[Federal Register Volume 67, Number 82 (Monday, April 29, 2002)]
[Rules and Regulations]
[Pages 20890-20893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10467]


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SOCIAL SECURITY ADMINISTRATION

20 CFR Parts 404 and 416

[Regs. No. 4 and 16]
RIN 0960-AF20


Administrative Procedure for Imposing Penalties for False or 
Misleading Statements

AGENCY: Social Security Administration (SSA).

ACTION: Final rules.

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SUMMARY: The interim final rules published at 65 FR 42283 on July 10, 
2000, are adopted as final without change. These rules reflect and 
implement section 207 of the Foster Care Independence Act of 1999. This 
provision amended the Social Security Act (the Act) by adding a new 
section 1129A which provides for the imposition by SSA of a penalty on 
any person who knowingly (knew or should have known or acted with 
knowing disregard for the truth) makes a statement that is false or 
misleading or omits a material fact for use in determining any right to 
or the amount of monthly benefits under titles II or XVI of the Act. 
The penalty is nonpayment for a specified number of months of benefits 
under title II that would otherwise be payable to the person and 
ineligibility for cash benefits under title XVI (including State 
supplementary payments made by SSA according to Sec. 416.2005).

EFFECTIVE DATE: These regulations were effective July 10, 2000, the 
date they were published in the Federal Register as interim final rules 
(65 FR 42283).

FOR FURTHER INFORMATION CONTACT: Bill Hilton, Social Insurance 
Specialist, Office of Program Benefits, Social Security Administration, 
6401 Security Boulevard, Baltimore, MD 21235-6401, (410) 965-2468 or 
TTY (410) 966-5609. For information on eligibility, claiming benefits, 
or coverage of earnings, call our national toll-free number, 1-800-772-
1213 or TTY 1-800-325-0778.

SUPPLEMENTARY INFORMATION:

Background

    Section 207 of the Foster Care Independence Act of 1999 (Pub. L. 
106-169) amended title XI of the Act by adding section 1129A to help 
prevent and respond to fraud and abuse in SSA's programs and 
operations. Section 1129A provides for the imposition by SSA of a 
penalty on an individual who makes, or causes to be made, a statement 
or representation of a material fact that the person knows or should 
know is false or misleading or omits a material fact, or that the 
person makes with a knowing disregard for the truth. The statement must 
be made for use in determining eligibility for or the amount of 
benefits under title II or XVI. The penalty is nonpayment for 6, 12 or 
24 months of benefits under title II that would otherwise be payable to 
the person and ineligibility for the same period of time for cash 
benefits under title XVI (including State supplementary payments made 
by SSA according to Sec. 416.2005).
    Section 207 of Pub. L. 106-169 directs the Commissioner of Social 
Security to develop rules prescribing the administrative process for 
making determinations under section 1129A, including when periods of 
penalty shall commence, and providing guidance on the exercise of 
discretion as to whether the penalty should be imposed in particular 
cases. Consequently, we published interim final rules on July 10, 2000, 
which added new rules at Secs. 404.459 and 416.1340 to reflect and 
implement section 1129A. We provided a 60-day period for interested 
individuals and organizations to comment. Summaries of the comments we 
received and our responses thereto are set out later in this preamble. 
After consideration of all the comments received, we have decided not 
to revise

[[Page 20891]]

the interim final rules we published on July 10, 2000.
    Section 1129A of the Act applies to statements and representations 
made on or after December 14, 1999, the date of enactment of the Foster 
Care Independence Act of 1999.

Explanation of Changes

    In our interim final rules, we added new Secs. 404.459 and 416.1340 
to our regulations. The organization and wording of these two sections 
are essentially identical. These sections make it clear, and as 
Congress provided, that if an individual knowingly (knew or should have 
known or acted with knowing disregard for the truth) made a false or 
misleading statement with respect to one program, the penalty shall 
apply to benefits under both the title II and XVI programs. Applying 
the penalty to both programs helps protect the integrity of both 
programs from further fraud by the same person and helps to maintain 
public confidence in the integrity of our programs. A subsection-by-
subsection discussion of these rules follows.
    Subsection (a) describes the conditions under which you will be 
subject to a penalty by SSA for knowingly making a false or misleading 
statement of a material fact.
    Subsection (b) explains that the penalty is both nonpayment of 
benefits under title II and ineligibility for cash benefits under title 
XVI. When we impose a penalty on you, you cannot receive benefits under 
either title II or title XVI even if the false or misleading statement 
was made in connection with benefits under only one of the two 
programs. We further explain that, as provided by the law, if we impose 
a penalty on your title XVI benefits, you also will not be eligible to 
receive State supplementary payments that SSA pays by agreement with 
the State.
    Subsection (c) explains how long the penalty for making a false or 
misleading statement will last. As provided in section 1129A, the 
penalty will last six consecutive months the first time we penalize 
you, twelve consecutive months the second time we penalize you, and 
twenty-four consecutive months the third or subsequent times we 
penalize you. The penalty will not begin to run until you would 
otherwise be eligible for payment of benefits under either title II or 
title XVI. You will be ineligible to receive benefits at any time 
during the penalty period. If more than one penalty period has been 
imposed but they have not yet run, the penalties will run 
consecutively, not concurrently.
    Subsection (d) explains, as provided in section 1129A, that the 
imposition of a penalty will affect only your own eligibility for 
benefits under titles II and XVI. If we impose a penalty on you, the 
penalty will not affect the eligibility or amount of benefits payable 
under titles II or XVI to another person. For example, another person 
(such as your spouse or child) may be entitled to benefits under title 
II based on your earnings record. Benefits would still be payable to 
that person to the extent that you would be receiving such benefits if 
the penalty had not been imposed. As another example, if you are 
receiving title II benefits that are limited under the family maximum 
provision (Sec. 404.403) and we stop your benefits because we impose a 
penalty on you, we will not increase the benefits of other family 
members who are limited by the family maximum provision simply because 
you are not receiving benefits as a result of the penalty. As a third 
example, if you and your spouse are receiving title XVI benefits, those 
benefit payments to your spouse based on the benefit rate for a couple 
will not be affected because of the penalty. Your spouse will continue 
to receive one half of the couple rate.
    Section 1129A also specifically provides that the imposition of a 
penalty will not affect your eligibility for Medicare and Medicaid 
benefits (titles XVIII and XIX of the Act).
    Subsection (e) explains that to impose a penalty on you, we must 
find that you knowingly made a false or misleading statement or omitted 
a material fact. ``Knowingly'' means that you knew or should have known 
that the statement was false or misleading or omitted a material fact, 
or you made the statement with a knowing disregard for the truth. We 
will base our decision to impose a penalty on the evidence and the 
reasonable inferences that can be drawn from that evidence, not on mere 
speculation or suspicion. In determining whether you knowingly made a 
false or misleading statement or omitted a material fact, we will 
consider all of the evidence in the record, including any physical, 
mental, educational, or linguistic limitations (including any lack of 
facility with the English language) which you may have had at the time. 
In determining whether you acted knowingly, we will also consider the 
significance of the statement in terms of its likely impact on your 
benefits under titles II and/or XVI.
    The Office of the Inspector General may investigate your false or 
misleading statement for fraud for civil monetary penalty purposes (see 
section 1129 of the Act) and you may be prosecuted civilly or 
criminally by the United States Attorney's Office. We may impose a 
penalty under these rules in addition to any other penalties that may 
be prescribed by law.
    Subsection (f) explains that if you disagree with our initial 
determination to impose a penalty, you have the right to request 
reconsideration of the penalty decision, as discussed in Secs. 404.907 
and 416.1407. If you do request reconsideration, you will be able to 
present your case in one of three ways:
    1. Case review--We will give you an opportunity to review the 
evidence in our files and then to present oral and written evidence to 
us;
    2. Informal conference--In addition to following the procedures of 
a case review, we will give you an opportunity to present witnesses; 
and
    3. Formal conference--In addition to following the procedures of an 
informal conference, we will give you an opportunity to request us to 
subpoena adverse witnesses and relevant documents and to cross-examine 
adverse witnesses.
    After reconsideration, if you do not agree with our reconsidered 
determination you may follow the normal administrative and judicial 
review process by requesting a hearing before an administrative law 
judge, Appeals Council review and Federal court review, as described in 
Secs. 404.900 and 416.1400.
    Subsection (g) explains when the penalty period begins and ends. 
That section explains that the penalty period will not begin until the 
month you would otherwise be eligible to receive payments under either 
title II or title XVI. In addition, the point at which the penalty 
period begins may depend on whether you request reconsideration of our 
initial determination to penalize you. If you do not request 
reconsideration, the penalty period will begin no earlier than the 
first day of the second month following the month in which the time 
limit for requesting reconsideration ends. If you request 
reconsideration and our reconsidered determination does not change our 
original decision to penalize you, the penalty period will begin no 
earlier than the first day of the second month following the month we 
notify you of our reconsidered determination. The penalty period ends 
on the last day of the final month of the penalty period. Once a 
penalty period begins it will run continuously even if payments are 
intermittent.

Comments on Interim Final Rules

    As noted above, on July 10, 2000 we published the interim final 
rules in the

[[Page 20892]]

Federal Register at 65 FR 42283 and provided a 60-day comment period. 
We received comments from twenty-five individuals and organizations. 
Some of the comments, however, pertained to matters that were not 
within the scope of these proposed rules. We do not address them in 
this preamble. Following are summaries of the comments and our 
responses to them.
    Comment: Thirteen of the comments concerned what was perceived as 
vagueness in the regulation, including the meaning of the phrase ``knew 
or should have known.'' The commenters thought more specific guidelines 
and instructions are necessary in order to make the process fair and 
equitable. One commenter specifically mentioned that much of the 
information SSA makes available to the public is not readily accessible 
to those with visual impairments so the use of the phrase ``should have 
known'' may be suspect. Several others were concerned about how 
individuals with mental impairments may be adversely affected by the 
phrase ``should have known'' and believe SSA should monitor these 
actions closely to ensure equity. They were all concerned that the lack 
of detailed definitions and guidelines in the regulation may cause SSA 
to find that an individual should have known something when the 
impairment prevented the person from knowing the information.
    Response: Section 1129A of the Act specifically provides for the 
imposition by SSA of a penalty if a person makes a statement or 
representation ``that the person knows or should know is false or 
misleading.'' These rules provide that, in determining whether a person 
``knew or should have known,'' we will consider all the evidence in the 
record, including any physical, mental, educational, or linguistic 
limitations (including any lack of facility with the English language) 
that the person may have had at the time. In addition, the rules 
provide that a decision to impose a penalty will be documented with the 
basis and rationale for that decision and will be based on the evidence 
and the reasonable inferences that can be drawn from that evidence, not 
on speculation or suspicion.
    Further, operating instructions provide guidelines for SSA 
personnel to follow when making a determination that a person knew or 
should have known that a statement was false or misleading. In addition 
to considering any physical or mental impairment, these guidelines 
instruct personnel to consider the significance of the false or 
misleading statement in terms of its likely impact on the person's 
benefits, and the individual's:
     Understanding of reporting requirements;
     Knowledge of events that have occurred and should have 
been reported;
     Efforts to comply with requirements;
     Understanding of the obligation to return payments not 
due;
     Ability to understand and comply with reporting 
requirements;
     Experience in dealing with government agencies;
     Past history of providing inaccurate information; and
     Understanding of the language used by SSA.
    We also note that a determination to impose an administrative 
sanction is an initial determination. Accordingly, an individual may 
follow the normal administrative and judicial review process by 
requesting reconsideration, a hearing before an administrative law 
judge, Appeals Council review and Federal Court review. A separate 
component of SSA will also review all penalty determinations to ensure 
uniformity in applying these instructions.
    In developing these rules, instructions, and procedures, we have 
taken into account both the need for SSA to deal effectively with those 
situations in which individuals knowingly provide false and material 
evidence and the need to ensure that all claimants and beneficiaries 
are treated fairly.
    Comment: Five comments were from people who work with individuals 
who are disabled and want to return to work. They believe there is 
``widespread ignorance'' of the fact that people receiving disability 
benefits need to report income from work. They also believe that many 
reports of attempted work are not acted upon by SSA. They are concerned 
that failure to report income and incorrect processing by SSA personnel 
may lead to penalties against ``innocent'' individuals.
    Response: A penalty will only be imposed when a person knowingly 
makes or causes to be made a statement or representation that is false 
or misleading or omits a material fact. A penalty will not be imposed 
solely because an individual has failed to make a report of work 
activity.
    Comment: One commenter agreed that a penalty should be imposed if a 
person lies or makes a misleading statement about his or her medical 
condition if it is clearly in contrast with medical evidence. However, 
the commenter believes that a misleading statement about his or her 
personal life and activities should not be punishable.
    Response: A penalty will only be imposed when a person knowingly 
makes a false or misleading statement of a material fact for use in 
determining any right to or the amount of benefits under titles II or 
XVI. Statements not related to eligibility for benefits or payment 
amounts will not cause a penalty.
    Comment: Another commenter noted that benefits will continue while 
we make a reconsideration determination. After the reconsideration, the 
penalty will start the second month after notice of our reconsidered 
determination. He asks whether benefits will continue through higher 
levels of appeal or if this option was intentionally omitted for this 
procedure. He suggests that, if the intent is to reduce fraud and abuse 
of the system, this same philosophy should be applied to cessation and 
childhood redetermination cases that allow benefits to continue until 
all avenues of appeal are exhausted.
    Response: As required by section 223 of the Act, disability benefit 
payments may continue beyond the reconsideration level during appeals 
of disability cessation decisions. This benefit continuation does not 
apply to non-medical decisions such as the decision to impose a 
penalty. For a penalty period of non-payment, the benefit payments will 
stop beginning the second month after we send notice of our 
reconsidered determination.
    Comment: One commenter was concerned about whether a penalty could 
apply to an SSA employee who makes a false or misleading statement or 
an omission of a material fact. He was concerned that the definition 
could apply to employees who omit a material fact by neglecting to 
follow written procedures. He thought this would place an additional 
burden on personnel by ``adding an extra level of meticulousness'' in 
preparing decisions and work products. Finally, he asks whether this 
regulation will require that a person who witnesses an act which could 
cause a penalty must report such an act and whether SSA will defend the 
reporting person in the event of civil action against the reporter.
    Response: These regulations apply to people who claim benefits 
under title II or title XVI of the Act and make or cause to be made, a 
false or misleading statement of a material fact in connection with 
that claim. They do not impose any additional requirements on SSA 
employees and how they perform their official duties. Rules of employee 
conduct are not affected by these regulations in any way. Finally, 
these

[[Page 20893]]

changes do not impose any new reporting requirement on any individuals.
    Comment: One commenter was concerned about the financial effect the 
penalty will have on the individual. He believes that SSA has been able 
to recover its overpayments in the past using current methods and that 
imposing a penalty on an individual may result in the individual being 
placed on public assistance.
    Response: Section 207 authorizes the Commissioner to impose a 
penalty to help prevent and respond to fraud and abuse in SSA's 
programs. These penalties are intended to deter individuals from 
providing false or misleading information about material facts in 
connection with a claim for benefits. Penalties will have little, if 
any, effect on the collection of overpayments. By law, Social Security 
benefits under title II and title XVI are paid only if certain 
eligibility requirements are met. SSA must ensure that those 
requirements are met based on proven facts. The penalty process is 
intended to help deter people from trying to meet those requirements 
fraudulently. It is possible that a person who does not meet the 
requirements for Social Security payments may qualify for public 
assistance just as he or she does now. We do not expect this change to 
have any substantial effect on the number of people on public 
assistance.
    Comment: One commenter believes that a penalty should continue 
until all benefits obtained as a result of the false or misleading 
statement or omission of a material fact are recovered. She also 
believes that a penalty should apply to all individuals on a record, 
not just the person being sanctioned.
    Response: This regulation is a result of a legislated change in the 
Social Security Act. The legislation itself prescribes the length of 
the penalty period. The length of the period is not affected by the 
amount of the benefits involved nor by the time required to recover any 
overpayment. The legislation also specifically states that the penalty 
will affect only the individual who makes, or causes to be made, the 
false or misleading statement.
    Comment: One comment proposed that administrative law judges should 
be allowed to impose penalties.
    Response: Any SSA employee may identify a case where a penalty may 
be appropriate and this may lead to the initiation of the penalty 
process. The decision to impose the penalty, however, is an initial 
determination. In order to allow the claimant the full range of appeal 
rights, this decision will be made at the initial level by the claims 
representative. The claims representative will also issue the notice of 
penalty and input the suspension action.
    For the reasons discussed above, we have not changed the interim 
final rules based on the public comments. Therefore, the interim final 
rules adding 20 CFR 404.459 and 416.1340 published in the Federal 
Register (65 FR 42283) on July 10, 2000 are adopted as final without 
change.

Executive Order 12866

    The Office of Management and Budget has reviewed these final rules 
in accordance with Executive Order (E.O.) 12866, as amended by E.O. 
13258.

Regulatory Flexibility Act

    We certify that these final rules will not have a significant 
impact on a substantial number of small entities. Therefore, a 
regulatory flexibility analysis, as provided in the Regulatory 
Flexibility Act, as amended is not required.

Paperwork Reduction Act

    This final rule imposes no reporting or recordkeeping requirements 
requiring clearance by the Office of Management and Budget.

List of Subjects

20 CFR Part 404

    Administrative practice and procedure, Blind, Disability benefits, 
Old-age Survivor and Disability Insurance, Reporting and recordkeeping 
requirement, Social Security Income.

20 CFR Part 416

    Administrative practice and procedure, Aged, Blind, Disability 
benefits, Public assistance programs, Reporting and recordkeeping 
requirement, Supplemental Security Income.

    Dated: February 15, 2002.
Jo Anne B. Barnhart,
Commissioner of Social Security.

PART 404--FEDERAL OLD-AGE, SURVIVORS AND DISABILITY INSURANCE 
(1950- )

    Accordingly, the interim final rules adding 20 CFR Part 404.459 
published at 65 FR 42283 on July 10, 2000 are adopted as final without 
change.

PART 416--SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND AND 
DISABLED

    Accordingly, the interim final rules adding 20 CFR Part 416.1340 
published at 65 FR 42283 on July 10, 2000 are adopted as final without 
change.

[FR Doc. 02-10467 Filed 4-26-02; 8:45 am]
BILLING CODE 4191-02-U