The DI program, created in 1954, provides monthly cash benefits to workers who have become severely disabled and to their dependents and survivors. These benefits are financed through payroll taxes paid by workers and their employers and by the self-employed. Proof of disability can involve complex technical issues, and section 206(a) of the Social Security Act permits claimants to appoint an attorney to represent them at proceedings before SSA, at any level of administrative review. The disability claims process is complex, multilayered, and lengthy. The following scenario portrays the process for DI claimants who are typically represented by an attorney before SSA—i.e., those cases where the claim is ultimately appealed to SSA’s Office of Hearing and Appeals (OHA). Initially, the claimant would have filed a claim for DI benefits with a local SSA field office. This office would have then forwarded the claim to a state agency to examine the claimant’s evidence for medical disability. The state agency would then have denied the claim in an initial review and denied it again after reconsidering the claim. Once SSA notified the claimant of denial of benefits, the claimant would have then appealed to OHA. At OHA, the claimant would have had a hearing before an administrative law judge who would have reversed the decision of the state agency, finding the claimant eligible for DI benefits. Generally, the claimant appoints an attorney for the OHA level appeal. The fees that attorneys representing DI applicants can charge are limited by law and must be approved by SSA. Since 1967, SSA has administered fee payments to attorneys representing DI claimants. To be compensated, attorneys must file with SSA either a fee agreement—a formal contract signed by the applicant and the attorney setting the fee as a percentage of the applicant’s past-due benefits—or a fee petition that lists the specific costs associated with the case. Of the two, the fee agreement is the much simpler arrangement; generally, it specifies fees limited to 25 percent of the claimant’s past-due benefits up to a maximum of $4,000. In contrast, the fee petitions require attorneys to itemize expenses and hourly charges, and SSA must determine a reasonable fee to compensate the attorneys. Assuming either a fee agreement or a fee petition is approved, SSA withholds the amount of the fee from the beneficiaries’ past-due benefits and pays the attorneys directly. Historically, attorneys representing claimants before SSA submitted fee petitions for their services. As the percentage of claimants represented by attorneys in DI hearings increased from 19 percent in fiscal year 1967 to 66 percent in fiscal year 1987, fee petitions became a significant administrative burden for SSA. To alleviate some burden, the Congress streamlined the fee approval process in 1990 to allow attorneys to use the much simpler fee agreement in cases where SSA finds the claimant eligible for past-due benefits. Since the introduction of fee agreements in 1991, their use has become nearly universal—in 2000, 88 percent of the attorney fees were based on fee agreements. However, even with the prevalence of the simpler fee agreement, SSA continued to have significant delays in paying attorney fees, and attorneys increasingly turned to court action to obtain their fees. In 1995, SSA proposed to stop processing attorney fees for DI claimants, and estimated that, if this were done, it would save $20 million in administrative costs. This cost estimate was the basis for a 6.3 percent assessment on attorneys for use of SSA’s processing services enacted in the 1999 Ticket to Work Act, a charge deducted directly from the attorney’s fee. Under this law, SSA is to determine (for calendar years after 2000) a percentage rate that allows “full recovery of the costs of determining and certifying fees to attorneys for the past-due benefits of the claim,” but is not to exceed 6.3 percent of the total fee. The proceeds from the collection of the user fee are returned to the Federal Old-Age and Survivor Insurance Trust Fund and the Federal Disability Insurance Trust Fund. SSA’s estimate indicated that its administrative costs for attorney fee services in 2000 were $54 million for the two major components of these services: $13.8 million for approval of fee arrangements by OHA and $40.2 million for payment of fees by SSA’s processing centers. Neither OHA nor the processing centers routinely collect information that specifically identifies the costs associated these services. To develop its estimate, SSA relied on various data it adapted from its regular operations, as well as surveying its regional offices to determine time spent on attorney fees in OHA. Our review indicated flaws in these data and suggested that the original estimate should be adjusted downward. However, without adequate data, we were unable to make exact corrections to the estimate. Instead, we made rough assumptions with the best available data and we limited our costs to those related to attorney fee processing but clearly unrelated to normal case processing. Using these assumptions—which may result in understating SSA’s actual costs—we approximated the lower bound of SSA’s administrative costs. From this analysis, we set the lower bound of costs for attorney fee services at $35.4 million in 2000. SSA’s cost estimate indicated that it cost $54 million to provide attorney fee services in 2000. This estimate includes the two major components of fee services: OHA fee approvals and fee payment in SSA payment processing centers. Within SSA, its field offices, OHA, and the processing centers all have important roles in managing a disability claim. However, for the most part, OHA and the processing centers have the central functions of fee processing. OHA must review and approve fee arrangements, while the processing centers pay the attorney fee once the amount of past-due benefits is determined. For OHA fee approval services, SSA estimated costs of $12 million for 1999—which we restated in terms of 2000 costs as $13.8 million. Within OHA only a small portion of staff time is spent reviewing fee arrangements. For fee agreements, SSA estimated that its staff spent about 1 1/2 hours handling each agreement during an OHA appeal that may take about 1 year to complete. However, the small amount of time spent reviewing each fee agreement becomes significant when all such review time is totaled. For example, OHA processed about 179,000 fee agreements in 1999—if each took 1 1/2 hours to process, the total time to process would be the equivalent of 129 work years and result in millions of dollars of costs. While OHA did not have an information system that routinely collected data about the time spent on each fee arrangement, it used operational data to determine the general types of work considered related to these costs—for example, approving fee agreements, reviewing administrative disputes, etc. For each category of work, OHA developed a series of tasks necessary to perform the work. Then, to obtain information on how long it took to complete each task, OHA surveyed its regional offices. Most of SSA’s administrative costs, however, were for paying the attorney fees—in 2000, SSA estimated that this service by its processing centers cost $40.2 million, or three-quarters of the total estimate of $54 million. For the most part, this cost relates to manually handling the attorney payments. Once a claimant’s past-due benefits are determined, a clerk manually processes the payment—filling out a form that shows what payment is authorized, calculating the user fee, and giving the form to the data entry clerks for further processing. As with the OHA fee approvals, even though the time on each task may be small, it becomes significant when all such time is summed up. To develop its estimates for payment processing, SSA relied on the cost allocation system it uses in its normal operations. SSA generally uses this system to account for the expenses of its various types of work so that the proper trust fund account can be charged; the system allocates SSA’s administrative costs to one of the various trust funds SSA administers. Although the system was not developed to analyze the costs related to fee payments, SSA has adapted it to collect data on attorney fee work. Even so, when SSA used the data from this system to make its estimate, it had to first remove costs unrelated to processing attorney fees for DI claims. Our review of SSA’s estimate indicated that it is likely too high. We identified six problems with the SSA estimate: The estimate for the costs of OHA fee approvals included the cost of handling cases from the Supplemental Security Income program (SSI), cases unrelated to DI claims; The OHA estimate also included excessive staff time for processing the In calculating the estimate of the costs for payment processing, SSA used an erroneous cost allocation category that overstated the costs of the services; The estimate for the payment processing did not adjust for one-time use of premium overtime pay used to reduce processing backlogs in February and March 2000; The estimate for the payment processing included costs not clearly associated with fee payment; and The estimate for the payment processing used an average of both higher- and lower-salary costs to calculate staff costs; this did not accurately reflect that staff who routinely work on most payment processing are in the lower salary group. However, we were unable to make precise corrections for these adjustments because of insufficient SSA data and unclear definitions of what should be counted as a relevant cost. For example, there was no data available to calculate exactly how much overtime had been used to process the payment backlogs. As another example, while SSA officials agreed that the majority of staff that routinely work on payment processing tasks had lower salaries than the average calculated, they were unable to provide us with more specific data on staff costs. Furthermore, it was not always clear as to what costs should be included in the estimate— for instance, we eliminated certain costs related to handling attorney inquiries because we believe that they included instances of normal case processing unrelated to the steps needed to process attorney payments.