighten up 
on the screening of potential payees, conducting on-site 
reviews for fee-for-service and volume payees--volume meaning 
the payee is serving many beneficiaries--developing and 
distributing pamphlets to beneficiaries so they would know 
their rights under the payee program; and changing the focus of 
our current program from accounting to monitoring and 
compliance.
    In addition, we have the following recommendations in 
process. We are not finished with these, but we are working on 
them: Developing an accounting form tailored to the 
organizational payee; expanding our automated system to keep 
track of representative payees and other issues; developing and 
distributing a handbook for individual payees, making sure they 
understand their responsibilities and roles; and instructing 
field offices to take better control of their documentation, so 
that we know and can find the history of our representative 
payees.
    As a result of the recent criminal enterprises that were 
uncovered, SSA's oversight activities have been strengthened. 
Our new initiatives underway now are triennial on-site review 
of all fee-for-service payees and for volume payees serving 
more than 100 beneficiaries. In addition, all individual payees 
serving 20 or more beneficiaries will be part of the triennial 
on-site review. Three hundred of these triennial reviews have 
already been conducted.
    Non-governmental fee-for-service organizational payees must 
either be licensed or bonded. Beginning in June, SSA will 
require them to annually update their file to show us that they 
continue to be eligible to be payees.
    Number three is a 6 month review of all newly appointed 
fee-for-service payees. We will go on-site and visit these 
payees within the first 6 months, to make sure they have their 
accounting procedures in order, and they understand their 
duties and responsibilities.
    Number four is a random review. In addition to the 
triennial reviews, of volume and fee-for-service payees, we 
will be choosing a random sample of about 30 percent of those 
not part of the triennial review.
    In addition, SSA will continue to monitor any trigger 
events or allegations of misuse that come to our attention. We 
are working on tightening our screening of potential payees, 
consistent with the OIG's recommendation. And further, SSA 
attorneys are working in conjunction with U.S. attorneys to 
assist in prosecution of individuals who misuse the funds.
    In February, we sent to Congress a legislative proposal for 
consideration that would provide additional safeguards for 
beneficiaries.
    Currently, when any payee is determined to have mishandled 
individuals benefits, SSA can reissue those benefits under two 
conditions: One, we have received restitution from the payee; 
or second, when we declare ourselves negligent.
    To facilitate restitution of misused funds, our legislative 
proposal would require SSA to reissue benefit payments, 
including any fees that were taken in any cases where the 
organizational payee is found to have misused the funds, 
whether or not negligence or restitution has occurred. Of 
course, we will continue to seek restitution as a deterrent and 
in order to replenish the funds--the trust funds or general 
revenves that were used to reissue benefits.
    In addition to this change, our legislative proposal 
includes other provisions: requiring non-governmental fee-for-
service organizations to be bonded and licensed, not ``or 
licensed,'' providing that when an organization has been found 
to misuse benefits, that they not be allowed to collect a fee 
for those months in which they misused benefits; and finally, 
counting as an overpayment to a payee, any funds of the 
beneficiary misused by the payee, on behalf of another 
beneficiary.
    We urge Congress to give these proposals prompt attention, 
and we are delighted that Representative Wise has begun this 
process.
    In conclusion, let me tell you that we are truly grateful 
to the millions of voluntary payees who assist our 
beneficiaries, and do so carefully and compassionately. We have 
a special concern for those beneficiaries who have no one to 
help them in their personal lives, and must be represented by 
organizations or fee-for-service payees. We will continue to 
monitor our representative payee program more carefully.
    And finally, we are eager to work with you on strengthening 
the program, so that we have more tools in order to safeguard 
our beneficiaries.
    I would be delighted to take your questions.
    [The prepared statement follows:]

Statement of Susan M. Daniels, Ph.D., Deputy Commissioner, Disability 
and Income Security Programs, Social Security Administration

    Mr. Chairman, Congressman Matsui, members of the Committee, 
thank you for inviting me here today to talk to you about SSA's 
representative payee program--particularly as it relates to 
organizational payees. Today, I will outline for you the Social 
Security Administration's representative payee program as it 
applies to organizations, the problems we have faced (including 
resource constraints), recent changes that we have implemented 
and legislation we have sent to Congress in order to improve 
our program. Then, of course, I would be happy to respond to 
your questions.

                   History of Representative Payments

    Congress passed legislation in 1939 which granted SSA broad 
discretionary authority to appoint representative payees to 
receive and disburse benefits for those beneficiaries who were 
found to be incapable of managing or directing the management 
of their benefits. The appointment of a payee was intended to 
ensure that SSA's most vulnerable beneficiaries receive the 
full support and benefit that their payments are intended to 
deliver. In this same 1939 legislation, Congress extended 
benefits to wives of retired workers, and widows and dependent 
children of deceased workers. Accordingly, the representative 
payee program was initially designed with the needs of the 
elderly and children in mind.
    Subsequent events, including the enactment of disability 
benefits in 1956, the enactment of Supplemental Security Income 
(SSI) in 1972, and demographic and political changes in 
American society--such as the de-institutionalization of the 
mentally ill, and the increase in substance abusers--have all 
contributed to the change in the nature of the beneficiary 
population served by representative payees. Thirty years ago, 
5.2 percent of the Social Security population were paid through 
representative payees. Since the implementation of SSI, this 
has risen to about 13.3 percent of our 49 million beneficiaries 
have representative payees--6.5 million beneficiaries served by 
about 4.2 million payees. About 42 percent of beneficiaries who 
are paid through a representative payee today are disabled.
    The Social Security and SSI disability rolls typically 
include people with special needs, such as the mentally ill and 
homeless, many of whom are substance abusers. (However, 
individuals whose sole medical disability is drug or alcohol 
addiction, no longer qualify for benefits.) Many years ago, 
these same individuals might have been institutionalized, with 
the institution serving as their payee. Today, these 
individuals are not institutionalized and often have no close 
family willing or able to serve as payee. When such 
beneficiaries need help in the management of their financial 
affairs, institutions and organizations, or sometimes 
acquaintances, have stepped in to act as payees. Many times, in 
addition to money management, these payees must address social 
service issues, such as finding shelter for the habitually 
homeless, dealing with medical decisions, and encouraging 
beneficiaries to seek treatment for substance abuse or mental 
illness.
    We cannot over-emphasize the valuable role that 
representative payees serve. When an individual agrees to be a 
payee for a beneficiary, he or she takes on an important 
responsibility. Sometimes the task of managing another person's 
benefits can be a difficult one--especially if the beneficiary 
is not always cooperative--and payees deserve a lot of 
recognition for volunteering their time and effort. As I 
mentioned earlier, many representative payees go beyond 
fulfilling their basic responsibilities as a payee and provide 
other valuable services to the beneficiary.

                         Organizational Payees

    As I mentioned earlier, about 6.5 million Social Security 
and SSI beneficiaries require representative payees. Family 
members serve as representative payees for about 84 percent of 
these beneficiaries. Payees for the remaining 16 percent are 
friends or institutions of various types, such as government or 
social service agencies, financial organizations and fee-for-
service organizations. (Fee-for-service organizations meet the 
qualifications and are authorized to collect a fee from the 
beneficiary's payment for their services as representative 
payee.) Currently, about 45,000 organizational representative 
payees serve approximately 750,000 Social Security and SSI 
beneficiaries. Among those, there are approximately:
     855 fee-for-service payees serving almost 60,000 
SSA beneficiaries;
     1,000 entities (excluding fee-for-service 
organizations), which we call ``volume payees,'' serving 
250,000 beneficiaries. (A ``volume payee'' is an organization 
that serves 100 or more beneficiaries.); and
     360 State mental hospitals serving 80,000 
beneficiaries.
    In order to qualify to collect a fee, an organization must 
serve at least 5 beneficiaries and be a:
     State or local government agency whose mission is 
to carry out income maintenance, social service or health-care 
related activities;
     State or local government agency with fiduciary 
responsibilities, or
     Community-based, non-profit social service agency 
which is bonded or licensed in the state that it serves.

            Determining the Need for Representative Payment

    The law provides that if the Commissioner determines that 
it is in the interest of the individual, benefits may be paid 
to a representative payee. Generally, we appoint a payee if we 
determine that the beneficiary is not able to manage or direct 
the management of benefit payments in his or her interest. If 
the beneficiary is under age 18, payment is usually made to a 
representative payee. (Emancipated minors can receive benefits 
directly.) In the case of an adult beneficiary, benefits will 
be paid to a representative payee if the individual is legally 
incompetent, or mentally or physically incapable of managing or 
directing the management of his or her benefit payments.
    To decide if an individual has a mental or physical 
impairment that prevents him or her from receiving benefits 
directly, we look at:
     medical evidence;
     the beneficiary's living situation (such as 
whether he/she lives alone if anyone helps him/her manage their 
funds);
     how the beneficiary is handling money now; and
     what his/her needs are and how they are being met 
(whether they can obtain their own food, clothing and shelter 
or if he/she is dependent on others to supply those needs).
    Once we determine that an individual needs a payee, SSA 
identifies persons who are willing and best able to serve in 
this capacity. Whenever possible, the preferred payee is a 
family member or friend who has shown interest in the well-
being of the beneficiary. When such persons cannot be found, 
SSA turns to certain organizations that have agreed to perform 
the duties of a representative payee.
    SSA closely reviews all applications for representative 
payment before selecting a payee. Individuals must show their 
relationship and interest in the beneficiary. Plus, the 
beneficiary is given the opportunity to protest the selection 
of a prospective payee. We notify the beneficiary that someone 
has applied to be their payee and who that person or 
organization is. We ask the beneficiary to contact our field 
office if they disagree with either the fact that they need a 
payee or if they would prefer that someone else serve as their 
representative payee.

                 Representative Payee Responsibilities

    The representative payee is to use the benefit payments 
only for the beneficiary's current and foreseeable needs or 
save and invest them, if the beneficiary's current needs are 
being met. We believe that the representative payment program 
best accomplishes this when we have a collaboration with the 
payee and the beneficiary. To that end, we strive for a payee 
program that:
     preserves the rights of beneficiaries and treats 
them with respect and dignity;
     keeps beneficiaries well-informed about their 
benefits;
     prepares new representative payees with a clear 
understanding of their role and our expectations of them;
     furnishes continuing support to payees as they 
execute their duties;
     ensures that benefits are used in the best 
interest of the beneficiary; and
     monitors the use of benefits in an effective and 
productive manner.
    SSA informs the representative payee of his or her 
responsibilities at the time he/she files to be representative 
payee and also mails a more extensive guide to the payee once 
he/she has been selected. Once selected, all representative 
payees are required to:
     determine the beneficiary's needs and use his/her 
payments to meet those needs;
     conserve any money left after meeting those needs;
     report any changes or events which could affect 
the beneficiary's eligibility for benefits;
     help the beneficiary get medical treatment when 
necessary;
     maintain records of the money received on behalf 
of the beneficiary and records of all expenditures; and
     complete written reports accounting for the use of 
the funds.
    Annually, SSA requires each representative payee -whether 
an individual who represents only one beneficiary or an 
organization that represents hundreds--to give an accounting of 
the benefits received for each beneficiary and how they were 
spent. More specifically, the accounting form asks how much of 
the benefits were spent on food, housing, personal items and 
how much was saved and in what type of account the money was 
conserved. (The only exception to this annual accounting 
process is for State mental institutions which undergo an 
onsite visit every 3 years.) Each accounting request is 
controlled to make sure it is completed. All returned forms are 
reviewed to ensure that responses are complete and acceptable. 
If incomplete, or if the accounting form raises questions, SSA 
will contact the payee to resolve the issue. If the 
representative payee fails to return the accounting form, our 
local field office conducts a face-to-face interview with the 
payee, the beneficiary and, if different from the payee, the 
custodian (e.g., the nursing home if a relative is the payee).

  SSA Initiatives to Deter Misuse of Benefits by Organizational Payees

    Almost all representative payees provide much needed help to 
beneficiaries without abusing this responsibility. Unfortunately, there 
have been some instances of misuse by representative payees. Misuse of 
benefits occurs when the payee neither uses benefits for the current 
and foreseeable needs of the beneficiary, nor conserves benefits for 
the beneficiary. Of the 6.5 million beneficiaries with representative 
payees, there are only about 650 instances of misuse confirmed per 
year, or only about 1 in every 10,000 representative payee cases. The 
amount of benefits misused by payees is a small percentage of the total 
benefits paid -about $3 million per year of the $30 billion in annual 
benefits for beneficiaries with payees. However, that is no consolation 
to a beneficiary who has lost his or her much needed benefits. Nor is 
it acceptable to those of us charged with administering the Social 
Security and SSI programs.
    SSA is committed to protecting beneficiaries from benefit misuse. 
The recently televised representative payee misuse case, the Aurora 
Foundation, Inc., in Martinsburg, West Virginia, has resulted in the 
president of that organization pleading guilty to the embezzlement of 
Social Security and SSI beneficiary funds. As a result of our review of 
this criminal enterprise, SSA has strengthened our oversight process. 
To that end, we have several new initiatives underway that will help 
prevent misuse by organizational payees.

1. Triennial Onsite Reviews of all Fee-for-Service and Volume Payees.

    SSA has begun a review of the approximately 855 fee-for-service 
payees on a triennial cycle. SSA will also perform triennial reviews of 
all volume organizational payees--those serving 100 or more 
beneficiaries--and of all individual payees serving 20 or more 
beneficiaries. SSA's Office of the Inspector General will participate, 
as necessary, in these reviews. This review will ensure payee 
compliance through a face-to-face meeting with the payee and 
examination of a sample of beneficiary records. The review includes an 
assessment of the payee's record keeping, and SSA will interview a 
sample of beneficiaries in order to assess whether their needs are 
being met. Expenses may be corroborated with providers of the services. 
In addition, we will contact vendors to ensure that bills are being 
paid. We believe that an added benefit of this initiative will be that 
the lines of communication between SSA and the payee will be improved. 
Over the last year, approximately 300 of these reviews have already 
been conducted as part of a pilot process, and a regular ongoing 
schedule will begin this summer.

2. Annual Verification of Bonding or Licensing.

    Currently, in order to collect a fee from a beneficiary's check, 
non-governmental fee-for-service organizational payees must be either 
licensed or bonded as long as they serve as payee. This is a statutory 
requirement. Beginning June of this year, SSA will require all non-
governmental fee-for-service organizations to annually show that they 
continue to meet those requirements.

3. A 6-Month Review for All Newly Appointed Fee-for-Service Payees.

    SSA will visit fee-for-service payees 6 months after their initial 
appointment as payee to ensure that they fully understand their duties 
and responsibilities, and are on the right track with respect to record 
keeping and reporting. We will focus on their accounting procedures so 
that, they will be able to account for beneficiaries' funds as well as 
comply with our requests for review. This initiative is now in place 
and applies to all new fee-for-service payees appointed on or after 
January 1, 2000.

4. Random Reviews of Volume and Fee-for-Service Payees.

    Each year SSA will conduct a random sample of 30 percent of volume 
payees (serving 100 or more beneficiaries) and fee-for-service payees. 
We will review a sample of beneficiary records for compliance with our 
policies and procedures. We are developing guidelines and instructions 
needed to implement this initiative. The instructions provide our 
reviewers with information that includes: how to conduct the interview, 
the interviewing forms, how to review the record keeping (bank 
statements, cancelled checks, bills, contracts, etc.), and how to 
document our database with the findings from the review. This 
initiative is scheduled for implementation in Fiscal Year 2001.
    In addition, SSA continues to monitor for ``trigger'' events. That 
is, we conduct reviews of payees in response to certain ``trigger'' 
events, such as third-party reports of misuse and complaints from 
vendors of failure to receive payment. This review has an emphasis on 
addressing the complaints.
    Finally, we are looking at tightening up the investigation of 
potential payees. This is consistent with OIG's suggestion that we put 
more emphasis on the selection of representative payees.
    I believe that these measures will help to ensure that 
organizational representative payees appointed by SSA will carry out 
their duties and responsibilities in accordance with the policies and 
procedures that are designed to protect our beneficiaries. This 
improved organizational payee monitoring process will:
     Provide the oversight necessary to ensure that payees 
fulfill their duties to our beneficiaries;
     Deter potential misuse by regular site visits coupled with 
random reviews;
     Provide an opportunity for ongoing education by SSA for 
these payees about their duties and responsibilities;
     Improve lines of communication between the payee and SSA; 
and
     Ensure that the payee continues to be qualified under the 
law to charge a fee for its services.
    Further, Social Security attorneys are working in conjunction with 
several U.S. Attorneys' offices to assist in the prosecution of Social 
Security program fraud, including representative payee misuse cases.

                              Legislation

    We recognize that administrative actions alone are not 
sufficient to address all of the problems we identified as a 
result of our analysis of the Aurora misuse case. We believe 
that some of these problems can only be resolved through 
legislation. Therefore, in February, we sent to Congress a 
legislative proposal for consideration that would provide 
additional safeguards for beneficiaries with representative 
payees.
    Currently, when any payee has been determined to have 
misused an individual's benefits, SSA can reissue the benefits 
only in cases where there has been negligent failure on our 
part to investigate or monitor the payee. In virtually all 
other cases, the individual loses his or her funds unless SSA 
or the beneficiary can obtain restitution of the misused 
benefits from the payee. Additionally, SSA can seek restitution 
only through civil processes if the representative payee 
refuses to return the misused funds.
    To facilitate restitution of misused funds to 
beneficiaries, our legislative proposal would require SSA to 
reissue benefit payments (including any respective fees for 
fee-for-service payees) in all cases when an organizational 
payee is found to have misused a beneficiary's funds, without 
either a finding of negligence on SSA's part or restitution 
from the organizational payee. Requiring re-issuance of such 
misused benefit payments, including any fees that were deducted 
from the beneficiary's benefit, would provide additional 
protection to the most vulnerable of beneficiaries.
    This new authority would enable us to promptly restore 
benefits that have been misused by an organizational 
representative payee, thereby avoiding the hardship that can be 
caused by such a loss. SSA would, through all available avenues 
of legal recourse, continue to seek restitution of the misused 
funds from the former representative payee. We would do so for 
two reasons. First, for the deterrent effect and, second, to 
offset the additional costs incurred by the Social Security 
trust funds or the general fund in restoring misused benefits 
to the beneficiary.
    In addition to this change, the legislative proposal would 
include other provisions designed to increase the safeguards 
for beneficiaries with representative payees. Specifically, it 
would:
     Require non-governmental fee-for-service 
organizational payees to be bonded and licensed, provided that 
licensing is available under State or local law. (The 
requirement under current law is bonding or licensing.) This 
proposed requirement would add further safeguards to a 
beneficiary's funds. State licensing provides some oversight by 
the state into the organization's business practices, and 
bonding provides some assurance that a surety company has 
investigated the organization and approved it for the level of 
risk associated with the bond. The proceeds from redeemed bonds 
would reduce the costs to the program when re-issuing benefits 
in cases of representative payee misuse.
     Provide that when an organization has been found 
to have misused an individual's benefits, the organization 
shall not qualify for the fee from that individual's benefits 
for months the payee misused the funds. Requiring payees to 
return the fees charged for periods of misuse is reasonable 
because the payee was clearly not properly performing the 
service for which the fee was paid. Permitting the organization 
to retain the fees is tantamount to rewarding the payee for 
violating his or her responsibility to use the benefits for the 
individual's current and future needs.
     Provide that misused benefits (including any 
respective representative payee fees) would be treated as an 
overpayment to the representative payee and, therefore, subject 
to current SSA overpayment recovery authority. Although SSA has 
been given expanded authority in the recovery of overpayments 
(such as tax refund offset, referral to contract collection 
agencies, notifying credit bureaus, and administrative offset 
of future federal benefit/payments), these tools cannot be used 
to recoup benefits misused by a representative payee. Providing 
that benefits misused by any representative payee would be an 
overpayment to the payee would provide SSA with additional 
means for recouping the misused payments. This proposal would 
also permit re-issuance of the recovered amounts to the 
beneficiary (unless already re-issued by SSA). This change 
would improve the protection of all beneficiaries with payees, 
not just those with organizational payees.
    Also, in September 1999, we sent a legislative proposal to 
Congress that, in addition to other provisions, would extend 
civil monetary penalty provisions to representative payees that 
misuse benefits. As it pertains to representative payees, this 
legislative proposal would allow SSA to impose administrative 
penalties and assessments against representative payees who 
make false statements to obtain or retain benefits. This would 
improve our ability to ensure that individuals who commit this 
type of fraud against SSA are penalized, even if such 
individuals are not prosecuted criminally. We urge Congress to 
give these proposals their prompt attention.

   Advisory Committee & Inspector General Recommendations Implemented

    To address the evolving needs of the beneficiaries and the 
payees that assist them, SSA chartered an advisory committee 
(AdCom)--a panel of external experts--to review the 
representative payee program. In 1995 and 1996, the committee 
held hearings and conducted research into key representative 
payment issues. SSA also requested its Office of the Inspector 
General (OIG) to review and make recommendations to improve the 
representative payee program. SSA requested these reviews in 
order to better meet the needs of the changing demographics of 
our representative payee population.
    Both the AdCom and OIG made several recommendations--from 
how to select a representative payee to the kind of monitoring 
program needed. SSA evaluated the recommendations within the 
framework of our competing priorities and resource limitations. 
We have implemented several recommendations including:
     The development and distribution of a handbook for 
organizational payees. (OIG)
     Issuing instructions to field offices to screen 
payees more thoroughly. (OIG)
     Conducting onsite reviews of fee-for-service and 
volume payees. (AdCom/OIG)
     Developing and distributing a pamphlet for 
beneficiaries informing them of their rights and 
responsibilities. (OIG)
     Changing the focus of the current process from 
accounting to monitoring and compliance. (OIG)
    In addition, we have the following initiatives in process:
     Develop an accounting form tailored to 
organizational payees. (AdCom/OIG)
     Expand our automated Representative Payment 
System. (OIG)
     Develop and distribute a handbook for individual 
payees. (AdCom)
     Instruct field offices to improve controls over 
retention of supporting documentation of non-responder alerts 
and accounting forms. (OIG)

 Advisory Committee & Inspector General Recommendations Not Implemented

    There were some recommendations that we have not adopted. 
For example, it was suggested that SSA require a high level of 
case management (such as social services) from organizations 
that collect a fee (fee-for-service payees). We do encourage 
organizations to provide extra services (e.g., negotiating the 
beneficiary's rental agreement with the landlord). However, we 
did not adopt this suggestion because we believe that requiring 
extra services would discourage the organization from providing 
the basic payee services that some individuals would not have 
otherwise. Another example is the recommendation that SSA only 
accept a challenge of a beneficiary's capability from those in 
a position to know. While we agree that a finding of 
incapability is a serious matter, and we are wary of spurious 
allegations, our policy is to respond to third party reports of 
beneficiary incapability by conducting an investigation, 
regardless of the nature of the source. Only then can we be 
assured that the beneficiary receives the full benefit of their 
funds.

                               Conclusion

    In conclusion, let me convey our special concern for 
beneficiaries who need a representative payee because these are 
the most vulnerable of our beneficiaries. We will not tolerate 
misuse of benefits by representative payees and we will 
continue to strive for ways to strengthen our representative 
payee program. Recognizing this, we have looked outside of our 
agency (AdCom) and within (OIG) for improvements. We have 
implemented some of the recommendations and, as resources 
permit, we will implement others. We have recently set in 
motion plans to improve our monitoring and oversight process. 
In addition, we have met with representatives of organizations 
that support the interests of beneficiaries with payees and, at 
their request, we are working with them to develop a statutory 
definition of misuse. Finally, we believe with the help of 
Congress, we will be able to improve the package of protections 
for our beneficiaries with payees when funds have been misused.
      

                                

    Chairman Shaw. Thank you very much, Dr. Daniels.
    Mr. Massanari, is that the correct pronunciation?
    Mr. Massanari. I do not have a formal statement, Mr. 
Chairman. That is correct, Massanari. But I will be prepared to 
respond to any questions you might have.
    Chairman Shaw. Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    Dr. Daniels, how many referrals are there to, I would 
assume, the Justice Department, or maybe it is local law 
enforcement, on an annual basis? Do you happen to have that 
number?
    Ms. Daniels. No, I do not. But you are going to be hearing 
from the IG in a few minutes, and I am sure he will be a good 
source of information on that issue.
    Mr. Matsui. Do you have standards in your department, as to 
when you actually make a referral to the local enforcement 
agencies, or the Justice Department, for possible criminal 
action, when you think there is a violation that is rather 
severe?
    Ms. Daniels. When we hear any allegation of representative 
payee misuse, or investigate any possible wrong doing, we try 
to determine if there is reason to call in the IG. And I think 
we have a very close relationship with the office of the 
Inspector General, and we plan to do many of our on-site 
monitoring or follow-up investigations jointly.
    It is not so much of a referral as it is a team effort. If 
we see that something is going on that we need a more in depth 
look at, from an audit perspective or from a legal perspective, 
we certainly call them in immediately.
    Mr. Matsui. I am not suggesting that every matter that is 
investigated in which there is some kind of activity where the 
benefits do not go to the beneficiary be referred. But I think 
a few examples might help over time, and I do not mean to make 
examples out of people. But, you know, at least if there is a 
notion that there is criminal sanctions, that certainly could 
help.
    I think Mr. Shaw is correct, on the other hand, that we do 
not want to discourage family members and others, that really 
are acting in good faith, from taking action.
    Ms. Daniels. And I agree with you. It is quite a balancing 
act to encourage volunteers to be part of the program, and not 
burden them with expensive or time-consuming routines, and at 
the same time, protect individuals who are very vulnerable, 
because they have no family or friends to help them.
    So it is a balancing act. And I think our proposals help us 
get closer to protecting people, when they have no family and 
friends to look after them.
    Mr. Matsui. Did you have something to add, Mr. Massanari?
    Mr. Massanari. Perhaps, Mr. Matsui, I ought to add that in 
the case of organizational payees, whenever there is any 
indication, or whenever there is any evidence of misuse, we 
would routinely make that referral to the Office of the 
Inspector General, and they would make the determination as to 
whether or not to undertake an investigation. But that is 
something that we would do routinely, particularly as it 
relates to organizational payees.
    Ms. Daniels. Mr. Matsui, staff behind me just handed me a 
few numbers, and maybe that will help. In the last two and-a-
half years, 1,352 cases were opened, and 313 convictions were 
obtained.
    Mr. Matsui. Wow, that is pretty impressive. That is a good, 
impressive number. I am impressed with that.
    I want to thank both of you for your help and testimony. I, 
frankly, think that the recommendations made by SSA in their 
referral in February, in terms of possible legislative changes, 
make a lot of sense. And, obviously, the Chairman and others 
and I will have to be working with you on that.
    But I do think that it would probably be helpful in at 
least protecting the beneficiary and keeping some 
accountability. But I do want to thank you for your help and 
your efforts and everything else you are doing with respect to 
this issue.
    Ms. Daniels. We look forward to working with you.
    Chairman Shaw. Dr. Daniels, in my opening remarks, I made 
reference to the West Virginia case. This was the Aurora 
Foundation case. All of us are disturbed to hear about the 
situation involving the Aurora Foundation.
    Ultimately, Gregory Gamble, who essentially operated a one 
person operation, pleaded guilty to embezzlement of Social 
Security benefits. The SSA's Office of Inspector General 
determined that 127 Aurora clients lost over $223,000.
    Garry Geffert, who is a staff attorney with the West 
Virginia Legal Services and a witness on our next panel, makes 
a number of statements in his testimony. And I would like you 
to react to them. I will read them; there are a series of them.
    He indicates that the Social Security Administration 
routinely told beneficiaries that the Aurora Foundation would 
be their payee, and that they were not given a choice. Have you 
looked into that, and is there any truth to that?
    Ms. Daniels. Would you mind if I refer this question to 
Larry Massanari? That is in his region, and he has intimate 
knowledge of this situation.
    Chairman Shaw. Not at all.
    Mr. Massanari. Mr. Chairman, that is not quite accurate. 
The first preference for appointing a payee is always a family 
member or friend or an organization that has custody of the 
individual.
    But in this case, there was only one fee-for-service or 
organizational payee in the Martinsburg, West Virginia area. So 
it is true that as a matter of routine, when there were not 
suitable payees available, Aurora, in effect, became the payee 
of last resort. So that is where we made our referrals.
    Chairman Shaw. He also reports that complaints were made 
about the Aurora Foundation to SSA about the manner in which 
their funds were handled, but that these complaints were 
largely ignored. What record do you have of the complaints, and 
at what point were they looked at?
    Mr. Massanari. We have record of one complaint, back in 
1996, where a beneficiary had written to Aurora and had also 
sent a copy to us, indicating that when he received his first 
check, he felt that the amount of the fee was incorrect. And, 
in fact, it was. What Aurora had done was to compute the fee at 
10 percent, rather than the cap of $50.
    At the time that that occurred, we contacted Aurora. We got 
their records. We also went back to this individual's file, a 
few months ago, and we actually have a copy of that letter in 
the file, which was dated July 31.
    On August the 26th, less than a month later, we made 
contact with his representative at West Virginia Legal 
Services. That paralegal told our claims representative that 
the situation had been rectified, that he had gotten his money 
back.
    The following day, August the 27th, the beneficiary came 
into the office. He, too, told us that the situation had been 
resolved, that it had been corrected, that he had received his 
money. But he was also interested in becoming his own payee.
    At that point, we submitted medical evidence back to the 
state disability unit. They determined that he no longer needed 
the payee. And to Aurora's credit in this case, they did 
provide all the conserved funds that were owed him, when he 
became his own payee.
    That is the only complaint that we are aware of, up until 
early 1999. We not only have no record of other complaints, we 
have also talked to the staff there in Martinsburg, and none of 
them have any recollection of any complaints regarding moneys 
not being used for the benefit of the beneficiaries.
    We did begin to receive complaints in late 1998/early 
1999--there were a couple of local merchants who called us. 
Among them was a local supermarket, who indicated that they had 
not been paid by Aurora. When we followed up, they had been 
paid, but they did receive payment late. Some of the bills were 
being paid late.
    We got a specific complaint on April the 8th from a local 
attorney. Prior to that, we had no indication that 
beneficiaries' bills were not being paid. In fact, over that 
entire 4-year period, there was never a hint that there was any 
criminal activity underway.
    Chairman Shaw. Perhaps Mr. Geffert would substantiate that 
comment when he testifies.
    He also reports that one person sent a letter of complaint 
to Aurora and copied the local Social Security office. And 
perhaps that is the one you already referred to. This 
individual was allowed to discontinue using Aurora as a payee, 
although no investigation of the complaint was made.
    Mr. Massanari. That is the letter that I was referring to. 
I suspect that Mr. Geffert is also referring to this letter 
from 1996. It is not that the individual was no longer using 
Aurora as a payee because of the quality of the service 
provided by Aurora in that instance, but rather because, as it 
turned out, he was capable of handling his own benefits.
    Chairman Shaw. What is the criteria for removing a rep 
payee, and if a beneficiary complains and requests the removal 
of their rep payee, how does the SSA determine whether a rep 
payee should be removed?
    Mr. Massanari. First of all, if there is any indication of 
misuse, we would immediately suspend payment to that payee and 
seek an alternative payee. So, that would happen as a matter of 
course.
    When we appoint a payee, we notify the beneficiary who we 
have appointed and that is considered an initial determination 
that is appealable. So they do have the right to appeal our 
appointment of a payee.
    Chairman Shaw. Was Aurora bonded?
    Mr. Massanari. Yes, they were. They were bonded. The bond 
was taken out in 1995. They were also chartered or licensed by 
the State of West Virginia. That licensing took place in 1992.
    Gregory Gamble let that bond expire in about 1996/1997, 
when he failed to submit the renewal fee, but he continued to 
be licensed. And he has to be either bonded or licensed, 
according to statute.
    Chairman Shaw. Is it either/or?
    Mr. Massanari. I am sorry, that was Aurora, yes. He had a 
couple of employees. But, essentially, Gregory Gamble was 
Aurora.
    Chairman Shaw. No, I mean, it is either licensed or bonded?
    Mr. Massanari. Yes, I am sorry, it is either/or.
    As he began to provide payee services, he was both. And 
that is not uncommon. But we are proposing, of course, in the 
legislation that we require that fee-for-service payees be not 
either/or, but rather both, bonded and licensed.
    Ms. Daniels. And starting this year, Mr. Shaw, we are going 
to be requiring that annually they verify that they maintain 
this status of licensed or bonded. As you know, Mr. Gamble let 
his lapse.
    Chairman Shaw. Can felons qualify?
    Ms. Daniels. Can felons qualify as payees? Our statute 
specifically says that if anyone has a felony conviction 
because they misused any funds under the Social Security 
statute, they are not available to be a payee. They are 
disqualified from being a payee.
    We asked the question on our application. If an individual 
has been convicted of a felony, we certainly would do 
everything we could to find another payee.
    In some very small circumstances, a family member may be 
the person who would be the payee, and may have been convicted 
of a felony, but we certainly look for others who are not. But 
anyone who has misused Social Security funds is not eligible to 
be a payee.
    Chairman Shaw. How many people are denied becoming a payee 
because of that rule?
    Ms. Daniels. I certainly do not have that number. And if we 
have it, I will certainly supply it to you for the record.
    [The information follows:]

    Two hundred and eighty payee applicants were not selected 
due to felony convictions for the first calendar quarter of the 
current year (1/1/00-3/31/00), according to our management 
information report. The previous 3 quarters show 150,301, and 
250 non-selections due to felony convictions, for a total of 
981 non-selects for the 12-month period 4/1/99-3/31/00.
    The non-select categories shown on the management 
information report are not all inclusive, i.e., other non-
select categories could be used to describe the non-selection 
of a potential payee who was also a felon, e.g., the abatement 
category or selection of a more suitable person.

    Chairman Shaw. Mr. Geffert also addresses the reporting 
requirement for the rep payees. Is it true that while 
individual account records may be reviewed, that no one checks 
the overall picture to ensure that all the accounts overseen by 
the rep payee add up?
    Ms. Daniels. I am not sure I understand the question. Let 
me try this. I will tell you what we do, and let us see if that 
answers the question.
    Annually, every payee is required to file a form that tells 
what the money was used for. That form is checked in one of our 
processing centers. And if anything is untoward about the form 
or anything is unusual about the form, then an alert is sent 
for a follow-up and for investigation, and so forth. So we do 
have an annual accounting for each beneficiary that has a 
payee.
    Chairman Shaw. Are these accounts audited?
    Ms. Daniels. These are reviewed.
    Chairman Shaw. But there is no verification. Do you go and 
actually check the banks accounts?
    Ms. Daniels. We look at receipts.
    Chairman Shaw. Do you get direct verification from the 
bank?
    Ms. Daniels. Only if we do an on-site review. We do not 
follow-up on each one of the six million annual reports that we 
get.
    Chairman Shaw. The rep payee, though, I assume they put the 
money into one bank account, like a trust account, and that 
they then have individual accounts from which these 
disbursements are made. Do we check the total amounts that are 
coming in, just like a regular accounting, the funds received 
and how they are all paid out, and you come up with some 
totals?
    Ms. Daniels. Well, that would be done in an on-site review, 
and the full financial records would be reviewed. But that is 
not done on an annual basis.
    Chairman Shaw. But you do not have on-site reviews every 
year.
    Ms. Daniels. That is correct.
    Chairman Shaw. So nothing is submitted that would do that.
    Ms. Daniels. Not that I know of, Mr. Shaw.
    Chairman Shaw. I would suggest that we ought to impose 
that, either by regulation or statute.
    Mr. Massanari. We are, Mr. Chairman, though, undertaking a 
whole review effort, where we will be on-site in each of these 
payee organizations, at least every 3 years. And we will also 
be doing random checks of 30 percent of them, each year, as 
this is a part of a new initiative, in order to tighten and 
strengthen the protection and safeguards as a part of the payee 
process.
    When we go on site, though, what we are looking at are the 
individual payee accounts. We are not undertaking formal 
financial audits to assess the financial health of the 
organization. But we would be looking to see the amount of 
income going into each account, as well as disbursements from 
the accounts.
    Many of the payees set up individual bank accounts. More of 
them do have collective accounts. But we need to be able to 
track moneys into and out of the accounts. And in the case of 
Mr. Gamble, he had co-mingled the funds. That is why it is very 
difficult for us now to allocate the misused funds to 
individual beneficiaries.
    But it is a requirement that we be able to track the 
movement of funds, even where those funds are set up in 
collective accounts.
    Chairman Shaw. Well, even if you were to do this by 
sampling, just under general accounting rules, it would helpful 
for your auditors. Are these qualified auditors that are out in 
the field?
    Mr. Massanari. No, what we are doing, typically, when we go 
in and do an on-site review, we are using our field office 
employees, unless they just happen to coincidentally have an 
accounting background.
    But the Office of the Inspector General is working very 
closely with us, as we embark upon this new initiative. We are 
working in partnership, so that we do gain some understanding 
from them. And part of their role is to educate our field 
people, so that they are better equipped to do these reviews.
    But they will really not constitute audits, as such. They 
are really not prepared to do audits. They do not have that 
background.
    Chairman Shaw. Are these high school graduates, colleges 
graduates; what are their qualifications?
    Mr. Massanari. Most of them would be high school graduates. 
Some would be college graduates. But, certainly, they have 
enough knowledge to track the flow of money in and out. But I 
think it would overstate it to say that they are there to do a 
true financial audit.
    Chairman Shaw. Are there any audits that are made with 
auditors?
    Mr. Massanari. There will be some. As I say, that is why we 
are working with the Office of the Inspector General. The 
Inspector General's auditors will be going in with us. And in 
those cases, they will be doing actual audits. I suspect that 
is a question that ought to be raised with the Inspector 
General.
    Ms. Daniels. Mr. Shaw, I would like to add something here, 
as well. I think that we were using the bonding and licensing 
as a proxy for financial accountability; that those agencies 
that are licensed by the state are licensed to do whatever 
kinds of services support that they do.
    And we believed that we could rely upon the state 
mechanisms to assure the basic financial health of 
organizations, either through licensing or bonding. Of course, 
now we are asking for both licensing and bonding in our 
legislative proposal. But we realize that that is not enough. 
And that is the reason we have undertaken the reviews, as well.
    So we have several different tiers of oversight here. One 
is just to get in the licensing and, we hope, bonding. And 
those require certain evidence of financial responsibility, and 
then our triennial reviews, and then our spot checking. Of 
course, any target situation where somebody complains is a 
special situation outside of that.
    So we are building here layers of accountability and 
monitoring. We hope that this number of layers will be 
sufficient to provide the kind of oversight that is necessary.
    Chairman Shaw. What type of regulations do the various 
states have for licensing? Have we done a review of all of the 
states, and have some type of minimum requirements for us to 
recognize their licensing authority? I mean, it could be they 
just send in an application, and that is it.
    Ms. Daniels. That is true. There is a wide variety of ways 
in which a state can issue a license, and the various standards 
they use in order to issue those licenses.
    As we go through the review process, the triennial, over 
the next few years, we will gather more information about the 
licenses that people have. And I think we can give you more 
information then, because we will be on site for every fee-for-
service organizational payee in the next 3 years.
    I think at this point, I have to admit, there is a wide 
variety. Some are very tight, and others are probably not as 
tight as we would like them to be. But our proposal is that 
they be both licensed and bonded, and those two layers 
together, we hope, will knit together a good base.
    Chairman Shaw. If the rep payee is bonded, does the bonding 
company do a regular audit of the books?
    Ms. Daniels. I am not really certain if they do, but they 
certainly take risk of the default on the bonding, if they do 
not. And I am pretty sure they are shrewd enough, for whatever 
the bond is for, to know that they have to have some reasonable 
expectation that the person is able to conduct their business 
in an evenhanded way.
    Mr. Massanari. It depends a little bit on the surety 
company, as to what their requirements are. And as Dr. Daniels 
indicated, it depends a little bit on the amount of the bond.
    But our hope is that, at least, there was some level of 
investigation, and that they do some background checks on the 
organization, in order to protect their own financial 
interests.
    Chairman Shaw. In the Aurora case, is there going to be any 
recovery for the beneficiaries that were lost $200,000-plus 
dollars?
    Mr. Massanari. It does not appear so. The only way that we 
could reissue payment to the beneficiaries who have lost money 
is if now we can recover moneys from Mr. Gamble. Mr. Gamble has 
filed for bankruptcy. And we do not believe that he has any 
funds available.
    Chairman Shaw. Has he been sentenced?
    Mr. Massanari. He plead guilty in early March to embezzling 
$303,000. He will be sentenced on June the 5th.
    Ms. Daniels. If we could get restitution, of course, we 
could begin that process. The reason we are asking for this 
legislation is because we would like to be able to make whole 
the beneficiaries that were harmed, without necessarily first 
collecting it from Mr. Gamble.
    Chairman Shaw. Is embezzlement a debt that is removed in 
bankruptcy?
    Mr. Massanari. I can not answer that. I am not an attorney. 
I do not know. I would suspect not. I think that he will have a 
continuing responsibility, but it would be over a very, very 
long period of time.
    And that, of course, as Dr. Daniels said, is why this 
legislation is important, and why we are so pleased that 
Congressman Wise has submitted his proposal. Our legislation 
would permit us, and in fact we have structured our proposal in 
a way that we would assure that we can cover the beneficiaries 
who were victimized in Aurora.
    To date, as such, we have not made the formal misuse 
determinations, so that we would be able to reissue the amount 
of the benefits, plus the amount of the fees, to the 123 
beneficiaries who have lost money.
    Chairman Shaw. Does anybody else have any other questions 
for the witnesses?
    Mr. Matsui. Yes, I just wanted to follow-up on the 
Chairman's line of questioning here. Let me say this, I want to 
preface my remarks by not suggesting that there were any 
problems with your office and the administration of your 
responsibilities.
    But I am mindful of the fact that under current law, you 
cannot reimburse unless there is a finding of negligence. It is 
a very complex situation. It puts you in a conflict of 
interest. You want to help the beneficiaries. But on the other 
hand, you know, you do not want an allegation of negligence to 
hold against your office and the employees of your office.
    And so I can understand why this is a very difficult 
situation for those that really want to be helpful to the 
beneficiaries.
    On the other hand, and again, I do not want to do this for 
embarrassment sake or anything of that nature, but we had a 
situation in Sacramento that I mentioned at the last hearing, 
in which a woman, Dorthea Puente, who you undoubtedly have 
heard of, in the mideighties, was collecting benefits as a 
representative payee.
    And she was murdering the beneficiaries. I do not think she 
even got up to $200,000. And obviously, the beneficiaries were 
in no position to complain. They were dead. They were buried in 
her back yard.
    And it seems to me that this is an awful large sum of money 
to have gone on for the period of time that it has, without 
raising red flags.
    And, again, I would like some explanation. I know you have 
tried to explain it to the Chairman. But it is difficult for me 
to understand how a quarter of a million dollars could have 
been taken, with no complaints from the beneficiaries, or no 
action taken.
    Mr. Massanari. I think that is a very fair question. And 
let me take you back to the point at which the initial 
investigation and screening was done.
    At the time that Mr. Gamble came in to apply to be a 
representative payee, the staff and the office did, in fact, 
investigate him. He was the Vice President of a local bank. He 
sat on the Board of Directors of a local senior center. He was 
active in his local church. And some of the employees in the 
office actually knew of him and his family.
    So based upon everything that they knew, that we knew, we 
certainly had every reason to believe that he would be an 
honest and reputable payee.
    We, too, are shocked, frankly, that there were not some 
indications earlier. Even the 1996 letter was not a red flag. 
And in retrospect, as I look at the letter, I would not have 
reached the conclusion that there was misuse. I think in this 
case, there may have been--and I am reluctant to say--an honest 
mistake. But it may simply have been a mistake by the 
bookkeeper.
    In talking to the folks and the staff, which I have done 
personally, they all assured me, and most of them have been in 
that office for a number of years. They certainly knew of 
Gregory Gamble and the Aurora Organization. But they have 
assured me that they never got any complaints until, as I 
mentioned, in late 1998, early 1999, when some bills were not 
paid.
    We also had accounting reports coming in, on a regular 
basis. And based upon what we have seen now in our automated 
system, as well as accounting forms that we have been able to 
retrieve, there is nothing in those forms that would suggest 
that there is an inconsistency or any unacceptable information.
    Some of the instances in which folks began to have 
problems, and some of those were documented on television, I 
think, began to occur in early 1999. And that is the point at 
which the accounting forms were not being submitted, that the 
local office began to get alerts that they were not responding. 
And I think everything sort of came to a head at the point that 
we got that complaint in early April from a local attorney.
    But beyond that, I really cannot explain it, except to say 
that I have every confidence that we have no record of any 
reports of bills not being paid. In fact, we have every 
indication that up until early 1999 that the needs of the 
beneficiaries were being met.
    Ms. Daniels. I know it is hard to defend yourself in a 
situation like this when something so horrible like this has 
happened to our beneficiaries.
    But I think one of the things that was consoling to me was 
that as soon as there was an even small body of evidence that 
things were not going right with our beneficiaries, the field 
office made calls saying that they were going to come in for 
review. And the very next day, Mr. Gamble turned himself into 
the FBI.
    So in a sense, our system did work. The complaints 
triggered an action on the part of the field office to go in 
and look. And that precipitated his turning himself in.
    Mr. Matsui. Well, I know the purpose is not specifically 
the Aurora situation. You know, what is troubling to me, and I 
was not planning on talking about this when we walked in today, 
but perhaps the agency gave too much credence to somebody who 
happened to be an outstanding citizen, instead of those that 
were actually complaining.
    And that is certainly not the way government should 
operate. It should not operate on the basis that I know this 
person, and I trust them. It should operate on the basis of 
every individual, whether rich or poor, handicapped or 
disabled, should have that right to an equal hearing. And 
perhaps that was not done.
    In that case, there was, I would say, close to misfeasance, 
if not negligence, on behalf of your office, there. And, again, 
I do not mean to throw stones. But, certainly, it sounds to me 
like negligence.
    Mr. Massanari. Well, I am comfortable that the screening 
was done appropriately, and that there was an adequate 
investigation.
    But, clearly, this particular instance, as well as the 
recommendations that have come from our Office of Inspector 
General, that we be more aggressive, that we tighten up our 
monitoring responsibility is something we have taken very 
seriously. And that is why we have instituted this whole series 
of on-site reviews.
    And if somebody is unscrupulous and wants to cook the 
books, it may be difficult to even identify problems at that 
point. But we are going beyond looking at the books. We are 
actually going out and talking to beneficiaries to make sure 
that their current needs are being met.
    So we think that by tightening up the process as we have, 
we will not only deter and detect fraud earlier, but in many 
cases, we will prevent it.
    Mr. Matsui. Well, thank you.
    Chairman Shaw. I would beg to differ with one thing. Dr. 
Daniels, you said that the system worked. Well, no it did not 
work; not until you got up to about a quarter of a million 
dollars misappropriated. I think that Mr. Matsui has been very 
vocal in that position, and I certainly agree with him.
    Where were these checks deposited? Were they deposited in 
the proper trust account, and then disbursements made out of 
it; or did he start depositing them into his own personal bank 
account? I mean, these things are traceable.
    It has been a long time since I was an auditor. But I can 
tell you, as rusty as I am, I bet you I could trace every dime. 
It has to go into a bank. It has to come out of a bank. So this 
should not be that difficult.
    Mr. Massanari. Well, it varies. One of the things about 
Aurora, which also led us to continue to refer people to 
Aurora, was that Gamble was also a representative payee for 
state benefits, and was also a court-appointed conservator. He 
has been appointed conservator by the West Virginia courts.
    Many of the accounts and, in fact, large sums of money, 
were in these conserved accounts which did not relate to Social 
Security benefits.
    Gamble did have individual accounts for some individuals. 
But for most of them, he had co-mingled the moneys. And so you 
could not really trace the flow of moneys. And as I said, that 
is why we are having some difficulty in allocating the amount 
of misuse to individuals.
    I suspect you are right; had we looked at the accounts, we 
probably would have gotten suspicious. And that is precisely 
the reason that we have instituted--
    Chairman Shaw. Where were your checks being deposited?
    Mr. Massanari. Where were they? They were being deposited 
in the local bank. I am not sure which one.
    Chairman Shaw. I mean, when your bank statement comes in, 
do you keep an eye on what account they went into?
    Mr. Massanari. No, that is not something that we would do. 
When we go in on site, we are looking at the records.
    Chairman Shaw. Well, I mean, why would you not do that from 
your office, or from where the checks are sent, just to be sure 
that they were properly deposited? There has got to be some 
guidelines.
    Mr. Massanari. I believe in this case, as in the case of 
most payees, we do encourage, and in some cases, require that 
there be direct deposit. So that we could determine it, but not 
necessarily the account. I think we would have to go on site to 
do that.
    Chairman Shaw. Do you wire transfer some of this?
    Mr. Massanari. Most of it.
    Chairman Shaw. So you know, you can just look back at your 
records and know where these moneys were deposited and what 
bank account.
    Mr. Massanari. You could look at the inscription on the 
account, but I am not sure we could tell from that whether it 
was appropriately allocated to the individual. I am really not 
sure we could provide an answer to that.
    Chairman Shaw. Well, no, you could not. But you could then 
come back and get his bank statements and his bank records, and 
find out where the money went.
    Mr. Massanari. Yes.
    Chairman Shaw. But we are talking about the co-mingling of 
funds. We can at least be sure that it gets into the right 
account, initially. And then you might have to go on-site to 
decide where the funds went, from that particular account.
    Mr. Massanari. There is another step in the process that we 
have now instituted. We are going in after an organizational 
payee is set up, initially.
    We are going to go in after six months. We go on-site to 
meet with the folks in that organization to look at the 
accounts to assure that the accounts are set up properly; that 
the proper inscription is on the accounts; and that moneys are 
not being co-mingled.
    So a part of this is an educational process that we are 
undertaking, as well.
    Chairman Shaw. Do we have CPAs in your employ?
    Mr. Massanari. No, we do not within the larger Social 
Security Administration, but certainly the Inspector General 
has CPAs on his staff.
    Chairman Shaw. I would strongly suggest that you either do 
this in-house or out-of-house, that you have auditing standards 
that are set up, that any field representative would have to 
adhere to, in going into any of these places.
    I mean, this one has popped up out of the ground. It is 
kind of like you are plowing a field, and all of a sudden, you 
hook onto some relic that jumps up.
    We all know there are a bunch more of these out here that 
we have not caught yet. And the fact that this guy was so 
blatant that as soon as you said you are going to come look at 
the books, he goes and turns himself in, I mean, he did not 
even think he had a sporting chance of getting away with it. 
[Laughter.]
    Mr. Massanari. Well, there are guidelines for the folks who 
are undertaking these reviews.
    Ms. Daniels. Yes.
    Mr. Massanari. Dr. Daniels' staff has developed a set of 
standards and requirements and guidelines, which are part of an 
instruction that our field staff are now following, as they go 
out to do the on-site reviews. So, there are standards.
    Chairman Shaw. Who wrote these?
    Ms. Daniels. The Office of Program Benefits, inside the 
agency.
    Chairman Shaw. Are they CPAs?
    Ms. Daniels. No, they are not. These are not, in the 
technical sense financial audits. They are reviews of the 
accounting of the individual funds for the use of the 
beneficiary.
    Chairman Shaw. I would suggest either in-house, or you get 
an accounting firm to review those standards and set up minimum 
standards, and make suggestions as to what it can do.
    I remember when I was studying accounting. They said when 
you go into an audit, the first thing you do, like if you are 
going to do an automobile agency, the first thing you do is to 
figure out how you can get one of the automobiles off the 
showroom without anybody knowing about it. And once you figure 
that out, then you know that they have got some problems, and 
you can go back and make suggestions to management.
    And it seems to me that you really need top level, 
professional advice. Obviously, you can not hire that type of 
expertise to go out into the field. But at least they should be 
the ones that set up the standards.
    And it is a form of audit, even though it is not, in the 
technical sense. But tracing these funds and doing a positive 
verification from the banks as to bank balances and a few 
things like this, those are sort of no-brainers. You can figure 
those things out.
    Ms. Daniels. We will certainly take a look at the review 
standards and get back with you on that.
    [The information follows:]

    In developing the review standards for the ``Guide for 
Conducting Site Reviews'', SSA staff requested and received 
input from the Office of Inspector General's Office of Audit. 
In the event that a site review uncovers what appears to be 
fraudulent financial practices, the guide directs reviews to 
immediately request assistance from the Office of the Inspector 
General.

    Chairman Shaw. I look forward to working with you both on 
this. Thank you very much.
    Ms. Daniels. It is our pleasure. Thank you.
    Chairman Shaw. I have one other question, Dr. Daniels. You 
were talking about bonding requirements. Now those bonding 
requirements that you are suggesting for legislation apply only 
to fee-for-service type of people. What about charitable 
organizations, non-family members that are not fee-for-service?
    Ms. Daniels. Our proposal does not include at this time the 
non-fee-for-service volunteer organizations.
    Chairman Shaw. Should it?
    Ms. Daniels. I would really need to talk with the staff 
about what the implications would be, especially the cost.
    Chairman Shaw. Give us your recommendation on that, because 
the non-profits, they can steal, too.
    Ms. Daniels. They certainly can. Again, we are trying to 
seek that balance of encouraging the non-profits that have 
contact with the beneficiaries for other reasons, maybe case 
management or whatever, to be organizational payees when they 
can, and not burden them with any additional costs. And at the 
same time, you are right, we have to be sure that they are 
responsible and acting responsibly.
    Chairman Shaw. Even in family situations, is there any 
interview that takes place, before the decision is made?
    Ms. Daniels. Yes, absolutely. The face-to-face interview in 
the office, and quite a lengthy procedure of verifying who they 
are and their earnings, et cetera.
    Chairman Shaw. Thank you.
    Ms. Daniels. You are welcome.
    [Questions submitted by Chairman Shaw, and Ms. Daniels' 
responses, follow:]

Susan Daniels, SSA Questions and Answers

    1.A. Regarding annual accounting requirements, the IG testified 
that SSA could initially produce only 12 of the more than 100 
accounting reports the Aurora Foundation was required to submit 
annually for the beneficiaries for which it served as rep payee.

SSA Response

    In the Aurora Foundation case, our computer records indicate that 
required accountings were filed timely. In May of 2000, our search 
indicated that Aurora was a representative payee for 121 beneficiaries 
at the time it closed. Seventy-four (74) accounting forms should have 
been filed with SSA; the remaining 47 beneficiaries had not been 
represented by Aurora long enough to require that accounting forms be 
filed, i.e., more than 12 months. In response to an Office of the 
Inspector General's (OIG) early request to locate accounting forms, 12 
forms were located initially. The search for those forms was quick but 
cursory, based on the immediacy of SSA's need to respond to the 
investigation. (As indicated below, additional forms have since been 
located.)
    Congressional testimony regarding Aurora indicated that 15 
uncompleted accounting forms were located at the Foundation's office by 
investigators. We found that 8 of these were current requests for the 
accounting period ending March 1999 and would not have been considered 
late until after June 30, 1999 (at which point Aurora was not in 
business).
    The other 7 requests were for the period ending October 1998 and 
were actually 'second requests' that must have crossed in the mail with 
the initial completed forms. Our physical search, which is not yet 
completed, located 5 of the 7 completed forms. In light of the above 
facts, it would be inaccurate to assume that our accounting requests to 
the Aurora Foundation were going unanswered.

    B. How many accounting reports did you receive from Aurora in each 
of the years during which Aurora was a rep payee for Social Security/
SSI beneficiaries? How does that compare with the number of 
beneficiaries for which Aurora was rep payee during each of those 
years?

SSA Response

    The exact number is unknown. An annual account form for each 
beneficiary is sent to all representative payees (except State 
institutions participating in the triennial onsite review program) to 
return to SSA showing how benefits were used during the preceding 12-
month period. Aurora was payee for many individuals for varying lengths 
of times. Therefore, they would have had varied reporting times for 
each SSA beneficiary and for some, Aurora would not have been required 
to complete an accounting form because they were payee for less than a 
full year. Our computer records show that Aurora returned its 
accounting reports timely except for one March 1999 report. (Discussed 
below.)

    C. Why did Aurora's failure to submit so many accounting forms not 
result in a closer examination of its operations by SSA?

SSA Response

    We reviewed the non-responder activity for Aurora within the 
confines of our systems structure. In looking at the non-responder list 
for November 1999, which covered the accounting period ending March 
1999, we found only one name on that list for which Aurora was 
representative payee. Interviews with local office employees revealed 
that Aurora filed its accounting reports on time. The forms we have 
retrieved to date also indicate that, with the exception of the last 
month of business, accounting reports were filed.

    D. Do you agree or disagree with the IG ``belief'' that ``adequate 
monitoring'' would have detected problems with Aurora sooner, better 
protecting at least some of the benefits that were lost?

SSA Response

    Because the owner of Aurora was essentially running a criminal 
enterprise and diligently trying to deceive SSA, it would have been 
extremely difficult for SSA to detect problems early, especially since 
no complaints were received. However, given the unfortunate outcome of 
this case, we believe more oversight is needed to ensure that 
beneficiaries are provided the requisite protection. While SSA does 
monitor representative payee performance in a number of ways, including 
accounting for benefits, timely reporting of changes, and resolution of 
complaints from beneficiaries, increasing our monitoring capacity will 
enable us to strengthen our oversight of the program. Therefore, we 
have implemented an expanded monitoring program (described in our 
response to question 4) and we are continuing to look at other 
improvements through our representative payee task force.

    E. Are you still searching for files from Aurora? Have you found 
any additional files? If so, how many?

SSA Response

    In May 2000, SSA undertook on its own motion to search for all of 
the Aurora accounting forms. Aurora was representative payee for 121 
beneficiaries at the time of its closure. After reviewing our 
beneficiary records, we determined that 74 forms should have been filed 
and been retained. Accountings would not be available on the remaining 
client population because the 12-month anniversary for the accounting 
had not yet arrived or the request was made when Aurora closed its 
operation. Of the 74 forms that were filed (according to our computer 
records), we have located 40 forms to date. We were unable to find 12 
forms in storage though our computer records showed that they had been 
filed. Our search for the remaining forms continues. As of this date, 
we have not completed our search of the 6 million forms returned 
yearly. We believe this manual search will locate an additional 15-22 
forms. The volume of forms we receive and the method of storage hampers 
our retrieval efforts. We are exploring ways to store these forms so 
that they are more easily retrieved.

    F. What other examples are there of rep payees that fail to submit 
accounting forms as required? What has been SSA's response in other 
cases in the past? Do you expect that response to change?

SSA Response

    A December 1996 IG report, Monitoring Representative Payee 
Performance: Nonresponding Payees, showed approximately 76 percent of 
non responding representative payees were parents and other relatives 
with custody. Mothers with custody composed the single largest group; 
agencies and institutions were the most common high-volume 
nonresponding representative payees.
    SSA's policy requires the field offices to consider paying the 
beneficiary directly, or changing a payee when the current 
representative payee will not cooperate after repeated attempts to 
obtain the required accounting form. This policy is difficult to 
administer when the majority of nonresponders are parents with custody 
of minor children and other concerned relatives (e.g., spouse, child 
for parent, grandparent, etc.). When an organization does not respond, 
it is considered a ``triggering event'' for a review of such payees. 
(See 4.A.) However, we are reviewing the nonresponder process to 
determine other alternatives that would assist us to obtain the 
required accounting form from all individual and organizational 
representative payees.

    2. Why has it taken so long to implement the IGs recommendation 
about non-responding payees? In December 1996 the Inspector General 
made specific recommendations regarding monitoring non-responding 
payees, specifically on following up non-receipt of reports and 
verifying local office action. SSA is now proposing to conduct these 
checks. But why wasn't action taken in the last 4 years? Obviously you 
think this step will help reduce fraud and abuse or you wouldn't be 
moving forward now. How many abuses might have been prevented if you 
had followed the IG's advice three and a half years ago? What amount of 
benefits would have been protected in the Aurora case if the first 
instance of non-response had resulted in the selection of a new payee? 
The second? Third?

SSA Response

    In the December 1996 report, Monitoring Representative Payee 
Performance: Nonresponding Payees, the IG identified the number of 
representative payees who did not respond to requests for annual 
accounting after 1 year and recommended an improved system for tracking 
nonresponding payees.
    We agreed that SSA should retain historical data on nonresponding 
payees and indicated that a future enhancement to the Master 
Representative Payee File systems plan would include the control and 
tracking of the annual accounting process. These activities have yet to 
be assigned implementation dates due to competing high priority Agency 
initiatives, such as the Title II Redesign. However, we did put in 
place procedures which require field offices to input data in the 
Master Representative Payee File, via the Representative Payee System 
(RPS), that documents the pertinent facts surrounding a payee change, 
including nonresponse for annual accounting. This documentation is 
considered when determining a representative payee's suitability for 
future appointments.
    The recommendation to develop a more immediate and appropriate 
method (e.g., suspension of benefits, immediate change of payee with 
final accounting from former payee) to be used in conjunction with 
tracking to obtain accountings from nonresponding representative payees 
was delayed pending the results of additional IG work as described in 
the September 1999 report, Nonresponder Representative Payee Alerts for 
SSI Recipients.
    In response to that report, we convened a workgroup to identify 
which representative payees do not return the accounting forms, their 
relationship to the beneficiary, and compliance history; and to 
research what legal/statutory authority the Agency could use to put any 
revised procedures in place. The focus of the workgroup was to examine 
the feasibility and advisability of changing our procedures to allow 
for redirecting benefit checks to the field office address in an 
attempt to obtain the required accounting form. The workgroup's 
findings and recommendation are being reviewed.
    Separate from the December 1996 IG report, in March 1998 we 
developed guidelines and began conducting in-depth reviews of fee-for-
service organizations. It was the notification of a site visit which 
caused Mr. Gamble of the Aurora Foundation to turn himself in to the 
FBI. We are unable to determine the amount of benefits that would have 
been protected had Mr. Gamble received the notice prior to April 1999.

    3. Where is the documentation? The IG believes that retention of 
supporting documentation for the failure to timely complete rep payee 
accountability forms and the ability to easily retrieve these forms is 
essential to the identification and ultimate prosecution of rep payees 
for fraud or misuse. According to the IG, your own procedures say that 
rep payee accounting reports must be retrievable in the event the form 
must be reviewed for misuse or fraud allegation. Yet your offices are 
required to send these documents to an outside storage facility. Where 
are local offices storing these documents today? What instructions are 
your local offices following?

SSA Response

    We process over 6 million annual accounting forms each year. 
Monthly, we send out approximately 1/12 of the total annual accounting 
forms. When returned by the representative payee, the forms are stored 
together by accounting month or in a box by SSN and have a 2-year 
retention period; the 8 processing centers are responsible for storing 
the completed forms. The majority of forms are stored onsite (or in 
rented space in close proximity to the processing center), or at SSA's 
Security Records Center in Boyers, PA.

    4.A. Should organizational rep payees be subject to audits? More 
specifically, should any organization be allowed to serve as a rep 
payee without being able to submit to SSA an annual audit of its 
operations?

SSA Response

    With rare exceptions, it has been our experience that 
organizational representative payees perform their duties 
satisfactorily. An OIG report on representative payee performance 
(September 1996) found that organizational representative payees as a 
group are among our best representative payees, with a low incidence of 
poor performance. We believe requiring an annual audit of an 
organization's operations may not be warranted, but we are assessing 
the impact such a requirement would have on organizational 
representative payees.
    We recognize that even though the incidence of misuse by 
organizational representative payees is infrequent, that is no 
consolation to a beneficiary who has lost his or her much needed 
benefits. We have several new initiatives underway that will help 
prevent misuse by organizational representative payees. During one of 
these initiatives, site reviews described below, we will obtain and 
review copies of any external audit conducted.
    Triennial Site Reviews--SSA has begun a review of all fee-for-
service representative payees and all volume representative payees 
serving 100 or more beneficiaries on a triennial cycle. In addition, we 
will review individuals who serve as representative payee for 20 or 
more beneficiaries. These reviews will ensure representative payee 
compliance through a face-to-face meeting and examination of a sample 
of beneficiary records; expenses may be corroborated with providers of 
the services they provide to the beneficiary. An added benefit of this 
initiative will be improved lines of communication between SSA and the 
representative payee.

    Annual Verification of Bonding or Licensing--Non-governmental fee-
for-service representative payees will be required annually to show 
that they continue to meet the bonding or licensing requirements for 
charging a fee for their representative payee services.
    6-Month Site Visits--SSA will visit fee-for-service representative 
payees 6 months after their appointment to ensure that they fully 
understand their duties and responsibilities, and are on the right 
track with respect to accounting for the funds, record keeping and 
reporting.
    Random Reviews--SSA will conduct reviews of a random sample of 30 
percent of volume representative payees and all fee-for-service 
representative payees that are not reviewed (in the current year) as 
part of the triennial cycle. We will review a sample of beneficiaries 
the payees serve for compliance with our policies and procedures.
    Quick Response Checks--SSA will continue to conduct reviews of 
representative payees as needed in response to certain ``trigger'' 
events such as third party reports of misuse or complaints from vendors 
of failure to receive payment.
    We believe that these measures will help to ensure that 
organizational representative payees appointed by SSA will carry out 
their duties and responsibilities in accordance with the policies and 
procedures that are designed to protect our beneficiaries.

    B. How many organizational rep payees currently have their own 
operations audited?

SSA Response

    Some organizational representative payees currently are subject to 
audits because they are State or local agencies, or because of IRS 
regulations. Because this is not a requirement for appointment as a 
representative payee, we do not have this information.

    C. How many organizations might no longer be eligible to serve as 
rep payees if this requirement were made and enforced?

SSA Response

    While we do not know how many, we believe that it is reasonable to 
assume that some portion of our organizational representative payee 
population (particularly the smaller, volunteer representative payees), 
would choose not to serve as a representative payee if they had to 
absorb the added expense of an annual audit.

    D. Could other payees be found in those cases?

SSA Response

    Considering that the beneficiary population served by these 
organizational representative payees includes those who have no family 
members willing or able to serve as representative payee, we believe 
our field offices (FOs) would have difficulty in finding alternate 
representative payee sources if the pool of payee candidates was 
reduced.

    5. Are SSA screening procedures adequate? In his testimony, the IG 
points out that in terms of the screening and selection of rep payees, 
SSA essentially conducts a records verification of certain documents 
such as drivers licenses, state identification cards, credit cards, and 
bank books. However, SSA does not verify the accuracy of this 
information. Nor does it provide credit or security checks to determine 
if the potential payee has financial problems, credit problems, or may 
have been convicted of any other felony. In March 1997, the IG made 
specific recommendations to SSA to conduct a more thorough screening of 
potential rep payees. Why weren't these suggestions adopted? Are you 
currently implementing any of the IG recommendations regarding the 
conduct of a more thorough screening of potential rep payees? If so, 
what is the status?

SSA Response

    Before selecting any representative payee applicant, SSA is 
required by law to conduct an investigation of that applicant's 
suitability. The Social Security Act, at section 205(j)(2)(A) and (B) 
and section 1631(a)(2)(B)(i) and (ii), requires SSA to conduct a face-
to-face interview with the applicant for the purpose of verifying:
     The applicant's identity,
     The applicant's SSN (or Employer Identification Number 
(EIN)),
     Whether the applicant was convicted of a violation of 
section 208 or 1632, and
     Whether the applicant had ever been determined to have 
misused benefits.
    SSA does not perform credit or security checks. In conjunction with 
the December 1994 Report to Congress on the feasibility of conducting 
criminal background checks, preliminary research indicated that 
background investigations would be prohibitively expensive. However, we 
are currently exploring whether criminal background or credit checks 
are now economically feasible.
    Following are the IG's March 1997 recommendations and SSA's 
responses:
    IG: During custody checks, verify payees' statements made on the 
application and during the interview.
    SSA: We have revised our operating instructions to indicate that 
FOs should use whatever means available to verify an applicant's 
statements, particularly an allegation of custody, including contact 
with a reliable third party. Offices are expected to exercise judgement 
in deciding when verification is needed.
    IG: For agencies, institutions, or other volume payees, determine 
whether the potential payees' record keeping systems are sufficient to 
ensure that beneficiaries' needs will be adequately met.
    SSA: We agree that volume representative payees' record keeping 
systems should be sufficient to ensure all beneficiaries' needs are 
met. At the initial interview, volume representative payees are asked 
to provide SSA with information regarding their systems. We have 
augmented our operating instructions to reflect that volume 
representative payees must provide a description on how beneficiaries' 
monies are recorded and disbursed. Additionally, in June 2000, we began 
visiting fee-for-service payees 6 months after their appointment as 
payees to ensure they fully understand their duties and 
responsibilities. (See answer to 4.A.)
    IG: Conduct suitability checks only for payees intended for 
selection. We do not believe that SSA needs to conduct checks for all 
payee applicants.
    SSA: We believe that to ensure the selection of the best possible 
representative payee, the suitability of all applicants must be 
investigated. Who the payee should be cannot always be predetermined. A 
suitability check is one way to decide which representative payee is 
preferable.

    6.A. What licensing or bonding requirements should organizational 
rep payees have to satisfy? SSA's proposal would require only 
organization payees who perform this service for a fee to be licensed 
and bonded. Other witnesses supported requiring licensing and bonding 
of all organizational payees and you indicated openness to considering 
expanding your proposal in this direction. What arguments can you think 
of against requiring licensing and bonding in all cases? Do you support 
those arguments?

SSA Response

    SSA requires organizational representative payees who are filing to 
be fee-for-service representative payees to be bonded or licensed. The 
bonding requirement is an insurance contract guaranteeing payment to a 
third party on behalf of the organization in the event of unforeseen 
financial loss by the action or inaction of an employee. For the 
purpose of payment for services, the licensing document must be issued 
in the State in which the agency serves as representative payee and 
permit the agency to:

     conduct business or operate in the State (generally 
referred to as an operating license), or
     provide a specialized service to residents of the State 
(e.g., licensed to provide Medicaid services).

    Certainly the best argument against requiring licensing and bonding 
of all organizational representative payees may be the expense to the 
payee and the resulting loss of available payees. Recently, a task 
force has been appointed to consider the extension of bonding to non 
fee-for-service organizational representative payees and to individual 
representative payees who serve a significant number of beneficiaries. 
We need additional information about bonding requirements and the 
effect required bonding would have on volunteer nonprofit organizations 
that serve SSA beneficiaries. We need to evaluate the extent to which 
mandatory bonding or licensing on these organizations would burden them 
with additional cost and how it would effect our ability to recruit 
representative payees.

    B. Your original proposal implies that higher standards should be 
applied to organizations that serve as rep payees under fee-for-service 
arrangements? Is that justified? Do more allegations of abuse result 
from fee or non-fee organizational rep payees? How about convictions?

SSA Response

    Higher standards may be applied to fee-for-service organizational 
representative payees because they are approved to collect a fee for 
their services from the beneficiaries' funds. Therefore, we believe it 
is reasonable to require higher standards.
    SSA has no evidence that abuse of funds is more (or less) likely to 
occur with a fee-for-service organization than with a non fee-for-
service organization. We are also unaware of any conviction statistics 
because the U. S. Attorney determines which cases to prosecute.

    C. What proof does an organization applying to be a rep payee have 
to provide SSA regarding whether it is licensed or bonded? Does SSA 
check this information annually to ensure that the organization remains 
licensed or bonded? How? Should an organization lose its licensing or 
bonding, how quickly will SSA know of it? What response will SSA take?

SSA Response

    The organization is responsible for submitting all evidence 
required proving it qualifies to become a fee-for-service 
representative payee. The bonding or licensing documents are part of 
this evidence; if it cannot be determined that the organization is 
bonded or licensed, the FO will contact a representative of the company 
or State agency which issued the agreement or license. Additionally, 
the FO will obtain the necessary information, such as the protection 
given under the bonding agreement or the purpose of the license.
    Recently, we implemented new procedures for fee-for-service and 
volume representative payees which will increase our monitoring of 
these payees (see our response to Question 4). One of the new features 
(beginning this year) will require fee-for-services representative 
payees to annually prove they continue to meet SSA requirements that 
allow an organization to collect a fee. This certification will require 
the payee to present proof of current licensing and/or bonding. If an 
organization no longer meets all qualifying factors (including 
licensing or bonding), we will revoke their authorization beginning 
with the first day of the month after the month in which the decision 
is made.
    The organization is supposed to notify SSA of any events that would 
effect benefits including loss of licensing or bonding. Information of 
this nature may also be passed on to SSA from a third party. There is 
no national, State or local system that has such information. And, 
because bonding would be through a private company of the 
organizations' choosing and licensing could be through any one of the 
thousands of State or local governmental licensing bureaus, such a 
computer link on an individual basis would not be feasible.

    D. One recent case of rep payee abuse involves an individual who 
took over the operation of a non-profit group that previously did not 
provide payee services. What can SSA do to prevent fraud in such cases?

SSA Response

    The task force appointed by the Commissioner is reviewing different 
approaches to screening representative payees, especially the 
possibility of doing credit and criminal background checks. By 
increasing SSA's screening and monitoring activities we hope to 
increase our capacity to improve selection of representative payees 
that serve some of our most vulnerable of our beneficiaries.

    E. Section 2 of your proposed legislation states that a non-
governmental organizational representative payee must be licensed in 
each State in which it serves as a representative payee (provided that 
licensing is available in such State). It is our understanding that in 
some States, while the State does not require licensing, a county or 
locality might. Under your bill, would a representative payee still be 
required to be licensed in these circumstances? If so, should it be 
required?

SSA Response

    Currently, the law requires that a fee-for-service organizational 
representative payee be licensed or bonded. If our bill were enacted, 
organizations that file to be fee-for-service representative payees 
would have to meet the licensing requirement as well as a bonding 
requirement. FOs are expected to be aware of their State, county and 
local laws in their service areas when it comes to businesses requiring 
operating licenses. This draft bill would not change this requirement.

    7. Should credit checks be done on all potential rep payees? You 
can't buy a car, much less be put in charge of another person's 
finances, without a credit check. Does SSA perform a credit check on 
potential rep payees, including individual rep payees? Has a sample 
ever been performed to determine what SSA would find if it did so? 
Especially if non-fee organizational representative payees are not 
required to be licensed and bonded, should such organizations at least 
be required to pass a credit check? What would that cost? Would that 
otherwise happen in the course of bonding?

SSA Response

    SSA does not perform credit or background checks. In conjunction 
with the December 1994 Report to Congress on the feasibility of 
conducting criminal background checks, preliminary research indicated 
that background investigations would be prohibitively expensive. Our 
task force is going to revisit this issue again to see if criminal 
background checks can be incorporated into the program.
    Conducting credit checks on all new representative payee applicants 
would require an initial outlay of $162,500 for hardware and a yearly 
cost of approximately $10 million. We are in the process of examining 
various levels of bonding to determine at what point the underwriter 
would perform credit checks and background checks on those individuals 
in the organization who are in positions that allow them to determine 
the flow of funds. We believe that the bonding requirement in some 
cases may be used in place of SSA performing these types of checks.

    8.A. What other standards are there for rep payee services? I 
understand that a witness before the Senate Aging Committee testified 
that she became a rep payee for a number of beneficiaries after 
applying over the phone. Is that true? Can that still occur?
SSA Response

When the witness, representing her organization, first applied to 
become a representative payee, and subsequently applied to be a fee-
for-service payee, she appeared in the local field office and filed in 
person. She visited the field office on numerous occasions and was 
known to them. It is SSA policy that after a representative payee has 
been screened and approved it is possible (and permissible) to execute 
subsequent representative payee applications over the phone when 
additional beneficiaries are assigned to that approved payee.
    When applying to be a representative payee, the representative of 
that organization must provide: the name of the organization and its 
Employer Identification Number, identify any debts that the beneficiary 
has to the organization, and identify other beneficiaries for whom the 
organization is representative payee.
    The witness referenced here was an organizational fee-for-service 
payee. The additional standards for a fee-for-service payee are that 
they must serve at least 5 beneficiaries and be a:

     State or local government agency whose mission is to carry 
out income maintenance, social service or health-care related 
activities;
     State or local government agency with fiduciary 
responsibilities, or
     Community-based, non-profit social service agency which is 
bonded or licensed in the state that it serves.

    B. Is there a minimum age requirement for a person to be a rep 
payee? How old are the youngest payees? How many are there this age?

SSA Response

    The law requires that a beneficiary under the age of 15 must have a 
representative payee and, therefore, someone under that age, who is 
receiving benefits, could not serve as a payee. Further, rarely would 
we appoint someone under the age of 18 to be payee; however, on a case-
by-case basis, it can occur, for example a mother under age 18 whose 
child is on our rolls could serve as representative payee. Provisions 
for direct payment under age 18 are provided in 20 CFR 404.2010(b) for 
title II and 20 CFR 416.610(b) for title XVI. We do not know the number 
of representative payees under age 18 because we do not maintain data 
on the ages of our representative payees.

    C. Most rep payees are individuals and not organizations. Do you 
have any concerns about fraud involving individuals who serve as 
payees, as opposed to organizations, which is the thrust of SSA's 
legislative proposal? What are some recent examples of fraud involving 
individual rep payees? Why did you not include suggestions to address 
these cases?

SSA Response

    As you stated, most representative payees are individuals and most 
of those are relatives with custody. We are concerned about the 
potential for abuse and have built numerous protections into the 
representative payee systems to guard against unknowingly assigning 
someone who poses a risk. Currently, we capture data about misuse, 
representative payee related fraud convictions, self-reported felony 
convictions, etc. In recognition of the fact that such individuals may 
pose a problem, we will conduct site reviews of individual 
representative payees who serve 20 or more beneficiaries. We also 
believe it would be useful to include individual representative payees 
serving 20 or more beneficiaries in the legislative proposal and permit 
re-issuance of misused benefits. We will continue to explore other 
alternatives for minimizing the potential for fraud.
    Recent examples of individual representative payee fraud involve 
non-reporting of death or loss of custody of the beneficiary in order 
to continue receiving checks, fraudulent applications and forgery of 
checks.

    9.A. Can felons serve as rep payees? Under what conditions may 
convicted felons serve as rep payees, whether as organizations or as 
individuals?

SSA Response

    Under current law, the only criminal convictions prohibiting a 
person's appointment as representative payee are felony convictions of 
sections 208 or 1632 of the Social Security Act. However, our 
representative payee application does ask if the applicant to be an 
individual representative payee has been convicted of any felony, and, 
if so, the specifics of that conviction (see B. below).
    A representative payee applicant convicted of a violation (other 
than sections 208 or 1632 of the Social Security Act) is generally not 
a suitable payee. It is in the beneficiary's best interest for SSA to 
find an alternative representative payee or make direct payment rather 
than appoint a convicted felon as a payee. If there are no alternative 
payees and direct payment is prohibited, we evaluate the impact of the 
felony on the applicant's ability to serve as payee. We consider the 
nature of the crime, the applicant's relationship to the beneficiary, 
how recently the crime was committed, and any indications of a 
recurrence of criminal behavior. If it is determined that the payee 
applicant remains suitable, we document the decision on the RPS and 
establish diaries to closely monitor the payee's performance. With 
respect to organizational representative payees, we do not ask whether 
the applicant (on behalf of the organization) has been convicted of a 
felony because an organization cannot be convicted of a felony. 
However, our taskforce is also looking at the possibility of background 
checks for organizational representatives.

    B. How does SSA enforce current restrictions on convicted felons 
serving as rep payees? Does SSA actually check its records or other 
databases or does it rely on the word of the individual applying to be 
a rep payee? How many people are denied becoming rep payees each year 
because of current restrictions?

SSA Response

    SSA screens representative payee applicants against agency records 
of such violations. Quarterly reports from OIG identify individuals 
convicted of violating sections 208/1632 of the Social Security Act and 
also individuals convicted under other statutes when the violator was a 
representative payee. This information is stored on the RPS and is 
displayed to the technician to aid in making a representative payee 
selection. The RPS systematically blocks the selection of any 
individual convicted of a violation under sections 208/1632 of the 
Social Security Act.
    In addition, during the application process we ask whether the 
applicant to be an individual representative payee has ever been 
convicted of any felony. If yes, we ask what was the crime, date of 
conviction, sentence, if imprisoned when released and, if on probation, 
when it will end.
    Last year, 981 individuals were not selected due to felony 
convictions.

    C. Based on your records, how many convicted felons serve as rep 
payees today? Is that number expected to grow in the future?

SSA Response

    Our records indicate that about 92,000 or two percent of 
representative payees have self-reported felony convictions but field 
office investigation has shown that almost one half of the 92,000 
representative payees reporting themselves as convicted felons actually 
reported the information in error. Reasons for the inaccurate reporting 
are varied; representative payees sometime misunderstand the question 
or think it refers to the beneficiary; others report misdemeanors as 
felonies. In addition, payees with a felony conviction who are selected 
are usually parents or relatives with custody of the beneficiary. We 
expect this number will increase in conjunction with the expected 
overall increase in the representative payee population.

    D. Of cases involving allegations of abuse by rep payees, how many 
involve previously-convicted felons? How many cases involving 
convictions for abuse by rep payees involve previously-convicted 
felons?

SSA Response

    We do not know the number of allegations of/convictions for abuse 
that involve previously convicted felons. However, a study of 
previously convicted felons serving as representative payees found the 
vast majority (97.4%) of payees who reported that they were convicted 
felons properly discharged their payee duties.
    We do fully investigate allegations of abuse by a representative 
payee and document any findings on the RPS. If a representative payee 
is convicted under statutes other than sections 208/1632, we display 
this on the RPS and if any details of the conviction are available we 
describe it in the text area of the RPS. This information will aid the 
technician in making a payee selection. Also, as noted previously, when 
a previously convicted felon is appointed as a payee, we establish 
diaries and monitor the payee with personal contact follow-ups.

    E. If the law were changed to prohibit all convicted felons 
(including individuals convicted for felonies "">not related to Social 
Security or SSI benefits) from serving as rep payees, what impact would 
this have on beneficiaries? Would you expect more or less abuse by rep 
payees of vulnerable beneficiaries?

SSA Response

    Prohibiting all convicted felons from serving as representative 
payee would have a negative impact on our beneficiaries. This could 
result in our prohibiting a parent who stole a car at age 18 from 
serving as representative payee for his/her child. A very large 
percentage of these payees are relatives with custody of the 
beneficiary. Finding an equally qualified person to see to the needs of 
the beneficiary in these circumstances is not likely. As noted above, 
our study of previously convicted felons serving as representative 
payees found the vast majority (97.4%) of payees who reported that they 
were convicted felons properly discharged their payee duties. Even 
among the remainder, no misuse was discovered. Therefore, prohibiting 
all convicted felons from serving as representative payees would not 
significantly change the amount of representative payee abuse.

    F. If a rep payee misuses benefits, presumably SSA will attempt to 
locate another rep payee for the beneficiary. However, the first rep 
payee may never be convicted of the misuse, especially if the loss is 
not large. For example, the IG provides testimony about a father who 
stole SSI benefits from his son for about two years, yet was never 
prosecuted. Does that father serve as a rep payee for any beneficiary 
today? Could he? Does SSA maintain records about such (former) rep 
payees? For example, does SSA know how many current rep payees have 
misused benefits in the past?

SSA Response

    The father in question does not currently serve as representative 
payee for any beneficiary. While it is possible that he could serve as 
a representative payee at another time or for another beneficiary, SSA 
would not appoint him unless direct payment was not possible, there was 
no alternative payee, and there was compelling evidence that such an 
appointment would be in the beneficiary's best interest. When misuse is 
established, even if the IG does not secure a conviction, SSA inputs 
that data into the RPS. If the misuser files again, the interviewer 
will be alerted to his/her past poor history and it will be considered 
when making the appointment. According to the RPS, there are 1,539 
current representative payees who have misused benefits in the past.

    G. SSA has proposed new civil and monetary penalties against payees 
who misuse benefits. Would persons subject to these penalties also be 
specifically disqualified from serving as a rep payee again?

SSA Response

    The proposed new civil monetary penalties proposal does not include 
any provision for specifically disqualifying as a representative payee 
individuals who were subject to these penalties because they misused 
benefits. However, we believe that this would be a good change to the 
proposed extension of the civil monetary penalties provision.

    10. Why is SSA only now implementing some recommendations? In the 
IG's testimony, he highlights a number of recommendations his office 
has made to SSA regarding the rep payee oversight process over the 
years. Some of these have never been implemented, some are only now 
being implemented. Why? Which recommendations has SSA not implemented 
or does not intend to implement and why?

SSA Response

    At SSA's request, in the last several years the OIG has conducted a 
series of reviews of our representative payee monitoring process to 
provide recommendations on how to improve the program's effectiveness 
and efficiency. As a result, the OIG made several recommendations, from 
changes to the Representative Payee Report form used to collect 
information from our payees, to systems changes on how to better 
support the program. SSA evaluated the recommendations within the 
framework of our competing priorities and resource limitations. We have 
implemented several recommendations including:

     Developing and distributing a handbook for organizational 
representative payees.
     Issuing instructions to field offices to screen payees 
more thoroughly.
     Conducting onsite reviews of fee-for-service and volume 
payees.
     Developing and distributing a pamphlet for beneficiaries 
informing them of their rights and responsibilities.
     Changing the focus of the current process which relies on 
accounting forms to monitoring and compliance of the payee.

    In addition, we have started to implement the following 
recommendations. These involve systems changes which require longer 
lead time to implement:
     Expand our automated Representative Payment System.
     Instruct field offices to improve controls over retention 
of supporting documentation of non-responder alerts and accounting 
forms.
     Develop an accounting form tailored to organizational 
payees.

    There are several OIG recommendations that SSA did not adopt:
    IG: SSA should exempt from annual reporting those payees who 
complete extensive reporting for an official or an external guardian 
(i.e., legal guardians). SSA should periodically certify that these 
payees still complete the alternate accounting.
    SSA: We did not adopt this suggestion because of the statutory 
requirement to obtain accountings from all payees (this was noted by 
OIG), and because many of these payees have creditor relationships with 
the beneficiaries, and few have custody.
    IG: SSA should conduct suitability checks only for payees intended 
for selection. We do not believe that SSA needs to conduct checks for 
all payee applicants.
    SSA: We believe that suitability checks are necessary for all 
applicants in order to ensure that the best payee applicant is 
selected.
    IG: Revise the payee accounting form to include questions which 
focus on events that payees commonly fail to report.
    SSA: The representative payee accounting form is designed to 
monitor the payees' use of the benefits, and to elicit information on 
how any unused funds were conserved. The form also asks other payee-
related questions such as whether the representative payee has been 
convicted of a felony or if the custody of a child has changed. 
Further, instructions sent with the accounting form explain other 
events-to be reported. We believe asking questions not related to use 
of benefits would dilute the primary purpose of the form. Other forms 
are available to address eligibility and should be used.

    11. Why are abuses rising? According to the IG's office, 
allegations of fraud involving rep payees have increased on average 
from 206 per month in 1998 to about 1,100 a month so far this year. I 
know the IG's office has grown during that time, enhancing its ability 
to investigate abuse. But is there fire under this smoke? How do you 
account for such a rise in allegations?

SSA Response

    While we believe the IG may best be able to respond to the rise in 
receipts of allegations of fraud involving representative payees, 
several factors may play a role in explaining the increase. One factor 
is the establishment of the OIG Hotline, which now receives calls 
directly from individuals who previously contacted SSA field offices. 
The FO's often handled these inquiries with no involvement by the IG. 
Other factors that contribute to the rise in allegations may be the 
extensive publicity of misuse cases and an increase in the number of 
investigators. Further, the Agency has placed increased emphasis on the 
representative payment program.

    12. How does H.R. 3666 differ? In addition to legislation that SSA 
has forwarded on this issue, Congressman Bob Wise of West Virginia has 
introduced H.R. 3666. How does this bill differ from the proposal SSA 
has put forward? It appears to the subcommittee that the retroactivity 
under H.R. 3666 is without limit, meaning any benefits determined to 
have been misused in the past, whether in 2000 prior to enactment, or 
in 1999 or even in 1989 and before are eligible for reimbursement 
provided other conditions are met. Is this reading correct? If enacted, 
should a limit be placed on the retroactivity of legislation like H.R. 
3666? What should that limit be?

SSA Response

    We believe that Representative Wise's bill moves in the right 
direction in attempting to make beneficiaries whole when their benefits 
have been misused by their representative payee. In that respect we 
support H.R. 3666. Like the SSA's proposal, this bill would improve the 
safeguards for beneficiaries with representative payees. Beneficiaries 
with representative payees are some of the most vulnerable of 
beneficiaries.
    As drafted, H.R. 3666 is broader than the SSA proposal. However, 
this may have been more a result of drafting than of intent. Currently, 
when any representative payee has been determined to have misused an 
individual's benefits, SSA can reissue the Social Security or 
Supplemental Security Income benefits only in cases where there was 
negligent failure on SSA's part to investigate or monitor the 
performance of the payee. Our proposal would provide that when an 
organizational payee misuses a beneficiary's benefits, SSA would 
reissue the benefits automatically, without regard to whether SSA 
failed to investigate or monitor the performance of the payee. Thus, a 
distinction between SSA's proposal and H.R. 3666 is that our proposal 
is limited to cases of misuse by organizational payees. We have 
recently, however, stated that we would support expanding our proposal 
to include individual payees representing 20 or more beneficiaries.
    With regard to the effective date issue, we agree that the 
retroactivity under H.R. 3666 appears to be without limit. However, the 
provision in the Social Security Act that allows us to make 
beneficiaries whole in certain misuse situations was included in the 
Omnibus Budget Reconciliation Act of 1990 (OBRA '90--P.L. 101-508, 
enacted 11/5/90), which was effective upon enactment. Therefore, H.R. 
3666 may be limited to that effective date. Subsequent to the 
submission of your questions, Congressman Wise introduced another bill, 
H.R. 4651. This bill parallels the Administration's proposed bill 
except that is has an OBRA '90 effective date.
    Having done further review of the availability of information 
contained in our electronic systems, we now believe that it would be 
preferable to make provisions relating to re-issuance of benefits 
effective with respect to misuse determinations made in January 1995 or 
later. We believe this date is the earliest point in time that SSA has 
reliable information on our computer records for cases that involved 
misuse of benefits. Additionally, this effective date would allow SSA 
to reissue benefits in the affected misuse cases even if the misuse 
determinations have already been made. Included among such cases would 
be the beneficiaries whose benefits were misused by Ivy Services--a 
misuse case mentioned in Inspector General Huse's testimony. (Misuse 
determinations were made in this case in 1997.)
    SSA's Office of the Actuary advises that whether the effective date 
for SSA's proposal remains unchanged (i.e., effective for misuse 
determinations made after 1999) or is made effective retroactive to 
January 1995, the proposal is still estimated to have a negligible 
effect on outlays from the OASDI trust funds.

    13. What has been done about payments to deceased rep payees? 
Please tell us what steps have been taken to prevent continued payments 
to rep payees who have died. We now allow for recovery of this money as 
if it were an overpayment. How much is being recovered? Compared with 
what total overpayment? Do you have further suggestions for better 
preventing payments after rep payees have died?

SSA Response

    SSA has conducted a study of cases that were initially identified 
as potential ``payments to dead representative payees.'' Our study 
revealed that in most cases, we were in fact paying benefits to a new 
representative payee. However, incorrect coding indicated otherwise; 
that is, we were paying a new person, but failed to update the new 
payee's social security number on our systems.
    Our study did find several instances where payments were being 
certified to deceased representative payees, however, and, therefore, 
SSA will be performing a match of death computer files against our 
representative payee system and investigating all appropriate cases. We 
plan to complete this within the next 6 months.
    We assume your overpayment recovery questions stem from the 
recently enacted Foster Care Independence Act of 1999 (P.L. 106-169). 
This law made representative payees personally liable for benefits they 
received on behalf of a beneficiary after the beneficiary's death and 
has no bearing on cases where the payee is a deceased individual. In 
fact, as the benefits in these cases belong to the beneficiary (who is 
still entitled) and not the representative payee, they do not represent 
overpayments.

    14. Why haven't certain Freedom of Information Act requests 
described by Mr. Geffert been granted? Are there other Freedom of 
Information requests involving rep payees that SSA has denied in the 
year? For what information? In each case, what has been the 
justification for the denial?

SSA Response

    We denied Mr. Geffert's request for records pertaining to the 
Aurora Foundation because the Office of the Inspector General (OIG) 
advised us that the investigation was ongoing and disclosure of 
investigatory records could interfere with the investigation. The 
documents were withheld under Freedom of Information Act (FOIA) 
exemption (b)(7)(A). Mr. Geffert has resubmitted his request, and while 
we have been advised that the investigation is still ongoing, we expect 
to release some documents, including the Aurora screens in the 
Representative Payee File and Aurora's applications for bonding and 
licensing. We have informed Mr. Geffert that this information will be 
released as soon as the U.S. Attorney involved in the Aurora case 
allows release.
    We have identified only two other similar FOIA requests involving 
representative payees within the past year. Case NR5363 originally 
requested an electronic copy of the Master Representative Payee File. 
The requester agreed to withdraw the request after we explained that 
extensive reprogramming followed by manual review would be necessary to 
delete personal information protected by the Privacy Act which we would 
have withheld under FOIA exemption (b)(6). Case NR1597 involved 
allegations of misuse by the Association for Retarded Citizens of 
Rutland, Inc. In this case, the investigation was closed. Portions of 
the documents were deleted or withheld under FOIA exemptions (b)(5), 
(b)(6), (b)(7)(C), and the grand jury materials were withheld under 
FOIA exemption (b)(3).
    In addition, Subcommittee staff forwarded the following question:

    15. How is the foreign representative payee program different from 
the domestic program? What safeguards are in place to monitor the 
foreign representative payee program?

SSA Response

    Generally, the same policies directing development and selection of 
representative payees and use and accountability of benefits that are 
in effect domestically are applied outside the United States. However, 
significant differences exist between the domestic and foreign 
representative payee programs, and modification of procedures is 
frequently required. For example, suitable representative payees are 
usually not difficult to find outside the United States; most of the 
beneficiaries requiring management of their benefits are children under 
age 18, not homeless individuals or those living in boarding house or 
institutional situations. More typically, beneficiaries are living in 
family settings with close relative-payees who are interested in their 
care and well-being. In addition, in some countries such as Canada, 
there is a large number of public officials empowered by law to act for 
mentally incompetent individuals as their representative payees.
    Through SSA's ongoing program of validation surveys and other 
extensive studies of the foreign program, we have regularly reviewed 
the foreign representative payee program and have gained an awareness 
of unique customs and cultural differences in various countries that 
might influence our selection of a payee or the payee's ability to 
perform his or her duties. For example, in the Philippines, the wife or 
mother usually assumes responsibility for the financial resources of 
the family. For this reason, a mother will be preferred over a father 
as a representative payee for the child. If the father is selected, a 
comprehensive explanation supporting this decision must be included in 
the file.
    Another standard practice for Foreign Service Posts (FSPs) that 
service a significant beneficiary population is the establishing and 
maintaining of records of representative payees who have been proven to 
be unsuitable. The FSPs consult these records during the payee 
selection process to assist them in choosing the best payee possible 
for the beneficiary.
    Further, there is an extensive history of oversight of the foreign 
representative payee program to assure that payees are carefully and 
correctly executing their duties for the welfare of the beneficiary. 
One such effort is the Foreign Enforcement Program, under which an 
annual contact is made with every representative payee on behalf of 
every beneficiary whose benefits are subject to representative payment. 
The purpose of this contact, in the form of a written questionnaire, is 
to ascertain that the beneficiary remains eligible for benefits and 
that the payee is using the benefits for the beneficiary's support and 
welfare or conserving them in an appropriate manner.
    When considering the small size (as of April 2000, there are 31,409 
foreign beneficiaries who have representative payees) and unusual 
nature of the foreign payee role, and the continued effectiveness of 
the existing safeguards, we believe that the foreign representative 
payee program succeeds in addressing the needs of beneficiaries outside 
the United States who are unable to manage or direct the management of 
their payments.
      

                                

    Chairman Shaw. And now we have Mr. James Huse, who is the 
Inspector General in the Office of the Inspector General. Mr. 
Huse, if you would have a seat at the table.
    Mr. Huse?

STATEMENT OF HON. JAMES G. HUSE, JR., INSPECTOR GENERAL, OFFICE 
    OF THE INSPECTOR GENERAL, SOCIAL SECURITY ADMINISTRATION

    Mr. Huse. Good morning, Mr. Chairman and Congressman 
Matsui. Thank you for the opportunity to discuss the Social 
Security Administration's representative payee program.
    This critical program is designed to protect the interests 
of some of the most vulnerable members of our society. Today, I 
would like to summarize my full statement for the record.
    But first, I need to emphasize that the vast majority of 
rep payees are honest, trustworthy people. However, recent 
events have shown that this program needs tighter controls to 
prevent abuses by those entrusted with this great 
responsibility.
    Since fiscal year 1998, we have opened in the OIG 1,352 rep 
payee investigations, obtained 313 convictions, and identified 
over $7.5 million in losses. Several of our cases represent 
severe abuses, where a number of individuals were victimized.
    In my written statement, I highlighted our investigation of 
Ivy's Social Services, Incorporated, whose owner misused about 
$274,000 of beneficiaries' funds for personal purchases over a 
15 month period, while serving as a fee-for-service rep payee 
for 330 individuals.
    Our Aurora Foundation investigation is our most recognized 
case. Aurora was an organizational fee-for-service rep payee 
that served over 140 disabled individuals. The president of 
Aurora embezzled about $300,000 over a 4 year period, of which 
almost half represented payments issued by Social Security.
    Even though Aurora had been a fee-for-service rep payee 
since 1995, Social Security had never conducted an on-site 
review. However, at the time of our investigation, Social 
Security notified Aurora of a pending site visit, based on 
complaints against it.
    We have also encountered significant abuses by individuals 
serving as rep payees. After receiving a complaint from the 
Veterans Affairs Inspector General, my office opened an 
investigation that involved Ms. Jean Bote.
    She acted as a professional guardian and rep payee for 
approximately 20 beneficiaries. Our investigation determined 
that Ms. Bote misused over $200,000 in Social Security and 
Veterans Affairs benefits.
    Currently, when Social Security determines that an 
individual is incapable of managing his or her own benefits, it 
searches for a suitable rep payee. To determine suitability, 
Social Security interviews individuals and conducts a limited 
review of documents, supplied by the potential payees.
    Please keep in mind that this is not an investigation, but 
serves as a means for Social Security to verify information 
within its own systems. Social Security, generally, does not 
verify the accuracy of the information, unless there is a 
reason to question suitability; nor does the agency perform 
credit or security background checks.
    We believe that the agency needs to strengthen its 
selection process, because this is Social Security's best 
opportunity to prevent the misuse.
    Social Security also needs to strengthen its rep payee 
monitoring program. We have recommended that Social Security 
implement additional controls to ensure that payees do not 
misuse benefits.
    In our work, we identified problems with payees who did not 
respond to Social Security's annual request for accounting of 
how benefits were used for the individuals they represented. We 
are pleased that Social Security is proposing to conduct quick 
response checks when rep payees do not respond.
    On-site reviews are another part of the monitoring program. 
State institutions that participate in the rep payee program 
are reviewed every 3 years.
    Social Security may also conduct on-site reviews if a 
problem is brought to its attention. Unfortunately, these 
reviews are detective, rather than preventative. We believe 
Social Security should conduct periodic reviews of payees and 
focus more on monitoring and compliance issues.
    Finally, in another review, we found that payments were 
often made to deceased rep payees. We estimated that since July 
1998, about $17 million in payments were issued to over 2,000 
deceased payees. We recommended that Social Security conduct 
routine computer matches, to ensure that it promptly identifies 
payees who are deceased, and quickly selects new payees.
    Social Security has acknowledged the need to address rep 
payee oversight issues. And we have agreed to work together 
with the agency to protect our expertise.
    Mr. Chairman, we look forward to working with the agency 
and this Committee to improve this vital program, and protect 
Social Security's most vulnerable beneficiaries.
    I will be happy to answer any questions you may have.
    [The prepared statement follows:]

Statement of the Hon. James G. Huse, Jr., Inspector General, Office of 
the Inspector General, Social Security Administration

    Good morning, Mr. Chairman and members of the Subcommittee. 
Thank you for the opportunity to discuss the Social Security 
Administration's (SSA) Representative Payee (Rep Payee) 
Program. While the Agency's Rep Payee Program is designed to 
protect the most vulnerable members of our society, recent 
events have demonstrated that these laudable goals are 
sometimes compromised. Today, I would like to focus on some 
practical solutions that would strengthen the Agency's Rep 
Payee Program. In particular, I would like to highlight several 
recent audit recommendations that offer solutions to prevent 
and detect Rep Payee abuses. Additionally, I would like to 
discuss several investigations that have highlighted weaknesses 
in the Rep Payee Program. We are working closely with the 
Agency to rapidly address the vulnerabilities identified in 
these reports and investigations, and to implement sensible 
solutions.

                The Rep Payee Program--A Brief Overview

    SSA provides Social Security and Supplemental Security 
Income (SSI) benefits to the most vulnerable members of our 
society--the young, the elderly, and the disabled. Congress 
granted SSA the authority to appoint Rep Payees for those 
beneficiaries that SSA determines to be incapable of managing 
their own benefit payments. Each Rep Payee has a legal 
responsibility to use SSA's benefit payments for the use and 
benefit of the beneficiary only. At the present time, about 6.5 
million Social Security and SSI beneficiaries rely on Rep 
Payees to manage their monthly benefits.
    There are two major types of Rep Payees--individual Rep 
Payees and organizational Rep Payees. Individual Rep Payees are 
typically relatives of the beneficiary, who are entrusted to 
use such funds in the best interest of the beneficiary. 
Although individual Rep Payees may at times provide services to 
multiple beneficiaries, they are prohibited from charging fees 
for such services. Organizational Rep Payees are typically 
large institutions that provide care and treatment for 
beneficiaries residing in such institutions (e.g., Department 
of Veterans Affairs hospitals, State psychiatric institutions, 
nursing homes, and extended care facilities). Other types of 
organizational Rep Payees may include community groups, 
charitable organizations, and other nonprofit agencies. The 
Social Security Act allows qualified and authorized 
organizational Rep Payees to collect a fee for providing Rep 
Payee services.

                          Early Warning Signs

    Over the last several years, our audits and investigations 
revealed early warning signs that may have gone unheeded by the 
Agency. These warning signs existed in both the Rep Payee 
selection process and during post-selection monitoring process.
    Screening and Selection of Rep Payees--When SSA determines 
that a beneficiary is incapable of managing his or her own 
benefit payments, SSA searches for a suitable Rep Payee. SSA 
regulations give preference to family members over friends, 
third parties, and organizational Rep Payees.
    To determine suitability, SSA interviews prospective Rep 
Payees. This usually consists of a review of documents supplied 
by the prospective Rep Payee. It is not an investigation, but 
rather a means to conduct an SSA records verification. Some of 
the documents that SSA reviews for individual applicants 
include:

     Drivers licenses;
     State Identification cards;
     Credit cards; or
     Bank books/check books

    However, SSA generally does not verify the accuracy of the 
identification and financial information presented, unless it 
has reason to question the applicant's suitability. SSA does 
verify the accuracy of the Rep Payee's income by comparing the 
information on the Rep Payee application to SSA's records. SSA 
also verifies with our office that the prospective Rep Payee 
has not been convicted of a felony against Social Security 
programs.
    For organizational payees, SSA verifies the Employer 
Identification Number (EIN) of the Rep Payee by comparing the 
EIN on the Rep Payee application to the EIN contained in SSA's 
records. SSA does not perform credit or security background 
checks on prospective individual or organizational Rep Payees. 
Based on existing regulations, SSA does not determine if the 
individual Rep Payee or organizational Rep Payee has financial 
problems, credit problems, or if they, or their employees, may 
have been convicted of any other felony.
    We believe that the selection process, specifically the 
suitability determination, should be strengthened. This 
presents SSA with the best opportunity to prevent improper 
benefit payments before issuance. In a March 1997 evaluation 
report entitled, Monitoring Representative Payee Performance: 
Roll-Up Report, we recommended that SSA conduct a more thorough 
screening of potential Rep Payees.
    Rep Payee Monitoring and Oversight Activities--SSA has some 
basic safeguards in place to ensure that Rep Payees do not 
misuse benefits. SSA requires an annual accounting report from 
all Rep Payees, for each beneficiary under their care. 
Additionally, SSA has the ability to conduct on-site reviews of 
organizational Rep Payees.
    Annual Accountability Reports--An annual accounting report 
form, the ``Representative Payee Report,'' is sent to every Rep 
Payee. The form elicits information concerning the dispensation 
of SSA funds that the Rep Payee has received, on behalf of each 
beneficiary.
    In our December 1996 report entitled, Monitoring 
Representative Payee Performance: Nonresponding Payees, we 
identified problems with Rep Payees who did not respond to 
these annual accounting reports. We recommended that SSA 
determine (1) why Rep Payees did not complete and return these 
accounting reports; and (2) whether SSA staff properly 
processed systems-generated alerts for Rep Payees who did not 
respond. In the intervening 3-year period, there were several 
organizational Rep Payee fraud cases in which such accounting 
forms could not be located. Thus, we are extremely pleased that 
SSA is proposing to conduct Quick Response checks when Rep 
Payees do not return these financial accounting reports.
    In our September 1999 report entitled, Nonresponder 
Representative Payee Alerts for Supplemental Security Income 
Recipients, we found that the field offices lacked supporting 
documentation for the failure to timely complete accountability 
forms. This lack of documentation resulted in an inability to 
identify the reasons that Rep Payees had not completed their 
accounting forms as required. We recommended that SSA instruct 
field offices to improve controls over the retention of 
supporting documentation and obtain accounting forms from Rep 
Payees. SSA disagreed with our recommendation and stated that 
field offices are required to send these documents to an 
outside storage facility. We believe that the retention of 
these documents, and their ability to be easily retrieved, is 
essential to the identification, and ultimate prosecution, of 
Rep Payee's for fraud or misuse. Indeed, this is consistent 
with SSA's written policy. SSA's Program Operations Manual 
System (POMS) states that payee accounting reports must be 
retrievable in the event that the form must be reviewed for a 
misuse or fraud allegation.
    On-site Reviews of Representative Payees--Another part of 
SSA's oversight and monitoring of Rep Payees involves on-site 
reviews. State institutions that participate in the on-site 
review program are reviewed once every 3 years. In addition, 
SSA may conduct an on-site review if a problem with a payee is 
brought to its attention. On-site reviews are visits with the 
Rep Payee or the administrators of such organizations, and they 
consist of an examination of the relevant accounting records. 
Additionally, interviews with beneficiaries are conducted to 
determine if their needs are being met. Unfortunately, these 
reviews may not identify Rep Payee abuses until after the fraud 
has occurred. Further, many beneficiaries are incapable of 
communicating any problems due to their disabilities--the basis 
of their need for a Rep Payee in the first place.
    In our March 1997 Roll-up report, we made several 
recommendations to improve the efficiency and effectiveness of 
SSA's Rep Payee monitoring program. Included in the report were 
recommendations for SSA to conduct periodic reviews of selected 
Rep Payees and to change the focus of the current process from 
accounting to monitoring and compliance.
    Finally, in our September 1999 report, The Social Security 
Administration's Procedures to Identify Representative Payees 
Who Are Deceased, we reported that benefit payments were 
sometimes made to deceased Rep Payees. In some cases, SSA could 
not be sure that the funds were ever used on behalf of the 
beneficiaries for which they were intended. We also reported 
that SSA does not ensure that new Rep Payees are selected when 
former Rep Payees have died. In July 1998, from a review of 
SSA's Death Master File, we estimated that 2,091 deceased Rep 
Payees received about $17 million in Social Security and SSI 
payments. We recommended that SSA: (1) conduct routine computer 
matches to ensure that SSA promptly identifies Rep Payees who 
are deceased and; (2) select new Rep Payees in a more timely 
manner. SSA agreed with our assessments and plans to implement 
our recommendations.

             Fraud Cases Highlight Program Vulnerabilities

    While the vast majority of Rep Payees are honest, 
trustworthy people, several recent cases have demonstrated that 
key controls could have prevented major fraud cases. No case 
better exemplifies this point than the Aurora Foundation case, 
which was the subject of a television news magazine segment in 
January 2000, entitled ``When Nobody's Looking.'' Aurora 
Foundation, Inc. was a high-volume, organizational Rep Payee 
that served over 140 disabled individuals in West Virginia. 
Although Aurora had been a fee-for-service Rep Payee since 
1995, SSA had not yet performed an on-site review. However, at 
the time of our investigation, SSA had notified Aurora, by 
mail, of a pending review based on complaints.
    Our investigation revealed that the head of the Aurora 
Foundation, Gregory Gamble, had embezzled over $300,000 between 
April 1995 and May 1999. The majority of these diverted funds 
were SSA payments. Mr. Gamble has since pleaded guilty to 
embezzlement of Social Security benefits, Veterans Affairs 
benefits, and private funds. Mr. Gamble is scheduled for 
sentencing on June 5, 2000.
    During the course of our investigation, my office asked SSA 
to retrieve all of the financial accounting forms submitted by 
Aurora. SSA was only able to secure 12 of the accounting forms 
that were submitted by the Aurora Foundation during its final 
year of operation. The missing forms reflect a lack of program 
oversight on behalf of SSA. It still remains unclear as to 
whether the remaining accounting forms were submitted and 
subsequently misplaced, or never submitted in the first place 
by the Aurora Foundation. We continue to believe that SSA needs 
to conduct regular inspections and reviews of organizational 
Rep Payees, especially those Rep Payees who do not submit the 
required financial accounting forms.
    From November 1996 to February 1997, a SSA Field Office 
(FO) received approximately 45 complaints of funds being 
mismanaged by Ivy's Social Services, Incorporated (Ivy's), a 
fee-for-service Rep Payee located in Phoenix, Arizona and 
Denver, Colorado. Upon receiving this information from the FO, 
my office promptly opened an investigation. Our investigation 
revealed that Ivy's was an organizational Rep Payee for 330 
individuals from March 1996 to May 1997. During this short 
period of time, the head of Ivy's spent approximately $274,000 
of the beneficiaries' money to make personal purchases. In 
addition to paying off $65,000 in personal credit card debt, 
the subject of the investigation also used the funds to 
furnish, and pay the rent for, three personal residences. In 
May 1999, the head of Ivy's was sentenced to 18 months 
imprisonment, and ordered to pay full restitution of $274,000 
to SSA.
    We have also encountered significant abuses by individual 
Rep Payees who are not affiliated with an organization. Ms. 
Jean Bote acted as professional guardian and Rep Payee for 
approximately 20 recipients of Social Security benefits. 
Several of the beneficiaries for whom she collected benefits 
were elderly veterans with mental disabilities. In response to 
a complaint received by the Veterans Affairs Inspector General, 
my office opened an investigation and determined that she 
misused over $200,000 in SSA and VA benefits for her own 
personal gain. Subsequently, Ms. Bote was sentenced to 37 
months incarceration and 3-years supervised release. She was 
also ordered to make restitution totaling $200,000 to the five 
victims. Prior to sentencing, Ms. Bote presented the probation 
office with a $200,000 check in anticipation of the restitution 
ordered.
    Since Fiscal Year 1998, our office has opened 1,352 Rep 
Payee investigations, which have led to 313 convictions and 
identified over $7,500,000 in fraud losses. The vast majority 
of these investigations have involved individual Rep Payees 
acting on behalf of one individual, as opposed to 
organizational Rep Payees that are responsible for multiple 
individuals.

            Working Together to Find Common Sense Solutions

    As SSA has acknowledged the need to address Rep Payee 
oversight issues, we have agreed to work together with the 
Agency and provide our expertise and assistance. Specifically, 
over the next several months, we will work with the Agency to:

     Identify and recommend appropriate improvements to 
the program;
     Provide support to SSA staff during on-site 
reviews of selected Rep Payees;
     Conduct periodic audits of the program, including 
Agency adherence to program policies and procedures; and
     Evaluate, on an ongoing basis, the need for 
revised policies and procedures.

    We hope that this type of fraud, which so often victimizes 
the most vulnerable in our society, will be more quickly 
discovered and referred to us for investigation and 
prosecution.
    We also believe that with additional Civil Monetary Penalty 
(CMP) authority, SSA can make sure that Rep Payees who abuse 
the system are punished, even when they are not prosecuted. The 
CMP program has proved to be enormously valuable both in 
preventing fraud from occurring, and in recovering monies 
stolen from SSA. However, there are currently limitations to 
pursuing CMPs in the Rep Payee Program.
    I would like to illustrate this point by telling you about 
a father who applied to be the Rep Payee for his disabled minor 
son in 1996. He received approximately $10,713 in SSI 
disability payments for his son's benefit and care. Later, in 
July 1998, the child's mother applied to be his Rep Payee. It 
became apparent that the father never had custody of the child, 
and that he used the payments designated for his son for his 
personal use for almost 2 years. The father refused to repay 
the funds to SSA. Because the dollar loss fell below the 
prosecutive threshold, both the criminal and civil divisions of 
the U.S. Attorneys Office declined the case for prosecution. At 
that point, our Office of Investigations referred the case to 
our Office of Counsel for possible action under the CMP 
program. Unfortunately, we could take no action in this case 
because the son was eligible for the payments. Therefore, under 
existing law, the funds were properly paid despite the fact the 
child most likely never benefited from them. The father's 
conversion of these benefits did not constitute a false 
statement made in order to obtain or retain the benefits--as I 
said, the benefits themselves were proper. In the absence of 
specific CMP language pertaining to theft or misuse, the 
father's theft of his disabled child's benefits had to go 
unpunished.
    Finally, I would like to comment on an important Agency 
legislative proposal that would counter organizational and 
individual Rep Payee abuses. In February 2000, SSA submitted a 
draft Rep Payee bill for consideration by this Congress. This 
draft legislation would require, among other things, that 
organizational Rep Payees be licensed and bonded. It also seeks 
to expand the CMP program to address the improper conversion of 
benefits by Rep Payees--a scenario described earlier in my 
testimony. I applaud SSA's recent efforts in this area to deter 
and detect Rep Payee abuse before it starts.
    While I strongly support SSA's recent legislative efforts, 
there are additional front-end safeguards that may be 
appropriate. Specifically, individual Rep Payee identity and 
financial documents should be verified thoroughly, prior to 
selection of a Rep Payee. Further, large organizational Rep 
Payees should be subject to financial and background screening 
prior to selection.
    Once a Rep Payee has been selected, more rigorous 
monitoring would be beneficial. SSA's current business process, 
for collecting and retrieving Rep Payee accounting forms, 
should be examined carefully. Additionally, I look forward to 
SSA's planned on-site reviews, as mentioned earlier. These 
reviews will be more detailed and thorough than any prior 
reviews conducted by SSA.
    Mr. Chairman, we look forward to working with the Agency 
and this Committee to improve this vital program. We need to be 
sure that appropriate Rep Payees are selected and that the 
benefits are used for the purposes there were originally 
intended.
    Thank you for holding this hearing. At this time I will be 
happy to answer any questions that you may have.
      

                                

    Chairman Shaw. You made reference to deceased payees. What 
happened? Where is the money going when you have a deceased rep 
payee?
    Mr. Huse. Well, it goes to probably another family member 
or another person.
    Chairman Shaw. Are the checks going out or the bank account 
that money is being wired into, does that generally have more 
than one signatory on it? How are they getting the money out to 
the beneficiary; or if it is being misplaced or misused, how is 
that?
    Mr. Huse. I am not sure I understand your question.
    Chairman Shaw. Well, how are they cashing the checks?
    Mr. Huse. They are cashing the checks, most of these, by 
electronic funds transfer. By not reporting the death, the 
automatic payment is made. And as far as Social Security is 
concerned, the rep payee is still alive, so the funds are then 
disbursed by family members or spouses, or whatever the 
situation is.
    This is an area that plagues us, not only in this 
particular program, but in other benefits, too, by failing to 
report that.
    Chairman Shaw. Well, I know if a recipient dies, through 
death certificates and what not, if they die in this country, 
the Social Security Administration is advised. Could you cross-
check with that with the rep payees? Do you get their Social 
Security numbers, or is there any way we have of checking that?
    Mr. Huse. Well, you are correct, Mr. Chairman, Social 
Security maintains a master death file. And, in fact, many 
other agencies use it, because it garners this information from 
across the country. What we are suggesting is that that death 
file be matched against the rep payee program in a computer 
match.
    Chairman Shaw. So you are suggesting the question I just 
asked?
    Mr. Huse. Exactly, exactly, and we have audit work to that 
effect that we have done and made recommendations to the agency 
on that issue.
    Chairman Shaw. Have you reviewed the procedures? Dr. 
Daniels did not like to call this auditing procedures, because 
of the qualifications of the people that are in the field.
    But whatever you call it, the record checking that is done 
in the field, she indicated that there is a procedure that they 
go through. Is that a written procedure that you have looked at 
or have been able to review?
    Mr. Huse. We have looked at it in our work, and we have 
suggested areas where it can be strengthened. When this current 
wave of provocative cases came to the attention of Social 
Security, I wrote a letter to the Commissioner, and took the 
extraordinary step of volunteering our audit services to 
participate in this endeavor to put something on the street 
immediately, to try and deal with this problem.
    So we have, as Dr. Daniels said, a partnership arrangement, 
where we will offer our expertise and advice, and we do have 
the accountants go to Social Security, as they try to make a 
more robust and effective process, here.
    Chairman Shaw. Have they been responsive to your 
suggestions?
    Mr. Huse. Yes, sir, they have.
    Chairman Shaw. Good. Do you think that an overall review of 
their procedures should be underway at this point, based upon 
the experience that we have had?
    Mr. Huse. Well, we have been in existence as an OIG now for 
5 years, since independence. In that period of time, we have 
done three strong audit reports on the representative payee 
process, and made numerous recommendations to the agency. If 
implemented, these would, in effect, have strengthened some of 
these areas.
    Chairman Shaw. If they were put into effect?
    Mr. Huse. If they were put into effect.
    Chairman Shaw. They have not been?
    Mr. Huse. Well, I was just going to go there. This is a 
workload Social Security, in the field, that gets deferred. It 
is not addressed because there are other priorities that 
interfere.
    We do not have a performance measure in our performance 
plan that deals with having this process as effective and 
having the best integrity that it possibly could. And in my 
opinion, where you do not have a performance measure, normally 
in life, you do not have much compliance or an incentive. So we 
think that that is probably called for, also.
    Chairman Shaw. What about overseas beneficiaries; how do we 
know that they are still alive?
    Mr. Huse. Well, Social Security has overseas payment 
benefit officers that monitor the overseas payments, and has a 
series of reviews that are conducted, country by country, each 
year.
    We send OIG investigators on these reviews to look at the 
deceased. And most of this is in the deceased payee realm. And 
I can give you a much better answer of what has been done there 
in writing, if you wish, over the past 5 years. But we have 
been doing this.
    Chairman Shaw. Yes, I would like to look at that in all 
areas, because I think we are probably paying a lot of dead 
beneficiaries in other countries, where we do not get the 
information back, where with the wire transfers, the money just 
keeps flowing.
    It seems to me there should be, whether there are enough 
Social Security people around the globe to check on this, the 
people receiving these things, at some regular intervals, 
should be required to come in to see the different consular 
offices or something.
    Mr. Huse. And that is basically how this survey is 
conducted. They take the universe and a country and a sample.
    Chairman Shaw. Is it sufficient?
    Mr. Huse. I think it is a good process. In some foreign 
countries, of course, the numbers are daunting. There are some 
European countries where we have significant numbers of retired 
beneficiaries. And in other places, we can take the entire 
universe. But it is a business process that works.
    Chairman Shaw. Mr. Matsui?
    Mr. Matsui. Thank you, Mr. Chairman.
    Mr. Huse, did you review the file on the Aurora situation?
    Mr. Huse. Yes, sir.
    Mr. Matsui. And you are very familiar with that?
    Mr. Huse. I am very familiar with Aurora.
    Mr. Matsui. And your office obviously did a thorough 
investigation, talked to people over there, talked to the 
beneficiaries that were defrauded, and all of this?
    Mr. Huse. We did a complete investigation for the United 
States.
    Mr. Matsui. Is it your opinion that there were only a 
couple of complaints in that 4 year period, from your review of 
the file, or was there more than that? I am just puzzled by 
this, and I can not seem to get to the bottom of it, from my 
own perspective.
    It seems to me that when you have that many beneficiaries 
and that much money involved over a 4 year period, that there 
had to have been more complaints than what was represented. And 
maybe I am totally off on this. But what does your file show, 
from your reading of the files?
    Mr. Huse. I do not know that we can answer that question, 
specifically. But in other areas that had early warning 
potential, for example, the use of this annual accounting form 
that is required on every individual beneficiary, in our 
investigation, we were only able to find in Social Security's 
field records 12 of these forms for a universe of around 140 
beneficiaries. That meant that a significant number of these 
were missing.
    When we executed a search warrant on Mr. Gamble's office, a 
number of these accounting forms were in his files, still in 
the original envelopes, that he never responded to.
    Again, I come back to the fact that these are great 
processes, but they only work if they are followed as a 
business process.
    Mr. Matsui. Yes, and let me say this. I think your 
recommendations and what the SSA has implemented is helpful. 
But, you know, on-site inspections and all of those, they are 
helpful if there is competence at the level of administering 
the programs and the benefits.
    Mr. Huse. Exactly.
    Mr. Matsui. And that is where I am kind of coming from. You 
know, there is obviously a total breakdown in the system, some 
place. If this was $20,000 over a year period, well, OK, I will 
give the person a break. But this is 4 years and a quarter of a 
million dollars, and it just does not seem to smell right.
    And I was somewhat taken aback that this guy was an 
outstanding citizen and all this stuff, and that had an impact, 
I suppose. But I remember back in the early eighties, when we 
had a lot of S&L suede shoe guys that were outstanding citizens 
in S&L, that defrauded the government of some trillion billion 
dollars.
    Mr. Huse. Sure.
    Mr. Matsui. I need an explanation of this. You know, this 
is great, what you are recommending, on-site inspections, more 
paperwork and all this stuff. That is great. But if you have 
got folks that do not understand what they are doing or do not 
care what they are doing, there has to be more to this.
    Mr. Huse. And that is why I made the suggestion that by 
making this a performance measure or goal that the agency 
strives to reach, then it becomes an imperative for managers 
and executives to ensure that this particular workload is 
accomplished.
    Of course, in the broad scheme of things, that means 
probably some other adjustments have to be made, maybe on the 
customer service side. But that is the nature of government. 
You have to make these choices.
    Mr. Matsui. I know, but that does not answer my question.
    Mr. Huse. I want to be responsive.
    Mr. Matsui. Well, is there accountability by some of the 
folks in the SSA office and the regions? There has got to be 
some accountability.
    I mean, here we are having this hearing and you are the 
Inspector General. Could you say that there were people in that 
office that should have done a better job? Do they commit acts 
of misfeasance, or is this something that you could prefer not 
to talk about? And I would understand that.
    Mr. Huse. Well, the technical term of whether an entity is 
negligent or not, it has legal implications.
    Mr. Matsui. You used a stronger word than negligence.
    Mr. Huse. Right.
    Mr. Matsui. I am using misfeasance.
    Mr. Huse. But I think I can comfortably state, based on the 
record of reports that have been issued, both in my name and my 
predecessor's name, in the last 5 years, that this is a 
business process that needs to be fixed. It needs to be fixed 
with stronger accountability, and it needs to be strengthened 
with better performance. And we are on record saying this.
    Mr. Matsui. I know, and you are suggesting things, and some 
of them have been implemented, you know, more on-site 
inspections and those. But that is not the question I am asking 
you. I mean, I am saying, those are a given.
    Could this have happened in spite of that? And I kind of 
think that maybe it could have, given what I am hearing, and 
the fact that this went over a 4 year, 48 month period, because 
this guy was a good neighbor.
    Mr. Huse. If you are suggesting that there needs to be a 
different focus, I agree with you.
    Mr. Matsui. Yes, that is what I am saying.
    Mr. Huse. Because in these instances, we have a focus in 
Social Security, and an appropriate one.
    Mr. Matsui. If I could just say this, I do not want to be 
snowed, OK. I mean, I do not want this little fix. And, you 
know, I agree the legislation makes sense.
    But in a way, it makes it easier if we hold the beneficiary 
harmless. Because, you know, maybe then the whole Aurora issue 
would not have even been before our attention, because the 
beneficiaries would not be here complaining, and their 
attorneys would not be here complaining. So maybe we need to 
have that safeguard.
    So I am concerned about, was there any accountability; are 
there letters in personnel? And I know they are personnel 
matters, so I can not be involved in that. But, certainly, 
there has to be more than just mistakes were made.
    I mean, gosh, we are talking about a quarter of a million 
dollars. A lot of folks were hurt. People that you and I and 
everybody else were supposed to be protecting.
    And I can not see us as saying, well, mistakes were made. 
This guy was a good citizen, so we were misled. That is just 
not enough for me.
    Mr. Huse. That is why, in my testimony, I really think we 
need to do a totally different job in selecting these people in 
the first place.
    Mr. Matsui. Well, if this guy was a good citizen, they 
would have selected him under any circumstances. He went to 
church with them. He was a banker.
    Mr. Huse. And I know I am sliding around, coming to the 
answer that you want.
    Mr. Matsui. Well, I just want honesty.
    Mr. Huse. And I hope I am honest.
    Mr. Matsui. Well, you are, but I mean, what I want is why 
this happened. It happened because somebody screwed up, because 
some folks were misled, right, by this guy, and they should 
have done a better job of holding this guy accountable. And so 
maybe these people have to be held accountable. That is the 
whole idea of government.
    Mr. Huse. But this particular situation happens when this 
focus, this stewardship, if you will, of this particular area 
was not important. What was more important was to get benefits 
out the door.
    Mr. Matsui. You did not get benefits out the door.
    Mr. Huse. They got them out the door.
    Mr. Matsui. Well, they got them out to the wrong person.
    Mr. Huse. Right.
    Mr. Matsui. And this is great that we are doing all these 
great things. But it will not make any difference if the guy is 
a crook, and people say he is a nice guy, so we do not want to 
embarrass him.
    Mr. Huse. I think in the past 5 years, since we have had an 
Office of the Inspector General at Social Security, we have 
done a lot of consciousness raising about fraud and integrity 
issues.
    And we have really tried to shift a culture that really is 
focused on social work, not on fraud prevention. And we have 
come a long way, and a lot of it with the help of this 
Committee, in resources and agents and auditors. We are still 
engaged in that.
    But it is still to be reached, and we are not laying that 
down. But that is really at the heart of what you are talking 
about.
    Mr. Matsui. Do you know where there has been accountability 
to these folks that were administering this program?
    Mr. Huse. I do not believe there has been, no. I mean, that 
is in the administrative area.
    Mr. Matsui. You know, is that something you are supposed to 
look into?
    Mr. Huse. Well, we have. I mean, we have down the record of 
what these situations are.
    Mr. Matsui. And you do not think there should be anything 
beyond that, then?
    Mr. Huse. Are you referring to disciplinary actions and the 
like?
    Mr. Matsui. Well, I mean, obviously, individuals were 
involved in this. You know, maybe I should not ask that.
    Mr. Huse. My belief is that the record is there, which is 
what the Inspector General does. We do not propose 
administrative actions or disciplinary actions. We merely bring 
the facts to the table.
    Mr. Matsui. Yes.
    Mr. Huse. I do not think there is a focus here that 
anything really went wrong. I think it is more viewed as an 
accident of circumstances. Our audit work says something else. 
We really need to have stronger procedures. That is about all I 
can say.
    Mr. Matsui. I am really troubled by this. But I guess I 
have to accept your comments.
    But it just seems to me that there should be more. And I am 
sorry, Mr. Chairman, I do not mean to take too much time on 
this.
    Chairman Shaw. Go ahead.
    Mr. Matsui. But there should be some accountability.
    Mr. Huse. And I accept the fact that, you know, I have a 
position where I speak to these issues. And I do, as strongly 
as I can. But I can only make recommendations to the 
Commissioner and to the agency. What they do with those, all I 
can do is report back to Congress on what we have reported and 
what has happened.
    Chairman Shaw. You spoke of accounting forms, and you said 
there were less than 20 of them, and there should have been 
well over 100 of them. Are these forms required?
    Mr. Huse. They are required by the existing procedures that 
Social Security has.
    Chairman Shaw. Well, now the previous panel said they had 
no warning that there was something wrong. Well, goodness, if 
the reports were not coming in that they require, that is the 
biggest red flag that you can possibly have. And probably what 
happened, Mr. Gamble said, nobody is looking at me.
    I mean, this goes back to the situation--the locks on your 
house keep honest people honest. If somebody wants to get in, 
they are going to get in. And it seems to me that these reports 
are going to keep honest people honest.
    And it may be that Mr. Gamble, if he knew that he had to 
file these reports regularly, and that people were going to get 
after him if he did not. I am amazed. That is a red flag that 
should have just gone right up. So I think the system failed 
badly.
    Mr. Huse. The system fails because it was not followed. 
And, again, I know from our work that it has become one of 
these workloads that gets set aside.
    Chairman Shaw. I wish the previous panel was still here, 
because I would like to call them back to the table, based upon 
that. Because to me, that is a huge question. And we will 
follow it up with written questions to both of those witnesses 
as to why that did not raise a flag. And, also, I hope they 
start reviewing other files to be sure that that stuff is 
coming in.
    Mr. Huse. That is all part of this new emphasis that we 
have put together. When I say ``we'' that is the Social 
Security and the OIG, working together, because it is sort of 
an emergency. I mean, we really believe we need to do something 
there.
    Chairman Shaw. But your testimony is that the existing 
system was not being followed.
    Mr. Huse. That is correct. And our audit reports, on the 
record, have indicated that over a 5 year period, in different 
aspects.
    Chairman Shaw. Yes, go ahead, Mr. Matsui.
    Mr. Matsui. The one thing that brings accountability to the 
system is to find out who made the mistakes and hold them 
accountable. And that does not sound to be what is going on 
right now. You are coming up with these recommendations that 
kind of lulls us into thinking that maybe this is a great way 
to handle it.
    But I think it is more than that. I have to believe what 
the gentleman to your left said, that this guy was somebody we 
trusted. And that is not enough. I think, as the Chairman said, 
they did not look at the records. They did not try to figure 
out what was going on.
    And I have to believe that those beneficiaries, a number of 
them, had to have been complaining somehow. Maybe they did not 
log it, but there had to have been more complaints than two or 
three. It just does not make sense when you lose a quarter of a 
million dollars.
    Mr. Huse. My concern here is that whatever process we 
finally strengthen and have as an abiding process, that it 
function in a preventative manner, as opposed to detective.
    Mr. Matsui. Well, I do not want to get argumentative with 
you. But preventive, that is exactly what I am talking about. 
If you hold somebody accountable, and then others find out 
about it, then perhaps they will not do the same kind of thing, 
within the office.
    I am not talking about the Aurora people. I am talking 
about the people that were administering the program that 
perhaps were not up to doing a good job.
    Mr. Huse. I am not arguing with you at all.
    Mr. Matsui. But that is where I am coming from.
    Mr. Huse. OK.
    Mr. Matsui. There has to be some accountability. And I do 
not think that anybody is paying attention to the 
accountability part of it.
    Mr. Huse. I think, in the recent months since these very 
provocative cases have come to the public eye, there is quite a 
bit of attention being paid to this now.
    Chairman Shaw. Thank you.
    Thank you, Mr. Huse.
    Mr. Huse. Thank you.
    Chairman Shaw. Mr. Huse, we may have some more questions, 
after we get this final panel, that we would like submitted in 
writing to you.
    Mr. Huse. I will be glad to answer them.
    Chairman Shaw. OK, thank you very much.
    The final panel is Nancy Coleman, who is the Chair of the 
Federal Advisory Committee on Representative Payees, and 
Director of the Commission on Legal Problems of the Elderly, 
the American Bar Association; Reginald Glover, who is the 
Director of the Patient Resources Offices of the Mental 
Hygiene, State of New York, on behalf of the National 
Association of Reimbursement Officers; Ann Sparks, who is a 
Representative Payee Director of the Mental Health Association 
of York County, in York Pennsylvania; Diane McComb, who is the 
Executive Director of the Maryland Association of Community 
Services, Severna Park, Maryland; and Garry Geffert, whose name 
has been used several times today, who is a Staff Attorney the 
West Virginia Legal Services Plan, Incorporated, in 
Martinsburg, West Virginia.
    Welcome, and we have all of your written statements. We 
would invite you to summarize, as you see fit.
    Ms. Coleman?
    Ms. Coleman. Thank you.
    Chairman Shaw. I saw you back there, shaking your head up 
and down quite bit, so I am looking forward to your testimony.

   STATEMENT OF NANCY COLEMAN, CHAIR, REPRESENTATIVE PAYMENT 
 PROGRAM, FEDERAL ADVISORY COMMITTEE, AND DIRECTOR, COMMISSION 
   ON LEGAL PROBLEMS OF THE ELDERLY, AMERICAN BAR ASSOCIATION

    Ms. Coleman. I am Nancy Coleman. I am here today as a 
private citizen. I do not represent the American Bar 
Association. While the Assocation is my employer, I am not here 
in any official capacity.
    I was fortunate enough to chair the Federal Advisory 
Committee created by Social Security a number of years ago. The 
committee came out with 25 recommendations, which I have 
provided to the Committee's staff already.
    Instead of going to my written testimony, let me look at 
several of the issues that have arisen this morning, and 
comment on those to see where we might go.
    I was quite disturbed at the question of whether or not 
state licensing of an agency, private, not-for-profit, or 
otherwise, was adequate to any audit or any other kind of 
question.
    I do not know, having looked at state licensure of agencies 
throughout the country, any standards that exist for those; 
nor, do I know what kinds of standards one would expect a state 
to put on an agency providing rep payee services.
    The Advisory Committee suggested that there be a Federal 
set of standards developed, and that those Federal standards 
include both monitoring standards, as well as standards for 
performance; a set of standards that would combine both a 
monitoring function, an auditing function, as well as an 
accountability function for agencies.
    I do not think that suggestion gets around the question of 
bonding. I think that bonding is a separate question and one 
that needs to apply not simply to those agencies which are fee-
for-service agencies under rep payee services, but for all 
payee services; that is all organizational payees.
    That includes mental health institutions, which are exempt 
now from some of the requirements that other organizations must 
meet under this program. It also includes governmental 
agencies.
    The Inspector General, in the early nineties and throughout 
the nineties, found many public agencies--whether they were 
agencies of state, departments of social services, or 
guardianship agencies--also had numerous problems.
    They could be self-bonded and self-assurance bonded, but 
they need to make those assurances. They are handling hundreds 
of thousands of dollars of Social Security benefits.
    Now the second issue the Committee discussed, and one I 
would like to turn to, is the responsibility that a rep payee 
organization has toward the beneficiaries.
    This is one issue that is not really talked about, but it 
seems to me comes to the critical point which you, Congressman 
Matsui, were looking at a minute ago. That is, one needs to 
find out what the needs are of the beneficiary and address 
those needs; i.e., through funding.
    In a case that we looked at in Tennessee 4 years ago, we 
found that the agency charged a fee up front and charged a fee 
to send checks out to the beneficiary, because they were in 
different parts of the state. Once the check was received, the 
beneficiary had to pay a check cashing fee as well.
    It seems to me that we are not maximizing benefits here, 
but we are minimizing benefits in an effort to try and monitor 
the dollars that are going out. So it seems to me that the 
organizational payee needs to not only be accountable to the 
beneficiary; but they also need to make sure that the money is 
used appropriately.
    It seems to me that a third area needs to be considered. As 
addressed by Chairman Shaw, there is not now a requirement that 
any of these agencies be audited as a condition for being a 
participant as a representative payee. There is no reason why 
they should not; why not?
    If I was looking at the Aurora situation today, I would ask 
another question. If, in fact, Mr. Gamble was to submit annual 
reports on an individual basis for each individual where he was 
rep payee, he should also, and this is not a requirement now, 
as a permanent standard, be able to account for all of the 
moneys, on an annualized basis, that run through his hands for 
beneficiaries.
    This should not be simply a statement that says: I spent 
this much on Mrs. Jones. Rather this statement should account 
for all beneficiaries. Again, this is an auditing requirement 
that seems to be very reasonable given that he was handling 
hundreds of thousands of dollars annually for beneficiaries. 
The cost of business, it seems to me, needs to be looked at.
    Finally, I guess one of the things that is very disturbing 
about Aurora, and something we see happening throughout the 
rest of the United States in some cases, is a situation where 
we have very little communication between the courts and the 
rep payee systems in Social Security. In fact, we have a 
statutory provision which does not allow us to share the list 
of Social Security beneficiaries with the court system.
    So even in cases where you have kids who might be under a 
court order for abuse and neglect or under court supervision 
and receiving Social Security benefits, there is no way of 
communicating between the court system because of a prohibition 
in the legislation. I talk a little bit about this in my 
written testimony.
    It seems to me that there are a number of areas where we 
need to look forward, and also look backward. Specifically, I 
think Congressman Matsui, about the issue of standards and 
performance and where we should go with this.
    I think the legislation is fine. I also think that it is 
really limiting and does not goes far enough. I think that the 
suggestions made by Social Security to change their system for 
on-site reviews, and so forth, are going in the right 
direction, but are not going far enough; nor, do these 
suggestions deal with, prospectively, some of the issues that 
will develop in the future.
    Let me discuss three things that the Advisory Committee 
reviewed. One, is the need for performance standards. Two, the 
need to randomly find any type of rep payee beneficiary problem 
by looking at all beneficiaries on a random basis.
    While you do not have to look at 30 percent a year, you do 
need to be able to say that Mrs. Jones, acting on behalf of 
Mrs. Smith, has the same probability of being looked at as Mr. 
Gamble does, simply because she could be stealing what would 
amount to be a life savings from an individual not simply a 
quarter of a million dollars, over a period of time.
    Second, it seems to me that you have to look at and do away 
with the distinction of mental health institutions as a 
separate category that currently have on-site inspections once 
every 3 years.
    I mean, people have moved out of institutions. In 
Massachusetts, for instance, people are held on the 
institutional rolls. They've got living community settings, yet 
they do not have access to the dollars and the benefits, 
because they are all held and paid for out of the 
institutional's rep payees.
    Second, the governmental agencies, as entities, as rep 
payees, need to have the same level of oversight that large 
organizational payees do. They are no different than anybody 
else in many ways.
    So I will stop there, and take questions. I am very 
concerned about this. While we looked at a number of the issues 
and our report has a number of recommendations in this area, we 
did not look specifically at how the beneficiary may be made 
whole again. It was not an area in which we thought we could 
make any systematic recommendations.
    [The prepared statement follows:]

Statement of Nancy Coleman, Chair, Representative Payment Program, 
Federal Advisory Committee, and Director, Commission on Legal Problems 
of the Elderly, American Bar Association

    Thank you for including me in your list of witnesses today. 
My name is Nancy Coleman and I am here today as a private 
citizen. The Social Security Administration created a Federal 
Advisory Committee in July 1995 to look at the Representative 
Payment program. I chaired that Advisory Committee which 
presented its findings to Social Security November 1996. The 
insights and recommendations that I will share with you today 
derive from that experience through working with the 
Representative Payment Staff, the field hearings that were held 
throughout the country and with the other distinguished members 
of the Advisory Committee. My knowledge of the field of Social 
Security and Guardianship, as well as other law and aging 
issues comes from the many experiences that I have had 
throughout my professional life. I served as an investigator 
for the Senate Aging Committee in the late 1970s, I have served 
on the boards of several national aging organizations, and I 
have worked for several national advocacy organizations. While 
I am currently employed as the Director of the American Bar 
Association's Commission on Legal Problems of the Elderly, the 
views I am presenting are my own personal views and should not 
be construed as representing the views of the ABA or any of its 
entities.
    The Representative Payment Federal Advisory Committee held 
four field hearings across the country over a period of sixteen 
months. During this period we heard from beneficiaries, payees, 
Social Security officials, advocates, governmental agencies and 
advocates about some of the problems faced by this large number 
of beneficiaries who receive their benefits through 
organizational payees. The Committee spent a great deal of its 
time considering aspects of the program that dealt with 
organizational payees. Several critical issues developed that 
included the appropriate use of funds by payees, the type of 
staffing that an organization should have and the types of 
standards by which the performance of payees should be 
measured. The Advisory Committee worked at the same time that 
the Office of Inspector General was also looking at misuse and 
appropriate use of funds by payees and reached many of the same 
conclusions.
    The Committee should consider broadening the language of 
the proposed legislation because it is currently limited to 
``fee for service'' organizations with regard to bonding. All 
organizational payees should be required to be bonded. 
Governmental agencies should be self insured and state that 
they are. I will elaborate on this later when I discuss the 
recommendations of the Advisory Committee.
    There are a number of issues which are related to the 
quality, delivery, and accountability of services to 
beneficiaries who have payees, especially organizational 
payees. All payees should be subject to filing annual reports. 
Institutional payees do not currently have to file any reports 
because of the on-sight reviews that they are now subject to. 
This distinction should be removed.
    Social Security, through legislation or regulation should 
develop standards for all organizational payees. These 
standards should include but not be limited to bonding, access 
to records by the beneficiary, access to dollars by the 
beneficiary, limits on self dealing, and maximization of 
benefits, etc. The standards that are developed should be 
subject to public comment.
    The proposed legislation and some of the newly developed 
policies at SSA suggests that Random Reviews and inspections 
should be developed for volume payees. The Advisory Committee 
along with the Inspector General found that random on-site 
inspections should exist for all types of payees and not be 
limited solely to volume payees. The IG found non-custodial 
adults to be as troublesome as large organizations. IG also 
found government payees to be a problem. Institutions were also 
found to be a problem.
    The proposed legislation Annual certification requirement 
should not be limited to fee for service payees but rather 
should be made by all organizational payees without distinction 
to size, fee or non-fee, institution or government agency.
    The Advisory Committee did not make recommendations about 
reissuance of benefits but we did have some discussion about it 
and heard testimony about the issue. We were told by SSA that 
they did not have the authority nor inclination for overpayment 
recovery unless there was an individual who was acting as payee 
and they could charge as overpayments against any personal 
benefit that they might have had, so we would have been 
supportive of these recommendations that are now before you for 
fee forfeiture, reissuance of benefits, overpayment recovery, 
and civil monetary penalties. The latter we were told was 
within the authority of the IG if the office every sought to 
use it.
    Another issue which the legislation should be concerned 
with and does not at the current time is the ability of state 
Courts dealing with beneficiaries who may or may not have 
representative payees to access SSA records. Courts may have 
jurisdiction over a child or an adult but they are not 
currently able to find out about benefits, appointment of 
payees, or other information about the individual. This freedom 
is granted in a few cases to state offices of social services 
under an agreement. The problem has surfaced in the context of 
a grant that the American Bar Association's Fund for Justice 
and Education now has from the State Justice Institute and SSA. 
The grant is to educate Social Security about guardianship and 
state courts about representative payment.
    The importance of making sure that the beneficiary is made 
whole when the payee takes advantage is a prime concern and 
something that the Advisory Committee discussed but did not 
make any recommendations about. However the Committee did 
believe that there needed to be a much better way of monitoring 
and creating standards for the performance of organizational 
payees. If standards were developed and monitored there would 
probably be less misuse of the limited amounts of benefits.
    I have included several of the recommendations from the 
Advisory Committee's report for your consideration.

 Recommendations from the Final Report, November 1996. Representative 
                       Payment Advisory Committee

Recommendation for Organizational Performance Standards

    Establish performance standards for all organizations 
wishing to serve as payee beyond those set for individuals. In 
addition to money management, reporting, advocacy, and support 
for beneficiary self-improvement, standards for organizations 
should include such elements as financial stability and overall 
responsible presence in the community in which the beneficiary 
resides; sound record-keeping and data management; integration 
of case management, budgeting, financial decisions to ensure 
that case managers have appropriate access to the beneficiary's 
assets to meet needs; as well as established processes for 
appropriate personal interaction between those decision-makers 
and the beneficiary.
     Negotiate with providers of services (landlords, 
banks, grocers, utilities, etc.) to secure the ``best possible 
deal'' for the beneficiary;
     SSA should also develop a contract or job 
description for payees which is tailored to payee type 
(individual or organizational). This could explain the 
principles for payee performance, rules regarding use of 
benefits, bonding and other financial requirements as well as 
other suggested ``best'' payee practices. Payees should be 
required to sign this contract agreeing to comply with the 
requirements of serving as payee.
     Demonstrate effective internal communication 
between case management and financial management components to 
ensure that case workers will receive final decisions regarding 
requests for beneficiaries' needs within 24 hours.
     Agree to receive funds through direct deposit.
     Be bonded or self-insured (i.e., governmental 
payees) to a degree commensurate with the amount of funds 
handled and maintain ongoing documentation of this protection;
     Demonstrate sound financial management policies;
     Hold funds in State or federally insured interest-
bearing bank accounts, county-based bank accounts, brokerage 
accounts and other collateralized accounts. (Interest accruing 
in these accounts is the property of the beneficiary and must 
be held in accordance with all the rules governing 
beneficiaries' funds. It should never be co-mingled with the 
organization's operating funds);
     Maintain records on computer software provided by 
SSA or meet systems standards set by SSA;
     Have a stable presence in the community in which 
the beneficiary resides;
     Maintain adequate resources to assist the 
beneficiary with his/her social service needs;
     Maintain adequate and well-trained staff to 
perform the expected duties of a payee; and
     Secure annual independent audits of their 
financial management of beneficiaries' funds, be subject to 
triennial onsite review by SSA, and submit an annual affidavit 
to confirm their adherence to established standards.
    Because of the fragmentation of responsibility which often 
occurs within organizational payees, the Committee believes it 
is important that all case managers tending to the needs of 
beneficiaries should have ready access to those controlling 
funding.
    In the case of organizational payees who are also creditors 
of beneficiaries (for example, custodial institutions or board 
and care operators), the payee should file a conflict of 
interest statement which attests to the organization's 
commitment to ensure that the beneficiary's needs are given 
priority over any debt owing to the payee.

Recommendation Fees for Services

    Cap at the lesser of $25 or 10 percent of monthly benefits 
the monthly fee for payee services, regardless of type of 
benefit being paid. Expand selection criteria and performance 
standards for organizations which collect a fee for payee 
services to require prior experience in serving the clientele 
and community recognition.
    Although it remains deeply troubled that beneficiaries 
currently pay the cost of fees for payee services, the 
Committee regretfully acknowledges that no viable alternative 
for funding currently exists. Therefore, the Committee 
reaffirms SSA's current policy of allowing certain nonprofit 
and governmental organizational payees to collect a fee for 
their services and reluctantly accedes to the reality that 
beneficiaries currently must bear this burden. Should 
alternative funding become available from sources other than 
beneficiaries' funds, the Committee would almost certainly 
support it.
    Furthermore, nonprofit organizations which wish to be 
authorized to collect a fee for payee services, must submit for 
evaluation, additional information to establish their financial 
stability and experience in providing services within the 
community. These requirements are in addition to those which 
already exist.

These organizations should:

    Have been in existence for at least 2 years providing 
services to the clientele for whom they now wish to serve as 
payee and collect a fee;
    Provide information about the services provided which 
establishes ability to effectively serve as payee. This 
information should include evidence of linkages with other 
community organizations and appropriate banking support as well 
as list all other funding sources identifying the purpose for 
which each source was granted;
    Provide at least three references from local community 
service organizations who could attest to the stability of the 
organization and ability to effectively advocate;
    Submit a copy of a current bonding instrument to 
demonstrate that bonding is commensurate with the 
organization's financial risk (regardless of the number of 
beneficiaries being served);
    Provide a statement of affirmation that additional fees 
(such as check cashing fees) will not be solicited from the 
beneficiary and that the authorized fee will not be collected 
in any month for which the beneficiary's basic needs could not 
be met.
    An organization collecting a fee must meet the performance 
standards required of other organizational payees as well as 
the ``best practices'' standards SSA encourages all payees to 
follow these should be included as standards not simply 
practices:

     Maintain regular contact (generally at least once 
monthly) with the beneficiary. These contacts should be face-
to-face unless the payee can adequately describe an alternative 
approach that provides comparable results;
     Demonstrate an active interest in advocating for 
the beneficiary to obtain needed services. This includes 
providing assistance in completing application forms and other 
tasks where beneficiaries are unlikely to obtain needed 
services if left to perform those tasks on their own;
     Receive and disburse funds in a manner which 
minimizes the possibility of diversion of funds to the purchase 
of drugs or alcohol. This includes encouraging beneficiaries to 
participate in alcohol or drug treatment, support groups (such 
as Alcoholics Anonymous, Narcotics Anonymous, etc.) employment 
or other institutional or non-institutional programs involving 
steps to self-improvement and lifestyle enhancement;
     Negotiate with providers of services (landlords, 
banks, grocers, utilities, etc.) to secure the ``best possible 
deal'' for the beneficiary;
     Encourage positive lifestyle choices and where 
possible, help foster beneficiary independence and self-
sufficiency. This includes developing a mutually agreed-on 
budget for meeting current and future needs, and paying 
outstanding debts; and
     Avail themselves of opportunities to attend 
orientation and training sessions as directed by SSA.

SSA Response to Misuse

    Enhance beneficiary protection by strengthening 
investigation of all misuse complaints/reports, tracking their 
outcome, and pursuing legislative support for recovery from the 
misuser. Develop a specific misuse recording and tracking form 
to be used for this purpose.

Accountability Goes Hand in Hand with Standards

    Authority--SSA's policies on payee accountability are 
derived from the Act Sec. 205 and Sec. 1631 and 20 CFR 404.2001 
and 416.601.
    Sec. 205(j)(3) and Sec. 1631(a)(2)(C) of the Act specify 
that ``. . .the Commissioner of Social Security shall establish 
a system of accountability monitoring whereby such person shall 
report not less often than annually with respect to the use of 
such payments. . .'' The regulations at 20 CFR 404.2065 specify 
that SSA ``may require periodic written reports from 
representative payees. . .''
    Current Policy--SSA's current accountability process relies 
on the yearly report sent to each payee. The purpose of the 
report is to monitor payee performance in spending, saving and 
investing benefits, as well as soliciting certain facts that 
might trigger a reassessment of the payeeship (payee felony 
convictions, changes in custody status, etc.).
    Accountability reports represent a high volume workload for 
the Agency. To manage this volume, and to permit some tailoring 
of the report questions to make it more user-friendly, SSA has 
developed two basic report formats--one for parents (and 
grandparents or stepparents) with custody of up to four minor 
children, and a less tailored format for all other payee types. 
[Note: The current accountability process, whereby each payee 
is asked to complete an annual report, was developed in concert 
with the Jordan Court which required universal annual 
accountability of all payees, including parents and spouses 
with custody of the beneficiary. Some State institutions which 
are subject to a different accountability process were exempted 
from the Jordan order.]
    Discussion--As considered by the Committee, accountability 
within the representative payment program is composed of 
several elements:

        The payee's direct accountability to the beneficiary;
        The payee's responsibility for providing a periodic accounting 
        to SSA, as well as submitting to any special reviews of 
        financial records that may be requested; and
        SSA's overall monitoring of payee performance to ensure that 
        appropriate practices are being followed and that beneficiary 
        needs are being appropriately addressed.

    The Committee heard testimony that some payees regularly 
meet with the beneficiaries they serve to discuss financial 
planning, review bank records and balances, cost of care 
records, etc. But it was not clear that this level of 
interaction is generally the practice. In line with earlier 
recommendations regarding the beneficiary's role, the Committee 
recommends that SSA's instructions to the payee include more 
emphasis on the payee's obligation to have regular discussions 
with the beneficiary (preferably face-to-face) about how the 
beneficiary's needs will be met. Part of that discussion should 
include a review of recent disbursements of funds. How that 
review is carried out depends upon the type of records that are 
kept and how monies are spent. Bank records, custodial charges, 
etc. should be available for beneficiary review. Cash 
expenditures should involve receipts in most instances, and 
these could be reviewed with the beneficiary. Finally, the 
payee should be required to discuss and furnish, to the 
beneficiary, a copy of any yearly SSA accountability report. 
This is no different than a standard established for payees.
    The Committee reaffirms the need for annual reports from 
all payees. However, the Committee believes SSA can make the 
accountability process more effective in detecting 
irregularities and perhaps simplify Agency processing if it 
develops additional report formats which could be tailored to 
solicit more pertinent information of specific payee types.
    The Committee would like to see all payees account with 
more specificity about how retroactive benefits (or funds 
conserved from a prior period) were used; break out large, 
durable purchases from daily living expenses for food, 
clothing, and housing; and acknowledge any ``no value added'' 
expenses (such as check cashing fees). All payees should also 
be asked questions designed to identify cases where the 
payeeship may no longer be needed or appropriate. In addition, 
organizations should be asked to disclose information about 
other services provided to the beneficiary and whether any fees 
have been charged.
    SSA's responsibility for monitoring overall payee 
performance can be satisfied, for most individual payees 
serving few beneficiaries, through a program of ongoing 
integrity reviews as discussed later in the report. But for 
payees serving substantial numbers of beneficiaries, additional 
oversight will be necessary to ensure that the payee's 
practices (integration of case management and financial 
planning, prompt reporting of events, bonding instruments, 
auditing, etc.) satisfy the enhanced standards of performance 
the Committee recommends. This is true whether the payee is 
considered an ``organization'' or an ``individual'' such as a 
public guardian, an attorney or a volunteer, etc. serving a 
significant number of beneficiaries.
    The Committee believes this oversight should take the form 
of an onsite review. Because FO personnel often make case 
referrals to the larger payees who might fall under this 
review, the Committee recommends the onsite reviews be handled 
by an SSA's assessment component to avoid any inherent conflict 
of interest. A list of available payees, shown to be capable of 
providing adequate service for additional cases, would be 
provided to FOs for use in streamlining the payee selection and 
application process.

Recommendation Direct Payee Accountability to the Beneficiary

    Require payees to periodically inform beneficiaries about 
how their benefits have been spent or saved, and to provide the 
beneficiary with copies of any accountability reports furnished 
to SSA.
    Payees must agree at the time of their appointment to meet 
frequently with the beneficiary to discuss and assess the 
beneficiary's current and future needs. Periodically, the payee 
should, as appropriate to the beneficiary's capacity, review 
disbursements actually made. The payee should also provide the 
beneficiary with a copy of the annual report filed with SSA.
    Agreement by the payee to interact with the beneficiary in 
this manner will help signify an ongoing commitment to 
responsible benefit use. Educating beneficiaries regarding the 
payees' responsibility to be accountable and promoting 
beneficiary access to information about the handling of 
benefits will decrease the potential for exploitation.

Recommendation Annual Payee Reports

    Retain an annual accountability report requirement tied to 
individual cases for all payees. Develop separate tailored 
reports for custodial and non-custodial individual and 
organizational payees to elicit information about expenses, use 
of retroactive benefits, disclosure of creditor relationships 
and restored capability. For organizational payees, once a year 
require an affidavit regarding organizational reporting 
standards. Explore the feasibility of electronic reporting for 
organizations and individuals serving as payees.
    All accountability report formats should identify the full 
amount for which the accountability report is required 
(including any retroactive benefits and conserved funds) and 
elicit accountability for the following:

        Housing;
        Food;
        Medical treatment;
        Personal expenses;
        Fees paid on behalf of the beneficiary (such as check cashing 
        fees, etc.);
        Fees collected for providing representative payment services;
        Large purchases (e.g., such as the purchase of a television 
        set); and
        Funds used to pay outstanding debts.

    Accountability reports should disclose whether or not the 
beneficiary has been in the custody of the payee for the 
reporting period. For non-family member payees, the form should 
elicit whether the payee is an organization, and if so, the 
total number of beneficiaries it serves.

Affidavit Requirement/ Performance Standards

    In addition to the annual accountability report it submits 
for each beneficiary served, organizations should be required 
to submit an annual affidavit to confirm:

        Bonding commensurate with the financial volume of the 
        organization's program;
        Date of last independent audit; and
        Other services provided to the beneficiary by the organization.

Electronic Reporting/Performance Standards

    At its hearings, the Committee heard testimony from some 
organizational payees that they currently use electronic methods of 
internal bookkeeping. The Committee recommends that SSA establish 
criteria and standards for accepting electronically transmitted 
accountability reports. Electronic reporting by payees may prove less 
burdensome on them and may result in a more detailed report.

Recommendation Onsite Reviews

    Replace SSA's current onsite review process (which covers only 
certain State institutions) with a broader process which would 
triennially assess the continuing ability of all types of organizations 
and individuals to serve as payee for multiple beneficiaries.

    The Committee heard testimony regarding the potential impact of 
poor performance by individual and organizational payees serving 
multiple beneficiaries. The Committee believes that an onsite review 
process is integral to determining a payee's continuing ability to 
adequately serve its clients if that payee is an organization or an 
individual serving a substantial number of beneficiaries. Though the 
Committee recognizes the potential cost of such reviews, it recommends 
they be completed on a triennial basis.
    The Committee recommends that these onsite reviews cover:

     Integration of client services with financial planning. 
(How the program is set up to meet the comprehensive needs of the 
beneficiaries served. For example: how often the beneficiary is seen; 
whether and how funds are provided directly to the beneficiary; 
beneficiary access to information about the status of his/her funds; 
provision for beneficiary input into the financial planning process, 
etc.)
     Record keeping and data management. (Adequacy of record 
keeping practices, including records regarding expenditures; 
identification of any fees charged to the beneficiary; posting of 
interest, etc.).
     Employee training. (Adequacy of internal practices to keep 
payee or its employees trained regarding payee requirements and changes 
in the entitlement programs).
     Willingness/capacity to serve additional clients.

    The Committee notes that the current onsite reviews are sometimes 
conducted by field personnel in offices parallel to the facilities 
reviewed. The Committee believes an SSA component other than the FO 
should conduct these onsite reviews to avoid any potential conflict of 
interest. The Committee further suggests that SSA's assessment 
component, the Office of Program and Integrity Reviews (OPIR) is 
probably best suited to conduct these onsite reviews.
    The results of the onsite reviews should be made part of the 
precedent files maintained by the appropriate FOs to be used in future 
appointment actions and decisions to help ensure that any new 
appointments are consistent with the payees' capacity for acceptable 
performance.

Integrity Reviews

    The Committee notes that case sampling to measure program 
effectiveness in therepresentative payment area has in the past 
generally been restricted to ad hoc reviews of targeted accountability 
workloads. The Committee concludes that ongoing sampling of all 
representative payment workloads are necessary to ensure program 
integrity and to identify trends that should influence policy making.

Recommendation Annual Sampling

    Implement annual sampling programs that would gauge the quality of 
SSA decisions rendered in the representative payment program in the 
areas of (in)capability decisions, payee selections, and misuse 
determinations. Determine the integrity of payee accountability reports 
by sampling which includes corroborative verification of the 
information provided.
    It is important for SSA to implement sampling programs to identify 
problem areas that need correction. These sampling programs could also 
assess trends in program results that might point to needed policy 
changes. At present, SSA has little objective data regarding the 
overall quality or consistency of decisions rendered in the 
representative payment program. Accountability reports also are taken 
at face value with no corroborative review. A corroborative review of 
these reports could identify possible procedural weaknesses as well 
uncover misuse not currently detectable. SSA's sampling techniques 
should involve redevelopment of the cases with collateral verification.
    The Committee recommends that case sampling to measure the 
effectiveness of decisions made with respect to representative payment 
issues should be conducted by OPIR. As the SSA component with 
responsibility for and experience in managing assessment activities, 
the Committee believes that OPIR is well qualified to develop the most 
meaningful and accurate results.
    I am testifying in my personal capacity and in this capacity I do 
not receive funding from SSA. However, the ABA Fund for Justice in 
Education receives funding from a cooperative agreement with the State 
Justice Institute and SSA on a project on guardianship and 
representative payees. Additional funding comes from the Administration 
on Aging of DHHS, the Department of Justice, and numerous foundations.
      

                                

    Chairman Shaw. Thank you, Ms. Coleman.
    Mr. Glover.

    STATEMENT OF REGINALD GLOVER, PAST-PRESIDENT, NATIONAL 
             ASSOCIATION OF REIMBURSEMENT OFFICERS

    Mr. Glover. Good morning, Chairman Shaw and Members of the 
Subcommittee. I am Reginald Glover, past President of the 
National Association of Reimbursement Offices, known as NARO. I 
am pleased to present testimony in support of the legislative 
amendments proposed by the Social Security Administration to 
improve the oversight of representative payees.
    Since its inception in 1955, NARO has provided a forum for 
professionals serving mental health, mental retardation, and 
additive disorder programs operated by or in service of state 
and local governments.
    Although primarily involved in reimbursement and financing 
of these programs, many of our members also serve as 
representative payees for Social Security and other eligible 
benefits for our clients. On the whole, NARO members serve as 
representative payee for thousands of consumers who are 
incapable of managing their own funds.
    Many of our members serve as representative payees of 
Social Security benefits on behalf of state-operated 
institutions. As such, we are subject to a review of the 
management of our payee programs by Social Security every 3 
years, the triennial review that everyone has been referring 
to.
    In general, our members have established longstanding and 
productive relationships with both the local and regional 
Social Security representative in our jurisdiction. We have 
found the triennial reviews to offer constructive ways in which 
we can continue to improve our procedures and practices as rep 
payees.
    I would add, although it is not in my written testimony, 
that we are audited routinely by our State Comptroller's Office 
about how we handle these benefits. There is a significant 
amount of auditing on how the benefits are handled.
    When a consumer leaves one of our member institutions, a 
new rep payee is sought. In some cases, our members assist in 
the process of finding a new payee.
    Several of our members have reported difficulty with new 
payees. Occasionally, a beneficiary's funds are not used for 
current needs and living expenses. In a few cases, our members 
have seen the benefits of groups of former clients misused, 
with funds not available for the beneficiaries' needs.
    The clients for whom we serve as payee are among the most 
vulnerable of the nation's citizens. Without Social Security 
benefits appropriately used on their behalf, many of our 
clients would return to institutional treatment.
    In the District of Columbia, for example, one 
organizational payee filed for bankruptcy of its service 
programs over 5 years ago. Beneficiary funds were apparently 
used to meet routine program expenses and, as of this date, the 
beneficiaries have not received any repayment of these funds. 
The institutional provider was re-established as payee until 
the bankruptcy proceedings become final.
    As I understand it, the proposed legislation would remove 
the requirement that there be a finding of negligence on the 
Social Security Administration's part in order for a 
beneficiary to receive funds misused by a rep payee.
    NARO fully supports this amendment in that it will allow 
beneficiaries such as those we represent to continue to live in 
the community and maintain benefits. We also support the 
provisions of this legislation that requires non-governmental 
payees to provide a bond and that withholds fees to any payee 
who may have misused a beneficiary's funds.
    We do have some concerns about the regulations under which 
Social Security will define misuse. Often, the appropriate use 
of a beneficiary's funds by a rep payee may be viewed by the 
beneficiary or another agency as a potential misuse of funds. 
Regulations regarding misuse must be written to include 
specific conditions that define an instance of misuse. We would 
be willing to work with the SSA Commissioner in the development 
of these regulations.
    NARO also believes that this legislation could be 
strengthened with additional amendments to require public 
notification of payees that have misused funds. Such 
notification may assist our members to avoid discharging our 
clients to payees who have misused funds in the past.
    Further, since many organizational payees also receive 
payment for services provided from the beneficiary's funds, 
NARO would support an extension of this bill that prohibits 
payment to the payee from the beneficiary's funds until the 
full amount of misused funds by the payee is restored.
    I thank you the Chairman for the opportunity to present the 
views of the National Association of Reimbursement Officers. I 
would be happy to accept any questions.
    [The prepared statement follows:]

Statement of Reginald Glover, Past-President, National Association of 
Reimbursement Officers

    Good Morning, Chairman Shaw and members of the 
Subcommittee, I am Reginald Glover, Past-President of the 
National Association of Reimbursement Officers (NARO). I am 
pleased to present testimony in support of the legislative 
amendments proposed by the Social Security Administration to 
improve oversight of Representative Payees.
    Since its inception in 1955, NARO has provided a forum for 
professionals serving mental health, mental retardation and 
addictive disorder programs operated by or in service of state 
and local governments. Although primarily involved in 
reimbursement and financing of these programs, many of our 
members also serve as Representative Payee for Social Security 
and other eligible benefits for our clients. On the whole, NARO 
members serve as Representative Payee for thousands of 
consumers who are incapable of managing their own funds.
    Many of our members serve as Representative Payees of 
Social Security benefits on behalf of state-operated 
institutions. As such, we are subject to a review of the 
management of our Payee programs by the Social Security 
Administration every three years. In general, our members have 
established long-standing and productive relationships with 
both the local and regional Social Security representatives in 
our jurisdiction. We have found the triennial reviews to offer 
constructive ways in which we can continue to improve our 
procedures and practices as Rep Payee.
    When a consumer leaves one of our member institutions, a 
new Rep Payee is sought. In some cases, our members assist in 
the process of finding a new Payee. Several of our members have 
reported difficulty with new Payees. Occasionally, a 
beneficiary's funds are not used for current needs and living 
expenses. In a few cases, our members have seen the benefits of 
groups of former clients misused, with funds not available for 
the beneficiaries' needs. The clients for whom we serve as 
Payee are among the most vulnerable of the nation's citizens. 
Without Social Security benefits appropriately used on their 
behalf, many of our clients would return to institutional 
treatment. In the District of Columbia, for example, one 
organizational Payee filed for bankruptcy of its service 
programs over five years ago. Beneficiary funds were apparently 
used to meet routine program expenses, and, as of this date, 
the beneficiaries have not received any repayment of these 
funds. The institutional provider was re-established as Payee 
until the bankruptcy proceedings become final.
    As I understand it the proposed legislation would remove 
the requirement that there be a finding of negligence on the 
Social Security Administration's part in order for a 
beneficiary to receive funds misused by a Rep Payee. NARO fully 
supports this amendment in that it will allow beneficiaries 
such as those we represent to continue to live in the community 
and maintain benefits. We also support the provisions of this 
legislation that requires non-governmental Payees to provide a 
bond and that withholds fees to any Payee who may have misused 
a beneficiary's funds.
    We have some concerns about the regulations under which SSA 
will define misuse. Often, the appropriate use of a 
beneficiary's funds by a Rep Payee may be viewed by the 
beneficiary or another agency as a potential misuse of funds. 
Regulations regarding misuse must be written to include 
specific conditions that define and instance of misuse. We 
would be willing to work with the SSA Commissioner in the 
development of these regulations. NARO also believes that this 
legislation could be strengthened with additional amendments to 
require public notification of Payees that have misused funds. 
Such notification may assist NARO members to avoid discharging 
our clients to Payees who have misused funds in the past. 
Further, since many organizational Payees also receive payment 
for services provided from the beneficiary's funds, NARO would 
support an extension of this bill that prohibits payment to the 
Payee from the beneficiary's funds until the full amount 
misused by the Payee is restored.
    I thank you Mr. Chairman, for the opportunity to present 
the views of the National Association of Reimbursement Officers 
of this proposed legislation. I would be happy to answer any 
questions you may have.
      

                                

    Chairman Shaw. Thank you, Mr. Glover.
    Ms. Sparks.

    STATEMENT OF ANN SPARKS, DIRECTOR, REPRESENTATIVE PAYEE 
   PROGRAM, MENTAL HEALTH ASSOCIATION OF YORK COUNTY, YORK, 
                          PENNSYLVANIA

    Ms. Sparks. Thank you, Mr. Chairman and Mr. Congressman. I 
appreciate the opportunity to speak with you today. I would 
like to address the amendments proposed by the Social Security 
Administration to the Social Security Act.
    I am the Director of the Representative Payee Program of 
the Mental Health Association of York County. There are 130 
mental health clients in our program.
    Social Security limits the fee to $28 a month. In our 
program, the fee was established by a formula set down by the 
accounting, Mental Health/Mental Retardation of York County.
    We calculate the total budget necessities (the rent, the 
utilities, the food, clothing, medical needs.) Then we subtract 
their total monthly income. That leaves a net amount which then 
has a discretionary fund of $50 for their use. That is 
deducted, and the remainder is left.
    What the remainder is, if it is $28 or more, then we charge 
a $28 fee, and the rest goes toward their savings. If it is 
under $28, then it is set, whatever that amount is.
    The population we serve, people with a mental illness, are 
very vulnerable. They are frequently taken advantage of by 
family and friends, and then they are referred to us. We are 
feeling more of an opposite from what you are seeing here.
    Clients referred to us are also often victims of their 
family or friends who have been their payees and mismanaged 
their benefits, before they come to us. They are referred to 
our program by their caseworkers from the mental health office 
in York.
    Having an organization as payee alleviates many of their 
problems. It is unfortunate that organizational payees have 
also taken advantage of this population that they have accepted 
responsibility to represent.
    There are a variety of different procedures that 
organizations use as payees. We have some in the Pittsburgh 
area that have volunteers that manage their individual 
checkbooks. And some have a computer program that is designed 
for representative payees.
    The proposed amendments will enable Social Security to 
reissue the benefits when there is misuse, which I agree that 
there needs to be defined on what misuse is. Especially with 
our clientele. If I would just say, you can not have more money 
because it is going to rent or whatever, Social Security might 
consider that a complaint; whereas, all their needs have been 
met, but they want money because they are out of cigarettes or 
something.
    It will also encourage the organizations to take a closer 
look at the checks and balances and the security.
    I strongly advocate for the Social Security Administration 
to promote the use of a centralized computer program for all 
organizations appointed as payees. This will promote the 
recording of the transactions for the clients, and facilitate 
the monitoring of their benefits.
    We do a lot of computer printouts for Social Security, and 
showing what checks we have written for their needs. Also, we 
are bonded.
    And with the payee reports that you were talking about in 
West Virginia, if we do not get them back within a month, they 
send us a second notice, and we get it back. But sometimes the 
second notice comes before the month is even up. We are 
regularly reporting on them.
    We have monthly meetings with our caseworkers and our 
clients to go over what needs are being met for the clients. So 
we are not only just monitored by our Social Security, but also 
by their caseworkers.
    Thank you.
    [The prepared statement follows:]

Statement of Ann Sparks, Director, Representative Payee Program, Mental 
Health Association of York County, York, Pennsylvania

    Thank you. I appreciate the opportunity to speak with you 
today. I would like to address the amendments proposed by the 
Social Security Administration to the Social Security Act.
    I am the Director of the Representative Payee Program of 
the Mental Health Association of York County, PA. There are 130 
clients in our program, the majority of whom have a diagnosable 
mental illness. Social Security limits the fee to $28.00 a 
month. In our program the fee is established by a formula. We 
calculate the Total Budget Necessities (rent, utilities, food, 
clothing, medical needs) then subtract the Total Monthly 
Income. That leaves the Net Amount which then has a 
Discretionary Fund ($50.00 minimum) deducted and a Remainder is 
left. This Remainder decides the amount of the fee. If it is 
more or equal to $28.00 then the fee is $28.00 and the 
remaining amount is used for the client's savings. If the 
Remainder is less then $28.00 then the fee is set at that 
amount left. So the fees vary from $0.00 to $28.00 with an 
average fee being $19.00.
    The population we serve, people with a mental illness, is 
very vulnerable. They are frequently taken advantage of by 
family and friends and stigmatized by society. Clients referred 
to us are often victims of family or friends who have been 
their representative payees and mismanaged their benefits.
    Having an organization as payee alleviates many of these 
problems. It is unfortunate that organizational payees have 
also taken advantage of this population that they have accepted 
responsibility to represent.
    I am aware of a variety of different procedures that 
organizations use as representative payees. From having 
volunteers manage individual checkbooks for clients to computer 
programs specifically designed for representative payees.
    The proposed amendments will not only enable Social 
Security to reissue beneficiaries' benefits when misused by an 
organization but it will also encourage the organizations to 
take a closer look at the checks and balances and the security 
measures they have for their programs.
    I strongly advocate for the Social Security Administration 
to promote the use of a computer program for all organizations 
appointed as representative payees that will promote the 
recording of all transactions for the clients. Thereby, 
facilitating the Social Security Administration monitoring the 
usage of the beneficiaries' benefits.
      

                                

    Chairman Shaw. Thank you, Ms. Sparks.
    Ms. McComb.

    STATEMENT OF DIANE MCCOMB, EXECUTIVE DIRECTOR, MARYLAND 
      ASSOCIATION OF COMMUNITY SERVICES FOR PERSONS WITH 
    DEVELOPMENTAL DISABILITIES, INC., SEVERNA PARK, MARYLAND

    Ms. McComb. Good morning, and thank you for the opportunity 
to be here today. My name is Diane McComb. I am the Executive 
Director of the Maryland Association of Community Services for 
people with developmental disabilities.
    Our organization has in its membership 105 community 
organizations that support over 21,000 people with 
developmental disabilities, and their families, in the State of 
Maryland.
    We have a system in Maryland that allows many people to 
make choices, live where they want to live, and live in very 
small programs. We do not have large community intermediate 
care facilities, as other states do. We support people in a 
variety of settings. And practices, with regard to 
representative payees, are varied.
    I polled our members, prior to coming, and asked what their 
experiences were, based on some of the questions that the staff 
thought might be helpful in your deliberations here today. And 
while I did not hear from everyone, and we have not formally 
discussed this as an issue that could be problematic, I find 
the responses rather interesting.
    It is estimated that 85 percent of the people in our system 
of developmental disabilities do receive SSI or SSDI. And it is 
estimated that a high percentage of those do, in fact, have 
representative payees, which may be family members, but often 
are organizations.
    With the exception of a very few of our organizations, most 
of them would not fall into the large organization or large 
representative payee classification, and most are nonprofit 
organizations.
    Clarification of the definitions would be very helpful, as 
well as guidelines and the handbook that others had talked 
about, as the standards do not appear to be uniform.
    Some very well intended individuals may have a very 
subjective response to an individual with a disability, and 
when they would like to have funding access for a personal 
reason, may deny them. Some may unknowingly use the funds, for 
fees inappropriately, may overcharge for rent. Often, the 
organizations that are the payees are, in fact, the residential 
support agencies and sometimes the landlords.
    While we believe that standards are in place in our State 
to monitor for that type of abuse, (for instance, we have just 
adopted new regulations, almost a year ago now,) that requires 
licensing to monitor individual finances and the policies that 
are set within each of the organizations. But to my knowledge, 
they are not specific and they are not uniformly applied.
    There appears to be a sense that we can put a lot of 
policies in place, and they will keep honest people honest. If 
somebody wants to abuse funds of individuals with disabilities, 
if they are the representative payee, there is lots of latitude 
to do that.
    I echo the others that spoke before me that even a well-
intentioned nonprofit organization could, in fact, have 
something in place in their policies and procedures that might 
not be according to the wishes of the individual with the 
disability, or in accordance with what might be perceived, 
generally, to be in the best interests of the individual.
    And that does not mean that they are malevolent. It may be 
that what was once thought 20 years ago to be a good concept is 
no longer a good concept.
    I will give you an example. As our state has shifted from 
agencies that are funded by the state with budgets that are 
assured to one where something like a voucher is allocated to a 
person with a disability, and they can choose where they live 
and with which agency they might seek support, the individual 
who identifies the representative payee takes on a much bigger 
role. The funds that are available to the individuals with 
cognitive disabilities really should be monitored.
    Our organization supports monitoring that is reasonable and 
not be burdensome. But at this point, I would not think that it 
would necessarily be a good idea to exclude the smaller 
organizations that are acting in that capacity.
    Thank you for the opportunity to come here today. Being 
asked to participate stirred the interests in our membership 
about this issue. We recognize that as a professional 
organization, we have not adopted standards that we would 
recommend to our agencies.
    And it does raise the question, as our system has changed 
and the way that we view the rights of individuals with 
disabilities, that this is an area that should certainly be 
looked at.
    Thank you.
    [The prepared statement follows:]

Statement of Diane McComb, Executive Director, Maryland Association of 
Community Services for Persons with Developmental Disabilities, Inc., 
Severna Park, Maryland

    The Maryland Association of Community Services for Persons 
with Developmental Disabilities (MACS) is a private, nonprofit 
organization dedicated to strengthening agencies to better 
support people with disabilities in their own communities. MACS 
is comprised of 105 member agencies that support over 21,000 
Maryland citizens with developmental disabilities and their 
families in numerous community living, supported-employment, 
habilitation, and other support settings throughout the state. 
MACS provides advocacy to increase the capacity of Maryland's 
communities to support people in inclusive settings; to foster 
a climate that develops and nurtures a quality workforce; and 
to promote the highest standards of program excellence.
    We were asked to present information regarding rep payee 
practices in our state. In Maryland, many situations are 
prevalent. Although I am unaware of any organization set up to 
exclusively manage SSI or SSDI benefits on behalf of an 
individual, there are certainly trusts that are managed to do 
just that. It is very common for nonprofit agencies that 
provide comprehensive supports to individuals with 
developmental disabilities to assist those individuals in 
managing their finances.
    Clarification of the fiduciary relationship between people 
with developmental disabilities and those individuals who 
exercise control or authority over their resources would be 
welcomed by many of the organizations that serve in the 
capacity of representative payee for disability benefits. 
Although many people with developmental disabilities are 
capable of independently managing their money, there are many 
others for whom assistance is essential. Regardless, protocols 
should be in place for any situation in which someone other 
than the individual receiving benefits serves in a rep payee 
capacity. Some of the agency practices which appear to provide 
safeguards include:
     the separation of consumer funds from agency 
monies;
     consumer benefits deposited directly into their 
own individual account;
     original bank statements mailed to an independent 
monitor, or to an individual who has no interaction with the 
staff responsible for assisting consumer in money management;
     a prohibition against bank checks;
     the imposition of a set limit for withdrawal 
amounts at any one time;
     the requirement for staff to provide all receipts 
and delineation of expenditures routinely;
    Although abuse seems neither wide-spread nor frequent among 
our member programs, there does not appear to be a universal 
use of safeguards. Some agencies routinely have consumers sign 
withdrawal slips so that staff can go to the bank and access 
accounts with no formal process in place to assure that 
consumer assets are protected.
    Given the times, and the move to support people with 
disabilities in communities and homes of their own choosing, 
safeguards are more essential than ever to protect the 
financial resources available to individuals. The proposed 
changes by the Social Security Administration appear likely to 
hold representative payees more accountable while offering 
additional protections to the intended beneficiaries.
      

                                

    Chairman Shaw. Thank you, Ms. McComb.
    Mr. Geffert.

 STATEMENT OF GARRY G. GEFFERT, STAFF ATTORNEY, WEST VIRGINIA 
     LEGAL SERVICES PLAN, INC., MARTINSBURG, WEST VIRGINIA

    Mr. Geffert. Thank you, Mr. Chairman and Members of the 
Committee. I am Garry Geffert. I am a Staff Attorney in the 
Martinsburg Office of the West Virginia Legal Services Plan 
where, among others, I represent some of the victims of the 
Aurora Foundation.
    I am here to urge the Subcommittee to recommend passage of 
H.R. 3666, which was proposed by my Congressman, Bob Wise, 
along with some of the additional measures like bonding, that 
the Social Security Administration has proposed.
    I think his bill and the supplemental measures would give 
meaningful protection to some of the most vulnerable people in 
our society. These are people who, because of their 
disabilities, can not handle their financial affairs. I think 
it is also important that Congressman Wise's bill makes the 
relief retroactive.
    I want to talk about the Aurora Foundation a little bit. In 
the early nineties, the Aurora Foundation was set up by Gregory 
Gamble. It was set up as a non-profit corporation. Mr. Gamble 
was a local businessman.
    Once the foundation was established, the Social Security 
Office routinely told beneficiaries that the Aurora Foundation 
would be their payee, and beneficiaries were not given a 
choice. Our information is that this was also true for 
beneficiaries who wanted some individual to be the payee. The 
Aurora Foundation was pushed to be their representative payee.
    Our information is also that, from time to time, many of 
the Aurora Foundation clients made complaints about the way 
their money was handled, or about some bill that was not paid. 
These complaints were made orally. These are not people who 
regularly work with paper.
    I thought it was significant that Social Security sprang 
into action when they got something from a lawyer, because 
lawyers know how to put on paper and get somebody's attention. 
I think what happened is that attention was not paid to the 
beneficiaries who were making what were probably viewed as 
isolated complaints, but together formed a pattern.
    Then in early 1999, the clients of the Foundation began 
getting eviction notices for nonpayment of rent and notices 
from utility companies that their service was going to be 
cutoff for nonpayment of bills. Of course, the Aurora 
Foundation was supposed to have been paying those bills.
    Soon, the Foundation office was closed, and a receiver was 
appointed, but the state's action was too late. The money was 
gone. There is no bond. There is nothing to collect from. Mr. 
Gamble has entered a plea of guilty to embezzlement of Social 
Security funds. He has also filed for bankruptcy.
    In response to your question, Mr. Chairman, the bankruptcy 
judge has ruled that the debts owed as a result of the 
embezzlement are not dischargeable, but Mr. Gamble does not 
have any money to repay the some $223,000 that the Inspector 
General has found is owed to the various Aurora Foundation 
clients.
    Under the current law, my clients are going to be able to 
recover their lost Social Security benefits only if they can 
prove that the loss was the result of the negligent failure of 
the Commissioner of Social Security to investigate or monitor 
their representative payee. But this is neither a simple nor a 
swift task.
    Social Security's monitoring duties are so minimal that it 
is difficult to prove that they negligently failed to meet 
them. All that Social Security requires of the payee is to file 
this two page form, and this is it. It has a few boxes and a 
couple of places to put check marks.
    This summary accounting is probably appropriate when the 
payee is a family member of the beneficiary. It is not, 
however, appropriate for organizations like the Aurora 
Foundation, which handle a lot of money for a lot of people.
    Most of the money that was paid to beneficiaries who use 
the Aurora Foundation was put into one checking account. At 
least until the end, that checking account usually had enough 
money in it to show that they had enough money to cover for any 
one individual.
    But nobody, not Social Security, or anybody else, ever 
required the Aurora Foundation to take and add up this line on 
here, which shows how much was saved for the client, and add 
those up for all the beneficiaries, and see if that much money 
was in the account. That simple accounting step would have 
shown much earlier that money was missing from the Aurora 
Foundation.
    In fact, we took testimony of the bookkeeper from the 
Aurora Foundation, and she said she could never make the books 
balance. The boss just assured her that everything was OK, 
because he had the checks, missing from the records.
    The additional problem my clients face is they have to 
prove the negligence in the Social Security administrative 
complaint scheme. This is a system which is excruciatingly 
slow, and where we do not have the sort of discovery procedures 
that are available in a court proceeding to get information.
    Of course, most of the information we need to show what 
Social Security did is in the hands of the Social Security 
Administration. Right now, they are playing ``hide the ball.''
    I have made Freedom of Information Act requests for basic 
information, like what the Foundation files applied to be a 
payee. And my clients, and I, on their behalf, have made 
Privacy Act requests, asking for copies of these statements 
that were supposed to have been filed.
    Social Security denied my Freedom of Information Act 
request, saying that disclosure might interfere with the 
criminal investigation which, of course, is not the standard. 
They have not even responded to the Privacy Act request, asking 
for copies of the individual account statements.
    I learned when I read the Inspector General's testimony 
that he gave in the Senate on Tuesday, that maybe it is because 
there are only twelve of the statements. But that is something 
that they have not told either to my clients or me.
    I think Congressman Wise's bill will solve these problems. 
It eliminates the need for us to show negligence. Social 
Security beneficiaries could promptly recover benefits upon 
which they depend for the necessities of life. And Social 
Security can then recover from the representative payee, and I 
think they are in a better position to do that. In addition, 
the bill would make the relief retroactive, which is of primary 
importance for my clients.
    I thank you for the opportunity to address you, and urge 
you to approve this legislation.
    [The prepared statement follows:]

Statement of Garry G. Geffert, Staff Attorney, West Virginia Legal 
Services Plan, Inc., Martinsburg, West Virginia

    My name is Garry G. Geffert. I have been a staff attorney 
with the West Virginia Legal Services Plan, Inc. office in 
Martinsburg, West Virginia, for almost twenty years. The West 
Virginia Legal Services Plan, Inc. annually obtains a grant 
from the Legal Services Corporation to provide legal assistance 
to low-income individuals in civil matters.
    I urge the Subcommittee to recommend passage of H.R. 3666, 
proposed by my Congressman, Representative Bob Wise, amending 
Titles II and XVI of the Social Security Act. Congressman 
Wise's bill would give meaningful protection from exploitation 
to the most vulnerable to Social Security and SSI 
beneficiaries, those who cannot handle their own financial 
affairs and so must depend on representative payees. 
Congressman Wise's bill does this by permitting a social 
security beneficiary to recover any benefits which have been 
misappropriated by a representative payee without proving that 
the Social Security Administration was negligent in overseeing 
the representative payee. And, it would provide retroactive 
relief.
    A recent incident which occurred in my home town, and which 
was the subject of a segment on the news program 20/20, shows 
the need for passage of Congressman Wise's bill.
    Many social security beneficiaries in our area have no 
family member who can serve as a representative payee. In the 
early 1990's, a local business man, Gregory Gamble, set up a 
non-profit corporation, called the Aurora Foundation, to be a 
representative payee, for a fee. The corporation was 
essentially a one-person operation. Once the Foundation was 
established, the local Social Security office routinely told 
beneficiaries that the Aurora Foundation would be their payee; 
beneficiaries were not given a choice.
    From time to time, beneficiaries complained about the 
Aurora Foundation and the manner in which their funds were 
handled. Those complaints were largely ignored; none were 
investigated. In 1996, a beneficiary wrote to the Foundation 
complaining about the handling of his money, and sent a copy to 
the Social Security Administration. He was subsequently allowed 
to discontinue using the Foundation as his payee, but no 
investigation of his complaint was made.
    In early 1999, clients of the Aurora Foundation began 
getting eviction notices for nonpayment of rent and letters 
from utility companies threatening to cut off service for 
nonpayment of bills. These were, of course, payments that the 
Aurora Foundation was supposed to have made for its clients. 
The Foundation office closed and the state court appointed a 
receiver. The state's action was too late. The money was gone.
    The Office of the Inspector General of the Social Security 
Administration audited the Foundation's records and determined 
that $223,353.00 had been stolen from 127 Aurora Foundation 
clients.
    Mr. Gamble has entered a plea of guilty to embezzlement of 
Social Security funds. He has also filed for bankruptcy. 
Although the Bankruptcy Judge has ruled that the debts to my 
clients, and other Aurora Foundation victims, are not 
dischargeable, Mr. Gamble has no assets from which to repay the 
individuals whom the Social Security Administration put in his 
clutches.
    Under current law, my clients may be able to recover from 
the Social Security Administration (``SSA'') the benefits which 
the Aurora Foundation misappropriated. However, in order to 
recover they must show that the they lost their benefits as the 
result of ``the negligent failure of the Commissioner of Social 
Security to investigate or monitor a representative payee.'' 42 
U.S.C. Sec.  405(j)(5); 42 U.S.C. Sec. 1383(a)(2)(E). This is 
neither a simple, nor a swift, task.
    Social Security's monitoring duties are so minimal that it 
is difficult to show they negligently failed to meet them. All 
Social Security requires of a payee is the filing of a two-page 
summary of income and expenses. (Form SSA-623-F6). While this 
summary accounting is appropriate for a family member acting as 
payee, it is inadequate for an organization which handles the 
money of many individuals.
    The inadequacy of the reporting requirement is demonstrated 
by the Aurora Foundation. The Aurora Foundation maintained one 
checking account, into which were placed all the benefits for 
almost all of its clients. The Foundation then purported to 
keep records showing how much of the account belonged to each 
client. Until the end, the account usually had more money in it 
than belonged to any one client. However, no one ever required 
the Foundation to show that the account had all of the money 
for all of the beneficiaries. Social Security does not even 
require an organizational payee to show that its bank accounts 
balance. The Aurora Foundation's part-time clerk testified that 
she tried to balance the client checking account, but could not 
make it balance. When she asked her boss about it, he said that 
the problem was caused by bookkeeping entries he had failed to 
make, and that she should not worry about it.
    Further, negligence must be proven in the SSA 
administrative complaint scheme, a system which has no time 
deadlines and can be excruciatingly slow, and under which there 
are none of the normal procedures through which information can 
be obtained. This seriously handicaps the ability of my clients 
to pursue their claims, as neither my clients nor I have been 
able to determine whether the Foundation even filed the short 
summary forms which the SSA does require. While both my clients 
and I have made requests under the Freedom of Information Act 
and the Privacy Act, SSA has been playing hide the ball. It has 
refused to turn over even basic information about the 
Foundation, claiming that release of that information could 
hinder its criminal investigation, and it has failed to respond 
to any of the Privacy Act requests seeking copies of the annual 
summary statements which the Foundation should have filed for 
the clients.
    Congressman Wise's bill, H.R. 3666, would solve these 
problems. It would eliminate the need to show that the SSA was 
negligent in its oversight of the representative payee. The SSA 
beneficiaries could promptly recover the benefits upon which 
they depend for the necessities of life. The SSA could then 
recover from the dishonest representative payee, a task which 
it is in a far better position to accomplish than are the 
beneficiaries.
    Congressman Wise's bill also does what the SSA's bill does 
not; it makes the removal of the ``negligence'' requirement 
retroactive. This is of crucial importance to my clients, and 
the other victims of the Aurora Foundation. Their money was 
stolen prior to the end of 1999; under the SSA's bill, they 
would recover nothing. That is not fair. It was not their 
choice to have the Aurora Foundation appointed as their payee; 
the SSA directed them to the Foundation. They should not suffer 
from the poor choice of the SSA.
    The one hundred twenty-seven victims of the Aurora 
Foundation are in desperate need of the relief which 
Congressman Wise's bill would afford them. On their behalf, I 
ask that your Committee recommend passage of H.R. 3666 to the 
House of Representatives.
    Thank you for the opportunity to present these views to 
you.
      

                                

    Chairman Shaw. Thank you, Mr. Geffert.
    Mr. Matsui.
    Mr. Matsui. Thank you very much, Mr. Chairman.
    Mr. Geffert, I think you have said this. But it is your 
testimony that the SSA office in West Virginia was 
knowledgeable about complaints for quite some time; did you say 
that?
    Mr. Geffert. Yes, as we have been able to piece it 
together, complaints were be made. Somebody would go in and 
say, I have got this problem. But no record was ever made of 
it.
    Mr. Matsui. Right, right.
    Mr. Geffert. And I think that is the problem. And I think 
it may be a function of what you were discussing earlier, as 
well. Everybody knows this guy, and he is a good guy. So there 
can not be anything wrong. But because they did not log their 
reports of the complaint, the pattern never emerged.
    It may also be, as some of the witnesses here have 
suggested, that the beneficiaries were questioning something 
that there is nothing wrong with. But the problem we faced, and 
the clients faced, is that even with the justified complaints, 
there is no record, so you can not uncover what is going on.
    Mr. Matsui. I am going to defer other questions, Mr. 
Chairman, because I know you and others may have questions. But 
I want to thank the five members of this panel. It has been 
very helpful, and I really appreciate it. We hopefully can take 
some kind of action to address the issues you raise.
    Thank you.
    Chairman Shaw. Mr. Collins.
    Mr. Collins. I do not have any questions, but I do 
appreciate the testimony here today.
    Chairman Shaw. Mr. Geffert, the accounting form that you 
were holding up, is that the one that Mr. Huse testified, that 
there were less than 20 of them?
    Mr. Geffert. I believe it is. It is this form, SSA-623, F-
6, and I think that is what he was making reference to, 
although he would probably have a better answer to that than I 
would. But that is the only form that I am aware of that has 
that information.
    Chairman Shaw. Did you find out anything today that helps 
your case?
    Mr. Geffert. Well, yes, I found out that there were only 12 
reports, and I think that indicates something.
    Chairman Shaw. I think it indicates a lot. But I am not 
trying to help you, or tell you how to try your case.
    [Laughter.]
    Mr. Geffert. Well, I am looking forward to having a hearing 
record to put in with our complaint.
    Mr. Matsui. If you need any jurors, just call us.
    [Laughter.]
    Chairman Shaw. I am interested about what they are hiding 
from you in the discovery. Are you going through the discovery 
process, and they are putting up some kind of a defense, or 
what is the problem?
    Mr. Geffert. There is no discovery process in the 
administrative scheme. So what we did is try to use the Freedom 
of Information Act. And I asked for basic documents, because I 
understand there was a criminal investigation going on, at the 
time I made the request.
    What I asked for was, what did the Aurora Foundation show 
you when they got the license? What information did they submit 
to show that they should be a representative payee, and what 
did you do, looking at them? I think those are the three basic 
areas.
    And the response I got is, we can not tell you anything 
because there is a criminal investigation going on. That is not 
the standard of the Freedom of Information Act. There has got 
to be a showing that disclosure would somehow interfere with 
the investigation. And I do not know how that information would 
interfere.
    But with a Privacy Act request, which I find more 
troublesome, my clients asked for documents about them and to 
which they are absolutely entitled, as I understand the law. 
And that is about these representative payee reports, because 
our suspicion is that they were not filed. We did not even get 
a response.
    Now most of my clients went in with a letter from me 
saying, here is what you need to ask for. Some of them reported 
that the letter was taken. Some of them were told, we will get 
back to you. Everybody tells me, nobody got back.
    And I lend credence to that, because I made a written 
request on behalf of one of my clients, with the requisite 
forms, to which I have never received a response. I sent it to 
the local office, where I understand there is supposed to be a 
record of at least whether or not these reports were filed. And 
to that, I have not gotten a response. That troubles me.
    But it may be that because of the poor recordkeeping, there 
is nothing there, and so that is why we are not getting 
anything back.
    Chairman Shaw. Is there a statutory requirement that those 
things be filed?
    Ms. Coleman. Yes.
    Mr. Geffert. I know it is regulatory. I do not know if it 
is statutory.
    Chairman Shaw. Ms. Coleman.
    Ms. Coleman. Yes, there was a Supreme Court case called 
Jordan, which mandated that there be annual reports made for 
every beneficiary, except those institutions that have the 3-
year, on-site review.
    Chairman Shaw. So Mr. Gamble should have been required.
    Ms. Coleman. Mr. Gamble was obligated in accepting the 
responsibility of being a rep payee to file individual reports 
annually on each individual to whom he was appointed rep payee. 
He did not, obviously.
    And if only 12 reports were filed over a 4 year period of 
time, and there are several hundred beneficiaries, he has 
missed a lot.
    Chairman Shaw. Is this an annual report?
    Ms. Coleman. It is an annual report.
    Now I think that there are two things that are important to 
understand about the annual report.
    Chairman Shaw. Now wait a minute. There were only 12 filed 
over how many years?
    Mr. Geffert. All I know is what I read in the testimony and 
it was not clear whether that was the total over the number of 
years or for the last year.
    Chairman Shaw. Oh, I did not realize you were here, Mr. 
Huse.
    Mr. Huse. But what we are focusing on is what we found at 
the time that the case broke, and we only had 12. Now they have 
since found another 20.
    Chairman Shaw. Total, over what period of time?
    Mr. Huse. That is subsequent to our search that day.
    Chairman Shaw. Did you find them in the government files, 
or did you find them in Mr. Gamble's file?
    Mr. Huse. We were looking in the agency's files. But while 
we were searching, we found the unopened envelopes from Social 
Security in his files.
    Chairman Shaw. Is the procedure that the Social Security 
sends those out for each payee and, obviously, no one is 
monitoring whether they come back? Boy, I will tell you, if the 
IRS did this, April 15th would become a holiday.
    [Laughter.]
    Mr. Geffert. Actually, the Inspector General, in one of his 
earlier monitoring reports about this, described the procedure. 
And something that struck me as odd was the tracking system.
    They send a report form out. If it does not come back 
within, I don't know, 30 days, they send out another letter. 
This is all done through a private contractor on a computerized 
system.
    And then there is a second step, and a follow-up request. 
But at the end of the year, if no report has been filed, they 
start over again, and the computer record is written over.
    Chairman Shaw. I think I will submit a question to the Dr. 
Daniels as to whether or not these letters were sent out, and 
whether they were followed up. That is something that this 
Committee should know.
    Ms. Coleman, you talked about problems between the Social 
Security and the courts, that they are not communicating with 
each other.
    Ms. Coleman. Correct.
    Chairman Shaw. What is the purpose of that? You said it was 
statutory, I believe.
    Ms. Coleman. Well, it is a privacy prohibition. Currently 
there are a few statutory overrides to it that allow states to 
get a hold of records.
    But at the moment, there is no overall provision that 
enables Social Security to share that information with courts, 
where they may have beneficiaries in common. And there is a 
need for such a provision.
    Chairman Shaw. OK, we will have to look into that.
    Thank you all very much. We appreciate it. It has been a 
very good hearing.
    Ms. Coleman. Thank you.
    Chairman Shaw. We are now adjourned.
    [Whereupon, at 12 noon, the hearing was adjourned.]
    [Questions submitted by Chairman Shaw, and Mr. Huse's 
responses follow:]

OIG Responses to Representative Payee Questions

    1. Regarding annual accounting requirement, the IG 
testified that SSA could initially produce only 12 of the more 
than 100 accounting reports the Aurora Foundation was required 
to submit annually for the beneficiaries for which it served as 
rep payee. Later, a limited number of additional reports were 
found in SSA's files, but still were short of the amount Aurora 
was obliged to submit as rep payee. In fact, when the IG 
investigated Aurora's files, it found many of the accounting 
report forms still unopened in their original envelopes from 
SSA.
     How many accounting reports did you receive from 
Aurora in each of the years during which Aurora was a rep payee 
for Social Security/SSI beneficiaries? How does that compare 
with the number of beneficiaries for which Aurora was rep payee 
during each of those years?
     Why did Aurora's failure to submit so many 
accounting forms not result in a closer examination of its 
operations by SSA?
     Why do you think the IG testified that ``it is our 
belief that adequate monitoring would have detected financial 
discrepancies in the rep payee's accounting records'' in 
several cases of fraud? Do you agree or disagree that 
``adequate monitoring'' would have detected problems with 
Aurora sooner, better protecting at least some of the benefits 
that were lost?
     Are you still searching for files from Aurora? 
Have you found any additional files? If so, how many?
     What other examples are there of rep payees that 
fail to submit accounting forms as required? What has been 
SSA's response in other cases in the past? Do you expect that 
response to change?
Answer
     We cannot attest as to how many Aurora rep payee 
accountability reports SSA received each year. While we 
requested all the reports, SSA only provided 12, substantially 
less than should have been filed for the 120-140 beneficiaries 
for which it was payee. SSA staff advised us that most forms 
were actually filed, but were not originally provided to us 
because of problems in locating and retrieving them.
     If Aurora did not file the remaining forms, we 
defer to SSA to explain why this did not result in closer 
examination of Aurora's operations. SSA does have policies and 
procedures that require follow-up action when a rep payee does 
not file an annual accountability report.
     We believe adequate monitoring will better detect 
rep payee fraud, and may have better protected some victims in 
the Aurora case by detecting problems sooner. Monitoring 
practices when the fraud in the Aurora case occurred were 
insufficient to detect fraud.
     We are not independently searching for any 
additional accounting forms from Aurora. In addition, SSA has 
not provided us with any additional accounting forms for 
Aurora.
     We will defer to SSA regarding examples of 
instances in which rep payees failed to submit a required 
accounting form, as well as SSA's previous responses to these 
instances and planned future responses. Generally, SSA does not 
notify us about a non-response situation unless there is an 
indication of fraud. With increased awareness and congressional 
concern in this area, we expect SSA will strive to improve its 
recordkeeping and retrieval process for accounting forms, and 
will conduct all required follow-up actions when a rep payee 
does not file an annual accountability report.
    2. Why has it taken so long to implement the IG's 
recommendations about non-responding payees? In December 1996 
the Inspector General made specific recommendations regarding 
monitoring non-responding payees, specifically on following up 
non-receipt of reports and verifying local Office action. SSA 
is now proposing to conduct these checks. But why wasn't action 
taken in the last 4 years? Obviously you think this step will 
help reduce fraud and abuse or you wouldn't be moving forward 
now. How many abuses might have been prevented if you had 
follwed the IG's advice three and a half years ago? What amount 
of benefits would have been protected in the Aurora case if the 
first instance of non-response had resulted in the selection of 
a new rep payee? The second? Third?
Answer
     We will defer to SSA to explain why it has taken 
this long to implement our December 1996 recommendations 
regarding nonresponding payees, and the known effect of the 
delay in implementation.
     As for the Aurora case, we cannot determine what 
amount of benefits would have been protected from misuse if 
instances of nonresponse had resulted in the selection of a new 
payee. Based on our review of SSA's records, we cannot 
determine when the initial nonresponse occurred in each 
instance because SSA's records do not maintain a history of 
previous nonresponders. However, you should be aware, that the 
accountability reports are only one aspect of a more 
comprehensive monitoring system necessary to deter and detect 
fraud. The accountability reports require minimal information 
as reported by the rep payee. A dishonest payee may falsify 
information in the report and send it in timely. In these 
cases, fraud may easily go undetected unless SSA exercises some 
oversight or review of the information reported.
    3. Where is the documentation? The IG believes that 
retention of supporting documentation for the failure to timely 
complete rep payee accountability forms and the ability to 
easily retrieve these forms is essential to the identification 
and ultimate prosecution of rep payees for fraud or misuse. 
According to the IG, your own procedures say the rep payee 
accounting reports must be retrievable in the event the form 
must be reviewed for misuse or fraud allegation. Yet your 
offices are required to send these documents to an outside 
storage facility. Where are local offices storing these 
documents today? What instructions are your local offices 
following?
Answer
     All accountability reports are returned to SSA at 
a data operations center (DOC) in Wilkes-Barre, Pennsylvania. 
The DOC completes the initial screening, data verification, and 
review of all returned accountability reports. If no further 
action is needed, the reports are stored for 2 years. The forms 
are stored in SSA's processing centers or in private facilities 
near those processing centers, and in SSA's record center in 
Boyers, Pennsylvania. Because of the volume of forms, SSA 
generally groups the forms by reporting period date for 
storage. This is not conducive to making the forms easily 
retrievable.
     We previously recommended that SSA study the 
desirability of optical scanning of completed annual 
accountability reports.\1\ This would enable SSA to maintain 
the information in an electronic database and would reduce 
problems with retrieving paper copies. Field offices are 
supposed to follow the procedures in SSA's Program Operations 
Manual System which state that payee accounting forms must be 
retrievable in the event that the form must be reviewed for a 
misuse or fraud allegation.
---------------------------------------------------------------------------
    \1\ Monitoring Representative Payee Performance: Roll-Up Report, A-
09-96-64201, dated March 1997.
---------------------------------------------------------------------------
    4. Should organizational rep payees be subject to audits? 
More specifically, should any organization be allowed to serve 
as a rep payee without being able to submit to SSA an annual 
audit of its operations? How many organizational rep payees 
currently have their own operations audited? How many 
organizations might no longer be eligible to serve as rep 
payees if this requirement were made and enforced? Could other 
rep payees be found in those cases?
Answer
    There are about 45,000 organizational rep payees. We do not 
know how many of them have annual audits of their operations, 
how many would continue to be eligible to be a rep payee if 
audits were required, or whether other rep payees could be 
found if audit findings required a different rep payee. We do 
believe that, in some cases, it would be prudent to require an 
audit of the organization before SSA selects it as a rep payee.
    5. Are SSA screening procedures adequate? In his testimony, 
the IG points out that in terms of the screening and selection 
of rep payees, SSA essentially conducts a records verification 
of certain documents such as drivers licenses, state 
identification cards, credit cards, and bank books. However, 
SSA does not verify the accuracy of this information. Nor does 
it provide credit or security checks to determine if the 
potential payee has financial problems, credit problems, or may 
have been convicted of any other felony. In March 1997, the IG 
made specific recommendations to SSA to conduct a more thorough 
screening of potential rep payees. Why weren't these 
suggestions adopted? Are you currently implementing any of the 
IG recommendations regarding the conduct of a more thorough 
screening of potential rep payees? If so, what is the status?
Answer
    In a previous audit, we made several recommendations that 
SSA make a more thorough screening of potential rep payees.\2\ 
We recommended that SSA conduct custody checks to verify 
custody information provided by the payee applicant. However, 
SSA believes custody verification should be left to the 
discretion of field office staff. We also recommended that SSA 
check the adequacy of the rep payee applicant's recordkeeping 
system during the screening and selection process. SSA agreed 
to improve its procedures by requiring a description of how 
beneficiaries' monies are recorded and disbursed. SSA plans to 
have this in place by August 2000. Finally, we recommended that 
SSA conduct suitability checks only for rep payees intended for 
selection. SSA disagreed and indicated that suitability checks 
will be done for all applicants in order to select the best 
possible applicant. There is a degree of uncertainty regarding 
the appropriate level of scrutiny potential rep payees will 
undergo as a part of a suitability check. This is an issue to 
be considered by the Agency's work group on rep payee 
strategies.
---------------------------------------------------------------------------
    \2\ Ibid.
---------------------------------------------------------------------------
    6. What licensing or bonding requirements should 
organizational rep payees have to satisfy? SSA's proposal would 
require only organizational payees who perform this service for 
a fee to be licensed and bonded. Other witnesses supported 
requiring licensing and bonding of all organizational payees, 
and you indicated an openness to considering expanding your 
proposal in this direction.
     What arguments can you think of against requiring 
licensing and bonding in all cases? Do you support those 
arguments?
     Your original proposal implies that higher 
standards should be applied to organizations that serve as rep 
payees under fee-for-service arrangements. Is that justified? 
Do more allegations of abuse result from fee or non-fee 
organizational rep payees? How about convictions?
     What proof does an organization applying to be a 
rep payee have to provide SSA regarding whether it is licensed 
or bonded? Does SSA check this information annually to ensure 
that the organization remains licensed or bonded? How? Should 
an organization lose its licensing or bonding, how quickly will 
SSA know of it? What response will SSA take?
     One recent case of rep payee abuse involves an 
individual who took over the operation of a non-profit group 
(which was licensed and bonded) that previously did not provide 
rep payee services. What can SSA do to prevent fraud in such 
cases?
     Section 2 of your proposed legislation states that 
a nongovernmental organizational representative payee must be 
licensed in each State in which it serves as a representative 
payee (provided that licensing is available in such State). It 
is our understanding that in some States, while the State does 
not require licensing, a county or locality might. Under your 
bill, would a representative payee still be required to be 
licensed in these circumstances? If no, should it be required?
Answer
     Currently, nongovernmental fee-for-service 
organizational rep payees must be licensed orbonded. Beginning 
in June 2000, SSA will require that they annually update their 
files to show their bond or license is still in effect. SSA has 
also proposed legislation that would require fee-for-service 
organizational rep payees to be licensed and bonded. The 
legislative proposal does not require licensing and bonding of 
all organizational rep payees.
     SSA has gone on record in prior congressional 
testimony that it would need to study the implications of 
extending bonding requirements to nonprofit organizations. We 
believe the increased cost for rep payees of requiring 
licensing and bonding in all cases is the most compelling 
argument against their enactment. Increased costs for these 
organizations could discourage some at a time when finding 
suitable payees is not always easy. We do not believe the cost 
factor should necessarily defeat the adoption of licensing and 
bonding requirements. We do agree that the implications of 
extending these extra requirements to nonprofits should be 
studied for impact before any legislation is proposed. SSA is 
developing a policy to balance the need for strengthened 
investigation and monitoring with costs and burdens to rep 
payees. We will reserve judgment on extending these 
requirements until SSA's policies are in place and an 
evaluation of their impact has been conducted.
     We believe there could be justification to support 
higher standards for fee-for-service organizational rep payees. 
However, we do not have any data readily available to support 
this position. We do not know whether more allegations of 
abuse, or related convictions, arise in fee or nonfee 
organizational rep payee situations. Our allegation management 
system does not capture information that distinguishes between 
fee and nonfee organizational rep payees. We are updating our 
system that collects and records data to include information 
regarding the number of allegations and convictions against rep 
payees and their various classifications (individual, fee, and 
nonfee organizational, etc.).
     We defer to SSA to advise you of what proof it 
requires for licensing and bonding; whether SSA checks that 
licensing or bonding remains in place; how quickly it learns 
about rep payees who lose their licensing or bonding; and what 
action SSA takes when a rep payee loses its license or bond.
     In the case you refer to, only a monitoring 
program that involved on-site review of financial records at 
regular intervals would have been effective in detecting fraud. 
As far as preventing the fraud in the first place, even more 
thorough screening may not be sufficient. Although the new rep 
payee had a prior criminal conviction, it would not have barred 
her from becoming a rep payee under current law. Licensing and 
bonding of the organization that employed the individual did 
not prevent this individual from assuming her position.
     As written, we feel SSA's proposed legislation 
would require licensing in the situation you described. If a 
county or locality requires licensing, licensing is available 
in that State. The legislation only requires that licensing be 
available in the State, not required. We do agree, however, 
that this language could be improved to make this clearer.
    7. Should credit checks be done on all potential rep 
payees? You can't buy a car, much less be put in charge of 
another person's finances, without a credit check. Does SSA 
perform a credit check on potential rep payees, including 
individual rep payees? Has a sample ever been performed to 
determine what SSA would find if it did so? Especially if non-
fee organizational payees are not required to be licensed and 
bonded, should such organizations at least be required to pass 
a credit check? What would that cost? Would that otherwise 
happen in the course of bonding?
Answer
    It is our understanding that SSA's policies and procedures 
require that a SSA employee interview prospective rep payees. 
However, the review does not include a verification of the 
information supplied by the prospective rep payee unless SSA 
has reason to question the applicant's suitability. SSA does 
not routinely perform a background check to determine whether 
the applicant has financial problems or bad credit. We are 
unaware of any studies to determine the credit histories of rep 
payees. We are not in a position to answer your question of 
whether a credit check should be required on nonorganizational 
rep payees that do not have to be licensed or bonded. There are 
millions of such rep payees, and the costeffectiveness of 
conducting credit checks is not known. In instances where an 
organizational rep payee is bonded, we believe local bonding 
requirements vary, but probably involve credit checks of some 
level.
    8. What other standards are there for rep payees? I 
understand that a witness before the Senate Aging Committee 
testified that she became a rep payee for a number of 
beneficiaries after applying over the phone. Is that true? How 
did that happen? can that still occur?
    Is there a minimum age for a person to be a rep payee? How 
old are the youngest rep payees? How many are there this age?
    Most rep payees are individuals and not organizations. do 
you have any concerns about fraud involving individuals who 
serve as rep payees, as opposed to organizations, which is the 
thrust of SSA's legislative proposal? What are some recent 
examples of fraud involving individual rep payees? Why did you 
not included suggestions to address these cases?
Answer
     SSA policies and procedures allow rep payee 
applications to be filed over the phone in limited 
circumstances. This is consistent with SSA's commitment to 
expand service delivery options to its customers. However, a 
face-to face interview is generally required prior to the rep 
payee selection decision.
     There is no specific minimum age for a person to 
qualify as a rep payee. SSA will use its discretion. However, 
SSA policies and procedures state that individuals cannot be 
their own payee if under age 15 and individuals with rep payees 
cannot serve as another's rep payee. There is a strong 
implication that a person under this age would not be selected 
to be a rep payee.
     We do not have information on the age of the 
youngest rep payees and how many there are. We defer to SSA for 
this information.
     Since most payees are individuals and not 
organizations, we are concerned that controls and oversight are 
necessary to prevent, detect, and deter any individual who 
would commit fraud or misuse while serving as a rep payee. Some 
recent examples of fraud cases involving individual rep payees 
are described below.

        Our New York office investigated a rep payee who had failed to 
        report her son's incarceration, a Supplemental Security Income 
        (SSI) recipient. During a redetermination, the woman stated her 
        son was at home watching television. The investigation 
        determined the man was incarcerated when his mother stated he 
        was at home. The woman was subsequently indicted, arrested, and 
        convicted for failing to report her son's incarceration. She 
        misappropriated $33,902 in SSI benefits. The woman was 
        sentenced to 5 months' incarceration and 5 months' home 
        confinement, and she was ordered to make restitution of $33,902 
        to SSA.
        A resident of Louisiana pleaded guilty to a two-count 
        indictment of violations of title 18, United States Code, 
        section 1001, False Statements. The subject was sentenced to 18 
        months and ordered to pay $18,168.00 in restitution to SSA. An 
        investigation by our Houston, Texas, Sub-Office showed the 
        subject was the rep payee for a SSI recipient and made false 
        statements to SSA about the recipient's living arrangements and 
        how she had used the SSI funds she received on his behalf. The 
        rep payee indicated that the SSI recipient was residing with 
        her, and she had been using the SSI funds for the recipient's 
        benefit. During this period of time, the SSI recipient had been 
        incarcerated in the Louisiana Department of Corrections.
        A resident of Houston, Texas, pled guilty to one count of 
        violation of title 18, United States Code, section 1001, False 
        Statements. She was sentenced to 4 months in prison, 4 months' 
        home detention, and 3 years' supervised release. She also was 
        ordered to make $6,034.00 in restitution to SSA. The subject 
        was the rep payee for an individual who received both SSA and 
        SSI payments. The subject made false statements to SSA about 
        how she had used the SSA funds she received on the 
        beneficiary's behalf. The SSA beneficiary was deceased when the 
        rep payee indicated on SSA forms that she had used the SSA 
        funds she had received on the beneficiary's behalf.
        In Sheridan, Wyoming, a man who was rep payee for a child 
        failed to notify SSA that the Department of Family Services had 
        removed the child from his care. The investigation resulted in 
        the man pleading guilty to Theft of Public Money. In Cheyenne, 
        Wyoming, the U.S. District Court judge sentenced the man to 3 
        years probation and ordered him to pay $2,070 in restitution.
        We are not sure of SSA's reasoning for limiting certain 
        legislative proposals to organizational rep payees, such as SSA 
        reimbursement for victims of rep payee misuse, although costs 
        would certainly be a factor.
    9. Can felons serve as rep payees?
     Under what conditions may convicted felons serve 
as rep payees, whether as organizations or as individuals?
     How does SSA enforce current restrictions on 
convicted felons serving as rep payees? Does SSA actually check 
its records or other databases or does it rely on the word of 
the individual applying to be a rep payee? How many people are 
denied becoming rep payees each year because of current 
restrictions?
     Based on your records, how many convicted felons 
serve as rep payees today? Is that number expected to grow in 
the future?
     Of cases involving allegations of abuse by rep 
payees, how many involve previously-convicted felons? How many 
cases involving convictions for abuse by rep payees involve 
previously-convicted felons?
     If the law were changed to prohibit all convicted 
felons (including individuals convicted for felonies not 
related to Social Security or SSI benefits) from serving as rep 
payees, what impact would this have on beneficiaries? Would you 
expect more or less abuse by rep payees of vulnerable 
beneficiaries?
     If a rep payee misuses benefits, presumably SSA 
will attempt to locate another rep payee for the beneficiary. 
However, the first rep payee may never be convicted of the 
misuse, especially if the loss is not large. For example, the 
IG provides testimony about a father who stole SSI benefits 
from his son for about two years, yet was never prosecuted. 
Does that father serve as a rep payee for any beneficiary 
today? Could he? Does SSA maintain records about such (former) 
rep payees? For example, does SSA know how many current rep 
payees have misused benefits in the past?
     SSA has proposed new civil and monetary penalties 
against payees who misuse benefits. Would persons subject to 
the penalties also be specifically disqualified from serving as 
a rep payee again?
Answer
     Under the Social Security Act,\3\ individuals are 
prohibited from serving as a rep payee only if they have been 
convicted of a felony of misusing funds in violation of the 
Social Security Act. Individuals convicted of all other types 
of felonies may serve as rep payees.
---------------------------------------------------------------------------
    \3\ 42 U.S.C. 408 (a) and 42 U.S.C. 1383a.
---------------------------------------------------------------------------
     We maintain a listing of all rep payees convicted 
of misuse under the Social Security Act and provide that 
information to SSA. We defer to SSA to inform you of what it 
does with this information and whether it has resulted in any 
denials for rep payee applicants.
     SSA records indicate there were 92,243 active rep 
payees with felony convictions as of April 2000. This 
information is based on self-reporting by rep payee applicants. 
We assume the number of felons serving as rep payees will grow 
proportionately with the growth of the rep payee population.
     Our case management system does not capture 
information on prior convictions of the subjects of our 
investigations. We do not have information on how many 
allegations or convictions for misuse involve previously 
convicted felons.
     We do not have any data with which we can make an 
informed opinion on the impact of prohibiting all convicted 
felons from serving as a rep payee, nor whether this would 
decrease instances of abuse.
     In the case of the father who misused benefits but 
was never criminally prosecuted, SSA records indicate the 
father is not currently a rep payee for any beneficiary. 
Theoretically, he could become a rep payee since he is not 
barred under the Social Security Act. We would defer to SSA as 
to what information it keeps on such former rep payees.
     Persons subject to penalties imposed by the OIG in 
accordance with its civil monetary penalty program are not 
prohibited from serving as rep payee in the future. We strongly 
support the addition of explicit language in the statute making 
said persons ineligible to become future rep payees.
    10. Why is SSA only now implementing some recommendations? 
In the IG's testimony, he highlights a number of 
recommendations his office has made to SSA regarding the rep 
payee oversight process over recent years. Some of these 
recommendations have never been implemented, some are only now 
being implemented. Why? Which recommendations has SSA not 
implemented or does not intend to implement why?
Answer
    We will defer to SSA regarding its decisions on 
implementing our recommendations as well as the timing of items 
scheduled for implementation. We do track the status of prior 
OIG recommendations. SSA either has implemented or plans to 
implement most of our recommendations. However, SSA rejected a 
few of our prior recommendations. We will defer to SSA to 
advise us which recommendations it rejected, and why.
    11. Why are abuses rising? According to the IG's Office, 
allegations of fraud involving rep payees have increased on 
average of 206 per month in 1998 to about 1100 a month so far 
this year. I know the IG's office has grown during that time, 
enhancing its ability to investigate abuse. But is there fire 
under this smoke? How do you account for such a rise in 
allegations?
Answer
    We attribute the rise in the receipt of rep payee abuse 
allegations to increased publicity and public awareness, a 
significantly expanded OIG toll-free hotline, and an increase 
in the number of OIG investigators. The expansion and easy 
access to information about rep payee misuse, what constitutes 
violations, and where to send allegations or suspicions of 
potential violations are also contributing factors.
    12. How does H.R. 3666 differ? In addition to legislation 
that SSA has forwarded on this issue, Congressman Bob Wise of 
West Virginia has introduced H.R. 3666. How does this bill 
differ from the proposal SSA has put forward? It appears to the 
Subcommittee that the retroactivity under H.R. 3666 is without 
limit, meaning any benefits determined to have been misused in 
the past, whether in 2000 prior to enactment, or in 1999 or 
even in 1989 and before are eligible for reimbursement provided 
other are conditions are met. Is this reading correct? If 
enacted, should a limit placed on the retroactivity of 
legislation like H.R. 3666? What should that limit be?
Answer
    SSA's proposed legislation differs from H.R. 3666 in that 
(1) it would only apply in cases of organizational rep payee 
misuse and (2) it would not apply retroactively. Under SSA's 
proposed legislation, beneficiaries who are victimized by a rep 
payee would still need to meet the negligence standard for 
reimbursement. SSA is in the best position to determine the 
associated cost and, therefore, burden of unlimited 
retroactivity of legislation like H.R. 3666.
    13. What has been done about payments to deceased rep 
payees? Please tell us what steps have been taken to prevent 
continued payments to rep payees who have died. We now allow 
for recovery of this money as if it were an overpayment. How 
much is being recovered? Compared with what total overpayment? 
Do you have further suggestions for better preventing payments 
after rep payees have died?
Answer
     In September 1999, we issued a report on payments 
made to deceased rep payees.\4\ The objective of the review was 
to determine whether SSA identifies all cases in which a rep 
payee is needed when a former rep payee dies. We found that SSA 
procedures did not ensure that a new rep payee was selected 
when a former payee dies, causing millions in overpayments. We 
made six recommendations to address the condition.
---------------------------------------------------------------------------
    \4\ The Social Security Administration's Procedures to Identify 
Representative Payees Who Are Deceased (A-01-98-61009).
---------------------------------------------------------------------------
     SSA agreed with our recommendations and has begun 
implementing them or plans to implement them. SSA provided us 
with an estimated timetable for corrective actions. We 
identified about $17.3 million in Social Security and SSI 
overpayments. We have no information on overpayment recoveries 
in these cases. We have no further recommendations at this time 
to prevent payments to deceased rep payees.
    14. Why haven't certain Freedom of Information Act requests 
described by Mr. Geffert been granted? Are there other Freedom 
of Information Act requests involving rep payees that SSA has 
denied in the past year? For what information? In each case, 
what has been the justification for the denial?
Answer
     In his May 4, 2000 testimony, Mr. Geffert stated 
that SSA denied his Freedom of Information Act (FOIA) requests 
in cases where the Aurora Foundation was the rep payee for his 
clients on the grounds that there was an open criminal 
investigation.
     The authority to grant or deny FOIA requests lies 
solely within the discretion of SSA's Office of Disclosure 
Policy (ODP). However, when SSA believes that records may be in 
the possession of OIG, our office evaluates the request and 
provides a recommendation for or against disclosure to ODP to 
use in making their final determination. In this case, Mr. 
Geffert's request was forwarded to OIG's FOIA coordinator who 
determined that there was an open criminal investigation 
regarding the Aurora Foundation. Based on that determination, 
our FOIA coordinator recommended that the request for 
information be denied.
     As required by law, SSA compiles and publishes an 
annual report on FOIA activities. In 1999, SSA provided 
combined data on FOIA and Privacy Act requests. SSA reported 
that it processed 134,609 requests, and granted full disclosure 
in 131,783 instances. There were 971 partial grants and 565 
denials. The overwhelming reason for these was based on the 
exemption that disclosure would constitute a clearly 
unwarranted invasion of another's personal privacy. We do not 
have any information on how many partial grants and denials 
were issued in FOIA requests involving rep payees.
    [Submissions for the record follow:]

Statement of Sue Davis, Scottsdale, Arizona, on Behalf of the National 
Alliance for the Mentally Ill

    Chairman Shaw, Representative Matsui and members of the 
Subcommittee, I am Sue Davis of Scottsdale, Arizona, and a 
constituent of Representative J. D. Hayworth in Arizona 
Congressional District 6. I am pleased to offer the views of 
NAMI the National Alliance for the Mentally Ill on the Social 
Security Administrations Representative Payee Program. NAMI is 
the nations largest membership organization 210,000 members and 
1,200 affiliates representing individuals with severe mental 
illnesses and their families. In addition to serving on the 
NAMI Board of Directors, I am also the parent of an adult child 
with a severe mental illness.
    My son Tod developed schizophrenia in 1983 during his 
junior year at the Massachusetts Institute of Technology (MIT) 
in Cambridge, Massachusetts. The level of disability caused by 
his illness necessitated that he apply for disability 
assistance through Social Security. In 1986 Social Security 
determined that he was permanently and totally disabled. He 
began receiving Supplemental Security Income (SSI) payments. I 
became his Representative Payee several years later because the 
cognitive deficits caused by schizophrenia demonstrated that he 
needed assistance managing his money. I am also his Designated 
Representative for the purpose of helping him make medical and 
life decisions. I receive no financial remuneration for these 
time-consuming services. I gain satisfaction knowing that I am 
helping my son live with chronic illness and wisely manage his 
limited resources.
    At the outset, I would like to offer NAMIs thanks for 
convening this important hearing. Social Security disability 
cash benefits are perhaps the most important source of support 
for many adults with the most severe and disabling mental 
illnesses. These limited, fixed incomes provide what is needed 
to pay rent, purchase groceries and meet other basic needs. For 
those who depend on organizational and non-family-member 
representative payees, fraud, abuse, and mismanagement of these 
funds are critical concerns. NAMI strongly supports every 
effort of this Subcommittee to prevent fraud and abuse and to 
ensure that those who have victimized beneficiaries are fully 
prosecuted. Where fraud and abuse have occurred, NAMI urges 
that every effort be made to expeditiously restore lost 
benefits something that has not always occurred under Social 
Securitys current rules and regulations.
    As members of this Subcommittee know all too well, persons 
diagnosed with severe mental illnesses such as schizophrenia, 
bipolar disorder, and major depression represent a significant 
portion of the population of non-elderly adults with 
disabilities on the Disability Insurance (SSDI) and 
Supplemental Security Income (SSI) rolls (they make up one-
quarter of the SSDI rolls and one-third of the SSI rolls, 
according to recent SSA estimates).
    While not all SSDI and SSI beneficiaries with severe mental 
illnesses need a representative payee to manage their cash 
benefits, many do. In most cases, representative payees are 
appointed according to the recommendation of a Social Security 
field office that has determined that an individuals cognitive 
disability renders him or her unable to manage his or her own 
financial affairs.

Fraud and Abuse in Representative Payee Programs Should Not Be 
Tolerated

    As the Social Security Administration (SSA) has noted in 
testimony before the Subcommittee, 6.5 million elderly and 
disabled beneficiaries have representative payees. Over 750,000 
of these Social Security beneficiaries are served by 
organizational representative payees rather than family 
members. In NAMIs view, it is the performance of these 
organizational and non-family member payees that is the proper 
focus of these hearings. As several witnesses have noted, the 
most egregious cases of fraud and abuse that have occurred in 
recent years have involved either organizational or non-family 
individual payees including the Aurora Foundation case from 
West Virginia (over $300,000 embezzled from over 140 
beneficiaries) and the Ivy Foundation case from Phoenix, 
Arizona, and Denver, Colorado (over $274,000 in funds 
misappropriated from 330 beneficiaries). Likewise, Social 
Securitys Inspector General has uncovered a troubling lack of 
oversight in cases of non-family-member individual payees, 
including the case of Jean Bote, a representative payee and 
guardian for more than 20 beneficiaries, who was able to misuse 
over $200,000 in Social Security and veterans benefits for 
personal gain.
    While these extreme cases may be rare (only 650 cases of 
misuse are uncovered every year, according to SSA) and 
typically in small amounts (only $3 million out of $30 billion 
paid out to beneficiaries through payees), infrequency and a 
lack of large amounts of money are no consolation to an 
individual with a severe disability who has lost needed 
benefits.
    In NAMIs view, it is proper for Congress and SSA to focus 
their prevention and prosecution efforts on these 
organizational and non-family-member payees. Along these lines, 
I would like to quote a statement made by a previous witness at 
this hearing that NAMI wants to make sure does not go 
unchallenged. In testimony before this Subcommittee today, Ann 
Sparks of the York County, Pennsylvania, Mental Health 
Association asserted They [people with mental illness] are 
frequently taken advantage of by family and friends and She 
said that clients referred for organizational payees are often 
victims of family or friends who have been their representative 
payees and mismanaged their benefits.
    NAMI is troubled by this reckless statement, especially 
given that no other witness, including officials from either 
SSA or the Inspector Generals office, made a similar assertion. 
Such a sweeping assertion, in NAMIs view, is not only 
unsupported by independent evidence, but more importantly it 
unfairly maligns the nearly 5.8 million family members such as 
myself who currently serve as their loved ones payee. Nearly 
all of the legislative remedies put forward by SSA deal with 
organizational and non-family representative payees, a clear 
expression from SSAs perspective that this is where the real 
problem lies. More important, an examination of the role that 
family members play in the representative payee program reveals 
that they fulfill responsibilities far beyond money management 
at considerable savings to taxpayers.

Family Members as Representative Payees

    According to the Social Security Administration (SSA), in 
cases where a representative payee is needed, family members 
serve in this role 84 percent of the time. In NAMIs view, these 
family member representative payees do a tremendous job under 
sometimes difficult circumstances. Not only do they handle 
their disabled loved ones financial affairs, they also serve 
critically important functions such as coordinating social 
services, housing, medical and psychiatric treatment, and all 
other aspects of support in the community. It is important to 
note that family members that serve as representative payees 
must do so against the backdrop of the discrimination, stigma, 
and misunderstanding that are so closely associated with severe 
mental illness. Moreover, in contrast to many organizational 
payees who accept fees from SSA, parents and siblings assume 
these responsibilities at no cost to anyone.
    This burden can be especially difficult for the large 
number of aging parents caring for adult children with severe 
mental illness. As more and more of these parents of the so-
called baby-boom generation age into their seventies and 
eighties, the responsibilities of being a representative payees 
are certain to become more and more difficult for them to 
fulfill. While many of these families will assign siblings the 
responsibility of being the representative payee, the reality 
is that the demand for institutional representative payees is 
likely to grow. NAMI therefore believes that Congress and SSA 
need to make every effort to ensure that the integrity of this 
program is restored and promoted in every way possible.

Social Security Administrations Administrative Actions

    Before turning to the specifics of SSAs legislative 
proposal to combat and prevent fraud and abuse in the 
representative payee program, I would like to note some of the 
important administrative measures the agency has undertaken to 
promote the integrity of the program. Perhaps the most 
important of these administrative steps is SSAs triennial 
review of all organizational payees serving 100 or more 
beneficiaries and individual payees serving more than 20 
beneficiaries. While only a sample of these payees will 
actually have face-to-face reviews, this is a step in the right 
direction. These reviews could be improved even further by 
becoming more like financial audits, rather than remaining 
simply contact with vendors and corroboration of expenses.
    NAMI is also pleased that SSA intends to increase scrutiny 
of newly appointed fee-for-service payees. We believe that this 
process could be improved even further by making technical 
assistance available for newly appointed family-member payees 
to avoid misunderstanding program rules and responsibilities. 
NAMI respects that SSAs limited administrative budget prevents 
more extensive audits of all high-volume payees. However, we 
believe that more can be done to respond promptly to trigger 
events involving high-volume payees, such as stepped reviews 
once reports of misuse of funds are received from beneficiaries 
or credible third parties.

Social Security Administrations Legislative Proposal

    NAMI would like to offer strong support for many of the 
provisions contained in SSAs recommended legislative proposal 
to combat fraud and abuse in the representative payee program. 
Perhaps the most important of these recommendations concerns 
access to restitution of cash benefits that have been lost 
through fraud, abuse, or misappropriation. Under current law, 
when a payee has been determined to have misused benefits, SSA 
can reissue the benefits only in cases where SSA is found to 
have been negligent in investigating or monitoring the payee. 
In nearly all other cases, the individual beneficiary loses his 
or her benefits. It is very difficult for the beneficiary to 
claim this reissue on his or her own and can result in extreme 
hardship for beneficiaries.
    NAMI therefore strongly endorses a requirement for SSA to 
reissue benefit payments (including respective fees for fee-
for-service payees) in all cases when an organizational payee 
is found to have misused beneficiary funds, without either a 
finding of negligence on SSAs part or restitution from the 
payee. At the same time, NAMI wants to ensure that this long-
overdue reform does not result in SSA retreating from its 
existing duty of demanding restitution of misused funds from 
former payees to ensure that an appropriate deterrent to misuse 
is not eroded.
    Second, NAMI supports SSAs recommendation for all non-
governmental, fee-for-service, organizational representative 
payees to be both licensed and bonded. Current requirements 
allow either state licensing or bonding. Mandating that 
institutional payees meet both requirements will ensure 
necessary state oversight of business practices and 
investigation by surety companies that issue bonds. Proceeds 
from redeemed bonds would also reduce the costs to Social 
Security from misused benefits that are reissued.
    Third, NAMI supports efforts to ensure that organizational 
payees that have been found to have misused an individuals 
benefits cannot qualify for any fees from that individuals 
benefits for the months the payee misused the funds. It is 
troubling that any organizational payee has ever been able to 
actually profit by collecting fees from beneficiaries they were 
simultaneously defrauding. NAMI would like to see this long 
overdue reform expanded by requiring SSA to notify the 
beneficiary that their organizational payee has been found to 
have misused funds and has had fees withheld. Such a notice 
should also give the beneficiary the opportunity to immediately 
switch to a different payee.
    Fourth, while NAMI supports SSAs efforts to step up 
restitution of misused benefits and payee fees directly from 
payees including efforts to recover these funds through 
overpayment recovery we believe that misuse needs to be more 
clearly defined to protect individual payees who are also 
Social Security beneficiaries. In their legislation, SSA is 
proposing the use of existing overpayment recovery methods (tax 
refund offsets, referral to collection agencies, notice to 
credit bureaus, etc.) to recoup benefits misused by individual 
representative payees. In other words, misused funds (and any 
fees paid out to organizational payees) would be treated the 
same as an overpayment made to the payee.
    While NAMI strongly supports the goal of expanding 
restitution of benefits misused by payees, we want to ensure 
that these recovery methods are limited to genuine instances of 
fraud and conversion and not to subjective judgments about 
whether or not handling of benefits by an individual payee 
(particularly a family member) is in the best interests of the 
beneficiary. NAMI therefore urges that language be added to 
this Proposal specifically limiting SSAs authority to use these 
expanded overpayment collection methods against family 
representative payees to situations in which there has been 
actual theft or conversion of funds for personal use. Moreover, 
SSA should be prevented from using these overpayment collection 
methods against a family member payee until an allegation of 
theft or conversion has actually been proven, not simply 
alleged.
    Finally, NAMI strongly supports granting SSA authority to 
levy civil monetary penalties against organizational payees 
that misuse benefits. In their legislative proposal, SSA is 
seeking authority to impose administrative penalties against 
payees who make false statements to improperly obtain or retain 
benefits. This would help SSA go after those payees who commit 
fraud but are never prosecuted criminally, in many cases 
because the amounts they have stolen are small or prosecutors 
declined to move forward on criminal charges. The existence of 
civil monetary penalties will help create a new deterrent 
against fraud by organizational payees and non-family 
individual payees who handle large numbers of beneficiaries.

Conclusion

    Chairman Shaw, on behalf of NAMIs consumer and family 
membership, I would like to thank you for the opportunity to 
offer our views on this important issue. We look forward to 
working with all members of the Subcommittee to promote the 
integrity of the Social Security Representative Payee Program 
to ensure that the interests of all beneficiaries and their 
families are protected.
      

                                

Statement of Dawn Reese, Harrisburg, PA, Former Representative Payee

    Honorable Chairman and Members of the Ways and Means 
Committee, thank you for holding this fact finding hearing 
today on representative payees and potential misuse of social 
security funds.
    Mr. Chairman, today I feel compelled to urge you to review 
the current selection process of representative payees for 
Survivor Benefits.
    Automatically naming as representative payee a surviving 
ex-spouse caring for the deceased parent's child--as long as 
they have not committed a felony or are not currently under 
investigation for endangering the child--has merit. But I 
believe we can do more to protect the most vulnerable of our 
society, our children.
    I recently served as a representative payee for my eleven 
year old nephew, Brian. Brian's father died on February 17, 
2000, one month after being diagnosed with cancer. Brian's 
father, Alan, was the custodial parent of Brian and his 
brothers for the last five years. Upon Alan's death, custody 
automatically reverted to their mother. Unfortunately, their 
mother suffers from manic depression. She has made numerous 
attempts on her life, and was convicted of endangering the 
welfare of her children. She is remarried and currently 
receives Supplement Social Security because she is unable to 
work due to her disability. Her current husband recently served 
as her representative payee. They clearly exhibit the inability 
to manage their financial affairs and are unable to secure a 
checking account due to a history of writing bad checks.
    Together, Brian's mother and I decided I would be the best 
person to provide for Brian's needs and save for his future, 
and become his representative payee. Approximately one month, 
and two checks, after being named representative payee, Brian's 
mother decided she would like to have full access to Brian's 
money. She, along with her husband, went to the local Social 
Security Office and requested that she become Brian's 
representative payee. The Social Security Administration 
notified me and told me they are required to name her rep payee 
and that I must submit receipts for monies spent and return all 
remaining benefits to be reissued to her. There is no doubt in 
my mind that Brian's survivor benefits, over $1000 a month, 
will be used to support and buy for the entire, non-working 
family.
    What I would like you to consider today is whether or not 
someone with a history of endangering the welfare of their 
children should automatically be designated representative 
payee for their child. Should a non-custodial parent 
automatically be named representative payee upon the death of 
their ex-spouse, without regard to why that person was the non-
custodial parent? Should a person receiving Social Security 
benefits because of their inability to work because of their 
mental illness, be designated to administer benefits for 
another?
    We are here today because of the misuses of benefit 
payments by representative payees. I am here today to bring to 
your attention the need to make some changes in the way 
selection, approval, and designations of representative payees 
are determined for survivor benefits. If we only had a few 
additional safeguards built into the selection process, we 
could protect our children and their benefits, and ensure that 
the administrators of these funds, the representative payees, 
are responsible individuals capable of carrying out their 
duties.
    I suggest the committee develop procedures to make sure 
representative payees are, at a minimum, responsible people 
with no history of abuse or neglect; parents who did not fail 
to provide child support to the child or to their children from 
a former marriage; are not mentally disabled; are capable of 
administering the funds; and dedicated to serving the best 
interests of the child.
    At the time of death, if the deceased was the custodial 
parent of the children, a background check of the non-custodial 
parent could be made if they seek to be named representative 
payee. In my state, we have a statewide central register within 
the Department of Public Welfare which issues child abuse 
clearances. The non-custodial parent could be required to 
present a child abuse clearance in order to be named payee. An 
investigation could be made to find out whether or not the non-
custodial parent or their spouse is not fulfilling their 
support obligations to children of prior marriages. A few extra 
steps to prevent abuse of funds and provide protection to 
beneficiaries is well worth the efforts.
    There is one other issue that tugs at my heart. The current 
policy of refusing survivor benefits to a remarried parent 
taking care of a deceased spouse's child, advocates divorce and 
the break-up of the family. It is assumed that a married person 
has the benefit of a working spouse. That is not always the 
case. Many children in these households are living in poverty. 
Parents are not excused from their financial obligation to 
their child if their ex-spouse remarries. Social Security 
should do no less.
    Thank you allowing me to share my concerns with you today. 
You have a major task before you and when revising the laws and 
policies for organizational representative payees, I urge you 
to review the laws and policies for designating individual 
representative payees.

                                   - 
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