The Social Security Act permits “qualified organizations”^[5] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Based on the information provided, we believe that the agency could reasonably conclude that Payee Express’s Bond does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees. Specifically, we believe the agency may reasonably conclude that the Bond does not adequately cover financial losses due to the action or inaction of all of Payee Express’s officers, both compensated and non-compensated, given the definition of “Employee.” Thus, there is legal support for the agency to find that Payee Express’s Bond does not satisfy SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105 as it relates specifically to coverage for financial loss due to misuse and embezzlement of both employees and officers .

Question Presented

You asked us to review Payee Express Inc. ’s (Payee Express’s) Dishonesty Bond, issued by Western Surety Company on November 1, 2010, and effective October 29, 2010, for our opinion as to whether the Bond satisfies the Social Security Administration’s (SSA’s or agency’s) bonding requirements for non-governmental fee-for-service (FFS) organizations, as set forth in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) and the Program Operations Manual Systems (POMS) GN 00506.105.^[6] We understand your specific question to concern whether Payee Express’s Bond meets SSA’s requirement that bonding/insurance coverage for financial loss due to employee misuse and embezzlement includes officers.

BACKGROUND

ANSWER

Based on the information provided, we believe that the agency could reasonably conclude that Payee Express’s Bond does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees. Specifically, we believe the agency may reasonably conclude that the Bond does not adequately cover financial losses due to the action or inaction of all of Payee Express’s officers, both compensated and non-compensated, given the definition of “Employee.” Thus, there is legal support for the agency to find that Payee Express’s Bond does not satisfy SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105 as it relates specifically to coverage for financial loss due to misuse and embezzlement of both employees and officers .

A. Payee Express is an Oklahoma Nonprofit Corporation

The Oklahoma Secretary of State’s on-line information shows that Payee Express is registered with the Oklahoma Secretary of State as a non-profit domestic corporation that was formed in 2009. Seehttps://www.sos.ok.gov/corp/corpInformation.aspx?id=2112219287 (last visited Dec. 28, 2020). As a non-profit domestic corporation, Payee Express should have officers (as well as a board of directors). See Okla. Stat. Ann. tit. 18, § 1002(A) (“The provisions of the Oklahoma General Corporation Act [Okla. Stat. Ann. tit. 18, §§ 1001-1144] shall be applicable to every corporation, whether profit or not for profit . . .”); § 1010 (commencement of corporate existence upon filing the certificate of incorporation with the Secretary of State); § 1027 (every corporation shall be managed under the direction of a board of directors; the board of directors of a corporation shall consist of one or more members); § 1028 (every corporation shall have officers as set forth in the bylaws or in a resolution by the board of directors).

B. Payee Express’s Bond

The information you provided shows that on November 1, 2010, Payee Express obtained the Dishonesty Bond from Western Surety Company (Western Surety) effective October 29, 2010. The Bond identifies Payee Express as the Insured and states that Western Surety agrees to indemnify Payee Express in the amount of $5,000.00

against any loss of money or other property which the Insured shall sustain or for which the Insured shall incur liability to any Customer or Subscriber of the Insured through any fraudulent or dishonest act or acts committed by any Employee or Employees of the Insured acting alone or in Collusion with others…

Bond, ¶1.

The Bond defines “Employee” as

one or more of the natural persons (except directors or trustees of the Insured, if a corporation, who are not also officers or employees thereof in some other capacity) while in the regular service of the Insured in the ordinary course of the Insured’s business during the term of this bond, and whom the Insured compensates by salary, or wages and has the right to govern and direct in the performance of such service…

Bond, § 4.

The Bond also limits the definition of a “fraudulent or dishonest act” to crimes for which an employee is tried and convicted by a court exercising proper jurisdiction. See Bond § 5.

A rider issued on January 21, 2011, and effective January 21, 2011, increased the penalty amount under the Bond to $25,000.00.

A rider issued on September 13, 2012, and effective October 29, 2012, increased the penalty amount under the Bond to $50,000.00.

Pursuant to a rider issued on January 22, 2013, and effective January 22, 2013, SSA is listed as a loss payee under the Bond.

A rider issued on March 1, 2013, and effective March 1, 2013, increased the penalty amount under the Bond to $100,000.00.

ANALYSIS

A. Federal Law and SSA Policy: FFS Organizational Representative Payees

The Social Security Act permits “qualified organizations”^[7] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Here, you have indicated that Payee Express falls into the second category of qualified organizations as a community-based nonprofit social service organization, also referred to in the POMS as a non-governmental FFS representative payee organization. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). We do not otherwise address whether Payee Express is a “qualified organization” meeting all of the regulatory requirements. See 20 C.F.R. §§ 404.2040a(a)-(d), 416.640a(a)-(d); POMS GN 00506.001(C), GN 00506.100(B)(3). Further, we do not address its section 501(c)(3) tax-exempt status, whether it is licensed in the state in which it serves, or whether the amount of coverage under the bond is sufficient. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.001(C), GN 00506.105(B), GN 00506.010(B)(2), GN 00506.100(B)(2), GN 00506.105(C)(5), (D). Rather, pursuant to your legal opinion request, our focus is upon whether the Payee Express meets SSA’s requirement for bonding/insurance coverage for financial loss due to misuse and embezzlement by both officers and employees, as we discuss in the next section. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I) (requiring the community-based nonprofit social service organization be “bonded”); 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (requiring that the community-based nonprofit social service organization be “bonded/insured”); POMS GN 00506.105(A)-(C) (explaining that “bonding” means a bond or insurance contract).

A non-governmental FFS representative payee organization must be adequately bonded or insured before the agency will authorize the organization to collect a fee. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I); 20 C.F.R. §§ 404.2040a(a)(2), (d), 416.640a(a)(2), (d); POMS GN 00506.001(C); POMS GN 00506.105(A).^[8] The regulations instruct that the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees.” 20 C.F.R. §§ 404.2040a(a), 416.640a(a). Although the regulations require coverage for “misuse and embezzlement,” SSA law and policy do not specify what insurance or bonding product the FFS representative payee should use or the exact wording of the insurance or bonding contract. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). SSA’s POMS instruct that the bond or insurance contract must protect the FFS representative payee organization “from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization.” POMS GN 00506.105(A).

POMS GN 00506.105(B) and (C) discuss in general terms various types of bonds and insurance policies that protect from financial loss due to such things as theft, dishonest acts, or fraudulent acts by employees and officers. The POMS states that the bond or insurance contract should provide coverage for financial loss from an organization’s employee’s or officer’s theft. See POMS GN 00506.105(B). Therefore, the bond or insurance contract must provide coverage for financial loss caused by the misuse of benefits and embezzlement of both the FFS representative payee organization’s employees and officers, and the POMS indicates that coverage for loss due to theft, dishonest acts, and fraudulent acts would suffice. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(3), (4).

Here, Payee Express’s Bond is labeled a “Dishonesty Bond.” The POMS explains that an employee dishonesty bond is usually a blanket bond covering all company employees except officers. POMS GN 00506.105(C)(3), (4)(b). A separate rider or clause is often required to provide coverage for officers. Id. Further, when such additional coverage for officers is provided, a “conviction clause” is often required, which means that in order for the bond or insurance company to be required to pay, the officer or employee must be convicted of a crime. POMS GN 00506.105(C)(3). We turn next to the specific provisions of Payee Express’s Bond to determine if it is sufficient under SSA’s requirements.

B. Review of Payee Express’s Bond to Determine If It Complies with Federal Law and SSA Policy ^[9]

As stated, we must determine whether Payee Express’s Bond satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C).

1. Misuse and Embezzlement

We first considered whether the Bond covers loss for an employee’s theft/misuse/embezzlement of SSA beneficiaries’ funds (Social Security benefits) held by Payee Express as the beneficiaries’ representative payee. Here, the introductory paragraph specifies that the Bond provides coverage for “any loss of money or other property which the Insured shall sustain or for which the Insured shall incur liability to any Customer or Subscriber of the Insured through any fraudulent or dishonest act or acts committed by any Employee or Employees of the Insured.” Bond, ¶1. This language appears to sufficiently cover misuse and embezzlement, and therefore, the agency could reasonably find that such language satisfies SSA’s requirement that the bond or insurance policy cover financial loss attributable to such acts. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(C)(4)(d).

We note that the Bond limits recovery for fraudulent or dishonest acts to crimes for which an employee is tried and convicted (a so-called conviction clause). See Bond § 5 (defining a fraudulent or dishonest act to mean “an act which is punishable under the criminal code in the jurisdiction within which act occurred, for which said employee is tried and convicted by a court of proper jurisdiction”); POMS GN 00506.105(C)(3). SSA’s bonding and insurance requirements do not prohibit a conviction clause. See POMS GN 00506.105(C)(3). Accordingly, the presence of that clause does not make the Bond insufficient. However, we note the concern that such clause leaves open the possibility for Western Surety to deny payment where a loss occurs, but an employee is not charged with and convicted of a crime for the dishonest or fraudulent acts. See POMS GN 00506.105(C)(3).

2. Officer Coverage

As noted in the background, Payee Express is registered as a domestic nonprofit corporation incorporated in Oklahoma. It is our understanding that Payee Express has officers. See Okla. Stat. Ann. tit. 18, § 1002(A) (“The provisions of the Oklahoma General Corporation Act [Okla. Stat. Ann. tit. 18, §§ 1001-1144] shall be applicable to every corporation, whether profit or not for profit . . .”); § 1010 (commencement of corporate existence upon filing the certificate of incorporation with the Secretary of State); § 1027 (every corporation shall be managed under the direction of a board of directors; the board of directors of a corporation shall consist of one or more members); § 1028 (every corporation shall have officers as set forth in the bylaws or in a resolution by the board of directors).

We believe that the agency may reasonably conclude that the Bond is deficient because it does not provide sufficient coverage against financial losses caused by Payee Express’s compensated and non-compensated officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees”); POMS GN 00506.105(A)-(B) (explaining that a bond or insurance contract must cover the non-governmental FFS representative payee organization’s employees and officers). Rather, the Bond provides coverage for financial losses incurred through any fraudulent or dishonest acts committed by “any Employee or Employees of the Insured.” Bond, ¶1. The Bond defines an “Employee” as “one or more natural persons (except directors or trustees of the Insured, if a corporation, who are not also officers or employees thereof in some other capacity) while in the regular service of the Insured in the ordinary course of the Insured’s business during the term of this bond, and whom the Insured compensates by salary, or wages and has the right to govern and direct in the performance of such service…” Bond § 4. The Bond’s limitation of an “Employee” to an individual whom Payee Express “has the right to govern and direct in the performance of such service” and “compensates,” arguably excludes Payee Express’s officers (both compensated and non-compensated). See, e.g., Ins. Co. of N. Am. v. Greenberg, 405 F.2d 330, 332–33 (10th Cir. 1969) (applying Oklahoma law and concluding that two officers were employees for purposes of coverage under a dishonesty bond notwithstanding the requirement that the insured have the right to direct and control the individuals because the officers did not have sole control of the company; in other words, the company had the right to direct and control these officers). Thus, it is not clear whether Western Surety contemplated coverage for compensated and non-compensated officers under this definition of “Employee.” Therefore, we believe the agency may reasonably conclude that the Bond’s definition of “Employee” does not clearly include Payee Express’s officers and therefore, the Bond’s coverage is deficient under SSA’s requirements. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement by all of the organization’s officers and employees ); POMS GN 00506.105(A)-(B) (same ).

3. Loss Payee Rider

Finally, we analyzed the Rider issued January 22, 2013, and effective January 22, 2013, which added SSA as a Loss Payee under the Bond, in determining SSA’s rights to recover financial losses with respect to the Bond.^[10] The Rider lists SSA as a Loss Payee, but explicitly states “[a]ll other terms and conditions of the bond remain unchanged. No further changes other than above.” Giving effect to the plain language of the Rider, the addition of SSA as a Loss Payee appears to be a simple, rather than standard, loss payee clause. See Conner v. Nw. Nat’l Cas. Co., 774 P.2d 1055, 1056-57 (Okla. 1989).^[11] The addition of SSA as a Loss Payee sufficiently protects SSA’s right to recover payment if Payee Express is entitled to payment under the Bond. However, SSA’s rights under the Bond are no greater than Payee Express’s rights, and the Rider does not create an independent contract between SSA and Western Surety Company.^[12] See Hensley v. State Farm Fire & Cas. Co., 398 P.3d 11, 21 (Okla. 2017); Conner, 774 P.2d at 1057; see also Adam D. Cornett, Andrew S. Kent, Who Can Recover Under A Fidelity Policy?, 20 Fidelity L.J. 139, 152–53 (2014) (noting that a loss payee to a fidelity policy has an assignment type interest and if the underlying insured is not entitled to payment under the policy, the loss payee is likewise not entitled to payment). Accordingly, because as discussed above, the Bond does not sufficiently cover financial losses caused by all of Payee Express’s employees and officers, SSA would likewise be unable to recover payment for financial losses caused by all employees and officers. The Loss Payee Rider itself is not a deficiency, but its presence does not cure the other deficiencies discussed above.

In summary, as explained above, both the regulations and the POMS require that a bond or insurance policy provide coverage for financial loss incurred due to the misuse and embezzlement of all of the organization’s employees and officers^[13] .Given the definition of “Employee,” uncertainties exist as to whether officers are covered under the Bond. As such, we believe that there is legal support for the agency to determine that the Bond does not comply with SSA’s bonding requirements for non-governmental FFS representative payee organizations. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(B).

CONCLUSION

Based on the information provided, we believe that the agency may reasonably conclude that Payee Express’s Bond does not sufficiently comply with SSA’s bonding requirement for coverage of financial loss incurred due to the misuse and embezzlement by all employees and officers of the non-governmental FFS representative payee organization. Specifically and of most concern, given the definition of “Employee,” the Bond does not clearly cover financial losses due to the action or inaction of all of Payee Express’s officers. That SSA is listed as a loss payee does not cure the deficiencies in the Bond. Therefore, we believe the agency may reasonably find that Payee Express’s Bond does not meet SSA’s bonding requirements set out in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105.

The Social Security Act permits “qualified organizations”^[14] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Based on the information provided, we believe that the agency could reasonably conclude that Money Management’s Bond does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees to be bonded/insured to cover misuse and embezzlement by officers and employees.

Question Presented

You asked us to review Money Management Group, Inc.’s (Money Management’s) Western Surety Company Dishonesty Bond, executed June 17, 2020, with an effective date of June 16, 2020.^[15] In particular, you asked whether Money Management’s Bond satisfies the Social Security Administration’s (SSA’s or agency’s) bonding requirements for non-governmental fee-for-service (FFS) organizations, as set forth in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) and the Program Operations Manual Systems (POMS) GN 00506.105. We understand your specific question concerns whether Money Management’s Bond meets SSA’s requirement that bonding/insurance coverage for financial loss due to employee misuse and embezzlement include officers.

ANSWER

Based on the information provided, we believe that the agency could reasonably conclude that Money Management’s Bond does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees to be bonded/insured to cover misuse and embezzlement by officers and employees.^[16] Specifically, we believe that the agency may reasonably conclude that the Bond does not adequately cover financial losses due to the action or inaction of all of Money Management’s officers, both compensated and non-compensated, given the definition of “Employee” and the unclear language in its Rider. Therefore, we believe that there is legal support for the agency to find that Money Management’s Bond does not meet SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105. At the conclusion of our legal opinion, we are providing recommended language to assist with responding to Money Management regarding the specifics of their deficient coverage.

BACKGROUND

A. Money Management is an Oklahoma Nonprofit Corporation

The Oklahoma Secretary of State’s on-line information shows that Money Management is registered with the Oklahoma Secretary of State as a non-profit domestic corporation that was formed in 2018, with Willis Lusk listed as the registered agent. See https://www.sos.ok.gov/corp/corpInformation.aspx?id=2112685530 (last visited Sept. 11, 2020). As a non-profit domestic corporation, Money Management should have officers (as well as a board of directors). See Okla. Stat. Ann. tit. 18, § 1002(A) (“The provisions of the Oklahoma General Corporation Act [ Okla. Stat. Ann. tit. 18, §§ 1001-1144] shall be applicable to every corporation, whether profit or not for profit . . .”); § 1010 (commencement of corporate existence upon filing the certificate of incorporation with the Secretary of State); § 1027 (every corporation shall be managed under the direction of a board of directors; the board of directors of a corporation shall consist of one or more members); § 1028 (every corporation shall have officers as set forth in the bylaws or in a resolution by the board of directors).

B. Money Management’s Surety Bond

The information you provided shows that on June 17, 2020, Money Management obtained the Bond from Western Surety Company (Western Surety) effective June 16, 2020. The Bond identifies Money Management as the Insured and states that Western Surety agrees to indemnify Money Management in the amount of $100,000.00

against any loss of money or other property which the Insured shall sustain or for which the Insured shall incur liability to any Customer or Subscriber of the Insured through any fraudulent or dishonest act or acts committed by any Employee or Employees of the Insured acting alone or in Collusion with others…

Bond, ¶1.

The Bond defines “Employee” as

one or more of the natural persons (except directors or trustees of the Insured, if a corporation, who are not also officers or employees thereof in some other capacity) while in the regular service of the Insured in the ordinary course of the Insured’s business during the term of this bond, and whom the Insured compensates by salary, or wages and has the right to govern and direct in the performance of such service…

Bond, § 4.

The Bond also limits the definition of a “fraudulent or dishonest act” to crimes for which an employee is tried and convicted by a court exercising proper jurisdiction. See Bond § 5.

On June 29, 2020, Money Management obtained a Rider^[17] to the Bond, effective June 29, 2020, which provides that the following Bond information changed under the definition of employee:

The coverage on all owners and members, except for the organizational director and 2 employees, is hereby excluded.

Bond, Rider.

ANALYSIS

A. Federal Law and SSA Policy: FFS Organizational Representative Payees

The Social Security Act permits “qualified organizations”^[18] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Here, you have indicated that Money Management falls into the second category of qualified organizations as a community-based nonprofit social service organization, also referred to in the POMS as a non-governmental FFS representative payee organization. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). We do not otherwise address whether Money Management is a “qualified organization” meeting all of the regulatory requirements. See 20 C.F.R. §§ 404.2040a(a)-(d), 416.640a(a)-(d); POMS GN 00506.001(C), GN 00506.100(B)(3). Further, we do not address its section 501(c)(3) tax-exempt status, whether it is licensed in the state in which it serves, nor whether the amount of coverage under the bond or policy is sufficient. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.001(C), GN 00506.105(B), GN 00506.010(B)(2), GN 00506.100(B)(2), GN 00506.105(C)(5), (D). Rather, pursuant to your legal opinion request, our focus is upon whether Money Management’s Bond meets SSA’s requirement for bonding or insurance coverage for financial loss due to misuse and embezzlement by both officers and employees, as we discuss in the next section. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I) (requiring the community-based nonprofit social service organization be “bonded”); 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (requiring that the community-based nonprofit social service organization be “bonded/insured”); POMS GN 00506.105(A)-(C) (explaining that “bonding” means a bond or insurance contract).

A non-governmental FFS representative payee organization must be adequately bonded or insured before the agency will authorize the organization to collect a fee. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I); 20 C.F.R. §§ 404.2040a(a)(2), (d), 416.640a(a)(2), (d); POMS GN 00506.001(C), GN 00506.105(A).^[19] The regulations instruct that the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees.” 20 C.F.R. §§ 404.2040a(a), 416.640a(a). Although the regulations require coverage for “misuse and embezzlement,” SSA law and policy do not specify what insurance or bonding product the FFS representative payee should use or the exact wording of the insurance or bonding contract. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). SSA’s POMS instructs that the bond or insurance contract must protect the FFS representative payee organization “from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization.” POMS GN 00506.105(A). POMS GN 00506.105(B) and (C) discuss in general terms various types of bonds and insurance policies that protect from financial loss due to such things as theft, dishonest acts, or fraudulent acts by employees and officers. The POMS states that the bond or insurance contract should provide coverage for financial loss from an organization’s employee’s or officer’s theft. See POMS GN 00506.105(B). Therefore, the bond or insurance contract must provide coverage for financial loss caused by the misuse of benefits and embezzlement of both the FFS representative payee organization’s employees and officers, and the POMS indicates that coverage for loss due to theft, dishonest acts, and fraudulent acts would suffice. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(3), (4).

Money Management’s Bond is labeled as a “dishonesty bond.” The POMS explains that an employee dishonesty bond is usually a blanket bond covering all company employees except officers. POMS GN 00506.105(C)(3), (4)(b). A separate rider or clause is often required to provide coverage for officers. Id. Further, when such additional coverage for officers is provided, a “conviction clause” is often required, which means that in order for the bond or insurance company to be required to pay, the officer or employee must be convicted of a crime. POMS GN 00506.105(C)(3). We turn next to the specific provisions of Money Management’s Bond to determine if it is sufficient under SSA’s requirements.

B. Money Management’s Surety Bond Does Not Comply with Federal Law and SSA PolicyBecause It Does Not Specify Whether the Bond Covers Financial Losses Caused by Money Management’s Officers^[20]

^[21]

We next considered whether the Bond satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by the organization’s employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C).

a. “Misuse and Embezzlement”

Here, the introductory paragraph specifies that the Bond provides coverage for “any loss of money or other property which the Insured shall sustain or for which the Insured shall incur liability to any Customer or Subscriber of the Insured through any fraudulent or dishonest act or acts committed by any Employee or Employees of the Insured.” Bond, ¶1. This language appears to sufficiently cover misuse and embezzlement, and therefore, the agency could reasonably find that such language satisfies SSA’s requirement that the bond or insurance policy cover financial loss attributable to such acts. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(C)(4)(d).

We note that the Bond limits recovery for fraudulent or dishonest acts to crimes for which an employee is tried and convicted (a so-called conviction clause). See Bond § 5 (defining a fraudulent or dishonest act to mean “an act which is punishable under the criminal code in the jurisdiction within which act occurred, for which said employee is tried and convicted by a court of proper jurisdiction”); POMS GN 00506.105(C)(3). SSA’s bonding and insurance requirements do not prohibit a conviction clause. See POMS GN 00506.105(C)(3). Accordingly, the presence of that clause does not make the Bond insufficient. However, we note the concern that such clause leaves open the possibility for Western Surety to deny payment where a loss occurs, but an employee is not charged with and convicted of a crime for the dishonest or fraudulent acts. See POMS GN 00506.105(C)(3).

b. Officer Coverage

More importantly, however, we believe that the agency may reasonably conclude that the Bond is deficient because it does not provide sufficient coverage against financial losses caused by Money Management’s compensated and non-compensated officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees”); POMS GN 00506.105(A)-(B) (explaining that a bond or insurance contract must cover the non-governmental FFS representative payee organization’s employees and officers). Rather, the Bond provides coverage for financial losses incurred through any fraudulent or dishonest acts committed by “any Employee or Employees of the Insured.” Bond, ¶1. The Bond defines an “Employee” as “one or more natural persons (except directors or trustees of the Insured, if a corporation, who are not also officers or employees thereof in some other capacity) while in the regular service of the Insured in the ordinary course of the Insured’s business during the term of this bond, and whom the Insured compensates by salary, or wages and has the right to govern and direct in the performance of such service…” Bond § 4. The Bond’s limitation of an “Employee” to an individual whom Money Management “has the right to govern and direct in the performance of such service” and “compensates,” arguably excludes Money Management officers (both compensated and non-compensated). See, e.g., Ins. Co. of N. Am. v. Greenberg, 405 F.2d 330, 332–33 (10th Cir. 1969) (applying Oklahoma law and concluding that two officers were employees for purposes of coverage under a dishonesty bond notwithstanding the requirement that the insured have the right to direct and control the individuals because the officers did not have sole control of the company; in other words, the company had the right to direct and control these officers). Thus, it is not clear whether Western Surety contemplated coverage for compensated and non-compensated officers under this definition of “Employee.” Therefore, we believe the agency may reasonably conclude that the Bond’s definition of “Employee” does not clearly include Money Management’s officers and therefore, the Bond’s coverage is deficient under SSA’s requirements. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement by all of the organization’s officers and employees ); POMS GN 00506.105(A)-(B) (same ).

c. Rider

Finally, the Rider does not cure the defect in the Bond’s definition of “Employee.” The Rider modifies the Bond’s definition of employee so that “[t]he coverage on all owners and members, except for the organizational director and 2 employees, is hereby excluded.” Bond, Rider. This language does not clearly, consistently, and unambiguously provide coverage for all of Money Management’s employees and officers. Rather, this language appears to specifically exclude from coverage all of Money Management’s owners, members, and employees except for the organizational director and two unidentified employees. See Porter, 330 P.3d at 516 (declining to impose coverage where the clear policy language provided that a specific risk was not covered). Thus, the Rider does not cure the deficiencies in the Bond’s definition of “Employee,” and consequently, does not change our opinion that the Bond does not sufficiently cover misuse and embezzlement by all of Money Management’s officers and employees.

In summary, as explained above, both the regulations and the POMS require that a bond or insurance policy provide coverage for financial loss incurred due to the misuse and embezzlement of all of the organization’s employees and officers.^[22] 20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.105(A). In the absence of policy language that unambiguously covers all of Money Management’s employees and officers, we believe that the agency could reasonably conclude that the Bond does not provide sufficient coverage for financial loss resulting from misuse and embezzlement committed by all of Money Management’s employees and officers.

CONCLUSION

Based on the information provided, we believe that the agency may reasonably conclude that Money Management ’s Bond does not sufficiently comply with SSA’s bonding requirement for coverage of financial loss incurred due to the misuse and embezzlement by all employees and officers of the non-governmental FFS representative payee organization. Specifically and of most concern, given the definition of “Employee,” the Bond does not clearly cover financial losses due to the action or inaction of all of Money Management ’s officers. Therefore, we believe the agency may reasonably conclude that Money Management ’s Bond does not meet SSA’s bonding requirements set out in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105.

The Social Security Act permits “qualified organizations”^[23] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Based on the information provided, we believe that the agency could reasonably conclude that the Surety Bond does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees. Specifically, the Surety Bond, which covers financial loss due to the “Principal’s conversion of [Social Security] benefits for use other than for the beneficiary” and defines Principal only as Money Management, is not sufficiently clear, certain, and unambiguous to ascertain whether coverage includes conversion by Money Management’s officers. Thus, there is legal support for the agency to find that Money Management’s Surety Bond does not satisfy SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105 as it relates specifically to coverage for financial loss due to misuse and embezzlement of both employees and officers.

Question Presented

You asked us to review Money Management Group, Inc .’s (Money Management’s) “Social Security Administration Representative Payee Surety Bond, issued by Platte River Insurance Company (Platte) and effective June 14, 2019, for our opinion as to whether the Surety Bond satisfies the Social Security Administration’s (SSA’s or agency’s) bonding requirements for non-governmental fee-for-service (FFS) organizations, as set forth in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) and the Program Operations Manual Systems (POMS) GN 00506.105. We understand your specific question to concern whether Money Management’s Surety Bond meets SSA’s requirement that bonding/insurance coverage for financial loss due to employee misuse and embezzlement includes officers.

ANSWER

Based on the information provided, we believe that the agency could reasonably conclude that the Surety Bond does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees. Specifically, the Surety Bond, which covers financial loss due to the “Principal’s conversion of [Social Security] benefits for use other than for the beneficiary” and defines Principal only as Money Management, is not sufficiently clear, certain, and unambiguous to ascertain whether coverage includes conversion by Money Management’s officers. Thus, there is legal support for the agency to find that Money Management’s Surety Bond does not satisfy SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105 as it relates specifically to coverage for financial loss due to misuse and embezzlement of both employees and officers.

BACKGROUND

A. Money Management is an Oklahoma Nonprofit Corporation

The Oklahoma Secretary of State’s on-line information shows that Money Management is registered with the Oklahoma Secretary of State as a non-profit domestic corporation that was formed in 2018, with Willis Lusk listed as the registered agent. See https://www.sos.ok.gov/corp/corpInformation.aspx?id=2100384617(last visited Apr. 20, 2020).

B. Money Management’s Surety Bond All references to the Surety Bond are to the single page you provided us.

The information you provided shows that on June 14, 2019, Money Management secured the Surety Bond from Platte, effective June 14, 2019. The Surety Bond identifies Money Management as the Principal, SSA as the Obligee, and Platte as the Surety. The Bond does not further define these parties and includes no reference to Money Management’s employees or officers.

The Surety Bond states that Money Management and Platte are bound to SSA in the amount of $50,000.00. The Surety Bond provides that the condition of this obligation is such that “if [Money Management] shall reimburse [SSA] all funds paid by Social Security to a beneficiary . . . on account of [Money Management’s] conversion of benefits for use other than for the beneficiary, then this obligation shall be null and void.” Surety Bond, ¶4. However, if Money Management breaches this condition (in other words, does not reimburse SSA as provided), Platte “shall reimburse [SSA] all funds paid by [SSA] to a beneficiary . . . on account of [Money Management’s] conversion of benefits for use other than for the beneficiary.” Surety Bond, ¶4.

ANALYSIS

A. Federal Law and SSA Policy: FFS Organizational Representative Payees

The Social Security Act permits “qualified organizations”In addition to being a “qualified organization,” the representative payee must also regularly provide representative payee services concurrently to at least five beneficiaries and, with certain exceptions, demonstrate that it is not a creditor of the beneficiary. 20 C.F.R. §§ 404.2040a(b), 416.640a(b). to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Here, you have indicated that Money Management falls into the second category of qualified organizations as a community-based nonprofit social service organization, also referred to in the POMS as a non-governmental FFS representative payee organization. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). We do not otherwise address whether Money Management is a “qualified organization” meeting all of the regulatory requirements. See 20 C.F.R. §§ 404.2040a(a)-(d), 416.640a(a)-(d); POMS GN 00506.001(C), GN 00506.100(B)(3). Further, we do not address its section 501(c)(3) tax-exempt status, whether it is licensed in the state in which it serves, or whether the amount of coverage under the bond is sufficient. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.001(C), GN 00506.105(B), GN 00506.010(B)(2), GN 00506.100(B)(2), GN 00506.105(C)(5), (D). Rather, pursuant to your legal opinion request, our focus is upon whether the Surety Bond meets SSA’s requirement for bonding/insurance coverage for financial loss due to misuse and embezzlement by both officers and employees, as we discuss in the next section. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I) (requiring the community-based nonprofit social service organization be “bonded”); 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (requiring that the community-based nonprofit social service organization be “bonded/insured”); POMS GN 00506.105(A)-(C) (explaining that “bonding” means a bond or insurance contract).

A non-governmental FFS representative payee organization must be adequately bonded or insured before the agency will authorize the organization to collect a fee. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I); 20 C.F.R. §§ 404.2040a(a)(2), (d), 416.640a(a)(2), (d); POMS GN 00506.001(C); POMS GN 00506.105(A).If a representative payee misuses a beneficiary’s benefits, the representative payee is liable for the amount misused. See 42 U.S.C. §§ 405(j)(7)(A), 1383(a)(2)(H); 20 C.F.R. §§ 404.2041(a), 416.641(a). The Act states that “misuse of benefits by a representative payee occurs in any case in which the representative payee receives payment under this subchapter for the use and benefit of another person and converts such payment, or any part thereof, to a use other than for the use and benefit of such other person.” 42 U.S.C. §§ 405(j)(9), 1383(a)(2)(A)(iv). SSA will make “every reasonable effort to obtain restitution of misused benefits” from the representative payee so that SSA can repay those benefits to the beneficiary. 20 C.F.R. §§ 404.2041(a), 416.641(a). In certain cases, SSA will repay the benefits to ensure the beneficiary receives full restitution, whether or not SSA obtains restitution from the misuser. 20 C.F.R. §§ 404.2041(b), (c), 416.641(b), (c). To help ensure SSA’s own reimbursement, SSA requires each non-governmental FFS representative payee organization to obtain a bond or insurance policy for coverage for misuse of benefits. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I); 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105; see also POMS GN 00506.001 (effective April 1, 2005, Section 102 of the Social Security Protection Act of 2004 requires non-governmental FFS representative payees to be bonded and licensed in each state in which they serve as representative payees). It is this bonding/insurance requirement that is at issue in this request. The regulations instruct that the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees.” 20 C.F.R. §§ 404.2040a(a), 416.640a(a). Although the regulations require coverage for “misuse and embezzlement,” SSA law and policy do not specify what insurance or bonding product the FFS representative payee should use or the exact wording of the insurance or bonding contract. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). SSA’s POMS instruct that the bond or insurance contract must protect the FFS representative payee organization “from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization.” POMS GN 00506.105(A).

POMS GN 00506.105(B) and (C) discuss in general terms various types of bonds and insurance policies that protect from financial loss due to such things as theft, dishonest acts, or fraudulent acts by employees and officers. The POMS states that the bond or insurance contract should provide coverage for financial loss from an organization’s employee’s or officer’s theft. See POMS GN 00506.105(B). Therefore, the bond or insurance contract must provide coverage for financial loss caused by the misuse of benefits and embezzlement of both the FFS representative payee organization’s employees and officers, and the POMS indicates that coverage for loss due to theft, dishonest acts, and fraudulent acts would suffice. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(3), (4).

Money Management’s Surety Bond is labeled as a “surety bond.” The POMS explains that a surety bond involves three parties—the surety, the obligee, and the principal. POMS GN 00506.105(C)(4)(a). The surety obligates itself to the obligee to cover a default by the principal, and a surety bond covers company employees. POMS GN 00506.105(C)(4)(a). We turn next to the specific provisions of Money Management’s Surety Bond to determine if it is sufficient to satisfy SSA’s bonding requirement for non-governmental FFS representative payee organizations.

B. Money Management’s Surety Bond Does Not Comply with Federal Law and SSA Policy Because It Does Not Specify Whether the Bond Covers Financial Losses Caused by Money Management’s Officers. We apply general principles of contract interpretation in reviewing the Surety Bond. The Surety Bond does not contain a “choice of law” or “forum selection” clause specifying that any dispute arising under the Surety Bond should be determined in accordance with the laws of a particular jurisdiction. Because Money Management is an Oklahoma nonprofit corporation serving Oklahoma residents, Oklahoma law likely applies. See Okla. Stat. Ann. tit. 15, § 162 (“A contract is to be interpreted according to the law and usage of the place where it is to be performed, or, if it does not indicate a place of performance, accordance to the law and usage of the place where it is made.”). Oklahoma law provides that “[i]n interpreting the terms of a contract of suretyship, the same rules are to be observed as in the case of other contracts.” Okla. Stat. Ann. tit. 15, § 374. “A surety cannot be held beyond the express terms of his contract.” Okla. Stat. Ann. tit. 15, § 373. “In Oklahoma law, the cardinal rule in contract interpretation is to determine and give effect to the intent of the parties.” Porter v. Oklahoma Farm Bureau Mut. Ins. Co. , 330 P.3d 511, 515 (Okla. 2014) (quoting In re Kaufman , 37 P.3d 845, 853 (Okla. 2001); see also Okla. Stat. Ann. tit. 15, §§ 152, 153, 154. “When policy provisions are clear, consistent, and unambiguous, we look to the plain and ordinary meaning of the policy language to determine and give effect to the parties’ intent.” Porter , 330 P.3d at 515. “When the language is susceptible to two constructions before applying the rules of construction, the policy is ambiguous.” Id. “‘Insurance contracts are contracts of adhesion,’” which are interpreted most strongly against the party that prepared the contract.” Id. (quoting Wilson v. Travelers Ins. Co. , 605 P.2d 1327, 1329) (Okla. 1980)); see also Okla. Stat. Ann. tit. 18, § 483 (in construing surety obligations, “all such obligations shall be liberally construed in accordance with the rules of the general law applicable to policies of insurance.”). “We will not impose coverage if it is clear from the policy language that loss from a particular risk is not covered.” Porter , 330 P.3d at 516. Thus, in examining whether the Surety Bond satisfies SSA’s bonding requirement, we consider whether the Surety Bond provisions and terms are clear, consistent, and unambiguous.

As stated, we must determine whether Money Management’s Surety Bond satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C).

1. “Misuse and Embezzlement”

We first considered whether Money Management’s Surety Bond satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to “misuse and embezzlement”. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). The Surety Bond provides reimbursement to SSA for the Principal’s “conversion of [Social Security] benefits for use other than for the beneficiary.” This language appears to sufficiently cover misuse and embezzlement by the Principal and therefore satisfies SSA’s requirement that the bond or insurance policy cover financial loss attributable to such acts. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(C)(4)(d).

2. Officer Coverage

However, the primary issue with the Surety Bond is its failure to include a definition of Principal that expressly includes Money Management’s employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement byall of the organization’s officers and employees); POMS GN 00506.105(A)-(B) (same ). The POMS explains that a surety bond, such as the Surety Bond at issue here, typically covers company employees. See POMS GN 00506.105(C)(4)(a). Thus, there is support for the agency to conclude that the Surety Bond’s coverage for the “Principal’s conversion” would likely include conversion by Money Management’s employees. See id. However, to comply with SSA’s bonding requirements, the Surety Bond must also cover all of Money Management’s officers, and it is unclear if coverage broadly of “Money Management” as the Principal would include its officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(B).

As noted, Money Management is registered with the Oklahoma Secretary of State as a domestic non-profit corporation, and as such, should have officers (as well as a board of directors). See Okla. Stat. Ann. tit. 18, § 1002(A) (“The provisions of the Oklahoma General Corporation Act [Okla. Stat. Ann. tit. 18, §§ 1001-1144] shall be applicable to every corporation, whether profit or not for profit . . .”), § 1010 (commencement of corporate existence upon filing the certificate of incorporation with the Secretary of State), § 1027 (every corporation shall be managed under the direction of a board of directors; the board of directors of a corporation shall consist of one or more members), § 1028 (every corporation shall have officers as set forth in the bylaws or in a resolution by the board of directors). Although we recognize that a corporation can only act through its agents, without a clear definition of “Principal”, we are unable to determine if the Surety Bond covers financial losses caused by conversion of Social Security benefits by Money Management’s employees and officers. See East Central Oklahoma Elec. Co-op., Inc. v. Oklahoma Gas & Elec. Co., 505 P.2d 1324, 1327 (Okla. 1973) (“A corporation is an artificial person, which of necessity must act by and through its agents.”); Hall v. Sulivan-Dollars, Inc., 471 P.2d 453, 455 (Okla. 1970) (a corporate entity can only act through its officers and agents).

Therefore, we believe the agency may reasonably conclude that the Surety Bond’s definition of “Principal” as including only the named corporation “Money Management” is too unclear and consequently, the Surety Bond’s coverage is deficient under SSA’s requirements. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement byall of the organization’s officers and employees); POMS GN 00506.105(A)-(B) (same ).

Money Management has presented no evidence that it obtained a rider or endorsement that specifies that “Principal” means Money Management, its employees, and its officers. As such, the Surety Bond is deficient given the unclear definition of “Principal” and does not satisfy SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C).

CONCLUSION

We believe that the agency may reasonably conclude that the Surety Bond does not sufficiently comply with SSA’s requirement that a bond or insurance policy cover financial loss incurred due to the misuse and embezzlement by all employees and officers of the non-governmental FFS representative payee organization. Specifically, the Surety Bond does not clearly specify whether it covers financial loss due to misuse and embezzlement for all of Money Management’s officers. Therefore, we believe the agency may reasonably find that Money Management’s Surety Bond does not meet SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105. If you have any questions, or if we can provide further assistance, please contact Assistant Regional Counsel Marisa Silverman at (214) 767-3779 or marisa.silverman@ssa.gov.

The Social Security Act permits “qualified organizations”^[24] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Based on the information provided, we believe there is legal support for the agency to find that Think Ability’s Surety Bond satisfies SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105 as it relates specifically to coverage for financial loss due to misuse and embezzlement of both Think Ability’s employees and officers.

Question Presented

You asked us to review the resubmission of Think Ability, Inc.’s (Think Ability) “Social Security Administration Representative Payee Surety Bond,” along with a newly obtained Rider (collectively referred to as the Surety Bond),All references to Think Ability’s Surety Bond include both the one-page Surety Bond (effective June 19, 2018) and the one-page Rider (effective June 19, 2019) you submitted to us. Just prior to releasing this opinion, you also provided a notice of renewal for the Bond (in a letter dated March 11, 2020) for the period from June 19, 2020, to June 19, 2021. renewed for the period of June 19, 2019, through June 19, 2020, for our opinion as to whether the Surety Bond satisfies the Social Security Administration’s (SSA’s or agency’s) bonding requirements for non-governmental fee-for-service (FFS) organizations, as set forth in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) and the Program Operations Manual Systems (POMS) GN 00506.105.Our office previously issued a legal opinion on October 23, 2019, reviewing Think Ability’s Surety Bond without the Rider and a separate crime insurance policy. We understand your specific question to concern whether Think Ability’s Surety Bond meets SSA’s requirement that bonding/insurance coverage for financial loss due to employee misuse and embezzlement includes officers. Just prior to releasing this opinion, we received Think Ability’s updated crime insurance policy, effective from March 18, 2020 to March 18, 2021. As explained in this opinion, there is legal support for the agency to find that Think Ability’s Surety Bond satisfies SSA’s bonding requirements as it relates specifically to coverage for financial loss due to misuse and embezzlement of both Think Ability’s employees and officers. If Think Ability’s crime insurance policy coverage - in addition to the Surety Bond coverage at issue in this legal opinion – is still necessary to find that Think Ability has complied with all of the Social Security bonding/insurance requirements (including sufficient coverage amount), please advise and we will consider the sufficiency of this newly submitted updated crime insurance policy in a separate legal opinion.

ANSWER

We believe there is legal support for the agency to find that Think Ability’s Surety Bond satisfies SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105 as it relates specifically to coverage for financial loss due to misuse and embezzlement of both Think Ability’s employees and officers.

BACKGROUND

A. Think Ability Is an Oklahoma Nonprofit Corporation

The Oklahoma Secretary of State’s on-line information shows that Think Ability is registered with the Oklahoma Secretary of State as a non-profit domestic corporation that was formed in 1982. See https://www.sos.ok.gov/corp/corpInformation.aspx?id=2100384617(last visited May 1, 2020). Think Ability’s website states that its leaders consist of a president, vice president, secretary, and authorized agent, as well as six members. See http://thinkabilityfirst.com/who-we-are/LEADERSHIP(last visited May 1, 2020).

B. Think Ability’s Surety Bond

You provided a copy of Think Ability’s Surety Bond, effective June 19, 2018, which was signed and dated on July 26, 2018, by Think Ability and Travelers Casualty and Surety Company of America (Travelers). You also provided a letter from Travelers dated March 18, 2019, stating “This is a Renewal for” Think Ability’s Surety Bond, for the period from June 19, 2019, to June 19, 2020. In addition, you provided a Rider to the Surety Bond, effective June 19, 2019, which was signed and dated on October 31, 2019, by Think Ability and Travelers. Most recently, you provided a notice of renewal for the Bond (in a letter dated March 11, 2020) for the period from June 19, 2020, to June 19, 2021. Thus, we are reviewing the one-page Surety Bond along with the one-page Rider with the understanding that the Surety Bond (with the Rider) has been renewed through June 20, 2021.

The Surety Bond identifies Think Ability as the Principal, SSA as the Obligee, and Travelers as the Surety. The Surety Bond includes no reference to Think Ability’s employees or officers. In the Rider, Travelers consented to change the meaning of Principal in the Bond to “include all of the Think Ability’s employees and officers.”

The Surety Bond states that Travelers agrees to reimburse SSA

all funds paid by the Social Security Administration (SSA) to a beneficiary or the beneficiary’s alternative representative payee on account of the Principal’s conversion of benefits for use other than for the beneficiary.

Bond, ¶4.

ANALYSIS

A. Federal Law and SSA Policy: FFS Organizational Representative Payees

The Social Security Act permits “qualified organizations”In addition to being a “qualified organization,” the representative payee must also regularly provide representative payee services concurrently to at least five beneficiaries and, with certain exceptions, demonstrate that it is not a creditor of the beneficiary. 20 C.F.R. §§ 404.2040a(b), 416.640a(b). to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Here, you have indicated that Think Ability falls into the second category of qualified organizations as a community-based nonprofit social service organization, also referred to in the POMS as a non-governmental FFS representative payee organization. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). We do not otherwise address whether Think Ability is a “qualified organization” meeting all of the regulatory requirements. See 20 C.F.R. §§ 404.2040a(a)-(d), 416.640a(a)-(d); POMS GN 00506.001(C), GN 00506.100(B)(3). Further, we do not address its section 501(c)(3) tax-exempt status, whether it is licensed in the state in which it serves, or whether the amount of coverage under the bond is sufficient. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.001(C), GN 00506.105(B), GN 00506.010(B)(2), GN 00506.100(B)(2), GN 00506.105(C)(5), (D). Rather, pursuant to your legal opinion request, our focus is upon whether Think Ability’s Surety Bond meets SSA’s requirement for bonding/insurance coverage for financial loss due to misuse and embezzlement by both officers and employees, as we discuss in the next section. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I) (requiring the community-based nonprofit social service organization be “bonded”); 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (requiring that the community-based nonprofit social service organization be “bonded/insured”); POMS GN 00506.105(A)-(C) (explaining that “bonding” means a bond or insurance contract).

A non-governmental FFS representative payee organization must be adequately bonded or insured before the agency will authorize the organization to collect a fee. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I); 20 C.F.R. §§ 404.2040a(a)(2), (d), 416.640a(a)(2), (d); POMS GN 00506.001(C); POMS GN 00506.105(A).If a representative payee misuses a beneficiary’s benefits, the representative payee is liable for the amount misused. See 42 U.S.C. §§ 405(j)(7)(A), 1383(a)(2)(H); 20 C.F.R. §§ 404.2041(a), 416.641(a). The Act states that “misuse of benefits by a representative payee occurs in any case in which the representative payee receives payment under this subchapter for the use and benefit of another person and converts such payment, or any part thereof, to a use other than for the use and benefit of such other person.” 42 U.S.C. §§ 405(j)(9), 1383(a)(2)(A)(iv). SSA will make “every reasonable effort to obtain restitution of misused benefits” from the representative payee so that SSA can repay those benefits to the beneficiary. 20 C.F.R. §§ 404.2041(a), 416.641(a). In certain cases, SSA will repay the benefits to ensure the beneficiary receives full restitution, whether or not SSA obtains restitution from the misuser. 20 C.F.R. §§ 404.2041(b), (c), 416.641(b), (c). To help ensure SSA’s own reimbursement, SSA requires each non-governmental FFS representative payee organization to obtain a bond or insurance policy for coverage for misuse of benefits. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I); 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105; see also POMS GN 00506.001 (effective April 1, 2005, Section 102 of the Social Security Protection Act of 2004 requires non-governmental FFS representative payees to be bonded and licensed in each state in which they serve as representative payees). It is this bonding/insurance requirement that is at issue in this request. The regulations instruct that the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees.” 20 C.F.R. §§ 404.2040a(a), 416.640a(a). Although the regulations require coverage for “misuse and embezzlement,” SSA law and policy do not specify what insurance or bonding product the FFS representative payee should use or the exact wording of the insurance or bonding contract. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). SSA’s POMS instruct that the bond or insurance contract must protect the FFS representative payee organization “from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization.” POMS GN 00506.105(A).

POMS GN 00506.105(B) and (C) discuss in general terms various types of bonds and insurance policies that protect from financial loss due to such things as theft, dishonest acts, or fraudulent acts by employees and officers. The POMS states that the bond or insurance contract should provide coverage for financial loss from an organization’s employee’s or officer’s theft. See POMS GN 00506.105(B). Therefore, the bond or insurance contract must provide coverage for financial loss caused by the misuse of benefits and embezzlement of both the FFS representative payee organization’s employees and officers, and the POMS indicates that coverage for loss due to theft, dishonest acts, and fraudulent acts would suffice. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(3), (4).

Think Ability’s Surety Bond is labeled as a “surety bond.” The POMS explains that a surety bond involves three parties—the surety, the obligee, and the principal. POMS GN 00506.105(C)(4)(a). The surety obligates itself to the obligee to cover a default by the principal, and a surety bond covers company employees. POMS GN 00506.105(C)(4)(a). We turn next to the specific provisions of Think Ability’s Surety Bond to determine if it is sufficient to satisfy SSA’s bonding requirement for non-governmental FFS representative payee organizations.

B. Think Ability’s Surety Bond Complies with Federal Law and SSA Policy Because It Specifies that the Bond Covers Financial Losses Caused by Think Ability’s Employees and Officers.We apply general principles of contract interpretation in reviewing the Surety Bond. The Surety Bond does not contain a “choice of law” or “forum selection” clause specifying that any dispute arising under the Surety Bond should be determined in accordance with the laws of a particular jurisdiction. Because Think Ability is an Oklahoma nonprofit corporation serving Oklahoma residents, Oklahoma law likely applies. See Okla. Stat. Ann. tit. 15, § 162 (“A contract is to be interpreted according to the law and usage of the place where it is to be performed, or, if it does not indicate a place of performance, accordance to the law and usage of the place where it is made.”). Oklahoma law provides that “[i]n interpreting the terms of a contract of suretyship, the same rules are to be observed as in the case of other contracts.” Okla. Stat. Ann. tit. 15, § 374. “A surety cannot be held beyond the express terms of his contract.” Okla. Stat. Ann. tit. 15, § 373. “In Oklahoma law, the cardinal rule in contract interpretation is to determine and give effect to the intent of the parties.” Porter v. Oklahoma Farm Bureau Mut. Ins. Co. , 330 P.3d 511, 515 (Okla. 2014) (quoting In re Kaufman , 37 P.3d 845, 853 (Okla. 2001); see also Okla. Stat. Ann. tit. 15, §§ 152, 153, 154. “When policy provisions are clear, consistent, and unambiguous, we look to the plain and ordinary meaning of the policy language to determine and give effect to the parties’ intent.” Porter , 330 P.3d at 515. “When the language is susceptible to two constructions before applying the rules of construction, the policy is ambiguous.” Id. “‘Insurance contracts are contracts of adhesion,’” which are interpreted most strongly against the party that prepared the contract.” Id. (quoting Wilson v. Travelers Ins. Co. , 605 P.2d 1327, 1329) (Okla. 1980)); see also Okla. Stat. Ann. tit. 18, § 483 (in construing surety obligations, “all such obligations shall be liberally construed in accordance with the rules of the general law applicable to policies of insurance.”). “We will not impose coverage if it is clear from the policy language that loss from a particular risk is not covered.” Porter , 330 P.3d at 516. Thus, in examining whether the Surety Bond satisfies SSA’s bonding requirement, we consider whether the Surety Bond provisions and terms are clear, consistent, and unambiguous.

As stated, we must determine whether Think Ability’s Surety Bond satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C).

1. “Misuse and Embezzlement”

We first considered whether Think Ability’s Surety Bond satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). The Surety Bond provides reimbursement to SSA for the Principal’s “conversion of benefits for use other than for the beneficiary.” This language appears to sufficiently cover misuse and embezzlement of Social Security benefits by the Principal and therefore satisfies SSA’s requirement that the bond or insurance policy cover financial loss attributable to such acts. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(C)(4)(d).

2. Officer Coverage

We next considered whether the Surety Bond’s coverage for the “Principal’s conversion” extends to conversion by all Think Ability’s employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement byall of the organization’s officers and employees); POMS GN 00506.105(A)-(B) (same ). The POMS explains that a surety bond, such as the Bond at issue here, typically covers company employees. See POMS GN 00506.105(C)(4)(a). Importantly, the Rider, which is part of the Bond, expressly defines “Principal” to include all of Think Ability’s employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(B).

Therefore, we believe the agency may reasonably conclude that the Surety Bond’s definition of “Principal” as including “all of the Think Ability’s employees and officers” is clear and unambiguous. Consequently, the Surety Bond’s coverage for the “Principal’s conversion” of Social Security benefits is sufficient under SSA’s requirements that coverage extend to both employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement byall of the organization’s officers and employees); POMS GN 00506.105(A)-(B) (same ).

CONCLUSION

We believe there is legal support for the agency to find that Think Ability’s Surety Bond satisfies SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105 as it relates specifically to coverage for financial loss due to misuse and embezzlement of both Think Ability’s employees and officers.

The Social Security Act permits “qualified organizations”^[25] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Based on the information provided, we believe that the agency could reasonably conclude that neither the Crime Policy nor the Bond comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees. Specifically, the language in the Crime Policy and the Bond is not sufficiently clear, certain, and unambiguous to ascertain whether coverage is provided for financial loss due to misuse and embezzlement of Think Ability’s officers. Therefore, there is legal support for the agency to find that Think Ability’s Crime Policy and Bond do not meet SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105. At the conclusion of our legal opinion, we are providing recommended language to assist with responding to Think Ability regarding the specifics of their deficient coverage.

QUESTION

You asked us to review Think Ability, Inc.’s (Think Ability’s) Insurance Policy, consisting of the Commercial Crime Coverage Form (Crime Policy), effective from March 18, 2019, through March 18, 2020, for our opinion as to whether the policy provisions satisfy the Social Security Administration’s (SSA’s or agency’s) bonding requirements for non-governmental fee-for-service (FFS) organizations, as set forth in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) and the Program Operations Manual Systems (POMS) GN 00506.105. You also submitted a copy of Think Ability’s Surety Bond (Bond). Specifically, you asked whether Think Ability’s Crime Policy and Bond meet SSA’s requirement that employee theft coverage include officers.

ANSWER

Based on the information provided, we believe that the agency could reasonably conclude that neither the Crime Policy nor the Bond comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees. Specifically, the language in the Crime Policy and the Bond is not sufficiently clear, certain, and unambiguous to ascertain whether coverage is provided for financial loss due to misuse and embezzlement of Think Ability’s officers. Therefore, there is legal support for the agency to find that Think Ability’s Crime Policy and Bond do not meet SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105. At the conclusion of our legal opinion, we are providing recommended language to assist with responding to Think Ability regarding the specifics of their deficient coverage.

BACKGROUND

The Oklahoma Secretary of State’s on-line information shows that Think Ability is registered with the Oklahoma Secretary of State as a non-profit domestic corporation that was formed in 1982. See https://www.sos.ok.gov/corp/corpInformation.aspx?id=2100384617(last visited Sept. 11, 2019). Think Ability’s website states that its leaders consist of a president, vice president, secretary, and authorized agent, as well as six members. See http://thinkabilityfirst.com/who-we-are/LEADERSHIP(last visited Sept. 11, 2019). Think Ability’s Bond[1] The information you provided shows that on June 19, 2019, Think Ability renewed an SSA Representative Payee Bond from Travelers Casualty and Surety Company of America (Travelers) effective June 19, 2019, to June 19, 2020. The Bond identifies Think Ability as the Principal, SSA as the Obligee, and Travelers as the Surety, and states that Travelers agrees to reimburse SSA all funds paid by the Social Security Administration (SSA) to a beneficiary or the beneficiary’s alternative representative payee on account of the Principal’s (Think Ability’s) conversion of benefits for use other than for the beneficiary. Bond, ¶4. The Bond includes no reference to Think Ability’s employees or officers. Think Ability’s Crime Policy[2] The information you provided also shows that Think Ability obtained a Crime Policy from Philadelphia Indemnity Insurance Company for Think Ability, Inc. as the Insured (Adobe PDF Reader pp. 58-59, 250-263). We were provided with the Crime Policy, effective 3/18/2019 through 03/18/2020. The Crime Policy provides coverage for loss of or damage to “money”, “securities” and “other property” resulting directly from “theft” committed by an “employee”, whether identified or not, acting alone or in collusion with other persons. Crime Policy, Commercial Crime Coverage Form (Loss Sustained Form), Part A.1, Insuring Agreements, Employee Theft (Adobe PDF Reader p. 250). The Crime Policy defines “theft” as “the unlawful taking of property to the deprivation of the Insured” and “[f]or the purposes of this Insuring Agreement, ‘theft’ shall also include forgery.” Crime Policy, Part A.1, Insuring Agreements, Employee Theft; Part F.20, Definitions, Theft (Adobe PDF Reader p. 263). The Crime Policy specifies that it covers property that Think Ability holds for others, and is not limited to property for which Think Ability is legally obligated for losses. See Crime Policy, Part E.1.n (Adobe PDF Reader p. 259). However, the Crime Policy provides no rights to parties other than Think Ability, and any claims under the Crime Policy must be made by Think Ability. See Crime Policy, Part E.1.n, Conditions, Ownership of Property, Interests Covered (Adobe PDF Reader p. 259). In relevant part, Think Ability’s Crime Policy defines an “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 dishonest act committed by the “employee”; (b) Who you compensate directly by salary, wages or commissions; and(c) Who you have the right to direct and control while performing services for you; . . . (4) Any natural person who is:(a) A trustee, officer, employee, administrator or manager, except an administrator or manager who is an independent contractor, of any “employee benefit plan”; and(b) A director or trustee of yours while that person is engaged in handling “funds” or “other property” of any “employee benefit plan”; . . .(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. Crime Policy, Part F.5, Definitions, Employee (Adobe PDF Reader pp. 261-262). The Crime Policy specifically excludes coverage for losses caused by theft or other dishonest acts committed by Think Ability, its partners, or its members. See Crime Policy, Part D.1.a, Exclusions, Acts Committed by You, Your Parents, or Your Members (Adobe PDF Reader p. 251). The Crime Policy also excludes coverage for losses caused by theft or other dishonest acts committed by Think Ability’s employees, managers, directors, trustees, or authorized representatives unless covered under section A.1. See Crime Policy, Part D.1.c, Exclusions, Acts of Employees, Managers, Directors, Directors, Trustees, or Representatives (Adobe PDF Reader p. 251). ANALYSISA. Federal Law: FFS Organizational Representative Payees The Social Security Act permits “qualified organizations”[3] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either: (1) [a]ny 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) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State). 20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA’s 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), (d), 416.640a(a), (d); POMS GN 00506.001(B). Here, you have indicated that Think Ability is a non-governmental FFS representative payee organization.[4] See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). Pursuant to your legal opinion request, our focus is upon whether the Bond and Crime Policy meet SSA’s requirement for bonding/insurance coverage for financial loss due to misuse and embezzlement by both officers and employees, as we discuss in the next section. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C) (explaining that bonding constitutes a bond or insurance contract). However, we also briefly address whether the amount of coverage under the bond is sufficient. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B). A non-governmental FFS representative payee organization must be adequately bonded or insured before the agency will authorize the organization to collect a fee. See 20 C.F.R. §§ 404.2040a(a)(2), (d), 416.640a(a)(2), (d); POMS GN 00506.001(C); POMS GN 00506.105(A).[5] The regulations instruct that the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees.” 20 C.F.R. §§ 404.2040a(a), 416.640a(a). Although the regulations require coverage for “misuse and embezzlement,” SSA law and policy do not specify what insurance or bonding product the FFS representative payee should use or the exact wording of the insurance or bonding contract. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). SSA’s POMS instruct that the bond or insurance contract must protect the FFS representative payee organization “from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization.” POMS GN 00506.105(A). POMS GN 00506.105(B) and (C) discuss in general terms various types of bonds and insurance policies that protect from financial loss due to such things as theft, dishonest acts, or fraudulent acts by employees and officers. The POMS states that the bond or insurance contract should provide coverage for financial loss from an organization’s employee’s or officer’s theft. See POMS GN 00506.105(B). Therefore, the bond or insurance contract must provide coverage for financial loss caused by the misuse of benefits and embezzlement of both the FFS representative payee organization’s employees and officers, and the POMS indicates that coverage for loss due to theft, dishonest acts, and fraudulent acts would suffice. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(3), (4). Think Ability’s Bond is labeled as a “surety bond.” The POMS explains that a surety bond involves three parties—the surety, the obligee, and the principal. POMS GN 00506.105(C)(4)(a). The Surety obligates itself to the obligee to cover a default by the principal, and a surety bond covers company employees. POMS GN 00506.105(C)(4)(a). Think Ability’s Crime Policy is titled “Commercial Crime Coverage Form” (Adobe PDF Reader pp. 59, 250-263). The POMS describes an insurance policy as a document “intended to protect the employer from financial loss due to the fraudulent activities of an employee or group of employees,” such as a simplified crime policy covering employee theft and dishonesty. POMS GN 00506.105(C)(4)(d). Although most employee theft and dishonesty policies include employees, the agency must also determine whether all officers are covered under the policy. We turn next to the specific provisions of Think Ability’s Bond and Crime Policy to determine if either document is sufficient to satisfy SSA’s bonding requirement that non-governmental FFS representative payee organizations be bonded to cover financial loss due to misuse and embezzlement by all employees and officers?B. Review of Think Ability’s Bond and Crime Policy to Determine if Either One Complies with Federal Law and SSA Policy[6]1. Think Ability’s Bond is Insufficient Because It Does Not Specify Whether the Bond Covers Financial Losses Caused by Think Ability’s Officers. We first analyzed whether Think Ability’s Bond satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). The Bond provides reimbursement to SSA for the Principal’s “conversion of benefits for use other than for the beneficiary.” This language appears to sufficiently cover misuse and embezzlement by the Principal and therefore satisfies SSA’s requirement that the bond or insurance policy cover financial loss attributable to such acts. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(C)(4)(d). However, the primary issue with the Bond is its failure to include a definition of Principal that expressly includes all of Think Ability’s employees as well as officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement by all of the organization’s officers and employees); POMS GN 00506.105(A)-(B) (same ). The POMS explains that a surety bond, such as the Bond at issue here, typically covers company employees. See POMS GN 00506.105(C)(4)(a). Thus, the Bond’s coverage for the “Principal’s conversion” would likely include Think Ability’s employees. See id. However, to comply with SSA’s bonding requirements, the Bond must also cover all of Think Ability’s officers, and it is unclear if coverage broadly of “Think Ability” as the Principal would include its officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(B). As noted, Think Ability is registered with the Oklahoma Secretary of State as a domestic non-profit corporation, and as such, should have officers (as well as a board of directors). See Okla. Stat. Ann. tit. 18, § 1002(A) (“The provisions of the Oklahoma General Corporation Act [Okla. Stat. Ann. tit. 18, §§ 1001-1144] shall be applicable to every corporation, whether profit or not for profit . . .”), § 1010 (commencement of corporate existence upon filing the certificate of incorporation with the Secretary of State), § 1027 (every corporation shall be managed under the direction of a board of directors; the board of directors of a corporation shall consist of one or more members), § 1028 (every corporation shall have officers as set forth in the bylaws or in a resolution by the board of directors). Think Ability’s website states that its leadership consists of a president, vice president, secretary, and authorized agent, as well as six members (which we understand to be members of the board of directors). See http://thinkabilityfirst.com/who-we-are/LEADERSHIP. The information provided by Think Ability confirms that Think Ability has officers. Although we recognize that a corporation can only act through its agents, without a clear definition indicating that “Principal” includes Think Ability’s employees and officers, we are unable to determine if the Bond covers financial losses caused by all of Think Ability’s employees and officers. See East Central Oklahoma Elec. Co-op., Inc. v. Oklahoma Gas & Elec. Co., 505 P.2d 1324, 1327 (Okla. 1973) (“A corporation is an artificial person, which of necessity must act by and through its agents.”); Hall v. Sulivan-Dollars, Inc., 471 P.2d 453, 455 (Okla. 1970) (a corporate entity can only act through its officers and agents). Therefore, we believe the agency may reasonably conclude that the Bond’s definition of “Principal” as including “Think Ability” is too unclear and consequently, the Bond’s coverage is deficient under SSA’s requirements. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement by all of the organization’s officers and employees); POMS GN 00506.105(A)-(B) (same ). Think Ability has presented no evidence that it obtained a rider or endorsement that specifies that coverage extends to all employees and officers. As such, the Bond is deficient given the unclear definition of “Principal” and does not satisfy SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). 2. Think Ability’s Crime Policy Is Insufficient Because (1) The Definition of Employee Does Not Cover All Officers; and (2) It is Unclear Whether Think Ability’s Officers Would Fall Within the Exclusion for Losses Resulting from Theft of Dishonest Acts committed by Think Ability Think Ability’s Policy does not provide adequate coverage against theft committed by all officers of the organization. We next analyzed whether Think Ability’s Crime Policy satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). We first considered whether the Crime Policy’s insuring agreement for employee theft covers loss for an employee’s theft/misuse/embezzlement of SSA beneficiaries’ funds (Social Security benefits) held by Think Ability as the representative payee for the beneficiaries (Adobe PDF Reader pp. 59, 250-263). Insuring Agreement A.1 covers losses resulting from an employee’s theft of money, securities, and other property, and the Crime Policy expressly defines theft as the “unlawful taking of property to the deprivation of the Insured” (Adobe PDF Reader pp. 263). The Crime Policy specifies that coverage applies to property that the Insured holds for others, whether or not the Insured is legally liable for the loss of such property (Adobe PDF Reader page 259). Once a misuse determination has been made, the agency holds organizational representative payees liable for the misused benefits.[7] Because the Crime Policy covers property that Think Ability holds for others, and because an organizational representative payee would be liable for misused benefits, we believe that the agency may reasonably conclude that an employee’s theft of SSA beneficiaries’ funds would be to the deprivation of Think Ability. Thus, we believe the agency could find that the Crime Policy adequately covers an employee’s theft of SSA beneficiaries’ funds. However, as we address next, we believe the agency could reasonably conclude that the policy is deficient because it does not provide adequate coverage against financial loss caused by Think Ability’s officers for two reasons: (1) the definition of “employee” does not appear to include all of Thank Ability’s officers, and (2) the Crime Policy’s exclusions from coverage appear to encompass Think Ability’s officers. Insuring Agreement A.1 of the Crime Policy provides coverage for losses resulting directly from theft committed by Think Ability’s “employee.” See Crime Policy, Part A.1, Insuring Agreement, Employee Theft. Thus, whether Think Ability’s Crime Policy covers the organization against theft committed by an officer depends on whether Think Ability’s officers fall under the Crime Policy’s definition of “employee.” See Crime Policy, Part F.5.a.(1)-(8), Definitions, Employee. We consider the most relevant sections (1), (4), and (8) defining “employee” below to determine whether it would include officers.[8] Section (1) of the “employee” definition does not clearly include Think Ability’s officers (both compensated and non-compensated). See Crime Policy, Part F.5.a.(1), Definitions, Employee. First, this provision limits the term “employee” to compensated individuals, indicating that dishonest or fraudulent acts committed by non-compensated officers would not be covered under the Crime Policy. See Crime Policy, Part F.5.a.(1)(b), Definitions, Employee. Second, this provision limits an “employee” to an individual whom Think Ability “has the right to direct and control,” which arguably excludes officers. See Crime Policy, Part F.5.a.(1)(c), Definitions, Employee. Section (4) of the “employee” definition also does not sufficiently cover all of Think Ability’s officers, as it is limited to officers of an employee benefit plan while the officer handles funds or property of an employee benefit plan. See Crime Policy, Part F.5.a.(4), Definitions, Employee. The SSA beneficiary funds entrusted to Think Ability as representative payee are not part of Think Ability’s employee benefit plan. Section (8) of the “employee” definition as to “‘managers,’ directors, or trustees” does not include Think Ability’s officers. See Crime Policy, Part F.5.a(8), Definitions, Employee. The Crime Policy specifically defines the terms “manager” as “a person serving in a directorial capacity for a limited liability company.” See Crime Policy, Part F.10, Definitions, Manager. Think Ability is registered with the Oklahoma Secretary of State as a non-profit domestic corporation. As such, inclusion of “managers” within the definition of “employee” is not relevant to Think Ability. Thus, we believe the agency may reasonably conclude that Think Ability’s officers do not fall under the Crime Policy’s definition of “employee.” Further, the Crime Policy’s “Exclusions” from coverage indicate officers may not be covered. See Crime Policy, Part D.1.a, Exclusions, Acts Committed by You, Your Partners, or Your Members. The “Exclusions” section of Think Ability’s Crime Policy states that the policy does not cover “[l]oss resulting from ‘theft’ or any other dishonest act committed by: (1) You; or (2) Any of your partners or ‘members’. . .” Crime Policy, Part D.1.a, Exclusions. As to the exclusion for acts committed by members, the Crime Policy defines “member” as “an owner of a limited liability company represented by its membership interest, who may also serve as a “manager.” Crime Policy, Part F.11, Definitions, Member. A “manager” is “a person serving in a directorial capacity for a limited liability company.” Crime Policy, Part F.11, Definitions, Manager.[9] This policy language therefore indicates that a “member” could serve in a directorial capacity equivalent to an officer. As Think Ability is a registered non-profit corporation in Oklahoma and not a partnership or a limited liability company, this exclusion as to acts committed by partners or members would not seem relevant to Think Ability.[10] However, it is unclear whether Think Ability’s officers would fall within this exclusion for loss resulting from theft or dishonest acts committed by “You.” See Crime Policy, Part D.1.a, Exclusions. The introduction to the Crime Policy states that “You” means Think Ability as the named insured, and as a non-profit corporation, officers act as agents for Think Ability. See East Central Oklahoma Elec. Co-op., Inc. v. Oklahoma Gas & Elec. Co., 505 P.2d 1324, 1327 (Okla. 1973) (“A corporation is an artificial person, which of necessity must act by and through its agents.”); Hall v. Sulivan-Dollars, Inc., 471 P.2d 453, 455 (Okla. 1970) (a corporate entity can only act through its directors and officers). As such, given this broad exclusion for “You” – Think Ability - we are unable to conclude that Think Ability’s Crime Policy provides coverage against theft committed by all officers of the organization sufficient to satisfy SSA’s bonding requirement.

CONCLUSION

We believe that the agency may reasonably conclude that neither the Bond nor the Crime Policy sufficiently comply with SSA’s requirement that a bond or insurance policy cover financial loss incurred due to the misuse and embezzlement by all employees and officers of the non-governmental FFS representative payee organization. Specifically, the Bond does not clearly specify whether it covers financial loss due to misuse and embezzlement for all of Think Ability’s officers. Similarly, the Crime Policy does not clearly cover financial losses due to the action or inaction of all of Think Ability’s employees and officers. Therefore, we believe the agency may reasonably find that Think Ability’s Bond and Crime Policy do not meet SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105. If you have any questions, or if we can provide further assistance, please contact Assistant Regional Counsel Marisa Silverman at (214) 767-3779 or marisa.silverman@ssa.gov.