thedrifter
02-03-05, 06:38 AM
02-02-2005
Tolerating Retirement Fund Errors Is ‘Obscene’
By Matthew Dodd
What if I told you that there was a retirement benefit fund that improperly paid $4.8 million per month – a whopping $57.6 million per year – to as many as 3,100 retirees who were already deceased? What if I told you that the fund was a federal government fund? What if I told you that the fund was the Military Retirement Fund (MRF)?
This was the finding of a report from the Department of Defense Inspector General (DoD/IG) on Oct. 25, 2004 (“Military Retirement Fund Processes related to deceased Retirees’ Accounts”), which squarely fixed blame on the Defense Finance and Accounting Service (DFAS).
Well, let me tell you what I think. In a time of war, with the Pentagon requesting another $80+ billion to support the required war efforts, this kind of inept stewardship of taxpayer dollars is obscene. The people responsible for these inexcusable mistakes need to be fired immediately, and DoD needs to find someone to fix these mistakes and recoup the improperly paid benefits immediately.
The 25-page DoD/IG report was stunning. I do not believe I have ever read a more damning account of a systemic lack of personal and organizational professionalism in all my life. The report clearly showed that there were specific instructions and official procedures to prevent improper payments to deceased retirees, but they were either ignored, or not enforced, or both.
I have previously written about other incidents of troubled Pentagon finances (see “Pentagon Failure to Manage Funds Is a Disgrace,” Apr. 10, 2002, and “Concurrent Receipt Update: I'd Fire Dov Zakheim,” July 24, 2002), but this disturbing report tops them both. Perhaps even more troubling is that it seems like DoD and the news media are either ignoring it or suppressing it. Both of those mistakes only exacerbate the findings of the report.
This is how the MRF is supposed to work: Service members who are eligible for retirement benefits submit paperwork to receive them. Once they are properly entered into the DFAS system, retirees are supposed to receive their retirement payments until they die. At that point, DFAS works with other federal organizations to verify that the retiree is truly deceased, and, once verified, DFAS officially stops payments. As with virtually any bureaucratic system, the process I just described is much more complex for it involves multiple organizations with multiple databases and multiple systems (including manually entering data) for tracking and sharing data and information.
The report identified some specific instructions and official procedures that deal with cross-referencing retirees’ life status and stopping retiree payments:
* “Office of Management and Budget (OMB) Bulletin 92-04, ‘Guidance for Termination of Federal Benefits to Deceased Beneficiaries,’ January 15, 1992, states that Federal agencies that pay benefits should monthly access the Social Security Administration (SSA) database listing deceased individuals and match the data against their own payment files to identify deceased beneficiaries. Additionally, Bulletin 92-04 requires that DFAS independently verify the death before terminating benefits. After verification, agencies must immediately terminate payment and, if applicable, initiate recovery of erroneous payments.”
* “DoD 7000.14-R, DoD Financial Management Regulation, Volume 7B, chapter 30, ‘Death of Retiree,’ October 2000, requires that DFAS suspend a retiree’s account upon receipt of a notification of death from any source until DFAS verifies the death.”
* “The DFAS Cleveland Center issued standard operating procedures for processing accounts of deceased retirees. Standard Operating Procedure 4832.10, ‘Death Match Processing,’ October 2, 2000, states that DFAS should match the SSA death data against its database of retirees on a monthly basis to determine the continued eligibility of the retirees. The procedure requires that DFAS send the retiree a letter requesting notarized proof of continuing eligibility. The letter states that DFAS will suspend benefit payments if they do not receive a notarized response from the retiree within 30 days. The procedure also requires that guardians of retirees who have been adjudicated as incompetent, and retirees with overseas addresses, certify continuing eligibility every 6 months by sending in a Report of Eligibility. If DFAS does not receive a timely response to the request for certification, it should suspend payments in accordance with regulations and guidance.”
* “DFAS Cleveland Center Standard Operating Procedure 3551.00, “Report of Existence/Certificate of Existence Processing,” November 4, 1999, provides policy and procedures for processing reports of eligibility and certificates of eligibility by which retirees or their legal guardians can verify their continuing eligibility to receive benefits. Also, the procedures provide policy for suspending payments if the retiree or legal guardian does not respond timely.”
* “DFAS Cleveland Center Standard Operating Procedure 4801.00, ‘Reclamation Action on Outstanding Payments on Deceased Retired/Retainer Pay Accounts,’ January 6, 1993, provides policy and procedures for reclaiming funds erroneously paid to a deceased retiree. The Procedure requires that DFAS try to recover the payments from the bank or next of kin, as appropriate. If DFAS cannot collect the overpayment, the debt collection group at DFAS Denver Center starts an additional collection process. DFAS is required to refer the debt to the United States Treasury in the event it remains uncollectible.”
I am by no means a duty expert on how to do the actions required in those instructions and procedures. But, if it were my job to perform those tasks, I know it would be my responsibility to know those instructions and procedures and learn how to perform those actions to the best of my abilities. Here is a quick summary of the report’s findings about DFAS’ failure to follow, in some cases their own, instructions and procedures, with my own comments following:
* “DFAS continued to pay retirement benefits to some deceased retirees’ accounts even after receiving death notification results from data matching procedures from other Government organizations. In a random sample review of 99 cases where the SSA database showed the retiree as deceased, the DoD IG found 42 cases where the DFAS case files showed no evidence of any notification of death. “[The Defense Manpower Data Center (DMDC)] performs monthly data matching between the retiree database and the SSA Death File, and provides the results to DFAS. DFAS then assembles the data into manually processed Excel spreadsheets that it (or the contractor staff) tracks manually. The manual processing and tracking increases the risk of data errors and decedents not being identified.”
Dodd comments: As noted above, there were many written policies about DFAS’ role in a monthly reconciliation of databases to verify retirees’ eligibility for continued payments. The DMDC actually did the monthly database matching of the retiree database and the SSA’s death files and gave the results to DFAS. All DFAS had to do is review the data and take appropriate action (per their own standard operating procedures) on those retirees that SSA had shown to be deceased. The DFAS course of action was to manually process and track the data that resulted in a 42 percent error rate.
Either DFAS was totally unaware of this situation before the report, or they knew about it and were taking “corrective actions” before the report, which would mean that the 42 percent error rate was actually an improvement. I am not sure which scenario is worse, but both are scary as hell.
* “In another DoD IG review, they found that DFAS sent a letter to 44 retirees requesting a Certification of Eligibility (COE) to verify their eligibility to continue to receive payments. In only 12 of those cases did DFAS receive a response, yet DFAS did not suspend and stop payments to any of those other 32 non-responsive accounts, and 5 of those non-responsive accounts remained active more than 2 years after the retiree should have answered the COE letter. One retiree died in 1985, according to the SSA Death File, at age 83. However, DFAS continued payments until February 2004, when he would have been 102 years old, paying out about $351,000. DFAS stopped payment on the account only after [the DoD IG] brought it to their attention.
Dodd comments: DFAS sends letters to retirees, after they suspect the retirees’ “life status” may have changed. If DFAS does not receive a response within a specified time, DFAS is directed to stop payments. A 27 percent response rate (12 of 44) should have told somebody somewhere at DFAS that something needed to be done. Or, to put it another way, DFAS should have stopped payments to the 73 percent of retirees who failed to respond to their letter. The DFAS course of action was to take no action, which is simply inexcusable.
* “DFAS was also slow and ineffective in recovering erroneous payments. One problem was that the written policy for recovery procedures did not specify when to start the recovery process. In a random sample review of 33 cases in which DFAS stopped payment on an account after they discovered that the retiree was dead for some time, 22 cases showed no evidence of DFAS attempts to recover the erroneous payments.”
Dodd comments: OK, I understand that sometimes written policies are not as complete as they should be. Still, somebody somewhere at DFAS should have been able to think of some way to take some action within a reasonable amount of time to recover payments that went to deceased retirees. I also wonder about who received those deceased retirees’ payments, how they received them, and what has happened to all the money.
* “DFAS did not timely suspend payment on all accounts upon confirming they had a legitimate death notification on retirees. The DoD [Financial Management Regulation] requires that DFAS suspend a retiree’s account when there is a reason for DFAS to believe that a retiree is deceased. However, DFAS standard operating procedures require that retirees first be given an opportunity to certify their continuing eligibility. The retiree’s account should not be suspended unless DFAS does not receive a response within 60 days. However, DFAS does not timely suspend all accounts once it receives a notification of death or when a COE request is unanswered. DFAS and contractor officials explained that they are reluctant to immediately suspend payment on an account upon receipt of a death notice from a source they consider to be prone to errors, such as the SSA database. DFAS is reluctant to stop a retiree’s benefits because of the hardship it might cause a retiree who is still eligible, and the potential for adverse publicity. DFAS and the contractor wish to independently verify that the person is alive by mailing out a COE request and waiting the appropriate number of days for the return of the signed, notarized document. However, in some cases DFAS issued a COE letter and did not get a response, and there was no evidence that DFAS suspended payment on the account as it should have according to DFAS guidance.”
continued..
Tolerating Retirement Fund Errors Is ‘Obscene’
By Matthew Dodd
What if I told you that there was a retirement benefit fund that improperly paid $4.8 million per month – a whopping $57.6 million per year – to as many as 3,100 retirees who were already deceased? What if I told you that the fund was a federal government fund? What if I told you that the fund was the Military Retirement Fund (MRF)?
This was the finding of a report from the Department of Defense Inspector General (DoD/IG) on Oct. 25, 2004 (“Military Retirement Fund Processes related to deceased Retirees’ Accounts”), which squarely fixed blame on the Defense Finance and Accounting Service (DFAS).
Well, let me tell you what I think. In a time of war, with the Pentagon requesting another $80+ billion to support the required war efforts, this kind of inept stewardship of taxpayer dollars is obscene. The people responsible for these inexcusable mistakes need to be fired immediately, and DoD needs to find someone to fix these mistakes and recoup the improperly paid benefits immediately.
The 25-page DoD/IG report was stunning. I do not believe I have ever read a more damning account of a systemic lack of personal and organizational professionalism in all my life. The report clearly showed that there were specific instructions and official procedures to prevent improper payments to deceased retirees, but they were either ignored, or not enforced, or both.
I have previously written about other incidents of troubled Pentagon finances (see “Pentagon Failure to Manage Funds Is a Disgrace,” Apr. 10, 2002, and “Concurrent Receipt Update: I'd Fire Dov Zakheim,” July 24, 2002), but this disturbing report tops them both. Perhaps even more troubling is that it seems like DoD and the news media are either ignoring it or suppressing it. Both of those mistakes only exacerbate the findings of the report.
This is how the MRF is supposed to work: Service members who are eligible for retirement benefits submit paperwork to receive them. Once they are properly entered into the DFAS system, retirees are supposed to receive their retirement payments until they die. At that point, DFAS works with other federal organizations to verify that the retiree is truly deceased, and, once verified, DFAS officially stops payments. As with virtually any bureaucratic system, the process I just described is much more complex for it involves multiple organizations with multiple databases and multiple systems (including manually entering data) for tracking and sharing data and information.
The report identified some specific instructions and official procedures that deal with cross-referencing retirees’ life status and stopping retiree payments:
* “Office of Management and Budget (OMB) Bulletin 92-04, ‘Guidance for Termination of Federal Benefits to Deceased Beneficiaries,’ January 15, 1992, states that Federal agencies that pay benefits should monthly access the Social Security Administration (SSA) database listing deceased individuals and match the data against their own payment files to identify deceased beneficiaries. Additionally, Bulletin 92-04 requires that DFAS independently verify the death before terminating benefits. After verification, agencies must immediately terminate payment and, if applicable, initiate recovery of erroneous payments.”
* “DoD 7000.14-R, DoD Financial Management Regulation, Volume 7B, chapter 30, ‘Death of Retiree,’ October 2000, requires that DFAS suspend a retiree’s account upon receipt of a notification of death from any source until DFAS verifies the death.”
* “The DFAS Cleveland Center issued standard operating procedures for processing accounts of deceased retirees. Standard Operating Procedure 4832.10, ‘Death Match Processing,’ October 2, 2000, states that DFAS should match the SSA death data against its database of retirees on a monthly basis to determine the continued eligibility of the retirees. The procedure requires that DFAS send the retiree a letter requesting notarized proof of continuing eligibility. The letter states that DFAS will suspend benefit payments if they do not receive a notarized response from the retiree within 30 days. The procedure also requires that guardians of retirees who have been adjudicated as incompetent, and retirees with overseas addresses, certify continuing eligibility every 6 months by sending in a Report of Eligibility. If DFAS does not receive a timely response to the request for certification, it should suspend payments in accordance with regulations and guidance.”
* “DFAS Cleveland Center Standard Operating Procedure 3551.00, “Report of Existence/Certificate of Existence Processing,” November 4, 1999, provides policy and procedures for processing reports of eligibility and certificates of eligibility by which retirees or their legal guardians can verify their continuing eligibility to receive benefits. Also, the procedures provide policy for suspending payments if the retiree or legal guardian does not respond timely.”
* “DFAS Cleveland Center Standard Operating Procedure 4801.00, ‘Reclamation Action on Outstanding Payments on Deceased Retired/Retainer Pay Accounts,’ January 6, 1993, provides policy and procedures for reclaiming funds erroneously paid to a deceased retiree. The Procedure requires that DFAS try to recover the payments from the bank or next of kin, as appropriate. If DFAS cannot collect the overpayment, the debt collection group at DFAS Denver Center starts an additional collection process. DFAS is required to refer the debt to the United States Treasury in the event it remains uncollectible.”
I am by no means a duty expert on how to do the actions required in those instructions and procedures. But, if it were my job to perform those tasks, I know it would be my responsibility to know those instructions and procedures and learn how to perform those actions to the best of my abilities. Here is a quick summary of the report’s findings about DFAS’ failure to follow, in some cases their own, instructions and procedures, with my own comments following:
* “DFAS continued to pay retirement benefits to some deceased retirees’ accounts even after receiving death notification results from data matching procedures from other Government organizations. In a random sample review of 99 cases where the SSA database showed the retiree as deceased, the DoD IG found 42 cases where the DFAS case files showed no evidence of any notification of death. “[The Defense Manpower Data Center (DMDC)] performs monthly data matching between the retiree database and the SSA Death File, and provides the results to DFAS. DFAS then assembles the data into manually processed Excel spreadsheets that it (or the contractor staff) tracks manually. The manual processing and tracking increases the risk of data errors and decedents not being identified.”
Dodd comments: As noted above, there were many written policies about DFAS’ role in a monthly reconciliation of databases to verify retirees’ eligibility for continued payments. The DMDC actually did the monthly database matching of the retiree database and the SSA’s death files and gave the results to DFAS. All DFAS had to do is review the data and take appropriate action (per their own standard operating procedures) on those retirees that SSA had shown to be deceased. The DFAS course of action was to manually process and track the data that resulted in a 42 percent error rate.
Either DFAS was totally unaware of this situation before the report, or they knew about it and were taking “corrective actions” before the report, which would mean that the 42 percent error rate was actually an improvement. I am not sure which scenario is worse, but both are scary as hell.
* “In another DoD IG review, they found that DFAS sent a letter to 44 retirees requesting a Certification of Eligibility (COE) to verify their eligibility to continue to receive payments. In only 12 of those cases did DFAS receive a response, yet DFAS did not suspend and stop payments to any of those other 32 non-responsive accounts, and 5 of those non-responsive accounts remained active more than 2 years after the retiree should have answered the COE letter. One retiree died in 1985, according to the SSA Death File, at age 83. However, DFAS continued payments until February 2004, when he would have been 102 years old, paying out about $351,000. DFAS stopped payment on the account only after [the DoD IG] brought it to their attention.
Dodd comments: DFAS sends letters to retirees, after they suspect the retirees’ “life status” may have changed. If DFAS does not receive a response within a specified time, DFAS is directed to stop payments. A 27 percent response rate (12 of 44) should have told somebody somewhere at DFAS that something needed to be done. Or, to put it another way, DFAS should have stopped payments to the 73 percent of retirees who failed to respond to their letter. The DFAS course of action was to take no action, which is simply inexcusable.
* “DFAS was also slow and ineffective in recovering erroneous payments. One problem was that the written policy for recovery procedures did not specify when to start the recovery process. In a random sample review of 33 cases in which DFAS stopped payment on an account after they discovered that the retiree was dead for some time, 22 cases showed no evidence of DFAS attempts to recover the erroneous payments.”
Dodd comments: OK, I understand that sometimes written policies are not as complete as they should be. Still, somebody somewhere at DFAS should have been able to think of some way to take some action within a reasonable amount of time to recover payments that went to deceased retirees. I also wonder about who received those deceased retirees’ payments, how they received them, and what has happened to all the money.
* “DFAS did not timely suspend payment on all accounts upon confirming they had a legitimate death notification on retirees. The DoD [Financial Management Regulation] requires that DFAS suspend a retiree’s account when there is a reason for DFAS to believe that a retiree is deceased. However, DFAS standard operating procedures require that retirees first be given an opportunity to certify their continuing eligibility. The retiree’s account should not be suspended unless DFAS does not receive a response within 60 days. However, DFAS does not timely suspend all accounts once it receives a notification of death or when a COE request is unanswered. DFAS and contractor officials explained that they are reluctant to immediately suspend payment on an account upon receipt of a death notice from a source they consider to be prone to errors, such as the SSA database. DFAS is reluctant to stop a retiree’s benefits because of the hardship it might cause a retiree who is still eligible, and the potential for adverse publicity. DFAS and the contractor wish to independently verify that the person is alive by mailing out a COE request and waiting the appropriate number of days for the return of the signed, notarized document. However, in some cases DFAS issued a COE letter and did not get a response, and there was no evidence that DFAS suspended payment on the account as it should have according to DFAS guidance.”
continued..