Railroad Retirement Board: Actions Needed to Reduce Continued Risk of Fraud and Improper Payments
Published: 2015-05-01T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over time, GAO, the RRB Inspector General, and the U.S. Department of Justice have reviewed or investigated RRB's disability benefit programs and found them to be vulnerable to fraud and abuse which places the agency at risk of making improper payments. In 2008, the Department of Justice investigated and prosecuted railroad workers who were suspected of falsely claiming RRB benefits. As of September 30, 2014, these investigations and prosecutions have resulted in approximately $614 million in restitution, forfeiture, and fines, raising concerns about RRB's administration of its disability claims process.
Implementing strong preventive controls can serve as a frontline defense against improper payments. Examples of preventive controls include 1) ensuring that key duties and responsibilities are divided or segregated among different people to reduce the risk of error, waste or fraud and 2) using timely earnings information to ensure claimants are eligible to receive program benefits. GAO did not make recommendations regarding the occupational disability program, and in 2014, made five recommendations regarding the total and permanent disability program.
This testimony provides information on (1) the critical program vulnerabilities of RRB's occupational disability program, and (2) the potential for fraud and threat of improper payments in RRB's total and permanent disability program.
GAO is not making any new recommendations in this testimony.
section_title: What GAO Found
paragraphs: The Railroad Retirement Board (RRB) administers two disability programs—the occupational disability program and the total and permanent disability program. The occupational disability program provides benefits to railroad workers in situations where workers are unable to perform their railroad work, but may be able to return to the workforce in another occupation. The total and permanent disability program provides benefits to workers who have a medically determinable physical or mental impairment severe enough that they are generally unable to engage in any regular employment. As a steward of taxpayer dollars, the RRB is responsible for how it disperses billions of taxpayer dollars each year.
In recent years, the RRB has been the subject of Government Accountability Office (GAO) audits that have highlighted shortcomings in RRB's administration of its disability programs. RRB Inspector General audits and a U.S. Department of Justice investigation have found similar challenges. GAO found that RRB's continued reliance on a paper-based process and the agency's lack of a robust analytical framework to target potential fraud and abuse in the occupational disability program left the agency susceptible to making improper payments to individuals who did not qualify for benefits. For example, individual occupational disability claims were kept in paper-based files making it difficult for claims examiners to identify unusual patterns or instances where medical information may originate from a small number of doctors or hospitals. Similarly, RRB did not maintain information on doctors in a format that would allow the agency to detect and analyze potential instances of fraud. RRB had begun separately collecting data to detect unusual patterns in relation to a high-profile fraud incident involving employees of the Long Island Railroad, but had not expanded these analyses to other railroads or to other programs outside the occupational disability program.
GAO also found last year that RRB's total and permanent disability program was vulnerable to fraud and improper payments. A shortage of timely data, gaps in internal controls, a lack of a comprehensive system of quality assurance and performance monitoring, and insufficient focus on potential fraud all contributed to a need for fundamental program reform. For example, GAO found that RRB was using information to verify a claimant's self-reported work and earnings history that was up to 1 year old when newer data were available. Further, RRB's claims review process did not follow accepted internal controls by sufficiently separating claim reviews from approvals and, as a result, from one-quarter to one-third of total and permanent disability cases were approved without independent review by a second party. In addition, RRB's performance monitoring standards were focused primarily on payment timeliness and accuracy and less on whether claimants were properly qualified to receive benefits. Lastly, RRB's process lacked a fundamental awareness and sensitivity to instances of potential fraud. In a recent report examining the total and permanent disability program, GAO made several recommendations to improve the oversight of this program including ways to improve information, increase internal controls and foster fraud awareness. RRB officials agreed with all of GAO's recommendations and the agency has begun taking steps to implement them.

section_title: Letter
paragraphs: Thank you for the opportunity to be here today to discuss the challenges  facing the Railroad Retirement Board’s (RRB) disability programs, and  the potential for these programs to be at risk of fraud and improper  payments. As a steward of taxpayer dollars, the RRB is accountable for  how it spends billions of taxpayer dollars annually. Over time, our audits  of the RRB have identified internal control weaknesses and oversight  gaps in its benefit programs. Related audits by RRB’s inspector general  and an investigation by the Department of Justice have identified similar  challenges. As you and the members of the subcommittee know, Justice  has investigated and prosecuted railroad workers suspected of falsely  claiming RRB benefits which, if paid in full, could total more than $1 billion  in disability benefits. Between the late 1990s and 2008, as many as 1,500  former Long Island Rail Road workers were suspected of falsely claiming  RRB benefits, with the help of several physicians, a former union official,  and a former RRB field office manager. As of September 30, 2014, these  investigations and prosecutions have resulted in approximately $614  million in restitution, forfeiture, and fines. An additional 44 individuals also  voluntarily disclosed their involvement in the fraud scheme and agreed to  the termination of their RRB disability benefits. These cases have raised  concerns about RRB’s program oversight, and highlighted higher-level  deficiencies in RRB’s disability claims process.
My testimony today will focus on the continued existence of critical  program vulnerabilities that threaten RRB’s disability programs. As we  have previously reported, implementing strong preventive controls can  serve as the frontline defense against fraud and improper payments in  general and we have made several recommendations to that end. The  RRB Inspector General has also made numerous recommendations  specifically directed at improving RRB’s disability programs. Implementing  these recommendations requires a proactive approach to preventing  improper payments, increasing public confidence in the administration of  RRB’s benefit programs, and avoiding the challenges associated with  recovering overpayments.
This statement is primarily based on our body of work issued from  September 2009 through June 2014. More detailed information on our  objectives, scope, and methodology for this work can be found in the  issued reports. We conducted the work on which this statement is based  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Under the Railroad Retirement Act of 1974, the Railroad Retirement  Board operates two distinct disability programs—the occupational  disability program and the total and permanent disability program. The  occupational disability program provides benefits for railroad workers  when they are unable to perform the duties required of them by their  railroad employment. The program—which uses labor- and management- negotiated disability criteria that apply only to a worker’s’ ability to perform  his or her specific railroad occupation—provides benefits for workers who  have physical or mental impairments that prevent them from performing  their specific job, regardless of whether they can perform other work. For  example, a railroad engineer who cannot frequently climb, bend, and  reach, as required by the job, may be found occupationally disabled.  Workers determined to be eligible for benefits under the occupational  disability program may ultimately be able return to the workforce, but  generally may not return to their original occupation. According to RRB, at  the end of fiscal year 2013, the agency was paying about 60,500  occupational disability annuities, down from about 61,700 in fiscal year  2012. In fiscal year 2014, the agency approved about 97 percent of the  1,250 applications for occupational disability benefits it received.
The eligibility criteria for the total and permanent disability program differ  from the occupational disability program. Under the total and permanent  disability program, RRB makes independent determinations of railroad  workers’ claimed disability using the same general criteria that the Social  Security Administration (SSA) uses to administer its Disability Insurance  (DI) program. For example, a worker must have a medically determinable  physical or mental impairment that: (1) has lasted (or is expected to last)  at least 1 year or is expected to result in death, and (2) prevents them  from engaging in substantial gainful activity, defined as work activity that  involves significant physical or mental activities performed for pay or  profit. In other words, these workers are essentially deemed unable to  perform any gainful work and are generally unable to engage in any  regular employment. SSA staff review about one-third of the cases that  RRB has determined to be eligible for total and permanent disability  benefits for which Social Security benefits may potentially be paid.  According to RRB, at the end of fiscal year 2013, the agency was paying  about 20,700 total disability annuities. In fiscal year 2014, RRB approved  about 78 percent of the nearly 800 applications for total and permanent  disability benefits it received.
While the railroad retirement system has remained separate from the  Social Security system, the two systems are closely linked with regard to  earnings, benefit payments, and taxes. A financial interchange links the  financing of the two systems, providing a transfer of funds between RRB  and SSA accounts based on the amount of Social Security benefits that  workers would have received if they were covered by Social Security, as  well as the payroll taxes that would have been collected if the railroad  workers were covered by Social Security instead of their own system.  When such benefits would exceed payroll taxes, the difference—including  interest and administrative expenses—is transferred from Social Security  to RRB. When such payroll taxes would exceed benefits, the transfer  goes in the other direction. Since 1959, such transfers have favored RRB,  and for all RRB benefits paid in fiscal year 2012, RRB received about 38  percent of the financing for benefits paid through the financial  interchange.
section_title: Past Fraud Highlights Gaps in RRB Oversight of the Occupational Disability Program
paragraphs: In 2009 and 2010, we reviewed the claims process for RRB’s  occupational disability program and found no overall evidence of unusual  claims at similar commuter railroads like those exhibited at the Long  Island Railroad; however, we did identify several potential program  vulnerabilities including a reliance on a manual, paper-based claims  process and the lack of a systematic way to evaluate potentially  fraudulent claims.
Our work found that RRB had not analyzed occupational disability data or  performed other analyses that could have enabled the agency to identify  unusual patterns in disability applications. Claims for disability through  RRB are generally filed on paper and processed in paper form, which  prevents the agency from detecting potential patterns of fraud or abuse  that would be possible with a computer-based system. When a railroad  worker files a claim and submits information—such as details about his or  her disability and work history—RRB staff create a paper claims file.  These files are reviewed by claims examiners who apply eligibility criteria  to determine if a benefit should be awarded. Claims are assigned to  examiners randomly, and due to the manual nature of the claims process,  it is difficult for individual examiners and the agency to detect potential  patterns of fraud or abuse such as a high concentration of claims from  one source, or boilerplate medical exam information from a small number  of doctors or hospitals. Such analyses are central to ensuring the  integrity of the program and—more importantly—ensuring that only  eligible railroad workers receive benefits. Indeed, as was the case in the  Long Island Railroad incident, the use of paper files likely played a key  role in allowing these patterns to go undetected.
In 2009, we analyzed data from multiple RRB data systems to determine  the number of occupational disability benefit awards made, relative to  employment, for the Long Island Railroad compared with the other  commuter railroads and determined application and approval rates for  occupational disability benefits for workers at these railroads to determine  if other railroads exhibited high numbers of claims like those found at the  Long Island Railroad. It is important to note that the data we used for our  analyses were readily available to RRB, and the agency could have used  these data to identify such patterns as part of its routine monitoring and  oversight of the occupational disability program. While we found no  overall evidence of unusual claims like those exhibited at the Long Island  Railroad, neither we nor RRB could perform analyses to detect unusual  patterns in commuter rail worker’s applications, approval rates, and  impairments by railroad occupation because the information is paper- based. Further, RRB does not maintain electronic data for all railroads on  claimants’ doctors in a format that would facilitate analysis and allow the  agency to analyze and detect potentially fraudulent claims. Currently,  RRB only has information on claimants’ doctors in their paper claim files.  RRB has taken some steps to increase the use of data to detect and  analyze claim patterns, but much more work needs to be done. Since the  Long Island Railroad incident, RRB created a new staff position  responsible for collecting, developing, and analyzing relevant data to help  manage and oversee the occupational disability program. However, this  office’s limited reviews have thus far focused on RRB’s occupational  disability program and RRB officials told us during our 2014 review that  there were no current plans to include and evaluate data from the total  and permanent disability program in its analyses.
section_title: Total and Permanent Disability Program Is Also Vulnerable To Fraud and Improper Payments
paragraphs: Our recent work examining the processes and controls associated with  the total and permanent disability program indicated that it too was  vulnerable to fraud and improper payments. For example, we found  fundamental shortcomings in this program’s policies and procedures with  respect to the disability determination process, internal controls,  performance and accountability, and fraud awareness.
Outdated earnings information: Our 2014 review found that RRB  awarded total and permanent disability claims based on out-dated  work and earnings information. In order to qualify for total and  permanent disability benefits, a worker must meet certain work and  earnings eligibility criteria. For example, a worker generally cannot  earn income in excess of $850 per month from employment or net  self-employment. RRB requires that claimants report any income and  employment information at the time a disability claim is submitted, and  RRB attempts to confirm this information by comparing it to data  within the SSA Master Earnings File. However, this earnings  database may not provide up-to-date information on work and  earnings because the most recent data contained within the database  are for the last complete calendar year before the claim was filed. As  a result, the data that RRB uses to determine eligibility may lag  behind actual earnings by up to 12 months. Without reviewing the  most up-to-date information available, RRB is unable to ensure that  only eligible workers receive benefits. There are other sources of data  that could potentially provide RRB more current information on work  and earnings, and as a result of our review, we recommended that  RRB explore options to obtain more timely earnings data to ensure  that claimants are working within allowable program limits prior to  being awarded benefits. Information sources such as the National  Directory of New Hires (NDNH) and The Work Number could  potentially provide RRB with more timely earnings information on  claimants’ work histories. The NDNH was established in part to help  states enforce child support orders against noncustodial parents.  However, access to the NDNH is limited by statute, and RRB does not  have specific legal authority to access it. The Work Number is a  privately-maintained data source designed to help users identify  unreported income. The Work Number allows organizations such as  social service organizations to locate an individual’s current place of  employment or uncover unreported income, based on the most recent  payroll data from over 2,500 employers nationwide. Inquiries can be  made about specific individuals or through automated data matches.  The Work Number is used by several other federal agencies on a fee  basis and is already available to RRB. In 2014, we recommended that  RRB explore options to obtain more timely earnings data to ensure  that claimants are working within allowable program limits prior to  being awarded benefits. RRB officials agreed with our  recommendation and have told us that they will work with the Office of  Management and Budget to further define and determine RRB’s  needs in this area.
Insufficient supervisory review process: Our examination of RRB’s  total and permanent disability claims review process uncovered gaps  in internal controls such as allowing a single claims examiner to  review claims and award disability benefits—in many cases without an  independent review by a second party. GAO’s Standards for Internal  Control in the Federal Government states that agencies should  ensure that key duties and responsibilities are divided or segregated  among different people to reduce the risk of error, waste, or fraud.  However, we found an inconsistent review process at RRB.  Specifically, at the time of our review, RRB’s policies and procedures  allowed for discretion at the field office level regarding how complete a  case file must be before forwarding it to headquarters for a  determination, and these files were subject to different levels of  review. For example, at the headquarters examination and  determination level, RRB policy allowed for some claims to be  approved without any subsequent independent review and generally  allowed examiners to use their judgment to decide which cases did  not require additional scrutiny. In other words, at their discretion, a  single RRB claims examiner could “self-authorize” the claim. In recent  years, about one-quarter to one-third of all total and permanent initial  claims were approved by the same claims examiner who reviewed the  application. Without a second review, such claims can be problematic,  such as when there is an error in judgment on the part of the claims  examiner, or a failure to obtain key medical and vocational evidence.  As a result of our review, we recommended that RRB revise its policy  to require supervisory review and approval of all total and permanent  disability cases. In response, RRB has subsequently changed its  policy and officials stated that nearly all claim files are now reviewed  by a second party.
Program quality and integrity: Our 2014 review also found an  insufficient commitment to quality and program integrity. We found  that RRB’s primary focus on quality was to ensure that claims were  paid quickly and that the approved benefit amount was paid.  However, RRB did not have sufficient controls to ensure that the  claimant was actually eligible for benefits or that the benefit was  awarded correctly—prior to the benefit being paid. In certain  circumstances, RRB was able to identify improper payments after the  benefit had already been paid, but this put RRB into a “pay and  chase” mode where it must try and recover benefits paid to ineligible  claimants. We agree with RRB that claims should be paid as quickly  as possible; however it is equally important to ensure that the benefits  are properly awarded.
To ensure the integrity of the program, it is also critical that RRB  report the results of its quality assurance efforts to Congress and  other interested parties. RRB’s performance monitoring standards  have been focused primarily on payment timeliness and accuracy and  less on whether claimants were properly qualified to receive benefits.  Information on approval rates and the accuracy of disability  determinations is critical towards ensuring the accountability of the  agency’s work. As a result, we recommended that RRB strengthen  oversight of its disability determination process by establishing a  regular quality assurance review of initial disability determinations to  assess the quality of medical evidence, determination accuracy, and  process areas in need of improvement and develop performance  goals to track the accuracy of disability determinations. RRB agreed  with these recommendations and plans to develop new measures of  quality and program integrity and will include the development of  performance goals as a part of its new quality assurance plan;  however, we have yet to receive or review this plan.
Fraud detection and awareness: Lastly, our review found inadequate  internal controls to identify and eliminate fraud at every stage of the  process and an insufficient commitment to fraud awareness  throughout the agency. RRB had not engaged in a comprehensive  effort to continuously identify and prevent potential fraud program- wide even after the high-profile Long Island Railroad incident exposed  fraud as a key program risk. Since that incident, RRB increased its  scrutiny of claims from Long Island Railroad workers—for example, by  ordering more consultative medical exams. However, as noted earlier,  its other actions to detect and prevent fraud have been limited and  narrowly focused. For example, in 2011, RRB conducted an analysis  of 89 cases of proven fraud in its occupational disability and total  and permanent disability programs to identify common characteristics  that could aid in indentifying at-risk cases earlier in the process.  However, RRB did not draw any conclusions about new ways to  identify potential fraud and, as a result, did not make any system-wide  changes to the determination process.
Our interviews with RRB staff also showed an inconsistent level of  awareness about fraud, and claims representatives in all four of the  district offices that we contacted said they had not received any  training directly related to fraud awareness. While RRB had initiated  fraud awareness training, agency participation was incomplete and  updates and refreshers were sporadic. Due to this limited focus on  fraud detection and awareness, we recommended that RRB 1)  develop procedures to identify and address cases of potential fraud  before claims are approved, 2) require annual training on these  procedures for all agency personnel, and 3) regularly communicate  management’s commitment to these procedures and to the principle  that fraud awareness, identification, and prevention is the  responsibility of all RRB staff. RRB agreed with this recommendation  and has begun taking steps to increase fraud awareness, amend its  policies and procedures with new fraud detection and reporting  mechanisms, and provide fraud awareness training to its staff. RRB  officials also stated that the agency has hired a contractor to review  the agency’s fraud awareness and detection systems to identify  specific areas in need of improvement.
In summary, our recent work has found that RRB’s disability programs  lack sufficient policies and procedures to address the vulnerabilities it  faces and, as a result, remains vulnerable to fraud and runs the risk of  making improper payments. The weaknesses we have identified in RRB’s  determination process require sustained management attention and a  more proactive stance by the agency. Without a commitment to  fundamental aspects of internal control and program integrity, RRB  remains vulnerable to fraud and runs the risk of making payments to  ineligible individuals, thereby undermining the public’s confidence in these  important disability programs. While the Board agreed with all of our  recommendations and the agency has taken steps to address them, more  work remains to be done. We look forward to working with members of  the subcommittee, RRB officials, and Inspector General staff as RRB  continues to implement our recommendations.
Chairman Meadows, Ranking Member Connolly, and members of the  subcommittee, this completes my prepared statement. I would be pleased  to respond to any questions that you may have at this time.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: If you or your staff have any questions about this testimony, please  contact Daniel Bertoni, Director, Education, Workforce, and Income  Security issues at (202) 512-7215 or bertonid@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this statement. GAO staff members who made  key contributions to this testimony are David Lehrer (Assistant Director),  Jessica Botsford, Alex Galuten, Jamila Kennedy, Jean McSween, Arthur  Merriam, and Kate van Gelder.
section_title: Related GAO Products
paragraphs: GAO, Standards for Internal Control in the Federal Government,  GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1, 1999).
Railroad Retirement Board: Total and Permanent Disability Program at  Risk of Improper Payments, GAO-14-418. Washington, D.C.: June 26,  2014.
Use of the Railroad Retirement Board Occupational Disability Program  across the Rail Industry, GAO-10-351R. Washington, D.C.: February 4,  2010.
Railroad Retirement Board: Review of Commuter Railroad Occupational  Disability Claims Reveals Potential Program Vulnerabilities,  GAO-09-821R. Washington, D.C.: September 9, 2009.
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