    [Senate Hearing 108-240]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 108-240

                   ENSURING THE INTEGRITY OF SOCIAL SECURITY
          PROGRAMS: PROTECTING SENIORS FROM REPRESENTATIVE PAYEE FRAUD

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

                                    HEARING

                                   before the

                           SPECIAL COMMITTEE ON AGING
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 WASHINGTON, DC

                                   __________

                               SEPTEMBER 9, 2003

                                   __________

                               Serial No. 108-21

             Printed for the use of the Special Committee on Aging

                          U.S. GOVERNMENT PRINTING OFFICE

    91-117                        WASHINGTON : 2003
    _______________________________________________________________________
    For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800, DC area (202) 512-1800 Fax: (202) 512-2250 Mail: stop SSOP, Washington, DC 20402-0001

                           SPECIAL COMMITTEE ON AGING

                          LARRY CRAIG, Idaho, Chairman
    RICHARD SHELBY, Alabama              JOHN B. BREAUX, Louisiana, Ranking
    SUSAN COLLINS, Maine                     Member
    MIKE ENZI, Wyoming                   HARRY REID, Nevada
    GORDON SMITH, Oregon                 HERB KOHL, Wisconsin
    JAMES M. TALENT, Missouri            JAMES M. JEFFORDS, Vermont
    PETER G. FITZGERALD, Illinois        RUSSELL D. FEINGOLD, Wisconsin
    ORRIN G. HATCH, Utah                 RON WYDEN, Oregon
    ELIZABETH DOLE, North Carolina       BLANCHE L. LINCOLN, Arkansas
    TED STEVENS, Alaska                  EVAN BAYH, Indiana
    RICK SANTORUM, Pennsylvania          THOMAS R. CARPER, Delaware
                                         DEBBIE STABENOW, Michigan
                          Lupe Wissel, Staff Director
                 Michelle Easton, Ranking Member Staff Director

                                      (ii)

                                C O N T E N T S

                                  ----------
                                                                       Page
    Opening Statement of Senator Larry E. Craig......................     1

                                    Panel I

    James G. Huse, Jr., Inspector General, Social Security
      Administration, Office of the Inspector General, Baltimore, MD.     2
    Frederick G. Streckwald, Assistant Deputy Commissioner, Social
      Security Administration, Washington, DC........................    13
    Shirley J. Shears, Legal Aid of West Virginia, Martinsburg, VA...    34
    Jason Wills, Finance Director, Community Action Partnership,
      Lewiston, ID...................................................    40

                                    APPENDIX

    Prepared Statement of Senator John Breaux........................    53

                                     (iii)

    ENSURING THE INTEGRITY OF SOCIAL SECURITY PROGRAMS: PROTECTING SENIORS
                        FROM REPRESENTATIVE PAYEE FRAUD

                                  ----------                              --

                           TUESDAY, SEPTEMBER 9, 2003

                                           U.S. Senate,
                                    Special Committee on Aging,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 10 a.m., in room
    SD-628, Dirksen Senate Office Building, Hon. Larry Craig
    (chairman of the committee) presiding.
        Present: Senators Craig and Carper.

           OPENING STATEMENT OF SENATOR LARRY CRAIG, CHAIRMAN

        The Chairman. Good morning, everyone. The Senate Special
    Committee on Aging will be in order.
        We are here this morning to discuss an aspect of Social
    Security that is very important to our nation's seniors.
    Through the representative payee program the Social Security
    Administration appoints representatives for persons that have
    difficulty managing their own benefits. As you all know, Social
    Security benefits are often the only source of income for
    millions of older Americans. The integrity and the
    accountability of the representative payee program is critical
    to ensure the well-being of our most vulnerable citizens.
        In May of 2000 this committee held an investigative hearing
    that revealed numerous incidents of misuse of Social Security
    funds by representative payees. It is time to take another look
    at this program to determine what work remains to be done to
    protect the Social Security benefits paid to the vulnerable
    elderly.
        There are currently 5.4 million representative payees who
    manage benefits for 7.6 million beneficiaries. Each
    representative payee has a legal responsibility to use Social
    Security payments for the use and benefit of the beneficiary.
    Although the vast majority of individual and organizational
    payees are honest and trustworthy, our investigation has
    confirmed that abuses still occur. The Social Security
    Administration's inspector general has reported that in a 6-
    year period over 3,200 representative payees misused
    approximately $26 million in benefits entrusted to their
    management. The full extent of these abuses remains unknown.
        In a recent case authorities successfully prosecuted a
    woman on murder charges. The lady murdered her spouse, for whom
    she was also the representative payee. She was further
    convicted of misusing Social Security benefits intended for her
    husband.
        While we commend the efforts the Inspector General of
    Social Security has made thus far in combatting fraud, the
    problems that I have cited raise the question that I hope to
    have answered today. To what extent are older persons under the
    representative payee program still being harmed under the
    current system and most importantly, what is currently being
    done to intensify the protection within the representative
    payee program? Clearly one of the responsibilities of this
    committee is oversight and the constant monitoring of programs
    that make a major impact on the lives of the elderly in this
    country.
        Members of the committee may be here this morning. The
    ranking member, Senator Breaux, although very interested in
    this program, is before Finance this morning looking at ID
    fraud and ID theft. Also, the Commerce Committee is meeting
    this morning, so we have cross-conflicts but our job is to
    build a record for the rest of my colleagues to look at as we
    work with those agencies that administer program and policy for
    our seniors.
        So with that, let us move right to panel one, Social
    Security Administration Office of Inspector General, James G.
    Huse, Jr., Inspector General. We are very pleased to have you
    with us this morning. I know you have been doing a lot of work
    in this area and we are anxious to hear your testimony. Please
    proceed.

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

        Mr. Huse. Thank you, Mr. Chairman. I appreciate this
    Committee's concern with respect to the Social Security
    Administration's representative payee program. After more than
    8 years of Office of Inspector General investigations and
    audits into the representative payee process, I can tell you in
    all honesty that no one is more concerned than I am.
        It is SSA's job, my job and Congress's job to ensure that
    representative payee abuse occurs as infrequently as possible,
    and that when it does, the guilty party is stopped and brought
    to justice and the beneficiary made whole as expeditiously as
    possible. To that end, we have sought legislation to enhance
    SSA's ability to prevent representative payee misuse.
        Before I describe the measures I feel would be most
    beneficial, let me provide an example of why this legislation
    is so sorely needed. Sadly, this case I am about to discuss,
    while grander in scale than most, is representative of what we
    see in the course of our investigative and audit work.
        In Washington State an organizational rep payee service--
    actually named ``Payee-R-Us'' handled the benefits of as many
    as 200 vulnerable beneficiaries, receiving a fee of $25 per
    client. Our investigation revealed that the Executive Director
    of ``Payee-R-Us'' embezzled over $107,000 in benefits,
    converting the money to her own use. She was sentenced to jail
    time and ordered to pay restitution to 88 victims.
        During the last 6 years, we opened well over 3,000
    investigations of representative payees. In the course of those
    investigations, we have identified nearly $26 million in
    misused funds and have obtained more than 600 convictions.
        H.R. 743, which has been adopted by the House, contains
    many of the legislative provisions that we have requested to
    bolster the representative payee program. Last October, we
    issued an audit report that identified 121 people whose own SSA
    benefits had been terminated because they were fugitive felons
    but who were still permitted to serve as representative payees
    for other beneficiaries. This was not an oversight. SSA policy
    permits fugitive felons to act as representative payees. In
    March of this year, we estimate that SSA would place
    approximately $19 million in the hands of fugitive felons
    acting as representative payees. H.R. 743 would stop this
    practice and also provide other safeguards in the
    representative payee selection process.
        It is incumbent upon SSA to adequately monitor the chosen
    representative payees to ensure that the funds are being used
    to aid the beneficiary, not the representative payee. We have
    found in performing audits of representative payees that SSA is
    frequently unable to provide the annual accounting forms
    representative payees are required to submit. H.R. 743 would
    allow SSA to promptly address a representative payee's failure
    to submit the annual accounting forms by requiring the
    representative payee to report to a SSA field office and submit
    the accounting documents in order to receive the beneficiary's
    check.
        Our ability to deter and punish abusive representative
    payees hinges on referrals from SSA, documentation from SSA,
    and adequate legislation. A June 2002 review showed that SSA
    failed to refer 78 percent of representative payee abuse cases
    to our office for review. This represented over $5.9 million in
    misused benefits.
        While our civil monetary penalty program has proven
    enormously successful in deterring and punishing program
    fraud--the time has come to provide a similar tool for the
    representative payee process. H.R. 743 provides that authority.
        I appreciate this Committee's attention to this issue,
    which has long been a target of our audit and investigative
    efforts. I look forward to working with you to bring
    improvement to this important aspect of the Social Security
    Administration's work and I would be happy to answer any of
    your questions, Mr. Chairman.
        [The prepared statement of Mr. Huse follows:]
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        [GRAPHIC] [TIFF OMITTED] 91117.006

         The Chairman. Jim, thank you very much for that testimony.
    First and foremost let me commend you and your office for the
    work you have done to date and the initiative in looking for
    ways to improve the process and the development of H.R. 743. I
    think all of us recognize the potential vulnerability here of
    the individuals being served and there ought to be safeguards,
    there ought to be effective reporting forms and systems. It
    does not take huge staffs anymore to do that. It takes a
    computer process and a thoroughness of carrying through and
    investigating those who fail to respond.
        You mentioned in your testimony that fugitive felons by the
    thousands are administering funds on behalf of the elderly
    program and that H.R. 743 would take care of that. How has that
    ever been allowed to happen in the beginning? Was it an
    oversight or just the acceptance of the fact that that was
    going to be done and no one was going to question it?
        Mr. Huse. I believe SSA's policy is focussed on finding a
    representative payee for a particular beneficiary. SSA's
    present regulations permit, for example, a fugitive felon to be
    a representative payee. However, the fugitive felon law that we
    enforce was not enacted until 1996, so SSA's policy precedes
    that. In some instances these felons could be parents or
    relatives that maybe in the best position to be the
    representative payee and I think in that instance----
        The Chairman. Physically they might be in the best
    position.
        Mr. Huse. Correct.
        The Chairman. They also might have a track record that
    would suggest they are not the right person.
        Mr. Huse. That is very true but to answer the question, I
    think the intention was service and not anything else.
        The Chairman. You mentioned that the legislation would
    prohibit that practice.
        Mr. Huse. The new legislation, if it is passed and made
    law, will prohibit that practice.
        The Chairman. So I am assuming that Social Security still
    believes that service can be provided to an individual and
    still prohibit or disallow a fugitive felon from providing that
    service.
        Mr. Huse. I believe that as a result of our audits, the
    Social Security Administration takes a very careful view of who
    is selected as a representative payee now I believe our audit
    work has had that impact. However, the ability to permit a
    fugitive felon to be a representative payee that permission is
    still there and those decisions from the past are still
    somewhat in effect. I would say that SSA understands the issue
    now.
        The Chairman. So we can suggest that the bureaucracy grinds
    forward slowly.
        Mr. Huse. I think that is a fair statement.
        The Chairman. You mentioned over 3,000 cases that the
    Inspector General has pursued that have resulted in hundreds of
    convictions for fraud. Is it fair to say when we look at the
    scope of the numbers of payees and those being served that that
    is the tip of the iceberg? Is that a fair assessment?
        Mr. Huse. The 3,000 plus cases that I mentioned are cases
    that were actually referred to us for an investigation by the
    Social Security Administration and those----
        The Chairman. How did they rise to the level of referral?
    Is there an auditing process that is thorough and on-going that
    triggered an investigation that brought them forward?
        Mr. Huse. There could be a variety of instances. The
    auditing process of representative payee reports may indicate
    that an investigation might be appropriate or more often than
    not, it might be complaints from the beneficiaries themselves
    about particular rep payees that prompt the action. So there
    are a variety of ways.
        What your question was, though, is it the tip of the
    iceberg? I am not sure, but we know that the 3,000 number is
    not the universe. We do know that many cases do not get
    referred to us for whatever reason there is in the business
    process and we also know that not all of the representative
    payee reports that are required to be submitted annually by rep
    payees are even available.
        The Chairman. Well, let us go into that because that was
    going to be my follow-up question. If there is a requirement to
    submit an annual report and that annual report is not
    submitted, is there a way to follow up? Does that failure to
    submit trigger an activity that would cause a follow-up? My
    reaction is that if somebody is failing to report on their own
    activity which is financial in nature, I would first go there.
    Why aren't they reporting and are they trying by failure to
    report to cover something up?
        Mr. Huse. This is a good question, Mr. Chairman. Our audit
    work indicates that your premise is correct, that many of these
    reports are not submitted and we also know they are not
    followed up on. These become workloads that are deferred for
    many reasons for example, resources and available time--and the
    net effect is that we do not know what we do not know, and that
    is not a good thing.
        I also should add that we do receive many of our
    allegations that result in investigations from our fraud
    hotline.
        The Chairman. In the annual report what type of information
    is required to be included that substantiates or documents the
    activities?
        Mr. Huse. It is a fairly simple report. It does not require
    much more than a statement and an accounting that the funds
    that were paid to a particular beneficiary were actually used
    for the benefit of that beneficiary and how they were used. It
    does not require any great substantiation or back-up accounting
    material, simply the submission of the report itself. So it is
    hard to understand why we do not receive these.
        The Chairman. If the payee's name is in the system and a
    report comes in from that payee and it is filed, I assume
    attached to that person's name, and a computer button is pushed
    or a keyboard is pushed to indicate those who have not filed by
    a certain date and another notice goes out that you are in
    failure of filing, which probably triggers because there is
    always going to be honest people who fail to meet deadlines, I
    cannot understand, although there are how many million of them,
    that that is not now a computerized system that requires very
    little staffing ultimately and that there is a way to follow
    through. So I guess my question is what happens to those
    persons who fail to submit?
        Mr. Huse. Well, we have suggested in our audit work that at
    the point that those annual accounting forms are not submitted
    and when SSA's follow-up is not responded to, either, that
    there should be intervention. The representative payee should
    have to come to a field office to receive the check. Those are
    some of the things that H.R. 743 would strengthen. We believe
    that this field office intervention process is a key piece to
    representative payee accountability.
        But again I have to come back to the fact that this does
    become a workload issue and as with many workloads at Social
    Security, these get deferred in the face of more pending
    priorities.
        The Chairman. Beyond the legislation itself and you have
    suggested that the proposed legislation would correct some of
    these problems, how many of them are legislative in character
    or the need or the authority to make those kinds of decisions
    and how many of them are purely administrative that could be
    made within the current authority, as good business practices?
        Mr. Huse. There is the possibility to get some redress for
    this administratively within the process itself. We believe
    that to help avoid overpayments, if Social Security issued a
    receipt to a person receiving disability benefits who reports
    work or changes in earnings, that might help us here. If the
    representative payee fails to provide these accounting forms,
    if SSA authorized the redirection of the payment then to a SSA
    field office, requiring that representative payee come in and
    provide the required accounting forms that could be done
    without legislation.
        We believe that disqualifying from serving as a
    representative payee persons convicted and imprisoned for more
    than a year or who are fleeing prosecution, custody or
    confinement, that could be adjusted in the rules today without
    legislation. So those are three things that could be done
    administratively.
        The Chairman. Well, yes, and my guess is that if you are a
    convicted felon, you are not going to object to the fact that
    you were discriminated against because you were not chosen to
    handle someone's money. The reality is if you are a convicted
    felon you have given up, by those actions and that court
    decision, certain rights which are taken away from you. I am
    trying to sit here and understand why that would not be an
    automatic administrative action on the part of the Social
    Security system or do they feel they are liable for lawsuit
    because a felon is going to sue them, a convicted felon?
        Mr. Huse. I think the next witness might be better able to
    answer the philosophical part of your question, Mr. Chairman. I
    know that there is a rationale for this. In some of these
    instances the need to provide the service sometimes requires
    these seeming incongruous policies or incredible policies.
        The Chairman. I guess your review of it may give you a
    broader perspective of it than mine. I am not sure I see that
    as an acceptable practice.
        Mr. Huse. Neither do I.
        The Chairman. Even under the physical difficulties that we
    see in frontier States oftentimes, like Idaho, where distance
    and travel is oftentimes a substantial problem, there are
    honest, legitimate people out there who will assist in helping
    those who are less capable of handling their affairs to manage
    them. It is a matter of finding them and I think it is not that
    difficult.
        My last question, Jim, and I thank you for your testimony
    and response this morning, in February we looked at the misuse
    of guardianships over the elderly and trying to track those
    more effectively and cause our States to strengthen their
    review of and the courts' review of guardianship, protocols
    that walk people through the process and quality them more
    effectively than we are qualifying them today.
        Is there any way to know how many court-appointed guardians
    are administering Social Security funds without going through
    the representative payee program?
        Mr. Huse. No. However, we have some statistics that we
    obtained from SSA. When a court-appointed guardian files an
    application with the Social Security Administration to become a
    representative payee, that is the way we know and are able to
    account for that particular responsibility. Right now, with old
    age and survivor's disability insurance beneficiaries, there
    are about 250,000 beneficiaries who have a representative payee
    and a court-appointed guardian and of these, about 201,000
    representative payees serve that 250,000 universe.
        With Supplemental Security Insurance income, about 99,000
    recipients have court-appointed guardians but we do not know
    the number of representative payees that serve those 99,000.
    That number is not available.
        The Chairman. Well again, thank you very much for your
    testimony.
        Mr. Huse. You are welcome.
        The Chairman. As we work our way through this I will take a
    serious look at that legislation to see how we might cause it
    to move here on the Senate side as an assistance to the Social
    Security Administration dealing with this problem. Again thank
    you.
        Mr. Huse. Thank you, sir.
        The Chairman. Well, our next panel this morning is the
    Social Security Administration, Frederick Streckewald,
    assistant deputy commissioner for Disability and Income
    Security Programs. We do appreciate your presence here this
    morning and look forward to your testimony, Frederick, so
    please proceed. Thank you.

        STATEMENT OF FREDERICK G. STRECKEWALD, ASSISTANT DEPUTY
      COMMISSIONER, SOCIAL SECURITY ADMINISTRATION, WASHINGTON, DC

        Mr. Streckewald. Mr. Chairman, thank you for inviting me to
    talk about Social Security's representative payee program. We
    now have about 6.7 million Social Security and SSI
    beneficiaries who are paid more than $44 billion per year
    through the representative payees. About half of our
    beneficiaries are minor children and more than 80 percent of
    the representative payees are family members. But if an
    interested family member or friend cannot be found, SSA will
    arrange for an organization to perform the duties of the
    representative payee. This is fairly rare. Of the more than 5
    million rep payees, only about 42,000 are organizational
    payees. All payees are closely scrutinized before being
    selected. Misuse occurs in less than 1/100th of 1 percent of
    all cases or about one in 10,000 cases. In reality, millions of
    Americans are being assisted voluntarily by family and friends
    in a way that can make us all proud. However, we are always
    seeking ways to improve the representative payment process
    because every case of misuse represents money being denied to
    one of our most vulnerable beneficiaries.
        Since we last testified before this committee in May 2000,
    we have conducted an aggressive and multi-faceted initiative to
    improve the integrity of the representative payee program. We
    have strengthened our selection procedures, expanded our
    monitoring efforts and made improvements to the representative
    payment system. We have built upon the foundation laid by the
    SSA Representative Advisory Committee, the in-depth work done
    by the Office of Inspector General, as well as our own program
    experience, and we have a number of initiatives under way to
    improve payee selection. For instance, we awarded a contract to
    Dunn & Bradstreet in 2001 for credit background checks for fee-
    for-service payees. This effort is consistent with the IG's
    suggestion that we put more emphasis on the selection process
    of representative payees and we hope to expand this service in
    2004 to all high-volume payees.
        In addition to the court and statutorily mandated annual
    accounting process, we have expanded our monitoring program to
    conduct triennial reviews for about 1,700 fee-for-service and
    high-volume payees. These reviews include a face-to-face
    interview and an assessment of the payee's recordkeeping. We
    also interview a sample of beneficiaries to see if their needs
    are being met.
        In addition, beginning June 2000 we began an annual
    recertification of fee-for-service organizations to ensure that
    the requirements for licensing or bonding continued to be met.
    We have other useful reviews; for example, a 6-month review for
    all newly appointed fee-for-service payees, which provides an
    excellent opportunity to build a relationship between the payee
    and the local field office, as well as identify any payee
    training needs.
        In addition, we randomly select every year 30 percent of
    the volume payees and fee-for-service payees who have not
    already been selected for review that year.
        Last, we also monitor for trigger events. That is, we
    conduct reviews of payees in response to third-party reports of
    misuse, complaints from vendors of failure to receive payment,
    and similar reports.
        As you would expect, there is a systems component to our
    efforts. Since March 2003 we are imaging all rep payee annual
    accounting reports, enabling more efficient storage and
    retrieval in the event of a misuse allegation. Also, we have
    made a number of enhancements over the last 3 years to the
    representative payee system, which is a centralized computer
    file with information about representative payees and the
    beneficiaries they serve. For example, the system will no
    longer allow a claims representative to unknowingly appoint an
    individual with a rep payee as a payee for another beneficiary.
        We recognize that administrative actions alone cannot
    address all the issues and concerns with the representative
    payee program. In April the House passed H.R. 743, a bill that
    would provide increased safeguards. One particularly important
    provision would restore benefits that have been misused by
    representative payees serving 15 or more beneficiaries without
    having a finding of negligence on SSA's part or restitution
    from the organization payee. This bill also includes other
    provisions that would significantly increase the number of
    reviews SSA currently does, require most fee-for-service
    organizational payees to be bonded and licensed, and increase
    or extend penalties for misuse of funds by representative
    payees.
        In conclusion, let me say we are keenly aware that
    beneficiaries who need a representative payee are among the
    most vulnerable of our beneficiaries. The representative payee
    program and its millions of volunteer payees provide a vital
    service to these beneficiaries. We at SSA take our
    responsibilities to provide prudent stewardship of this program
    very seriously and we believe that with the help of Congress,
    we will be able to further improve the protections for our
    beneficiaries with payees when funds have been misused.
        We look forward to working with Congress and with the
    Office of the Inspector General to assure public confidence in
    our programs and I would be very happy to take any questions
    you have.
        [The prepared statement of Mr. Streckewald follows:]
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        The Chairman. Well, thank you very much. Is it Fred or
    Frederick?
        Mr. Streckewald. Frederick. Thank you.
        The Chairman. First of all, Frederick, let me commend you,
    the Social Security Administration, obviously for the work that
    is done and effectively done to prevent fraud as it relates to
    how Social Security benefits get out to the recipient. The
    representative payee program is watched and watched closely
    because it is clearly an opportunity for fraud. I think my
    concern not only for the current recipients is that we are
    prepared administratively, functionally, organizationally to
    handle an ever-increasing number of beneficiaries as the baby-
    boomer crowd begins to hit the Social Security system in very,
    very large numbers.
        During the initial screening of a prospective
    representative payee, how is the accuracy of information
    related to identity and financial security verified? How do you
    effectively do that? I know that you talked about hiring for
    background checks and that type of thing. Is that a fairly
    limited process? Are you without a conviction or is there
    something to track them even more broadly?
        Mr. Streckewald. We distinguish between personal payees,
    the vast majority of payees are family members and spouses and
    friends, versus organizational payees and even more so, the
    fee-for-service payees, who are actually allowed to collect
    some of the beneficiary's check as a fee for their service. So
    for the more typical family member or friend, we have an
    application that requests a lot of information.
        First of all, they have to come into the office, so we get
    to see them, look them in the eye, ask them their name, look at
    their picture ID, make sure they are who they say they are, the
    way we do every other person dealing with us in a field office,
    and then we go through a series of questions. On the
    representative payee application it asks their relationship to
    the beneficiary and it asks them to state their own source of
    income and how they support themselves. For example, either it
    is a job or it is Social Security benefits. We verify that. We
    have queries we can pull up to verify their employer how much
    they are making, and we also, of course, have records on how
    much their Social Security benefits are.
        So we can verify their own source of income and we also ask
    other questions--have you ever been convicted of a felony? If
    they have, we drill down on that. We find out when it was. Was
    it last year or was it when you were 16 and you stole a car?
    Let's find out the seriousness of this crime before we consider
    you to be a payee.
        We look very closely at the relationship with the payee and
    the extent to which they either have custody of the person and
    provide for them already or they are a very close friend or
    associate and they constantly visit and show an on-going
    concern in taking care of the person.
        Now on the other side of the equation, a lot less commonly
    but it does come up where you have the organizational payees.
    As you mentioned, we do a credit check for all fee-for-service
    payees. We want to find out from Dunn & Bradstreet whether or
    not they have credit-worthiness to make sure they are not a
    borderline company that does not have good financial stability.
        We also know about most of these organizations. The field
    offices know their communities. They have heard of that
    organization, so they have a reputation. They have local
    standing, which we also bring into play when we make a
    determination about whether they would be the best payee.
        If we are appointing an organizational payee that means
    that we have gone through our list and we could not find a
    spouse, a son, a daughter, a family member, a friend, and we
    have already checked that out and now we are down to kind of
    lower on the list of preferable payees. We begin the types of
    questions that we ask organizational payees, which has to do
    with their standing in the community and their relationship, if
    any, with the beneficiary.
        The Chairman. I appreciate time and thoroughness and the
    kind of staff time it takes. You are visiting with a family
    member, or a friend or the person who represents themselves as
    that person. You are walking them through the questionnaire.
    You ask the question, ``Have you ever been convicted?'' and
    they say no. Do you take that a step further? Is there a check
    run to determine whether they have or have not been, if there
    is any suspicion whatsoever?
        Mr. Streckewald. Generally not unless we have some other
    indicator. Again a lot of the claims reps know the people in
    their service area, they have read the newspapers, but
    generally not unless there is another indicator.
        However, what we have found on one study is that a number
    of people--a lot of people voluntarily tell us when we ask,
    yes, I have been convicted of a felony. When we drill down and
    check that out against felony records, it turns out half of
    them had not really been convicted of a felony; they were
    confused. They had been convicted of a misdemeanor or they
    thought we were talking about the beneficiary.
        So, it is a question whether a rep payee applicant has been
    convicted of a felony that we use as a screening tool but it is
    not, in itself, a determinant one way or the other. It is
    certainly two strikes against you if you answer yes to that
    question. You are not likely to become payee, but there are
    some limited circumstances, particularly with a crime of many
    years in the past; with a parent who has custody and is showing
    parenting skills and support for their child, their disabled
    child, we may find that parent to be the best payee, rather
    than an organizational payee.
        The Chairman. Your fugitive felon program appears to work
    very well to prevent fugitive felons from receiving SSI
    payments. Does your agency support the expansion of that
    program toward other Social Security payments?
        Mr. Streckewald. We believe the provision in H.R. 743 has
    merit. It would make the SSI and Title II policy consistent.
        Our only hesitancy is that we think we should move
    carefully because of the earned benefit right of a Title II
    payment versus an SSI payment and we want to make sure that the
    fugitive felon records are 100 percent reliable before we
    terminate people's benefits. That is our real concern, is
    reliability of the information.
        The Chairman. The term ``felon,'' one who has been
    convicted, and I do not dispute in the professional person's
    ability to assess when that conviction occurred, what was the
    basis and if they have lived an honorable life since that time
    and it was X numbers of years before that, but how can a
    fugitive felon--and fugitive is an interesting word tied to
    that, I assume therefore on the run attempting to escape
    notice--how can they serve as a representative payee?
        Mr. Streckewald. If they are the type of fugitive felon
    that is on the run and is moving from city to city, I
    absolutely agree with you; there is no way that we would want
    to make that person a rep payee because they are most likely
    going to use the money to finance their flight.
        What we have found is that there are some people listed on
    the fugitive felon database that we get from the FBI and from a
    lot of the States that, in fact, are not really on the run per
    se. They have a warrant out for their arrest. Some of them do
    not know that, so they are still at home taking care of their
    child or their mother. They may have missed a parole meeting or
    probation meeting.
        However, if somebody is listed as a fugitive felon we
    believe that counts very strongly against them as being a
    payee. We would do a suitability determination and we would
    check to see whether there are other persons in the family who
    have demonstrated concern for this beneficiary that would make
    a better payee. We also look very closely at the care that has
    been provided to this beneficiary by that person who is being
    categorized as a fugitive felon.
        So it is unlikely that we would keep them as a
    representative payee, the way our current policy is set up. The
    H.R. 743 provision basically means that we would be mandated to
    find another payee if a person is on the fugitive felon
    database.
        The Chairman. It is my understanding that you have about
    3,000 fugitive felons currently administering funds; is that
    correct?
        Mr. Streckewald. I believe that number is probably pretty
    close to what our numbers are. We receive ours from the IG.
    They provided a number of cases to us that they felt were
    fugitive felons who were receiving benefits as rep payees and
    we instituted a wide range of suitability investigations on as
    many of those as we could. Some of them resulted in change in
    payees, some of them were still in progress as far as I know,
    and others we have determined that despite the fact that they
    are on a database that says they are fugitive felons, in fact
    they are still the preferable payee because they are not
    actually in flight and they are still maintaining the care and
    service and interest in the beneficiary. Again this is a very
    rare occurrence.
        The Chairman. Those individuals are required to make the
    annual report, are they not?
        Mr. Streckewald. Yes.
        The Chairman. I am moving into that now because I am
    frustrated that that is not followed up on and accurately
    tracked, which appears to be the case.
        Mr. Streckewald. If I could just add to my last answer,
    when we do the suitability review of a convicted felon or a
    ``fugitive felon,'' if we are forced because there is nobody
    more preferable to be the payee, we then institute much closer
    monitoring activities. We ask to see them more often. Most
    payees, they just have to send us a form but these folks, we
    have to actually see them, talk to them. We have to get more
    information from them. So we do not just treat them as any
    other payee if we are forced to keep them as a payee for the
    time being. I just wanted to clarify that point.
        The Chairman. As I say, they are required to make the
    annual report. Does the failure to make that report trigger an
    interview, trigger a requirement for them to come in?
        Mr. Streckewald. Yes, it does.
        The Chairman. More specifically, if they are on the
    database as a fugitive felon?
        Mr. Streckewald. All representative payees, virtually every
    one of them, are required by law to submit an annual accounting
    of how they spent the money and I think Mr. Huse laid it out
    pretty well, that they are given a form that says how much
    beneficiary money they have had in their trust for this last
    year, and how they spent it? How much did you save? How much
    was left over from last year? What did you do with that?
        So it specifies where the money went and when the forms are
    returned, they are looked at. First of all, we scan them in
    electronically now, so we have better access to them than we
    have had in the past. We used to have paper boxes of them lying
    around that were very hard to locate but they have been
    scanning them in now for over a year.
        We have employees that look at the forms pretty closely to
    see if everything looks copasetic. If we do not like what we
    see on the form, it is referred to a payment center or field
    office to follow up with the payee.
        Your question is if we do not get the form, what do we do,
    and we have very stringent procedures in place now, thanks
    again to the help from the IG for identifying this problem. The
    payee gets an initial request--it is computer-generated just as
    you assumed--and they get one more request. Right now we are
    getting 88 percent response rate from two requests, so at that
    point we are OK. We know some people do not get right on it.
        However, if we do not get a response after the second
    request and a reasonable number of days after the second
    request, the case is earmarked and is sent to our field office
    and the field office then takes more rigorous means to contact
    the person and it requires the payee to come into the office.
    Look, we need to talk and if you do not come into the office,
    it means the benefits will be suspended.
        So we get most of our reports that have been sent out. The
    12 percent that did not come in after the second request, we
    get most of them when the people come into the office because
    they do not want the benefits to stop. But if there are a few
    that do not come in, then we institute suitability
    investigations and we probably end up changing the payee, since
    this person has not met the responsibilities.
        The Chairman. From a failure to respond to the second
    inquiry through to a time that might provoke causing them to
    have to come in, how long is that stretch of time usually?
        Mr. Streckewald. In Title II (Social Security benefits)
    cases, the payee has 120 days after a payee record has been
    selected for accounting and mailed to respond to an initial
    request for completion of the Representative Payee Report. If
    the payee does not return the completed reporting form within
    120 days, a second request is mailed to the payee. If the payee
    does not respond within 120 days of the selection for a second
    request, a ``nonresponder'' alert is generated to the servicing
    field office (FO) for their investigation and possible action.
    Our policy requires that the FO make a personal contact with
    the payee to obtain the required information. If the payee is
    uncooperative, the FO will initiate a suitability investigation
    and develop for a payee change.
        For title XVI (SSI payment) cases the process is the same,
    except the timing between mailings is somewhat shorter due to
    systems differences between the two programs. For SSI, the
    timeframe between the mailing is 90 days.
        The Chairman. So what you are telling me is that after the
    process ultimately works its way out there is approximately 12
    percent who fail to respond?
        Mr. Streckewald. After two requests that are computer-
    generated, without a lot of employee intervention. These are
    routine requests to send the report in and we get about 12
    percent that do not respond after the second request.
        The Chairman. So you are telling me that as you work it all
    the way through, that you get a response out of 100 percent
    payees?
        Mr. Streckewald. No, I do not know the exact number of that
    12 percent that end up coming into the office and giving us the
    report face to face. I am assuming that there are still some
    that do not come into the office. Those are the ones that we
    institute suitability investigations on and we very often end
    up changing them from the payee because they did not meet their
    responsibilities, of which one is to give us an annual
    reporting of their expenditures.
        The Chairman. Do you know this year how many persons have
    been revoked as representative payees as a failure to report?
    Well, the year is not complete but----
        Mr. Streckewald. In 2002, we estimate that 40,000
    representative payees were replaced because they failed to
    provide annual accounting forms. Of the 40,000 approximately
    14,000 were representative payees for Social Security
    beneficiaries and 26,000 were payees for Supplemental Security
    Income beneficiaries.
        The Chairman. I just have to believe that if you have folks
    who fail and keep failing, there is a reason why it is going on
    besides absent-mindedness.
        Mr. Streckewald. We agree. That is one reason we institute
    suitability investigations when this has gone on long enough.
        The Chairman. Is there ever random processing in the sense
    of checking the reports of payees to determine whether they are
    accurate?
        Mr. Streckewald. I would say for the high volume routine
    personal payees, most likely not. We believe that a lot of our
    focus should be on the organizational payees because these are
    people that do not have a family or personal relationship with
    the beneficiary. They are a business, so we do random reviews.
    We just pop in and we say OK, we want to look at your books and
    your records. They know we are coming every 3 years but they do
    not know where or when we are coming within that 3 years and we
    just show up and say let's see your books, let's see if you can
    account for where all the money is going for all your
    beneficiaries. So that has really been the focus of our ad hoc
    reviews.
        The Chairman. Well, I can appreciate with those who are for
    profit providing a service, the accuracy or the overview of
    those and because you can probably look at a concentrated mass,
    if you will, of recipients.
        Mr. Streckewald. Right. A lot of times there will be 100 or
    200 beneficiaries in the one site; you are right.
        The Chairman. It is my understanding that sometimes Social
    Security recipients die--but the money is still going to the
    household of the deceased. How prevalent is that problem on an
    annualized basis? Does Social Security hold figures on that,
    when money continues to go for a period of time?
        Mr. Streckewald. Yes, we do. The latest figures I have for
    that, there is about $900 million released after death of the
    recipient. That is pretty small compared to the approximately
    $350 billion our outlays are but it is money we want back. In
    fact, we have worked very closely with the Treasury Department
    to come up with ways of retrieving that money from direct
    deposit accounts and from people's table tops where the check
    is just sitting there because they do not know what to do now
    that the person is deceased. I am happy to say that we get
    about 90 percent of that money back into the trust fund and
    into the Treasury.
        For those that we do not get back right away, we have to
    believe there may be a fraud element there. Why are they not
    giving this money back to us? Have they spent it? Well, if so,
    that is fraud. So then we would institute a fraud proceeding
    and perhaps get the inspector general involved.
        The Chairman. How many of those failures to report death is
    tied to a representative payee? Do you have any statistics on
    that?
        Mr. Streckewald. We are not sure how many ``failure to
    report deaths'' are associated with representative payees.
    However, for beneficiaries with payees, when we look at the
    number of checks released after death, that is, one check or,
    two or more checks released after death, we found that about
    4,000 SSI and 10,000 Social Security beneficiaries had more
    than two checks released after death. This is about one
    percentage higher than for those beneficiaries who do not have
    payees.
        The Chairman. Under the representative payee system how
    would you decide on an organizational payee over a family
    member or a close friend?
        Mr. Streckewald. In almost every circumstance that we come
    across the family member or the close friend always has
    preference over the organizational payee. The only exception
    would be one, if the family member or close friend had been
    convicted of a crime against Social Security in the past and
    that is something required by law. We are not allowed to
    appoint a payee if that is on their record and we have a record
    of that, so they are out no matter who they are.
        The second thing would be if they are a family member but
    they have not convinced us that they really have this person's
    best interest at heart. That is very rare but there may be
    evidence in the community that they have not been caring for
    their child, they have not been caring for their parent, and we
    may be forced to look elsewhere. But it is very, very rare.
    Again this is a voluntary corps of rep payees. There are
    millions of them and most of them are concerned family members
    and parents that just want to do the right thing for the
    beneficiary, who is usually severely disabled and incapable of
    handling their own benefits.
        The Chairman. Both you and Mr. Huse have referred to the
    legislation that is working its way through Congress. How much
    of the problems you see within the Administration can be done
    administratively versus the actual need to require a law to
    make things happen?
        Mr. Streckewald. We think that nearly every provision needs
    to be legislatively mandated. The main exception, of course, is
    conducting more reviews because, on our own, we have already
    expanded our reviews and we could on our own expand to the
    number of reviews that are implied in H.R. 743. That is
    something we could do administratively.
        We also have a strong possibility of being able to
    administratively implement the forfeiture of fee provision,
    that if somebody misuses benefits, they have to forfeit the
    fee. That is a kind of common sense-type thing I do not think
    we would get a lot of resistance to.
        The one that Mr. Huse states that he thought we could do
    administratively and we are not necessarily sure of is
    prohibiting a fugitive felon or a felon, a convicted felon,
    from receiving benefits as a payee. Our general counsel has
    looked at that and there is the possibility that the way we use
    the information right now in our matching agreements with the
    States and with the FBI is specifically for the SSI program. We
    are not sure if legally we have the authority to use it for
    Title II purposes but if we had legislation, of course, that
    would give us the authority. So that is something we would have
    to look at if we were decide to do it administratively.
        The Chairman. Well, thank you very much for your testimony.
    I would appreciate that information that we have asked to be
    more specific with, that that be forthcoming, and I thank you
    very much. We will continue to work with you and track these
    programs as they grow, develop, and/or change over the years.
    Obviously it is important that the beneficiary receive his or
    her benefits as completely as possible. Thank you.
        Mr. Streckewald. Thank you, Mr. Chairman.
        The Chairman. Our last panel this morning is going to be
    made up of Shirley Shears, Legal Aid of West Virginia, and
    Jason Wills, Finance Director for Community Action Partnership.
    If these folks would come forward, please?
        Well, again thank you both very much for being with us this
    morning. Shirley, I will turn to you, Legal Aid of West
    Virginia, and allow you to start, please.

      STATEMENT OF SHIRLEY J. SHEARS, LEGAL AID OF WEST VIRGINIA,
                            MARTINSBURG, WV

        Ms. Shears. Thank you, Chairman Craig. My name is Shirley
    Shears. I am a paralegal with Legal Aid of West Virginia for
    over 18 years. Legal Aid of West Virginia annually obtains
    funding from Legal Aid Corporation to provide legal assistance
    to low-income individuals in civil matters.
        An incident which happened in my home town which was the
    subject of a segment of the news program ``20/20'' titled
    ``When Nobody is Looking: People Robbed of Life Savings by a
    Man Recommended by the Social Security Administration'' and was
    later aired on the show titled ``Fleecing of America.'' Greg
    Gamble, a local businessman, set up a nonprofit organization in
    the early 1990's, the Aurora Foundation, to be a representative
    payee for Social Security, VA benefits and private funds for a
    fee. The corporation was essentially a one-person operation.
    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 to the local
    office about the manner in which their funds were handled.
    Those complaints were largely ignored and none were
    investigated.
        In 1996 a letter was written by a beneficiary to Mr. Greg
    Gamble complaining about the handling of his money. A copy was
    sent to the Social Security Administration and the letter noted
    his concern of the accountability of the organization. He was
    allowed to discontinue using the foundation as his payee but no
    investigation of the complaint was made.
        The Aurora victims are elderly, middle-aged and young. Some
    are physically challenged and many are mentally ill. Some
    suffer from physical and mental illnesses. Some of Mr. Gamble's
    victims are Vietnam veterans; some suffer from AIDS and HIV.
    Regardless of the diagnosis, they have one common thread--they
    are the vulnerable of our society, people who are not capable
    of taking care of their own financial affairs. The victims must
    depend on someone else to pay bills, provide funds, and basic
    needs. Some victims are afraid to complain concerning the
    handling of their money and others are too ill or simply
    unaware of the problem.
        In early 1999 clients of the Aurora Foundation began to get
    notices of nonpayment of residential care homes, eviction
    notices for nonpayment of rent and letters from utility
    companies threatening to cutoff their services for nonpayment
    of bills. Several people were evicted from their apartments and
    became homeless.
        Mr. Greg Gamble, as a representative payee, had stolen
    their money for his own personal use. The money was gone.
    Safety deposit boxes were emptied, life savings were wiped out,
    lump sum awards were gone. The money to live in a comfortable
    old age was gone. The money stolen from the victims by Greg
    Gamble totaled over a quarter of a million dollars.
        In April 1999 an investigation from the Inspector General's
    Office was made concerning the Aurora Foundation. Social
    Security checks for 140 clients were intercepted. On April 5,
    1999 the Aurora Foundation was shut down by a court order. On
    April 12, 1999 Mr. Gamble admitted to fraud. He also filed
    bankruptcy. Although the bankruptcy judge ruled that the debts
    to our clients and the Aurora Foundation victims are not
    dischargeable, Mr. Gamble has no assets with which to repay the
    individuals whom the Social Security has put in his clutches.
    On April 14, 2000 Mr. Gamble entered a plea to one count of
    embezzlement of Social Security, VA and private funds. On June
    8, 2000 he was sentenced to 32 months in prison, to be followed
    by 3 years of supervised release.
        Mr. Gamble's time in prison may be served but for his
    victims the nightmare is not over. The travesty is that several
    victims are dead, some have been chronically homeless, and some
    have given up hope of recovering their money. The 137 victims
    are in desperate need of relief. Protection must be given to
    prevent future victimization of beneficiaries by representative
    payees.
        I thank you for the opportunity to present my views. Thank
    you.
        [The prepared statement of Shirley Shears follows:]
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        The Chairman. Well, Shirley, thank you very much. Before I
    ask you any questions let me turn to Jason. Again, Jason Wills,
    Financial Director, Community Action Partnership from Lewiston,
    ID.

     STATEMENT OF JASON WILLS, FINANCE DIRECTOR, COMMUNITY ACTION
                       PARTNERSHIP, LEWISTON, ID

        Mr. Wills. Good morning. I would like to thank Chairman
    Craig and this committee for the opportunity to present
    testimony regarding the utilization of representative payee
    services.
        My name is Jason Wills. I am a CPA, as well as the Finance
    Director for Community Action Partnership in Lewiston, Idaho.
    Community Action Partnership is a social service, nonprofit
    organization whose services include weatherization, housing,
    children's services, community services, and aging.
        Community Action Partnership's involvement in the
    implementation of a representative payee's service began out of
    our aging department approximately 12 years ago. As the need
    for payee services grew in proportion to our local aging
    population, the Social Security Administration appoints a
    representative payee when a beneficiary is determined incapable
    of managing or directing someone else to manage their Social
    Security payments. From this beginning our payee program has
    grown to include individuals from all age groups with various
    needs for a representative payee.
        Historically our program has had 91 payee clients as of
    September 2001 and 97 clients as of September 2002. Currently
    our program has approximately 94 payee clients. Of these 94
    clients, approximately 15 are over the age of 60. Sixteen
    percent of our total client base is over 60 years old.
        All payee clients we serve are required to have a case
    manager. All financial requests are received from the client's
    case manager and evaluated on a case-by-case basis. Our
    representative payee program has no direct contact with the
    actual payee clients but rather, shares information with the
    case manager to present to the client.
        Community Action Partnership's highest priority for our
    representative payee clients is to ensure their basic needs are
    being met with the limited amount of income received. This is
    done by developing budgets on a monthly basis and projections
    for clients on an individual basis. The representative payee
    program does have some high-risk clients. High-risk clients
    would be individuals who are aware of the amount of money
    received from Social Security on their behalf and place
    requests for nonessential payments before all basic need
    payments have been met. Payments for food, shelter, clothing,
    medical care and communication are identified as basic needs
    for the representative payee clients. On average, our payee
    clients receive between $500 and $600 a month to live on.
        Community Action Partnership has been successful in
    developing partnerships within our organization that foster and
    encourage the utilization of our many resources. One of these
    partnerships includes the representative payee program.
    Recently an elderly client was facing neglect and abuse in
    their current living arrangement. Our Area Agency on Aging case
    managers were able to remove the individual from the
    potentially harmful situation and were able to have the
    individual's financial needs met through the utilization of our
    payee program.
        Community Action Partnership's representative payee program
    has not always had the strong internal controls in place that
    it currently has now. In early 1997 it was noted that some
    potential misappropriation of representative payee funds had
    occurred in the past. Community Action Partnership contracted
    with an outside accounting firm to perform a fraud
    investigation of the payee funds. From this investigation it
    provided Community Action Partnership with the necessary
    awareness and experience to implement significant changes to
    the internal controls surrounding the safeguarding of funds for
    the representative payee clients.
        Some of these controls are outlined as follows: automated
    accounting ledgers; dual signatures for cash disbursements;
    signatures cannot include the individual who initiated the cash
    disbursement; independent monthly bank reconciliations
    performed by an individual not associated with the
    representative payee program; all cash disbursements are made
    payable to vendors with supporting documentation; establishment
    of a collective bank account rather than separate banking
    accounts for every individual for efficiencies; and
    reconciliation of detailed monthly reporting by client.
        Community Action Partnership continues to ensure the
    guardianship of client funds by implementing and maintaining
    strong internal controls, developing good communication with
    our local Social Security field office, maintaining good client
    relations with the client's case managers, and being a
    financial advocate for our clients in terms of debt resolution
    and restriction.
        Community Action Partnership helps people and changes
    lives. This statement is especially true for our representative
    payee program. This program proves to be a valuable alternative
    to guardianship of an individual's financial affairs and
    provides clients with the empowerment to control some degree of
    how their money is spent. The ability to have influence over an
    individual's financial affairs has proven effective especially
    for our elderly clients in a time when other privileges are
    being restricted.
        I would like to thank the chairman and the committee for
    the opportunity to share with you some of these challenges and
    successes that we have had.
        [The prepared statement of Jason Wills follows:]
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        [GRAPHIC] [TIFF OMITTED] 91117.025

        The Chairman. Jason, thank you very much.
        Before I ask questions of either of you let me turn to my
    colleague who has joined us, Senator Carper, to see if he has
    any opening comments to make.
        Senator Carper. Just that I am happy to be here, welcome
    our witnesses and look forward to asking a question or two.
    Thanks, Mr. Chairman.
        The Chairman. Thank you very much.
        Shirley, again thank you for a helpful update on the Aurora
    case. Obviously it is one that we are aware of and monitor to
    some degree as finally its level of abuse reached a level of
    exposure that triggered the kind of investigation and action
    that took place.
        What other additional recommendations would you make to
    Congress to make sure that what happened in the Aurora case
    does not happen again?
        Ms. Shears. Mr. Gamble set up that organization strictly to
    be a payee representative. His history was in the banking field
    rather than public service. From March 1995 until April 1999 he
    could have only legitimately had a fee of $89,929, so it was
    not a very prosperous business for that 4-year period to run an
    office and to pay help and maintaining taxes, and so forth.
        The point I am trying to make is that tried-and-true
    organizations, such as Community Action, mental health, people
    that have provided services for disabled people, who know their
    needs, have contact with them and are known in the community
    should be the only people that should be allowed to be payee
    representatives as organizations. Fly by-night organizations
    should not be allowed to be payees. This would eliminate
    another Greg Gamble.
        The need to listen to the recipients when they wish to
    change payees, and I can say that the Social Security office
    has improved that greatly since this time. They have taken
    measures to listen to people and people that I refer there,
    they have said gladly, just send the payee in and bring them in
    and we will do the paperwork.
        But they need to allow payees to continue, private payees,
    require better reporting. They need to require bonding and the
    bonding should be adequate to repay these people. They should
    not be allowed to handle funds that they do not have bonding to
    cover.
        The Chairman. Bonding for for-profit organizational payees,
    not individuals?
        Ms. Shears. Yes, sir. I believe that some of these
    measures, and better reporting and better monitoring of these
    agencies, but they definitely need to listen to the recipients
    when they come into the office, that they are having problems
    or other people that inquire.
        I think one thing that I will say on behalf of Social
    Security at the time that this happened with Mr. Gamble, it was
    a time when a lot of monitoring was going on. You recall the
    drug and alcohol law that came in about that time and all the
    people were required to have payees and hundreds of people were
    coming in seeking payees and it was a hard time for Social
    Security, too. It was difficult for all of us. We were
    overburdened with clients.
        The Chairman. Shirley, do you think representative payees
    are still a viable alternative to a court-appointed guardian,
    despite some of the problems we have heard about today?
        Ms. Shears. Yes. Guardianship is very restrictive in most
    cases and I do not feel that that gives people that are already
    vulnerable the freedom to do as they should be allowed to do.
        The Chairman. I appreciate that and those comments.
        Jason, thank you again for traveling the distance to be
    with us today to build this important record. Has your agency
    been able to divert elderly people from full guardianship
    proceedings by offering a representative payee program? Do you
    know?
        Mr. Wills. I cannot answer that. I am not entirely sure if
    we have been faced with that situation directly.
        The Chairman. What is the most challenging aspect of
    serving as an organizational representative payee?
        Mr. Wills. It would be really detailing out the individual
    needs of our clients because they are so vast and varied. The
    one constant is the limited amount of income and in order to
    stretch that to meet their basic needs, that comes in a variety
    of forms and that has been the biggest challenge, is getting to
    know the individuals through their case managers and then
    developing budgets for them that help them ensure that their
    basic needs are met.
        The Chairman. But it sounds like you have put a system in
    place or you operate under a system that is fully accountable
    and auditable at any time.
        Mr. Wills. Yes.
        The Chairman. What advice would you give other
    organizational payees in terms of maintaining a high standard
    of accountability of Social Security monies?
        Mr. Wills. Well, a couple of things. First, to have the
    understanding of a duty of care, that it is not your money; it
    is another individual's money and these are our most vulnerable
    individuals in society--elderly, disabled, young children. Just
    to have the duty of care and that it is a fiduciary duty, that
    you are caring for that money on behalf of another individual,
    to take the time and resources to implement systems that track
    that accurately and if you have a staff member as a payee that
    is monitoring this program, initiating this program, doing the
    necessary background checks on these individuals, doing the
    necessary follow-up and supervision of these individuals.
        If you are subject to an independent audit, inform your
    independent auditor of it. Let them look at that program and
    consider it as another safeguard.
        The Chairman. I think you are moving into my next question.
    That is fine. It was going to be what is the protocol if you
    receive an allegation from the community that a representative
    payee program is being misused or abused in one instance? What
    would your immediate protocol be?
        Mr. Wills. If we became aware of this instance first and
    foremost, it would be to inform my direct supervisor, the
    Executive Director of the organization, that this is a
    potential allegation. Beyond that, we would do an internal
    investigation of this allegation.
        Specifically if it was targeted from an actual payee client
    or if it was our payee system as a whole, that would take on
    two different venues--inform the board of directors, reassign
    the payee staff, whether it is administratively, whether it is
    reassignment to another position in the department, pull them
    out of that position because we have the ability to do that
    through our cross-training through this department. Also,
    contact an outside accounting firm, if necessary, and our legal
    counsel, if necessary, if it got to that point, and get in
    touch with our local Social Security field office and resolve
    the issue.
        The Chairman. In getting in touch with your local Social
    Security field office, I guess my last question of you, Social
    Security Administration has made good progress by all
    indication in enhancing its oversight of the representative
    payee program. How would you assess your agency's working
    relationship with the local regional Social Security offices on
    their oversight? How do you see it first-hand?
        Mr. Wills. The relationship has been one of joint
    partnership, realizing that how our program works as a payee
    service and the Social Security Administration as distributing
    those funds, I would say our relationship with our local field
    office, I could not ask for a better relationship. Like I said,
    we are the advocates for these individuals. If there is a
    problem, if there is a concern, if there is anything that comes
    up, we are able to contact them directly and get any potential
    issues resolved immediately.
        The Chairman. OK. Jason, Shirley, thank you.
        Let me turn to my colleague, Senator Carper, for any
    questions he might have.
        Senator Carper. Thanks, Mr. Chairman.
        Miss Shears, the reason why, as you probably know, all of
    our colleagues are not here is because each of us serve on a
    variety of committees and we are scattered about with different
    hearings and mark-ups that are going on right now.
        I missed your comments. I heard Mr. Wills's comments but I
    missed yours and I am going to ask you just to take the first
    minute and just give me a little thumbnail sketch of what you
    had to say, maybe what you think is the most important thing
    that you would want me to remember and us to remember coming
    out of this hearing.
        Ms. Shears. That the organizations that have a history of
    providing services for clients be the only organizations that
    are considered to be organizational payees, that organizations,
    businesses that come up just to handle Social Security cases,
    those should not be allowed anymore, such as the Aurora
    Foundation, because over a 4-year period it was less than
    $90,000 that he legally obtained. That is not very much to run
    a business and pay help and overhead, and so forth.
        It takes somebody that is really caring. It is not a lot of
    money when they do charge a fee for it and it should be people
    like community action agencies or mental health, and so forth.
    That was the contents of my statement.
        Senator Carper. Good. Thanks. As I understand it, they are
    different categories of payee representatives. They include
    individuals, which are largely families. They would include, I
    guess, nonprofit organizations, I think you mentioned a number
    of which could serve in that capacity. They include for-profit
    businesses? Have I covered the landscape? Are there others?
        Ms. Shears. I do not know of any, other than individuals.
        Senator Carper. This is a question for Mr. Wills, as well,
    but either of you. Roughly--Mr. Chairman, maybe you can help
    me, as well. Do I understand that more than 10 percent of the
    folks who receive Social Security have those monies received
    and handled by a payee representative? Does that sound about
    right.
        The Chairman. I have a lot of nodding of heads in the
    audience.
        Senator Carper. Let the record show.
        The Chairman. Staff tells us about 13 percent, Senator.
        Senator Carper. OK, good. Out of that 13 percent are most
    of those family members or individuals, as opposed to nonprofit
    or for-profit organizations?
        The Chairman. Most of that is, yes.
        Senator Carper. OK.
        Ms. Shears. I believe they are and I believe that that is a
    very workable situation, but it also needs to be monitored.
    Social Security needs to be very vigilant.
        Senator Carper. OK. Of the nonindividuals, generally the
    nonfamily members, those who serve as payee representatives be
    they as part of a nonprofit organization for for-profit
    organization, do you all have any idea which is the
    predominant--the nonprofit organizations who do this for a fee
    or out of the goodness of their hearts or the for-profits who
    do it for a fee? Which is predominant? Who serves the most
    Social Security recipients?
        Mr. Wills. I am only aware of our own organization and then
    also, as you stated, mental health. I am not aware of any
    actual for-profit organizations, at least in the State of Idaho
    that are operating as a payee.
        Senator Carper. Talk to me a little bit about your
    organization, Mr. Wills. Are you nonprofit? Are you for profit?
        Mr. Wills. We are a nonprofit social service organization
    and we have five main areas of service, including
    weatherization, housing, children's services, community
    services, and aging. Our representative payee program grew from
    our aging department and it kind of is a quasi-department
    between aging and community services. It is kind of a blend
    because we have a vast majority--we actually have a blending of
    clients that are over 60 and under 60--children, disabled, as
    such.
        Senator Carper. Ms. Shears, are you from West Virginia?
        Ms. Shears. Not originally but that is where I have lived
    since the 1960's. I used to work for a community action agency.
        Senator Carper. I am originally from Beckley, WV. I was
    just back in my native State last week visiting some of our
    family. My mom lives over in Kentucky, in Ashland, not far from
    Huntington. She is 81 and has Alzheimer's disease and she is
    doing OK. My sister takes care of a lot of the financial needs
    of my mom and my sister lives close there to where my mom is.
        Give me some idea of concerns that--let me just say the
    kind of organization, the kind of agency that Mr. Wills is here
    representing, do you have concerns about the work that they do
    and their fiduciary responsibility to the people that they
    serve?
        Ms. Shears. No, I am a former employee of Community Action
    agency. I was county director at one time.
        Senator Carper. Where?
        Ms. Shears. In Mineral County, WV. I think they do a great
    job and like he says, they have taken care of most of the
    problems that they had years ago.
        Senator Carper. Are you aware of nonprofit agencies that
    have not done a great job?
        Ms. Shears. No, I am not.
        Senator Carper. Are you aware of entities maybe other than
    nonprofit----
        Ms. Shears. Excuse me. Except for the Aurora Foundation,
    which we all know about.
        Senator Carper. Are you aware of, other than Aurora, other
    organizational pay reps who do not do a good job?
        Ms. Shears. I do not know of any but we only have one other
    in our area and that is the mental health agency that I know
    of.
        Senator Carper. Mr. Wills, could you just explain to me how
    your agency is compensated for the work that you do on behalf
    of Social Security recipients?
        Mr. Wills. How do we receive our fee?
        Senator Carper. Just talk to me about the nature of the fee
    and how it is received, that sort of thing.
        Mr. Wills. Sure. What happens----
        Senator Carper. A little bit about the flow of funds. I
    think you said the money is aggregated in a collective checking
    account and disbursed from there and I presume you do the
    individual recordkeeping?
        Mr. Wills. That is correct. What we have in place is a
    software that allows us to identify clients and the amount of
    money received in and issuing out disbursements out on behalf
    of that individual. It would act as if it were an individual
    banking account without the actual individual banking account.
    The funds go into a collective pool and then get issued out
    from that pool, with the entries being made into their actual
    accounts within the software.
        Then to answer your other question about fees, we are a
    fee-for-service organization where we charge individuals a
    monthly fee to be their payee.
        Senator Carper. Give me some idea what the fee is.
        Mr. Wills. $30.
        Senator Carper. A flat fee?
        Mr. Wills. Yes.
        Senator Carper. So whether a person receives $300 a month
    in their Social Security check or $1,000, it is the same
    monthly fee?
        Mr. Wills. Right, because most of our folks are between
    $500 and $600 a month, predominantly.
        Senator Carper. You may have said this but let me just
    clarify. This aggregate checking account that you maintain, I
    presume it has a positive balance?
        Mr. Wills. Always.
        Senator Carper. I presume it is invested.
        Mr. Wills. The banking institution which we do our banking
    with, what it does is the money comes in and usually the
    balance in each of these payee client accounts is anywhere from
    nominal amounts--$1, $2--up to $100, $200 per client. We have
    been in the process of asking our institution to allow us to
    have this in an interest-bearing account with a minimal fee or
    waiving the fee for them to set this up for us. It is still in
    the process of being negotiated.
        Senator Carper. Roughly how many people do you serve?
        Mr. Wills. Ninety-four.
        Senator Carper. At some point in time when interest rates
    go back up--hopefully they will not go up too much but at some
    point in time when they go back up I would urge you to figure
    out how to make sure that money is working for the folks that
    it belongs to.
        Mr. Wills. Absolutely.
        Senator Carper. Legislation has been introduced, I
    understand, Mr. Chairman, I guess in the last Congress and in
    this Congress, as well.
        The Chairman. And has passed the House.
        Senator Carper. Is it Senator Bunning's bill? Is it his
    bill in the Senate? Is he the chief author?
        The Chairman. Yes, it is.
        Senator Carper. I do not know if either of you have any
    thoughts on the bill that has passed the House or the
    legislation that been introduced in the Senate by Senator Jim
    Bunning of Kentucky. If you do, take a moment and just share
    your thoughts with me, please.
        Mr. Wills. I do not have any questions.
        Ms. Shears. I do not have any questions.
        Senator Carper. You do not have any thoughts about the
    legislation?
        Ms. Shears. I believe it would improve the services. I
    believe it would give Social Security the authority to enforce
    payee representatives to stay within the guidelines and I
    believe it would give them a better--I believe they would have
    some better laws in effect that would help them and ultimately
    help the beneficiaries. I believe it is a very much needed
    bill.
        Senator Carper. Mr. Wills, closing word?
        Mr. Wills. From what I have learned here today, I think
    that some of the concerns that Senator Craig has regarding the
    potential felons being allowed to be payees, that is a huge
    loophole and I would hope that it could be closed.
        Senator Carper. Any closing thoughts, Ms. Shears?
        Ms. Shears. I appreciate the opportunity to come and speak
    on behalf of the Aurora Foundation people. One thing I would
    like to call attention to is that not one penny of this money
    has been refunded to the clients. As I left town this morning
    to catch a train, I passed one of the ladies that was sleeping
    in a car that was in the film and she is still homeless. She
    was sleeping in a doorway.
        Senator Carper. Thank you both.
        Mr. Chairman, thanks.
        The Chairman. Tom, thank you.
        Shirley, Jason, thank you very much for your testimony and
    your insight as to your practical and real experiences in
    relation to this Social Security program. We thank you. The
    committee will stand adjourned.
        [Whereupon, at 11:20 a.m., the committee was adjourned.]
                                A P P E N D I X

                                  ----------

                   Prepared Statement of Senator John Breaux

        I would first like to thank Chairman Craig for holding this
    very important hearing on Social Security representative payee
    fraud. I would also like to take this opportunity to thank all
    of the witnesses who have come before us to testify today. Your
    testimony will be of great value as the Committee works to
    address some of the critical challenges that exist in ensuring
    that vulnerable Social Security beneficiaries receive the
    benefits they are due.
        Under current law, the Social Security Administration may
    designate ``representative payees'' to accept monthly benefits
    on behalf of Social Security or Supplemental Security Income
    recipients who are considered physically or mentally incapable
    of managing their own funds, or on behalf of children under the
    age of 18. These representative payees are entrusted with
    managing the funds of the most vulnerable of individuals.
    Sadly, sometimes, this trust is betrayed. It has come to light
    that some representative payees have been misusing,
    misdirecting and at times stealing beneficiary funds. This can
    no longer continue. This Committee along with others that I sit
    on have held hearings and grappled with this issue in the past.
    We need solutions now. Those individuals, who need their
    benefits and our protection the most, should have it.
        Thank you once again Mr. Chairman for holding this
    important hearing. I look forward to hearing from our witnesses
    and working with them to address these serious issues.

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