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NAMI Board Member Sue Davis Testifies On Social Security Representative Payee Program

For Immediate Release, May 22, 2000
Contact: Chris Marshall

On May 4, 2000, NAMI Board Member Sue Davis delivered the following testimony before the House Ways and Means Committee on proposed reforms for the Social Security's representative payee program. As many NAMI members know first-hand, SSI and SSDI beneficiaries with serious brain disorders are often required to have payees appointed to manage their cash benefits. In many cases, parent siblings serve the role of representative payee, without compensation. However, in cases where family members are unavailable or unable to meet this need, institutional payees accept this responsibility. Recent cases involving fraud and abuse committed by institutional representative payees have drawn the attention both of the Social Security Administration (SSA) and Congress. Hearings have been held in the House and Senate, and SSA is proposing administrative and legislative reforms designed to prevent fraud and abuse and restore last benefits when they are misappropriated by payees. As part of this effort, NAMI recently offered the attached testimony.

Thus far, SSA's proposal has been favorably received in Congress. It is expected that the House may soon take up SSA's proposals, perhaps as early as this summer. NAMI will continue to monitor developments on this issue and advocate for reforms that both prevent fraud and abuse among representative payees, and ensure that victims have their lost benefits expeditiously restored.




Chairman Shaw, Representative Matsui and members of the Subcommittee, I am Sue Davis of Scottsdale, Arizona, and a constituent of Representative J. D. Hayworth in Arizona Congressional District 6. I am pleased to offer the views of NAMI - the National Alliance for the Mentally Ill - on the Social Security Administration's Representative Payee Program. NAMI is the nation's largest membership organization - 210,000 members and 1,200 affiliates - representing individuals with severe mental illnesses and their families. In addition to serving on the NAMI Board of Directors, I am also the parent of an adult child with a severe mental illness.

My son Tod developed schizophrenia in 1983 during his junior year at the Massachusetts Institute of Technology (MIT) in Cambridge, Massachusetts. The level of disability caused by his illness necessitated that he apply for disability assistance through Social Security. In 1986 Social Security determined that he was permanently and totally disabled. He began receiving Supplemental Security Income (SSI) payments. I became his Representative Payee several years later because the cognitive deficits caused by schizophrenia demonstrated that he needed assistance managing his money. I am also his Designated Representative for the purpose of helping him make medical and life decisions. I receive no financial remuneration for these time-consuming services. I gain satisfaction knowing that I am helping my son live with chronic illness and wisely manage his limited resources.

At the outset, I would like to offer NAMI's thanks for convening this important hearing. Social Security disability cash benefits are perhaps the most important source of support for many adults with the most severe and disabling mental illnesses. These limited, fixed incomes provide what is needed to pay rent, purchase groceries and meet other basic needs. For those who depend on organizational and non-family-member representative payees, fraud, abuse, and mismanagement of these funds are critical concerns. NAMI strongly supports every effort of this Subcommittee to prevent fraud and abuse and to ensure that those who have victimized beneficiaries are fully prosecuted. Where fraud and abuse have occurred, NAMI urges that every effort be made to expeditiously restore lost benefits - something that has not always occurred under Social Security's current rules and regulations.

As members of this Subcommittee know all too well, persons diagnosed with severe mental illnesses such as schizophrenia, bipolar disorder, and major depression represent a significant portion of the population of non-elderly adults with disabilities on the Disability Insurance (SSDI) and Supplemental Security Income (SSI) rolls (they make up one-quarter of the SSDI rolls and one-third of the SSI rolls, according to recent SSA estimates).

While not all SSDI and SSI beneficiaries with severe mental illnesses need a representative payee to manage their cash benefits, many do. In most cases, representative payees are appointed according to the recommendation of a Social Security field office that has determined that an individual's cognitive disability renders him or her unable to manage his or her own financial affairs.

Fraud and Abuse in Representative Payee Programs Should Not Be Tolerated

As the Social Security Administration (SSA) has noted in testimony before the Subcommittee, 6.5 million elderly and disabled beneficiaries have representative payees. Over 750,000 of these Social Security beneficiaries are served by organizational representative payees - rather than family members. In NAMI's view, it is the performance of these organizational and non-family member payees that is the proper focus of these hearings. As several witnesses have noted, the most egregious cases of fraud and abuse that have occurred in recent years have involved either organizational or non-family individual payees - including the Aurora Foundation case from West Virginia (over $300,000 embezzled from over 140 beneficiaries) and the Ivy Foundation case from Phoenix, Arizona, and Denver, Colorado (over $274,000 in funds misappropriated from 330 beneficiaries). Likewise, Social Security's Inspector General has uncovered a troubling lack of oversight in cases of non-family-member individual payees, including the case of Jean Bote, a representative payee and guardian for more than 20 beneficiaries, who was able to misuse over $200,000 in Social Security and veterans benefits for personal gain.

While these extreme cases may be rare (only 650 cases of misuse are uncovered every year, according to SSA) and typically in small amounts (only $3 million out of $30 billion paid out to beneficiaries through payees), infrequency and a lack of large amounts of money are no consolation to an individual with a severe disability who has lost needed benefits.

In NAMI's view, it is proper for Congress and SSA to focus their prevention and prosecution efforts on these organizational and non-family-member payees. Along these lines, I would like to quote a statement made by a previous witness at this hearing that NAMI wants to make sure does not go unchallenged. In testimony before this Subcommittee today, Ann Sparks of the York County, Pennsylvania, Mental Health Association asserted "They [people with mental illness] are frequently taken advantage of by family and friends.." She said that clients referred for organizational payees "are often victims of family or friends who have been their representative payees and mismanaged their benefits."

NAMI is troubled by this reckless statement, especially given that no other witness, including officials from either SSA or the Inspector General's office, made a similar assertion. Such a sweeping assertion, in NAMI's view, is not only unsupported by independent evidence, but more importantly it unfairly maligns the nearly 5.8 million family members such as myself who currently serve as their loved one's payee. Nearly all of the legislative remedies put forward by SSA deal with organizational and non-family representative payees, a clear expression from SSA's perspective that this is where the real problem lies. More important, an examination of the role that family members play in the representative payee program reveals that they fulfill responsibilities far beyond money management at considerable savings to taxpayers.

Family Members as Representative Payees

According to the Social Security Administration (SSA), in cases where a representative payee is needed, family members serve in this role 84 percent of the time. In NAMI's view, these family member representative payees do a tremendous job under sometimes difficult circumstances. Not only do they handle their disabled loved ones' financial affairs, they also serve critically important functions such as coordinating social services, housing, medical and psychiatric treatment, and all other aspects of support in the community. It is important to note that family members that serve as representative payees must do so against the backdrop of the discrimination, stigma, and misunderstanding that are so closely associated with severe mental illness. Moreover, in contrast to many organizational payees who accept fees from SSA, parents and siblings assume these responsibilities at no cost to anyone.

This burden can be especially difficult for the large number of aging parents caring for adult children with severe mental illness. As more and more of these parents of the so-called baby-boom generation age into their seventies and eighties, the responsibilities of being a representative payees are certain to become more and more difficult for them to fulfill. While many of these families will assign siblings the responsibility of being the representative payee, the reality is that the demand for institutional representative payees is likely to grow. NAMI therefore believes that Congress and SSA need to make every effort to ensure that the integrity of this program is restored and promoted in every way possible.

Social Security Administration's Administrative Actions

Before turning to the specifics of SSA's legislative proposal to combat and prevent fraud and abuse in the representative payee program, I would like to note some of the important administrative measures the agency has undertaken to promote the integrity of the program. Perhaps the most important of these administrative steps is SSA's triennial review of all organizational payees serving 100 or more beneficiaries and individual payees serving more than 20 beneficiaries. While only a sample of these payees will actually have face-to-face reviews, this is a step in the right direction. These reviews could be improved even further by becoming more like financial audits, rather than remaining simply contact with vendors and corroboration of expenses.

NAMI is also pleased that SSA intends to increase scrutiny of newly appointed fee-for-service payees. We believe that this process could be improved even further by making technical assistance available for newly appointed family-member payees to avoid misunderstanding program rules and responsibilities. NAMI respects that SSA's limited administrative budget prevents more extensive audits of all high-volume payees. However, we believe that more can be done to respond promptly to "trigger" events involving high-volume payees, such as stepped reviews once reports of misuse of funds are received from beneficiaries or credible third parties.

Social Security Administration's Legislative Proposal

NAMI would like to offer strong support for many of the provisions contained in SSA's recommended legislative proposal to combat fraud and abuse in the representative payee program. Perhaps the most important of these recommendations concerns access to restitution of cash benefits that have been lost through fraud, abuse, or misappropriation. Under current law, when a payee has been determined to have misused benefits, SSA can reissue the benefits only in cases where SSA is found to have been negligent in investigating or monitoring the payee. In nearly all other cases, the individual beneficiary loses his or her benefits. It is very difficult for the beneficiary to claim this reissue on his or her own and can result in extreme hardship for beneficiaries.

NAMI therefore strongly endorses a requirement for SSA to reissue benefit payments (including respective fees for fee-for-service payees) in all cases when an organizational payee is found to have misused beneficiary funds, without either a finding of negligence on SSA's part or restitution from the payee. At the same time, NAMI wants to ensure that this long-overdue reform does not result in SSA retreating from its existing duty of demanding restitution of misused funds from former payees to ensure that an appropriate deterrent to misuse is not eroded.

Second, NAMI supports SSA's recommendation for all non-governmental, fee-for-service, organizational representative payees to be both licensed and bonded. Current requirements allow either state licensing or bonding. Mandating that institutional payees meet both requirements will ensure necessary state oversight of business practices and investigation by surety companies that issue bonds. Proceeds from redeemed bonds would also reduce the costs to Social Security from misused benefits that are reissued.

Third, NAMI supports efforts to ensure that organizational payees that have been found to have misused an individual's benefits cannot qualify for any fees from that individual's benefits for the months the payee misused the funds. It is troubling that any organizational payee has ever been able to actually profit by collecting fees from beneficiaries they were simultaneously defrauding. NAMI would like to see this long overdue reform expanded by requiring SSA to notify the beneficiary that their organizational payee has been found to have misused funds and has had fees withheld. Such a notice should also give the beneficiary the opportunity to immediately switch to a different payee.

Fourth, while NAMI supports SSA's efforts to step up restitution of misused benefits and payee fees directly from payees - including efforts to recover these funds through overpayment recovery - we believe that "misuse" needs to be more clearly defined to protect individual payees who are also Social Security beneficiaries. In their legislation, SSA is proposing the use of existing overpayment recovery methods (tax refund offsets, referral to collection agencies, notice to credit bureaus, etc.) to recoup benefits misused by individual representative payees. In other words, misused funds (and any fees paid out to organizational payees) would be treated the same as an overpayment made to the payee.

While NAMI strongly supports the goal of expanding restitution of benefits misused by payees, we want to ensure that these recovery methods are limited to genuine instances of fraud and conversion and not to subjective judgments about whether or not handling of benefits by an individual payee (particularly a family member) is in the best interests of the beneficiary. NAMI therefore urges that language be added to this Proposal specifically limiting SSA's authority to use these expanded overpayment collection methods against family representative payees to situations in which there has been actual theft or conversion of funds for personal use. Moreover, SSA should be prevented from using these overpayment collection methods against a family member payee until an allegation of theft or conversion has actually been proven, not simply alleged.

Finally, NAMI strongly supports granting SSA authority to levy civil monetary penalties against organizational payees that misuse benefits. In their legislative proposal, SSA is seeking authority to impose administrative penalties against payees who make false statements to improperly obtain or retain benefits. This would help SSA go after those payees who commit fraud but are never prosecuted criminally, in many cases because the amounts they have stolen are small or prosecutors declined to move forward on criminal charges. The existence of civil monetary penalties will help create a new deterrent against fraud by organizational payees and non-family individual payees who handle large numbers of beneficiaries.


Chairman Shaw, on behalf of NAMI's consumer and family membership, I would like to thank you for the opportunity to offer our views on this important issue. We look forward to working with all members of the Subcommittee to promote the integrity of the Social Security Representative Payee Program to ensure that the interests of all beneficiaries and their families are protected.


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