FECA'S EXCESS PAYMENT
Assistant Secretary for
/ s /
FROM: JOHN J. GETEK
Assistant Inspector General
FECA Excess Payment Recovery Procedures Need Improvement
Final Audit Report No. 03-98-003-04-431
The attached subject final report is submitted for your resolution action. We request a response to this report within 60 days.
If you have any questions regarding this report, please contact Roger Langsdale, Regional Inspector General for Audit, Philadelphia, at (215) 596-6331.
TABLE OF CONTENTS
EXECUTIVE SUMMARY 1
Scope and Methodology 5FINDINGS AND RECOMMENDATIONS
I. Benefit Payments to Deceased Claimants
Were Not Always Promptly Terminated
by FECA 7
II. FECA's Efforts to Account for or RecoverESA RESPONSE TO FINDINGS AND
Excess Payments Were Inadequate 10
ACH Automated Clearing House
ACPS Automated Compensation Payment System
CCG Check Claims Group
DFEC Division of Federal Employees' Compensation
DOL Department of Labor
EFT Electronic Funds Transfer
ESA Employment Standards Administration
FECA Federal Employees' Compensation Act
OIG Office of Inspector General
OWCP Office of Workers' Compensation Programs
SrCE Senior Claims Examiner
Social Security Administration
We have completed an audit of uncollected excess payments under the Federal Employees' Compensation Act (FECA) program. Excess payments are defined as compensation benefit payments issued subsequent to a FECA recipient's death. FECA considers excess payments as fraud as opposed to overpayments where the FECA claimant may or may not be at fault. Although FECA's overpayment procedures include an element of due process and require that overpayments are recorded and tracked as accounts receivable in the Debt Management System, excess payments are neither recorded nor tracked for recovery.
The objectives of the audit were to:
1. determine why excess payments occurred,To achieve our objectives, we randomly selected claimant cases with excess payments which were issued during the calendar years 1995 and 1996 with balances still outstanding as of January 31, 1997. We reviewed FECA's recovery effort from the date the payments were issued to September 30, 1997.
2. gain an understanding of FECA procedures for recovering excess payments at the National and district office levels, and
3. determine the adequacy of FECA's efforts to recover excess payments.
In most cases, excess payments were made because FECA had not been timely notified of a claimant's death, or upon notification of a claimant's death, FECA failed to promptly terminate compensation benefit payments. It took an average of 35 days for FECA to be notified of the claimant's death, and in 19 percent of the cases reviewed, FECA's failure to promptly terminate compensation benefit payments resulted in additional excess payments being made.
We found that FECA's district offices are not following existing procedures
for recovering excess payments. While the FECA Procedure Manual clearly
states ". . . [the] Fiscal Officer should immediately notify the U.S. Treasury
of each erroneous payment via Standard Form 1184 (Unavailable Check Cancellation)
. . . ," our audit disclosed that this procedure is not being followed
in the district offices we visited. We found that a Standard Form 1184
had not been sent to Treasury for 63 percent of the excess payments we
reviewed. Of the Standard Form 1184s which were sent, we found that 98
percent were not sent timely and 21 percent were not prepared correctly.
Lastly, we found that FECA's procedures did not fully address all of FECA's responsibilities for recovering excess payments. According to Treasury's procedures, Federal agencies are responsible for contacting bank account owners to recover funds withdrawn prior to the financial institutions' knowledge of the death of the payee. We believe that FECA's prompt notification of financial institutions as well as survivors/estates would greatly assist both the Treasury and FECA in their joint effort to fully recover excess payments.
Because of the lack of adequate procedures and accountability for recovering excess payments, the total amount of uncollected excess payments FECA made could not be determined. However, we project that about $439,086 in excess payments made during calendar years 1995 and 1996 remained uncollected as of September 30, 1997.
We recommend that the Assistant Secretary for Employment Standards direct the Division of Federal Employees' Compensation (DFEC) to:
While ESA accepts some responsibility under Treasury's Green Book
procedures to collect outstanding compensation payments, they still maintain
that excess payments are not collectable
Each of our four recommendations remains unresolved. Resolution of each
recommendation is subject to the development and implementation of an acceptable
corrective action plan.
The Federal Employees' Compensation Act (FECA) provides compensation and medical benefits to Federal civilian employees and their dependents for job-related injuries, diseases, or deaths. The U.S. Department of Labor (DOL), through the Employment Standards Administration's Office of Workers' Compensation Programs (OWCP), is charged with overall administration of FECA. Within OWCP, the Division of Federal Workers' Compensation (DFEC) has the primary role in establishing policies and procedures for the administration and operation of the FECA program.
Compensation for wage loss is paid at two-thirds of the employee's salary if there are no dependents, or three-fourths if there is at least one dependent. Other benefits include schedule awards, which are payments for the permanent loss, or loss of use of a part of the body, such as an arm or leg, and benefits to survivors in the event of work-related death. A loss of wage-earning capacity benefit is paid to a permanently injured worker who can return to work only at a lower wage because of work-related disability. Physical and vocational rehabilitation services are provided under the law, and injured workers are required to participate in vocational rehabilitation when so directed. These benefits are paid directly by the FECA program to injured employees, their dependents and service providers.
During FY 1996, 175,052 new cases were created and the FECA program provided approximately $1.9 billion in benefits for work-related injury or illness to almost 270,000 Federal workers. Wage loss compensation accounted for $1.3 billion of these benefit payments, medical and rehabilitation services were $477 million, and payments to surviving dependents for death benefits totaled $121 million.
OBJECTIVES The objectives of the audit were to:Death of Recipient
Upon notification of the death of a FECA claimant, the district office is to immediately terminate compensation benefits in the Automated Compensation Payment System (ACPS). FECA may receive a death notification from a variety of sources including the survivor/estate, employing agency, annual CA-1032 certification form, or the Social Security Administration (SSA) death match. The claims examiner usually verifies the date of death by telephone and then sends a letter to the survivor/estate informing them of any future benefits. The claims examiner may also request the return of any uncashed checks issued after the death of a deceased claimant. FECA procedures also require that an SF-1184 be submitted to the Treasury. A senior claims examiner (SrCE) is responsible for monitoring the recovery of any excess payments.
1. determine why excess payments occurred,
2. gain an understanding of FECA's procedures for recovering excess payments at the National and district office levels, and
3. determine the adequacy of FECA's efforts to recover excess payments.
We obtained the SSA's death file and matched it against FECA's
METHODOLOGY ACPS for calendar years 1995 and 1996. We identified claimants who
received FECA compensation payments subsequent to their date of death.
We computed the amount of excess FECA payments made from the day
following their date of death to the last date compensation was paid. We
then determined whether these excess payments had been recovered as of
January 31, 1997.
Our universe represented all 1995 and 1996 uncollected excess payments still outstanding as of January 31, 1997. We identified 515 cases with total uncollected excess payments of $997,499 (268 cases with $454,375 for 1995 and 247 cases with $543,124 for 1996).
We used two-stage cluster sampling to draw the sampling units from the sampling frame to maximize our audit resources and limited time constraints. In the first stage, a sample of five district offices (clusters) for each calendar year, 1995 and 1996, was selected using probability proportional to the number of the cases with uncollected excess payments. The second stage consisted of sampling the cases from the individual clusters selected in the first stage. A total of 138 cases (70 cases for the year 1995 and 68 cases for the year 1996) were drawn using a simple random sampling plan.
The following district offices were visited: New York(1), Philadelphia(1), Jacksonville, Kansas City, Dallas, San Francisco and Washington, D.C.(2) Fieldwork was performed from November 1997 to January 1998, and we reviewed FECA's recovery efforts from the date the payments were issued to September 30, 1997. Fieldwork consisted of interviewing FECA program staff at the National and district offices and reviewing case files. Fieldwork was followed by data input, verification and analysis.
Our audit was performed in accordance with Government Auditing Standards (1994 Revision) issued by the Comptroller General of the United States.
1. This district office was selected in both 1995 and 1996.
2. Includes District Offices #25 and #50.
I. BENEFIT PAYMENTS TO DECEASED CLAIMANTS WERE NOT ALWAYS PROMPTLY TERMINATED BY FECA
Notification of Death
Our audit disclosed that excess payments were issued mostly because FECA had not been timely notified of the claimant's death. On average, FECA received notification 35 calendar days after the date of death. In a majority of the cases, FECA was notified either through voluntary notification from a survivor or through a National Office cross-match performed against the SSA death file.
Termination of Benefits
Of the 138 cases reviewed, we found that FECA promptly(3) terminated compensation benefit payments in 81 percent of the cases for which data were available.(4) However, we also determined that in 19 percent of the cases reviewed, FECA's failure to promptly terminate compensation benefit payments resulted in additional excess payments being made. On average, benefits were terminated 13 calendar days from the date FECA received the death notification.
Discussions with FECA District Office staff, including claims examiners and fiscal officers, failed to establish specific reasons as to why benefit compensation payments were not terminated prior to the established cutoff date. Since these excess payments were made in 1995 and 1996, information was not available as to why a particular action was or was not taken.
We recommend that the Assistant Secretary for Employment Standards direct the DFEC to:ESA Response
strengthen internal controls to ensure that compensation benefit payments are immediately terminated upon notification of the death of a FECA recipient.
ESA concured with our findings that the FECA district office staff often do not delete deceased beneficiaries from the periodic roll immediately. ESA will examine how to best remedy this situation in the most effective manner in light of staffing concerns.
3. We considered termination to be prompt if the benefits were stopped before the cutoff date of the next payment cycle after the date FECA received notice of death.
4. Data were not available in 10 (7 percent) of the cases.
While ESA concurs with our recommendation, they have not provided any specific plans to ensure that benefits are immediately terminated. In order to resolve this recommendation, ESA must provide a detailed corrective action plan outlining specific actions to be taken to strengthen internal controls to ensure that compensation benefit payments are immediately terminated upon notification of the death of a FECA recipient. Closure of this recommendation is dependent upon the implementation of an acceptable corrective action plan.
II. FECA'S EFFORTS TO ACCOUNT FOR OR RECOVER EXCESS PAYMENTS WERE INADEQUATE
We found that FECA's efforts to recover excess payments were inadequate because:
-- FECA's district offices were not following FECA's procedures for recovering excess payments,Thus, because of the lack of adequate procedures and accountability for recovering excess payments, the total amount of uncollected excess payments made by FECA could not be determined. However, we project that about $439,086 in excess payments made during calendar years 1995 and 1996 remained uncollected as of September 30, 1997.
-- FECA does not track or account for excess payments to ensure that all excess payments are recovered, and
-- FECA's procedures do not fully address all of FECA's responsibilities for recovering excess payments.
FECA's District Offices Were Not Following FECA's Procedures for Recovering Excess Payments.
FECA's district offices did not transmit the Standard Form 1184 to Treasury as required by the FECA Procedure Manual for 63 percent of the excess payments we sampled. Additionally, of the Standard Forms 1184 which were sent, 98 percent were not sent timely and 21 percent were incorrectly prepared.
FECA Procedure Manual, Part 6, Chapter 6-0300, Paragraph 20 states:
"Whenever the district office discovers that compensation has been paid after the death of the claimant, and the checks are not returned, the Fiscal Officer should immediately notify the U.S. Treasury of each erroneous payment via Standard Form 1184 (Unavailable Check Cancellation), indicating the claimant's name and date of death in the appropriate boxes on the form (see PM 5-502.11). Treasury will recoup the money from the bank which cashed the check or received the EFT and restore the funds to the Office [Agency]. Once Treasury has been advised, the responsible SrCE should monitor the case for receipt of the payments. Treasury has a 12-month time limit from the date of negotiation of a check or EFT to initiate action against a bank to recover the improper payment. Therefore, it is imperative that the district office act promptly upon learning that payments have continued beyond the date of the claimant's death."
Additionally, per a Treasury Notice, Recertification System Supplemental Information, dated February 4, 1985, Stop Reason Code "E" should be noted on Standard Form 1184 to initiate reclamation action by Treasury. According to the notice, Stop Reason Code "E" must be used when:
1. payee died prior to issuance of check, andIf a check has been paid, Treasury "will initiate reclamation action (demand for refund of the check proceeds from the presenting bank). When the refund is received CCG [Check Claims Group] will forward the proceeds to the Agency. . . ." If a check has not been paid, the check will be canceled and an Agency credit will follow.
2. payee's estate is not entitled to the proceeds of the check.
We examined 138 cases which contained 221 excess payments for which Standard Forms 1184 should have been sent. We found that Standard Form 1184 was not sent to Treasury for 140 payments (63 percent). Furthermore, of the 81 payments for which the Standard Form 1184 was sent:
-- the form was not sent timely(5) for 79 payments (98 percent), and
-- the form did not contain Stop Reason Code "E" for 17 payments (21 percent).
5. According to FECA, Standard Form 1184 should be sent to Treasury within a week of receipt of notification of death.
The following graph shows the length of time it took FECA to submit Standard Form 1184 to Treasury from the date they received the notification of death for the 221 excess payments we examined.
As shown above, FECA recovery procedures were not followed in a majority of excess payments we reviewed. We believe FECA's failure to follow its procedures has significantly reduced FECA's likelihood of recovering excess payments.
FECA Does Not Track or Account for Excess Payments to Ensure that All Excess Payments Are Recovered.
Unlike overpayments which are recorded and tracked as accounts receivable in FECA's Debt Management System, excess payments are not recorded or tracked. FECA's Procedure Manual does not require either the district offices or the national office to record excess payments or track their recovery. As a result, FECA is unable to identify from year to year the amount of excess payments made, which excess payments have been recovered and which excess payments are still outstanding.
FECA considers excess payments as fraud and not overpayments. FECA's overpayment procedures include an element of due process and require that overpayments be recorded and tracked as accounts receivable in the FECA Debt Management System. FECA Procedure Manual, Part 6, Chapter 6-0100, Paragraph 3 (a) states:"The Federal Employees' Compensation Act, at 5 U.S.C. 8129, authorizes the Secretary of Labor to recover overpayments because of an error of fact or law, except when an incorrect payment has been made to an individual who is without fault and the adjustment or recovery would defeat the purpose of the Act or would be against equity or good conscience."However, FECA's excess payment procedures preclude any element of due process. FECA Procedure Manual, Part 6, Chapter 6-0300, Paragraph 20 states:"It is not unusual for one or more compensation checks to be issued after the death of the claimant. Sometimes these checks continue to be cashed by the claimant's surviving spouse or child. This is a criminal act and is not an overpayment subject to waiver under 5 U.S.C. 8129. No waiver or hearing rights are available in these cases and no overpayment should be declared. Likewise, no overpayment is declared when compensation continues to be paid by Electronic Funds Transfer (EFT) for direct deposit to the decedent's bank account."FECA has no established procedures which require district offices to record individual excess payments and followup until recovery is completed. None of the seven district offices we visited had a procedure for recording and tracking the recovery of the excess payments. Without procedures to record and account for these excess payments, FECA cannot monitor the results of their recovery efforts.
FECA's Procedures Do Not Fully Address All of FECA's Responsibilities for Recovering Excess Payments.
Treasury policy concerning the reclamation of Federal compensation payments from a financial institution requires the Federal agency, subsequent to the notification of Treasury via the Standard Form 1184, to attempt recovery of any compensation payments withdrawn subsequent to the death of the claimant. FECA's excess payment recovery procedures place the total responsibility for the recovery of excess payments with Treasury.
In 1990, Treasury published a revised edition of the "Green Book," an operations manual developed for financial institution personnel to assist them in processing Federal Government Automated Clearing House items. The Automated Clearing House (ACH) is a central distribution and settlement point for transmitting funds electronically between an originating financial institution and a receiving financial institution. This network is used for many kinds of electronic payment and collection applications. The ACH system is used for the direct deposit of payments and the collection of Federal Government receipts.
According to the Green Book, financial institutions are fully liable for excess payments that are deposited subsequent to the financial institutions' knowledge of a payee's death. However, if financial institutions had no knowledge of the death at the time of the deposit or withdrawal, financial institutions' liability can be limited. Section B of the Green Book, page 6-18, states:
"A financial institution is fully liable for payments received after death. However, a financial institution may limit its liability by full compliance with the regulations, if it . . .
- had no knowledge of the death at the time of the deposit or withdrawal of any of the post-death payments.
- returned any post-death payments it received after it learned of the death.
- meets the procedural requirements in this section. . . .""The limited liability amount, for which a financial institution can be debited, is the account balance equivalent plus the 45-day amount . . . . The 45-day amount is the dollar amount of the payments made within 45 days following the death. . . ."Furthermore, the Green Book indicates that Federal agencies are responsible for making attempts to collect the withdrawn funds directly from the individuals identified by financial institutions as account owners. In the same section of the Green Book, it states:"If all or part of the post-death payments have been withdrawn from the account before the financial institution learns of the death, the Federal agency must attempt to collect the outstanding total from the identified withdrawers. . . ."
"If the Federal agency is unsuccessful at collecting the outstanding total, the financial institution's remaining liability (the 45-day amount) will be collected. . . ."The FECA Procedure Manual requires that Standard Form 1184 be sent to Treasury "immediately" upon learning of the outstanding excess payments and that SrCEs monitor the case. Additionally, it states:
"If for any reason Treasury is unable to recoup the erroneous payments, OWCP has no redress and the SrCE should simply place an appropriate memorandum in the case file concerning the matter."
The FECA Procedure Manual does not discuss a need to promptly contact the financial institution to hold financial institutions liable for excess payments or to contact the survivors/estates to recover any withdrawn amounts. It incorrectly assumes that FECA's responsibility in the collection process stops once Treasury is notified and that FECA has no further role in collecting excess payments.
FECA's Training Manual recognizes the importance of promptly contacting financial institutions. In their SrCEs Training Manual, FECA instructs the SrCEs to notify financial institutions immediately upon discovering the existence of excess payments. The "Collection Strategies" section of the training package, page 91, states:
"When such a payment [excess payment] is discovered, prompt action is crucial. The sooner Treasury and the bank that cashed the checks are notified, the more likely moneys will be returned to OWCP. Different offices use different methods of notifying Treasury and the bank. . . . No matter how this process is initiated by your office, notification to the financial institution and Treasury is extremely time sensitive. . . ."
Therefore, we believe that FECA's failure to follow the required Treasury procedures may further reduce the financial institution's liability as well as jeopardize Treasury's ability to recoup the excess payments. We also believe that if upon receipt of a death notification, FECA would promptly notify both financial institutions as well as survivors/estates, it would greatly assist both Treasury and FECA in their joint efforts to fully recover excess payments.
$439,086 in Excess Payments Made During CY 1995 and 1996 Remain Uncollected.
Because of the overall lack of accountability and inadequate recovery procedures, the total amount of uncollected excess payments made by FECA cannot be determined. However, we project that $242,222 (± $59,880) of calendar year 1995 excess payments and $196,864
(± $37,834) of calendar year 1996 excess payments remain uncollected as of September 30, 1997. Our projections were made at a 90 percent confidence level. Based upon the results of our audit, we also believe that for any calendar year unrecorded and uncollected excess payments will exceed $200,000.
ESA Response - Recommendation #1
ESA concurred with our finding that the FECA district office staff often do not take the required step of issuing a correctly completed Standard Form 1184 (Unavailable Check Cancellation) to the Department of Treasury in a timely manner. ESA wants to examine how to best remedy this situation in the most effective manner in light of staffing concerns.
While ESA concurs with our recommendation, they have not provided any specific plans to ensure that benefits are immediately terminated or that correctly completed Standard Form 1184s will be timely submitted to Treasury. In order to resolve this recommendation, ESA must provide a detailed corrective action plan outlining specific actions to be taken to strengthen internal controls to ensure that Standard Form 1184's with appropriate Stop Reason Codes are timely submitted to Treasury. Closure of this recommendation is dependent upon the implementation of an acceptable corrective action plan.
ESA Response - Recommendation #2
"We agree that a tracking system would be of assistance in better resolving the small excess payments that do sometimes occur in cases where beneficiaries receiving periodic payments pass away. At issue is how best to do this in light of the fact that the Federal Employees' Compensation Act (FECA) does not permit collection activity on these excess payments in the same manner as an overpayment to a living beneficiary would be handled. Also of concern is the current state of the Office of Workers' Compensation Programs' (OWCP) computer system and whether such tracking could be added in a cost-effective manner. The computer system is undergoing complete reinvention in order to better meet the automation needs of the Office. The concerns raised by this audit will be addressed in the redesign process."
While ESA concurs with our recommendation to establish a tracking system for resolving excess payments, they have also stated that the FECA does not permit collection activity on these excess payments in the same manner as an overpayment to a living beneficiary. In order to resolve this recommendation, ESA must provide a detailed corrective action plan outlining the basic elements they would included in a tracking system, how this tracking system would be included in OWCP's reinvented computer system, and a timetable for the development and implementation of this tracking system. Closure of this recommendation is dependent upon the full implementation of an acceptable corrective action plan.
ESA Response - Recommendation #3
"ESA does not agree with the finding that the procedures promulgated by the Office for handling of these cases do not address the program's responsibilities. The audit team has cited The Green Book, a statement of policy put forth by the Department of Treasury, as dispositive on this issue. On page 11 of the draft report, it is stated as fact that Treasury policy requires the Federal agency to attempt recovery of payments withdrawn after the death of the beneficiary. This is an incorrect interpretation of the wording of the document on which it is based, and this interpretation gives the FECA program more responsibility in this area than it is either required or entitled to exercise.
The full citation from the above noted Green Book indicates that the Federal agency only bears responsibility for some collection action "after the financial institution has properly responded to the Notice of Reclamation and has qualified to limit its liability." This means, per Regulations 31 CFR 210.12 and 13, a Federal agency is only responsible for collection action when and if the financial institution both receives limited liability and notifies the agency (FECA) of the identity of holders of and withdrawers from the account in question. It has been our experience that this usually does not occur; rather, the financial institution refunds the money to Treasury without further FECA intervention.
Additionally, the emphasis on FECA collection responsibility assumes that the program has found a collectable overpayment in these types of situations. This is not the case. Rather, these are treated, as indicated in the draft, as "excess" payments, not subject to the overpayment collection procedure.
Finally, it is noted that The Gold Book, a Treasury guidebook for the reclamation of checks cashed by financial institutions, makes no mention of any Federal agency responsibility for collection. This would seem to be contrary to the suggestion that FECA procedures somehow fail to meet a Treasury requirement in this area. Similarly, the SF-1184 Desk Processing Guide, also put forth by Treasury, outlines what actions are to be taken in a variety of situations, but makes no mention of any agency collection responsibility. Rather, the specific situation at issue here is discussed (at code 13 and 53) as being solely the provenance of Treasury once the SF-1184 has been submitted.OIG Conclusion
In light of the varying interpretations of these documents, the finding that FECA "fail[ed] to follow the required Treasury procedures," (pp. 13 and 15, draft) combined with the recommendation that letters be sent to financial institutions is unduly severe. Further, the issuance of letters to financial institutions in these cases would be, at present, unwieldy at best, as the identity of the financial institution is not information that would be readily available to the claims examiner who would also be writing to the estate.
This said, the finding that a letter, issued at the time that the death of a beneficiary is discovered, to the survivors or the estate, would be of assistance in later recovering payments is of merit. The FECA program currently has available such a form letter and efforts will be made to bolster its' issuance simultaneous with preparation of the SF-1184."
We agree with ESA's conclusion that a Federal Agency (FECA) is only responsible for collection action when and if the financial institution has qualified to limit its liability and Treasury notifies the agency (FECA) of the identify of the holders of and withdrawers from the account in question. Treasury's Green Book states that the Federal Agency must attempt to collect the outstanding total from the identified withdrawers.
We do not agree with ESA's position that excess payments are not collectable overpayments. ESA has not provided any legal basis precluding collection activity nor have they provided any alternative procedures as to how these excess payments should be collected. FECA has stewardship responsibility for insuring that excess payments are recovered.
We do not agree with ESA's position that the identity of the appropriate
financial institution would not be readily available to the claims examiner
writing to the estate. Copies of direct deposit applications are included
in the claimant's file. FECA's Training Manual also recognizes the importance
of promptly notifying financial institutions.
STANDARDS ADMINISTRATION (ESA)
RESPONSE TO DRAFT REPORT
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