You asked whether a dishonesty bond submitted to the Social Security Administration
(SSA) by Paradise for Living Services, Inc. (PFL) meets SSA’s bond requirements to
allow PFL to collect a fee for serving as an organizational representative payee.
The dishonesty bond provided by PFL does not meet SSA’s bonding requirements.
According to its website, PFL is a non-profit organization operating in Georgia. See Paradise for Living Services, http://paradise4living.org/aboutus/aboutus.html (last visited July 28, 2010). PFL’s website also indicates PFL has a board of directors
and its primary function is to serve as a representative payee for individuals, including
for Social Security beneficiaries and Supplemental Security Income recipients. SSA
records indicate PFL currently serves as representative payee for more than five beneficiaries
or recipients and has applied to become a fee-for-service (FFS) organizational representative
payee. PFL submitted a “Commercial Crime Policy” (hereinafter Bond or the bond) that
lists PFL as the “Named Insured” and provides Fidelity and Deposit Company of Maryland
will pay for loss of, or damage to, money, securities, and other property resulting
directly from theft committed by an employee. The bond includes a rider that names
SSA as the Joint Loss P~.
The bond covers theft by employees, see section A, Insuring Agreements, but excludes from coverage managers, directors, trustees
and authorized representatives, see section D.1.c. The bond defines “employee” so as to include a director or officer
working in the capacity of an employee, see section F.5. PFL also submitted a rider that amends the definition of “employee”
to include specified non-compensated officers as employees. The rider specifies “ALL”
of PFL’s non-compensated officers as employees. The rider does not include directors,
whether compensated or uncompensated.
The Social Security Act (Act) permits “qualified organizations” to collect a fee from
payments to a beneficiary or recipient for expenses the organization incurs in providing
representative payee services for the beneficiary or recipient. See Act §§ 205(j)(4), 1631(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a) (2009).
However, SSA authorization is required before an organization can begin collecting
a fee from a beneficiary or recipient’s monthly payments. See 20 C.F.R. §§ 404.2040a(a), 416.640a(a); Program Operations Manual System (POMS) GN 00506.001(B). A “qualified organization” is either: 1) a state or local government agency with
fiduciary responsibilities or whose mission is to carry out income maintenance, social
service, or health-care related activities; or 2) any community-based, non-profit,
social service organization founded for religious, charitable or social welfare purposes,
which is tax exempt under section 501(c) of the Internal Revenue Code, bonded/insured
to cover misuse and embezzlement by officers and employees, and licensed in each State
in which it serves as representative payee (if licensing is available in the State).
See Act §§ 205(j)(4)(B), 1631(a)(2)(D)(ii); 20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS
1. SSA’s bonding requirements
A non-governmental FFS organization must be bonded before SSA will authorize the organization
to collect a fee. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.001(C); POMS GN 00506.105(A). The bond or insurance contract must protect the representative payee and SSA
from financial loss caused by the action or inaction of the organization, a corporate
officer/owner, or an employee of the organization. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A). Generally, bonds or insurance contracts protect the representative payee from
financial loss due to theft by an employee. See POMS GN 00506.105(B). However, coverage for financial loss must also include theft by the corporate
officer/owner(s). See id. The bond or insurance contract must show that SSA is also guaranteed payment if they
are the “loss party” (in the event the representative payee is unable/unwilling to
secure a claim). See id. In addition, the amount of coverage the FFS organization purchases must be sufficient
to compensate the beneficiary for any loss of Title II or XVI benefits and any conserved
funds on hand. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(5). A fidelity bond is a type of insurance that indemnifies the insured for
loss caused by the dishonest or fraudulent acts of its employees and usually covers
the insured against various other losses. See POMS GN 00506.105(C)(4)(b). A fidelity bond covers only losses incurred by the insured. See id. Fidelity policies do not cover losses caused by owners or partners of the insured.
See id. Therefore, for those FFS applicants that use a fidelity bond, SSA requires a separate
rider or an additional bond to cover the corporate officer/owner/director(s). See id. There are two different types of fidelity bonds: a schedule bond and a blanket bond.
See id. A schedule bond guarantees the honesty of only named employees of an entity up to
the stated amount of the bond. See id. By contrast, a blanket bond guarantees the honesty of all employees of an entity up
to the stated amount of the bond. See id. An employee dishonesty bond is usually a blanket bond covering all company employees
except non-profit officers, directors and volunteers (unless specifically mentioned
in a separate rider). See id. PFL’s bond purports to be a blanket bond as that term is defined in POMS GN 00506.105(C)(4)(b) because the bond language itself includes all employees and the rider purports
to cover all non-compensated officers of the organization.
2. Analysis of PFL’s Bond
PFL’s website reveals that PFL has a board of directors and an executive director.
See Paradise for Living Services, http://paradise4living.org/aboutus/aboutus.html (last visited July 28, 2010). PFL’s bond must include coverage for all employees,
officers, directors, and owner(s), if applicable, to satisfy SSA’s corporate-officer/director/owner
Neither the bond nor the rider covers directors. The bond covers theft committed by
“employees” and defines employee as:
(1) Any natural person:
(a) While in your service and for the first 30 days immediately after termination
of service, unless such termination is due to “theft” or any other dishonest act committed
by the employee;
(b) Who[m] you compensate directly by salary, wages, or commissions; and
(c) Who[m] you have the right to direct and control while performing services for
(8) Any of your “managers,” directors, or trustees while:
(a) Performing acts within the scope of the usual duties of an ‘employee;’ or
(b) Acting as a member of any committee duly elected or appointed by resolution of
your board of directors or board of trustees to perform specific, as distinguished
from general, directorial acts on your behalf.
Bond at section F.5. This definition does not include directors acting as directors,
because the bond defines “you” as the “Named Insured,” which in this case is the non-profit
corporation. The board of directors makes the decisions for the corporation so there
is no one directing and controlling the directors.
The rider also does not include directors. It amends the definition of employee to
include “ALL” non-compensated officers. Officers and directors are distinct roles.
The Act does not define officer, but other federal statutes, as well as Georgia law
define an officer. An officer is a position that is described in the corporation’s
bylaws or elected or chosen by the Board of Directors. See Clayton Antitrust Act, 15 U.S.C. § 19(a)(4) (2009), Ga. Code Ann. § 14-3-840(a) (West 2009); see also Motions Sys. Corp. v. Bush, 437 F.3d 1356, 1367 (Fed. Cir. 2006) (“The magisterial Oxford English Dictionary defines
‘officer’ as, among other things, ‘a person authoritatively appointed or elected to
exercise some function pertaining to public life or to take part in . . . management
or direction of a public corporation, institution, etc.’”). SSA requires directors
to be covered by the dishonesty bond. See POMS GN 00506.105(A). Because this bond does not cover directors, it does not meet the requirements
of the Act.
Although the bond does not meet SSA requirements, you also asked whether the term
“ALL” as used in the rider sufficiently identified the PFL’s non-compensated officers.
We conclude that it does. SSA regulations on bonding require only that the organization
be “bonded/insured to cover misuse and embezzlement by officer and employees” and
does not specify whether the bonding agreement must include specific officers’ names
or titles. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). The POMS also do not explicitly require
the listing of specific officers’ names or titles, but requires “[c]overage for [loss
of or damage to money, securities, or property from] theft by corporate officer/owner(s).”
POMS GN 00506.105(B). “Because the words in this contract are plain and obvious, they must be given
their literal meaning . . . and unambiguous terms are taken in their plain and popular
sense as supplied by dictionaries.” Record Town, Inc. v. Sugarloaf Mills Ltd. P’ship of Georgia, 687 S.E.2d 640, 643 (Ga. App. 2009). The use of the word “ALL” in the rider would
seem to include every non-compensated officer involved with PFL.
PFL’s dishonesty bond does not meet SSA’s bond requirements because it does not protect
SSA and Social Security beneficiaries and Supplemental Security Income recipients
against dishonest acts by PFL’s directors.
Mary Ann S~
Regional Chief Counsel
Kristin M. T~
Assistant Regional Counsel