[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








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                       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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     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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    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

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               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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