TN 12 (04-98)

SI 02220.060 Misapplication of Funds in a Dedicated Account

A. Policy - General

Section 213 of Public Law (P.L.) 104-193, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, enacted August 22, 1996, requires that the representative payee of an individual under age 18, who is eligible for the payment of Supplemental Security Income (SSI) past-due monthly benefits and any Federally administered State Supplement (OSS) which, after withholding of any applicable interim assistance reimbursement (IAR) together exceed the product of 6 times the current Federal Benefit Rate (FBR) plus any OSS, must establish an account in a financial institution into which such past-due benefits must be paid.

Subsequent past-due benefits (including any OSS, but minus IAR reimbursement) that exceed the amount described above must also be paid into this account and may be paid into the account if they are in an amount less than or equal to that described above.

Any other subsequent underpayment that is equal to or exceeds 1 times the FBR, but is less than the amount described above, may be, but is not required to be, deposited into the account.

Section 213 also lists the allowable expenses for which the funds in the account shall be used. These allowable expenses include those for education, training, medical treatment and other items or services related to the impairment. Any unauthorized use “shall be considered a misapplication of benefits..., and any representative payee who knowingly misapplies benefits from such an account shall be liable to the Commissioner in an amount equal to the total amount of such benefits.” (See GN 00602.140 for details of what are allowable expenses.)

B. Definitions

1. Dedicated account

A dedicated account is an account in a financial institution for SSI past-due monthly benefits (including any Federally administered State Supplement) which are required or allowed to be paid into such an account and the use of which is restricted by section 1631 (a)(2)(F) of the Social Security Act. See GN 00603.025.

2. Allowable expenses

Allowable expenses are education, training, medical treatment and other items or services related to the individual's impairment. See GN 00602.140.

3. Misapplication of funds

The use of funds from a dedicated account for an expense not authorized by the Act is considered misapplication of funds. An authorized expense can include an item or service not specifically listed in the Act if the item or service is determined to be appropriate by the Commissioner and is related to the individual's impairment. See GN 00602.140 and SI 02101.010.

The unauthorized use of funds from a dedicated account is done knowingly when the representative payee knew that the expense was unauthorized.

4. Repayment

Repayment is the return of an amount equal to the amount misapplied to SSA.

C. Policy - Overview of misapplication

Misapplication of the funds from a dedicated account is not an overpayment. Misapplication is not an overpayment because the funds paid into the account were correctly paid. Misapplication does not involve a delay or failure to report events or changes relevant to eligibility so a penalty for delay/failure is not applicable. Misapplication is not misuse when the representative payee's use of the funds, while not authorized or approved, did benefit the individual.

Because misapplication is not an overpayment, waiver rules with respect to overpayments do not apply to the requirement to return an amount equal to the amount misapplied.

D. Procedure

NOTE: Use the following procedures in conjunction with those in GN 00602.140C. in the determination of misapplication of funds.

1. Determination of misapplication

  1. Misapplication can occur when the individual is in a period of suspension as long as the payee continues to have control of the dedicated account.

  2. The restrictions on the use of the funds in a dedicated account terminate when the individual's eligibility terminates. There can be no misapplication of funds after the termination of eligibility.

  3. A finding that a representative payee knowingly misapplied funds for unauthorized expenditures can be made based on a signed “Allowable Use Of Funds” statement (see SI 02101.010), but other relevant facts, if any, must also be considered.

  4. Notify the representative payee of your determination and the requirement to repay the misapplied funds (see SI 02220.060D.3.a.).

2. Reconsideration of determination of misapplication

When the payee objects to the determination (i.e., the notice sent per SI 02220.060D.1.d., and SI 02220.060D.3.a.) that he/she knowingly misapplied funds, obtain a Request For Reconsideration (Form SSA-561). The reconsideration determination is made using the same criteria as in SI 02220.060D.1., and GN 00602.140C., used to make the initial determination. Consider any additional evidence/statements. Notify the representative payee of the determination using a Notice of Reconsideration (Form SSA-8457-CL). Also see SI 02220.060D.4.

NOTE: Send a copy of the SSA-561, SSA-8457-CL and information/ documentation on any subsequent appeal, annotated with the payee's social security number, to the Office of Financial Policy and Operations, Office of Benefit Accounting and Systems Analysis at the address shown at SI 02220.060D.3.a.

3. Repayment of misapplied funds

NOTE: Because the representative payee, not the individual, is solely liable for repayment, the payee cannot use dedicated account funds to repay misapplied funds.

a. Notification

Prepare an SSI Important Information Notice (Form SSA-L8166). Include:

  • your determination that dedicated account funds were misapplied;

  • a demand for full repayment within 60 days; and,

  • that payment is to be made to SSA.

  • the payment stub (DOCS UTI OPT066)

Also include:

  • a return envelope addressed to the FO serving the payee.

    Mail or FAX a copy of the notice to:

    SSA
    Office of Financial Policy and Operations
    Office of Benefit Accounting and Systems Analysis
    6401 Security Blvd.
    3-A-10 East High Rise Building
    Baltimore, MD 21235

    Annotate the envelope: Misapplied Funds Case

    FAX 410-966–6552

b. When payment is received:

  • annotate the file.

  • follow remittance processing procedures in GN 02403.001 ff. and MSOM DMS 003.001-9 and 10

  • Code the Debt Management System (DMS) remittance screen with a trust fund code of M and a reason code of S.

  • annotate the Remarks field that a refund has been received, the amount received and the amount of misapplied funds that remains to be repaid. Do not delete the original amount of the misapplied funds.

NOTE: DO NOT input a P-TAC. Remittances of misapplied funds are not posted to the Supplemental Security Record (SSR).

c. If payee cannot repay the full amount in one payment:

  • Allow for repayment over a period of up to 12 months.

  • Ensure that payments will be made on a regular monthly basis.

  • Do not complete Section II of the SSA-632-BK.

  • Give the payee a sufficient number of Payment Stubs and return envelopes.

  • Set up manual control of the installment payments.

d. When the representative payee does not respond to a repayment letter within 60 days (plus 5 days for mailing), take the following recovery actions:

  • Determine whether the payee did not receive the letter (e.g., was it returned), or is delinquent in dealing with the repayment.

  • If the payee is delinquent, send a letter stating that payment is past due and demanding payment within 10 days.

  • If no response is received, attempt phone contact.

  • If phone contact is unsuccessful or the payee is unresponsive, send a letter by certified mail. This letter will:

    • demand repayment;

      state that the case may be referred to the Department of Justice (DOJ) for civil action; and

      that we may review the payee's continuing suitability to remain payee in light of his/her failure to repay the misapplied funds.

  • Allow 30 days for a response.

  • Take appropriate follow up action. See SI 02220.035

e. When there is no response to the requests for repayment or the payee refuses to repay/cooperate or referral to DOJ is not appropriate (or DOJ will not take the case):

  • annotate the file; and,

  • send a report of contact outlining the recovery efforts to the Office of Financial Policy and Operations at the address in SI 02220.060D.3.a.

4. Appeals

a. Waiver of repayment

Because misapplication of funds from a dedicated account is not an overpayment, do not apply overpayment waiver procedures (based on defeat the purpose of the Act (SI 02260.025), against equity and good conscience (SI 02260.030) and impede effective or efficient administration (SI 02260.035)).

b. Reconsideration/Hearing/etc.

The determination that a payee has misapplied funds is an initial determination. Therefore, the payee has the same right to appeal this determination as he/she does with any other initial determination. See SI 02220.060D.1. and SI 02220.060D.2.

When a request for reconsideration is filed within 60 days of the date of the notice of the initial determination of misapplication (see SI 02220.060D.2.), stop all recovery efforts. Resume recovery efforts only after making the reconsideration determination.

It is not necessary to stop recovery efforts when further appeals — Hearing, Appeals Council, etc. — are requested.

E. Policy - Use of dedicated account funds to repay a SSI overpayment

While the individual remains eligible for SSI (see SI 02220.060D.1.a.) dedicated account funds cannot be used to refund any SSI overpayment.

Past-due payments that are or must be paid into a dedicated account cannot be used to recover an SSI overpayment that occurred after the individual was determined to be eligible for such past-due benefits. For example, a large past-due award must be paid in installments. Between the payment of the first and second installment an overpayment is detected. The overpayment cannot be netted with nor offset from the second installment. Remember that netting is the process used to determine whether there is an overpayment/underpayment. (See SI 02201.015).

F. References


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