TN 10 (07-14)
GN 00506.105 Bonding and Licensing Guidelines for Non-Governmental Fee for Service (FFS) Organizations
A. Policy - bonding
A non-governmental FFS organization must be bonded in order to be authorized by SSA to collect a fee. Bonding constitutes a bond or insurance contract which protects the Representative Payee from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization. (For an explanation of various terms and coverages, see GN 00506.105C in this section).
B. Policy – bonding guidelines
Most bonding/insurance contracts are designed to protect the representative payee from financial loss by providing coverage that will pay for loss of or damage to money, securities or property from theft by an employee. Coverage for these same losses must also include theft by officer(s). The FFS organizational payee should consult with an independent broker or insurance agent prior to purchasing the appropriate bond coverage. The bonding and insurance industry offers many types of coverage for specific businesses and occupations. For further explanation of bonds and insurance policies, see GN 00506.105C.4, in this section.
The amount of coverage must be sufficient to compensate the beneficiary for any loss of Title II, VIII or XVI benefits and any conserved funds on hand. (For bond or insurance calculations, see GN 00506.105C.5 in this section).
C. Policy - bonding definitions
Black’s Law Dictionary defines “fiduciary” as a person or institution who manages money or property for another and who must exercise a standard of care in such management activity imposed by law or contract. The status of being a fiduciary incurs certain legal incidents and obligations, including the prohibition against investing the money or property in investments which are speculative or otherwise imprudent. A “fiduciary duty” is the duty to act for someone else’s benefit, while subordinating one’s personal interests to that of the other person. It is the highest standard of duty implied by law (e.g., trustee, guardian).
2. Joint insured
This insurance industry term means that in addition to the first name insured, eligible entities that meet certain conditions may be included as “joint insured” under the same policy. Such conditions include:
operation by contract,
individual owners and trustees,
the existence of common officers,
common premises, or
the intermingling of employees.
NOTE: SSA should not be listed as a “joint insured” on a FFS organization’s insurance contract since it does not meet the above criteria.
3. Bond characteristics
Bond language and terminology varies. In dishonesty bonds, the surety companies classify the coverage as professional and business, and non-profit social service organizations.
Coverage for officers of the organization often requires a separate clause. Such coverage may be subject to underwriter approval and may require a “conviction clause.”
Under a “conviction clause,” in order for coverage to apply and protect the business and its employees against unjustified allegations of dishonesty, the employee must be convicted of a crime which is punishable under the criminal code in the jurisdiction within which the act occurred, and for which said employee is tried and convicted by a court of proper jurisdiction.
This means that for the bond or insurance company to be required to pay, the officer or employee must be convicted, in which case, the allegation of dishonesty is neither unjustified nor unsubstantiated, but an established fact.
4. Types of bonds and insurance policies
a. Surety bond
A surety bond is a type of insurance where one party (the surety) obligates itself to a second party (the obligee) to answer for the default of a third party (the principal). This policy covers company employees.
b. Fidelity bond and dishonesty bond
A fidelity bond is a type of insurance that indemnifies the insured for loss caused by the dishonest or fraudulent acts of its employees. In addition, the fidelity bond typically covers the insured against: forgery or alteration; loss inside the premises caused by theft, disappearance and destruction, and
robbery and safe burglary; and loss outside the premises caused by the robbery of a messenger. The fidelity bond covers only losses incurred by the insured, and claims may be made under the policy only by the insured and paid to the insured. These policies do not cover losses caused by owners or partners of the insured.
NOTE: If this bond is secured, a separate rider or additional bond is required to cover the officer.
There are two types of fidelity bonds:
Blanket Bond – bond that guarantees the honesty of all employees of an entity up to the stated amount of the bond.
Schedule Bond – bond that guarantees the honesty of only named employees of an entity up to the stated amount of the bond.
An employee dishonesty bond is usually a blanket bond covering all company employees except officers (unless specifically mentioned in a separate rider). For dishonesty bonds of high amounts, the surety company may require the bond-holder to have certain loss prevention procedures in place, such as:
countersignature procedures for check signing;
audits by a Certified Public Accountant or an independent financial examiner, performed at least annually;
bank account reconciliation by someone not authorized to deposit or withdraw from the account;
employee discharge notification from an employer and reason for discharge or separation; or
joint handling of any securities.
c. Fiduciary bond
A fiduciary bond is designed to insure honest accounting and faithful performance of duties by administrators, trustees, guardians, executors and other fiduciaries. Fiduciary bonds are sometimes referred to as probate bonds; do not confuse with the Fidelity Bond.
d. Insurance contract
For the purpose of FFS organizations, an “insurance contract” or “insurance policy” is intended to protect the employer from financial loss due to the fraudulent activities of an employee or group of employees. For a loss to be covered the employer must suffer financial loss and the employee must obtain financial benefit from the act or provide direct financial benefit to another person or organization. The loss can be the result of the employee's theft of money, securities, or other property of the insured. Most employee dishonesty insurance policies are written on a blanket basis so that all employees are covered.
Officer(s) must also be covered. The insurance agent should advise if the officer(s) are covered under the employee dishonesty or theft clause and exhibited in the policy.
e. Simplified crime insurance policy
This insurance industry tool offers different types of coverage under one policy. The organization can choose the type and amounts of coverage based on the number of employees, assets managed, and risk factors.
The types of coverage offered in a simplified crime insurance policy may include (but are not limited to):
Depositors Forgery or Alteration
Theft, Disappearance, and Destruction of Money, Securities and Other Property (inside and outside the premises)
Computer fraud and funds-transfer fraud
Money orders and counterfeit currency
The Simplified Crime Policy with Third Party Coverage (on premises) means that the Employee Theft clause was expanded to include coverage for money, securities, and other property being held for a client on the representative payee’s premises. This may also be known as “Fiduciary bonding for third party finances” and to take effect, a criminal conviction is usually not required.
5. Bonds or Insurance policy coverage amounts
The bond or insurance policy must be sufficient to compensate the organization for any loss of SSA client benefits and conserved funds. Therefore, the minimum amount of bonding or insurance coverage must equal the amount of the beneficiaries’ conserved funds on hand plus the average monthly amount of social security payments received by the organization. Any organization that believes additional coverage is needed should be encouraged to obtain a more substantial bond or coverage.
EXAMPLE: ABC organization is holding conserved funds of $5000 for its beneficiaries and receives an average of $12,000 a month in social security payments. The minimum bond/insured amount should be $17,000.
FFS organizations must maintain coverage for at least the minimum amount described above in order to be authorized to collect a fee. Although the number of beneficiaries and amounts of conserved funds can fluctuate, it is not necessary to ask the FFS organization to amend its current coverage during the course of the policy period. New bond or insurance amount calculations should be performed at subsequent re-certifications or renewals.
D. Policy - licensing (what is important about a license)
In order to be authorized to collect a fee, a non-governmental FFS organization must be licensed in every state in which it serves as a representative payee (if licensing is available in the state). An agency may hold numerous licenses. Also, the form (certificate, letter, etc.) of license varies among states. For the purpose of FFS organizations, the licensing document must be issued in the state in which the agency serves as representative payee and it must permit the agency to:
Provide a specialized service to residents of the state, such as:
Community mental health services,
Substance abuse treatment services,
Residential care services,
Psychiatric care services,
Skilled nursing services,
Medicaid services, OR
Conduct business or operate in the State (generally referred to as an “operating license”).
NOTE: Organizational charters, licenses for “doing business as” (business name) or articles of incorporation do NOT represent the required license for SSA’s authorization purposes. If any of these documents is submitted in lieu of a license, see GN 00506.110B.4 and GN 00506.110B.5.
GN 00506.110 Reviewing Evidence in a Fee for Service Application
GN 00506.120 Making the Determination on Fees for Service
GN 00506.300 Processing Payee Applications from Organizations Approved to Collect a Fee for Service
GN 00506.400 Change in Status of an Authorized Organization
GN 00506.430 State Licensing Digest for the States, Commonwealths, and Territories in 10 SSA Regions