1OCUMENT RESUME 1 03056 - [A2033'127 48h g14 NI.el Replacing Lost or Stolen c7vernnent Checks: Expedited Service versus Costs and Risks. GGD-77-65: B-164L031t14). Jujy 19, 1977. 18 pp, + appendix (2 pp.j. Report to Rep. Elizabeth atirzman; by Elmer B. Staats, Comptroller General. - Issue Area' Income Security Irogrems: Program Monitori.ng and Administratinn (1303). Contact: General Government Div. Budget unaction: General Government: Central Fiscal Operations (803); Income Security: Fablic assistance and Other Income Supplements (604). Organization Concerned: Departm nt of the Treasury; Social Security Administration. Congressional Relevance: Rep. Elizabeth Holtzman. The Department of the Treasury and other agencies are developing data on the timeliness, costs, and risks of various alternatives for replacing lrst or stolen cr.cks with a minimum of hardship for the recipients and without incurring excessive costs and risks for the Government. Findings/Conclusions: Because the Supplemental Security Income Program serves the needy, Treasury expedites its claims for replacement checks. Safeguards built into the regular check replacement system to prevent double paymen+s are bypassed. Check replacement time averaged 12 days for claims receiving expedited service. A new system implemented in April 1977 was to have replacement checks delivered within 4 days after a claim is filed, but it is too early to tell if the system will meet this goal. Check replacement time for other programs, including Social Security and Veterans, ranged from an average of 22 to 85 days. Treasury is taking steps to expedite the normal check replacement process, but the resulting replacement time frame may still not be satisfactory. Providing administrative machinery needed to expedite check processing in these other agencies would entail an undetermined expense. Bypassing the safeguard of determining whether an original check has been cashed would result in unnecessary replacement checks being issued in these programs. About 30% of the claims filed in 1976 were either abandoned or denied. Recovering duplicate payments could be slow and uncertain. (SC) . ·. Acc0U... .. : , d ov al ;sappir X.pc~ by .te i.;e i ,L~tuos '_,c-:-i REPORT OF THE o .~.ii ad COMPTROLLER GENERAL touO OF THE UNITED STA TES Replacing Lost Or Stolen Government Checks: Expedited Service Versus Costs And Risks Department of the Treasury How to speed up check-replacement process- ing, without incurring excessive costs and risks, is a problem the Government is trying to solve. Data on the timeliness, costs, and risks of various alternatives is not available and must be developed. Electronic funds transfer and other means of assuring that the right person gets Federal funds must be studied. Treasury and other agencies involved are doing this. GGD-77-65 JULY 19, 1977 eCOMPTROLLER GENERAL OF THE UNITED STATES WASHINGTON, D.C. 201- B-164031(4) Tne Honorable Elizabeth Holtzman House of Representativ.c Dear Ms. Holtzman: In response to your request, we reviewed the Government's procedures for replacing lost or stolen Government checks. This report describes the procedures of replacing checks and discusses ways of expediting the replacement time. Since we have undertaken this review, the Department of the Treasury and the Social Security Administration are doing this. We have discussed the report with Treasury officials, and they generally concur with its contents. We are sending copies of the report to the Secretary of the Treasury. The report contains no recommendations, but because numerous bills on this subject have been introduced in the 95th Congress it could be of interest to other Members and various committees of Congress. Therefore, we will contact your office to arrange for release of the report. Sinceely yours, Comptroller General of the United States REPORT OF THE REPLACING LOST OR STOLEN COMPTROLLER GENERAL GOVERNMENT CHECKS: EXPFDITED SERVICE VERSUS COSmS AND RTSKS Department of the Treasury D I G E S 'r Replacing lost or stolen checks presents the Government the dilemma of mi.nimizing re- cipients' hardship without i.ncurring exces- sive costs and risks. Representative Elizabeth Holtzman was con- carned that: -- Supplemental security income recipients (the aged, blind, and handicapped) had to wait 3 to 5 weeks for a replacement check, even though such claims were to receive expedited processing. -- Other Federal program recipients could not get expedited check replacement, even though possible double payments could be recouped from future monthly benefits. The Department of the Treasury and other agen- cies are developing data on the timeliness, costs, and risks of various alternatives. Electronic funds transfer and the cycling of checks are being promoted by Treasury, so the rightful person will be paid. Other means are also being studied. REPLACING SUPPLEMENTAL SECURITY INCOME CHECKS Because the Supplemental Security Income Pro- gram serves the needy, Treasury expedites its claims for replacement checks. Safeguards built into the regular check replacement system to prevent double payments are bypassed. Treasury is prohibited by law from issuing a replacement check without first determining if the payee cashed the original. Under ex- pedited processing, Treasury presumes the Iuor S et. Upon rfnoval, the rport GGD77-65 cover date should be noted hreon. original check is outstanding if a claim is made in the same month that the check was issued. A Social Security Administration study show¢e check replacement time averaged 12 days for claims receiving expedited service. Fcr the 12-month period ending June 30, 1976, the agency's automated system processed 210,000 claims of which 12:,000 were sent to Treasury for issuance of replacement checks. The majority of claims not sent to Treasury were rejected because of errors. Of those sent, 50,000 were not initiated in the same month in which the original check was issued. In April 1977 a new system was implemented to have replacement checks delivered within 4 days after a claim is filed. It is too early to tell if the system will meet this goal. CHECK REPLACEMENT FOR OTHERS Other programs--Social Security and Veterans-- provide recurring monthly payments to benefi- ciaries. For these programs, check replace- ment time for the 12-month period ending June 30, 1976, ranged from an average of 22 to 85 days. Treasury is taking steps to ex- pedite the normal check replacement process, but the resulting time frames may still not be satisfactory to those who rely on their checks for day-to-day living expenses. As of March 1977, 8 bills on this subject had been introduced in the 95th Congress, most requiring that replacement time fLames for Social Security claims be 10 days or less. Treasury officials assume that the time frame will be applicable to all claimants receiving recurring payments, including those in the Civil Service Retirement and Railroad Retirement programs. There are problems in achieving this short time frame. First, Treasury maintains that agencies other than Social Security do not have the admi.- istrative machinery needed to expedite check ii processing. Providing the needed capabil- ity would entail an addctional undetermined expense. Second, bypassing the safeguard of determining whether an original check has been cashed be- fore Treasury issues a replacement or other- wise expedites the replacement process, will result in unnecessary replacement checks be- ing issued and probably some payees cashing both the original and the replacement. Treasury received 1 million claims for re- placement checks in 1976. In 510,000 cases, the original checks were cashed. Of these claimants, 320,000 (63 percent) either aban- doned their claims or had them denied. Had Treasury expedited processing on these claims, unnecessary replacement checks probably would have been issued. Recovering duplicate payments could be slow and uncertain. Before deductions are made from future payments, the claimant is told and given an opportunity to challenge the action. For those claimants in critical need, repayments would probably be spaced over many months. iii Contents Paae DIGEST i CHAPTER 1 INTRODUCTION 1 The check claims process 1 Check claims volume 2 Scope of review 3 2 REPLACING GOVERNMENT CHECKS--HOW TIMELY? 4 No systemwide measurement of check replacement time 4 Treasury 5 SSA 6 VA 8 Other agencies 8 3 EXPEDITING CHECK REPLACEMENT MEANS MORE RISKS AND EXPENSE BUT HOW MUCH HAS NOT BEEN DETERMINED 9 Immediate replacement poses problems 9 Variations of the immediate replacement process 10 Administrative improvements 11 Expediting check clearing 12 4 WAYS TO REDUCE THE NEED FOR REPLACEMENT CHECKS 14 Direct deposit/electronic funds trans- fer program 14 Outlook for program 15 Check cycling 15 5 CONCLUSIONS 17 APPENDIX I Letter da'ed March 26, 1976, from Repre- sentative Elizabeth Holtzman 19 ABBREVIATIONS GAO General Accounting Office SSA Social Security Administration SSI supplemental security income VA Veterans Administration CHAPTER 1 INTRODUCTION The Government issued almost 800 million checks in the 12-month period ending June 30, 1976. 1/ The Department of the Treasury received 1 million requests for replacing these checks. Treasury's Division of Check Claims in the Bureau of Government Financial Operations is responsible for settling claims resulting from Government 'checks being forged, lost, stolen, destroyed, or mutilated. It handles all claims for nonreceipt of Government checks, including claims sent to the Department of Defense, the Postal Service, and several other agencies which issue their own checks. THE CHECK CLAIMS PROCESS Normally, the claimant files a claim for nonreceipt of a check to the agency that authorized it. The authorizing agency determines that the claimant was entitled to a check and forwards certain information to the Treasury disbursing office that issued the check. From the information submitted, the disbursing office first determines if the check has been returned as undeliver- able; if not, it then identifies the check and symbol number and prepares a stop payment order. This stop payment order and the other information is sent to the Division of Check Claims to determine whether the check had been paid. If the check is outstanding--not cashed--which it is in 48 per- cent of the cases--Treasury immediately authorizes a replace- ment check 2 / and issues the stop payment order to "flag" the originaT so that if the original is cashed ltter, the Government can take steps to recover the money. If the check was paid--about 52 percent of the cases-- Treasury tries to determine whether the claimant shared in its proceeds. To do this, the paid check is retrieved from a records center. A copy of the paid check and a claim form are sent to the claimant. If the claim form is returned, an adjudicator compares signatures on the claim form and check. If the check appears forged, a replacement check is authorized and the case is 1/Hereafter all references to fiscal year 1976 refer to the 12-month period ending June 30, 1976. I/Any check issued to settle a claim of nonreceipt for pre- viously issued Government check. sent to the Secret Service for investigation. In cases where the signatures are similar, the claims are denied. In some cases replacement checks are not authorized until after a Secret Service investigation. Claims on paid checks must be filed within 6 yetrs after the issuance date of the original check, but claims on out- standing checks may be filed anytime. CHECK CLAIMS VOLUME In fiscal year 1976 Treasury processed about 982,000 claims and authorized about 465,000 replacement checks. The following schedule shows the number of checks issued, claims received, and replacement checks issued by Treasury for fis- cal year 1976. Treasury Check and Claims Volume FY 1976 Estimated Estimated Original no. of replacement checks claims checks issued issued (note a) (note a) Social Security Admin- istration (SSA): Regular social security pro- grams 360,640,000 416,000 163,000 Supplemental security income (SSI) 53,827,000 127,000 b/97,C00 Veterans Administration (VA) 97,08S,000 112,000 43,000 Other agencies 263,820,000 327,000 162,000 Total 775,375,000 982,000 465,000 a/Estimates of claims and replacement checks are based on the stop payment orders prepared and received by the dis- bursing offices in FY 1976. b/Includes 77,000 claims which received expedited check re- placement service. (See p. 7.) The number of claims has increased about 180 percent since fiscal year 1965, although the number of original checks issued has increased only 85 percent. 2 SCOPE OF REVIEW We reviewed Treasury's policies, procedures, and prac- tices for processing check claims. We examined pertinent legislation; studies on claims processing made by SSA and Treasury; and interviewed Treasury, SSA, and Veterans Administration officials. We made a statistical analysis of over 100 randomly selected outstanding check claim cases and over 75 paid check claim cases to determine how long it takes to process a claim. Our review was conducted pri- marily at Treasury Headquarters in Washingto., D.C. 3 CHAPTER 2 REPLACING GOVERNMENT CHECKS--HOW TIMELY? Check replacement time varies depending on the authoriz- ing agency, the existence of an agreement for special process- inq between Treasury and the authorizing agency, and whether the check is outstanding or has been paid. What constitutes an adequate time frame? As of March 1977, 8 bills had been introduced in the 95th Congress, most of shich required that replacement time frames be 10 days or less for SSA claims. Treasury officials assume that this time frame would be applicable to all claimants receiving recurring payments, including those in the Civil Service Re- tirement and Railroad Retirement programs. Most Government checks are issued to people receiving recurring payments. For example, 54 percent of the checks issued in fiscal year 1976 were to social security recipients and about 13 percent to recipients of VA program benefits. Most social security checks provide monthly benefits to (1) retired workers and their dependents, survivors of de- ceased workers, including disabled widows and widowers and certain uninsured persons, (2) disabled workers and their dependents, and (3) Medicare program beneficiaries. Checks for supplemental security income benefits are issued to needy aged persors .5 and over and needy blind and totally disabled persons without regard to age. Veterans Adminis- tration checks provide compensation, pension, and education benefits. Recurring payment checks also are issued to Government retirees. These payments are the sole source of income for many recipients. To others, is is supplemental income which is depended upon heavily to-meet monthly expenses. Delays in these payments could cause immediate hardships. In fiscal yeaL 1976, Treasury received 7,900 congressional in- quiries regarding claims for nonreceipt of checks by con- stituents. NO SYSTEMWIDE MEASUREMENT OF CHEK REPLACEMENT TIME There is no system for reliably measuring overall claim processing time. Studies comparing and analyzing time used to process check claims for various agencies are not regu- larly made. Our study showed that the average check replace- ment times ranged from 22 days for an outstanding VA check to 85 days for a paid social security check. 4 Treasury Treasury's experience with 905000 check claims (ex- cluding 77,000 SSI claims receiving expedited processing) in fiscal year 1976 shows the following: 510,000 Original checks cashed 283,000 claimants canceled or abandoned claims 37,000 claims denied 74,000 valid claims, replacement checks issued a/116,U00 claims pending and other disposition 395,000 Original checks outstanding 314,000 replacement checks issued 71,000 claimants canceled or abandoned claim a/I0,000 other dispositions a/Treasury does not have further breakdown. In addition, many agencies weed out claims before they reach Treasury. Our analysis of a sample of claims that had been settled by the Division of Check Claims during fiscal year 1976 showed that, depending upon the authorizing agency (and excluding SSI checks), Treasur: averaged from 12 to 16 days to replace a check that was outstanding and from 68 to 72 days to replace a check that had been paid. This does not include mailing time to the claimant which could add 1 to 3 days or more. Included in the processing time for a paid check claim is an average of 23 days for the claimant to fill out a claim and return it to the Division. In October 1975 the Division of Check Claims established a monthly reporting system to identify the time taken by the Division to process a claim, Tle system, however, does not measure the processing time -of the disbursing offices or the agencies. In March 1977 Treasury established a maximum of 49 days for processing paid check claims. This goal excludes those sent to Secret Service for investigation before issuing a replacement check. 5 SSA Regular social security program In fiscal year 1976, 360 million checks were issued to recipients of regular social 3ecurity program benefits. About 416,000 claims--I for every 875 checks issued--were made for nonreceipt of checks. Our sampl of claims settled from October 1975 tc Jan- uary 1976 showtj SSA took about 13 days to process a claim and submit it to Treasury. In January 1976 SSA changed to a faster process for handling check claims. Instead of sending the physical docu- ments through the process, claims are electronically trans- mitted from the district offices to SSA Headquarters and stop orders are transmitted by the Disbursing Office directly to Treasury computers (bypassing initial processing at Treas- ury's Division of Check Claims). If Treasury determines that a check is outstanding, a replacement is issued. But if a check was paid, the case is referred to the Division of Check Claims for further investigation. SSA has established a goal to replace outstanding checks within 10 days from t:he time the local SSA office receives a claim until the beieficiary receives the replacement check. SSA has considered _ goal of 30 days for paid cases. The Division of Check Claims, however. '-lt this unrealistic and SSA thinks it might be cclimistic. As of February 1977 no system has been set up to monitor the processing time for a check claim. SSI In fiscal year 1976, 53 million checks were issued to SSI program beneficiaries--needy aged persons 65 and over, and needy blind and totally disabled persons regardless of age. There were 127,000 claims--about 1 for every 425 checks issued--oy SSI beneficiaries for replacement of lost or stoien checks. These persons, like many other social secu- rity recipients, are dependent upon the checks for their living expenses. It was for this reason that Treasury and SSA established a goal of 10 days for replacing a lost or stolen SSI check. To receive the expedited service an SSI beneficiary must file a claim in the same month that the original check 6 was issued. Treasury does not verify the status of the original check. Therefore, safeguards built into the system to prevent double payment are bypassed. Determining that a payee did not cash an original check is a time-consuming process. So, because the law does not permit payment of a replacement check if the original has been cashed Treasury presumes that the original check is outstanding, if less than a month has passed from the date of issuance to the date of the claim. If the claim is received a month or more after the date of the check, the claim follows the regular check claims process. In fiscal year 1976, SSA conducted a study at 108 of its district and branch offices to measure the effective- ress of the SSI procedures and to identify problems with the process. The study showed that the overall check replacement time under the expedited process was approximately 12 days. The regular process of replacing an outstanding check took about 1L days and substantially longer for a paid check. SSA processed 210,000 SSI claims. Of these, 127,000 were sent to Treasury for replacement checks. Most of the claims not sent to Treasury were rejected because of process- ing errors. A total of 77,000 claims received expedited service--50,000 did not because they were not initiated in the same month in which the original check was issued. Under these processing procedures, Treasury does not verify the status of the origina± check before issuing a replacement and, in many cases, it turns out that both the original and the replacement checks are cashed by the payee. In these cases, SSA has agreed to absorb the cost of the duplicate payments and assume respoi.sibilities for collection from the beneficiary. From August 1974 to Auqust 1976, 34,056 checks for $5,340,664--about 1,400 per month at $155 each--were charged back to SSA because the payee cashed both the original and the replacement. In April 1977 Treasury, under agreement with SSA, established a system to have a replacement check delivered within 4 days after a claim was filed. Like the 10-day program, claimis must be made in the same month the original check was issLed. We are reviewing these new procedures. The process will work as follows. An SSI recipient mak a a clain for nonreceipt of his check. The local SSA office will query the computer to find out if the person is in current payment status. If so, a claim form will be filled out and this information will be immediately electronically transmitted to SSA Headquarters in Baltimore 7 which in turn transmits it to Treasury's Birmi.nnam Disburs- ing Office by 1 a.m. of the following morning. The dis- bursing office will verify that a check was issued, was not returned, and then will issue a replacement check. This checK will be in the mail within 8 hours of receipt of claim data from SSA. VA In fiscal year 1976, 97 million checks were issued to recipients of veteran benefits. These checks provided com- pensation, pension, and education benefits to veterans and their survivors. About 112,000 claims for nonreceipt of checks--l for each 875 checks issued--were made. Our analysis showed that from January 1, 1976, through June 30, 1976, it took about 10 days to process a claim and submit it to Treasury. A VA official told us that they have a processing goal of 7 days for all payment problems including check claims but they do not specifically monitor the check claims process. Other agencies In fiscal year 1976, 195.4 million checks were issued for all other Government agencies (except the Internal Revenue Service) including payroll checks for those agencies pre- viously mentioned. Most of these checks were for Department of Defense and Postal Service purposes. About 151,000 claims--l for each 1,300 checks issued--were made for non- receipt of checks. Our analysis showed that from January 1, 1976, through June 30, 1976, it took these agencies about 14 days to proc- ess a claim and submit it to Treasury. 8 CHAPTER 3 EXPEDITING CHECK REPLACEMENT MEANS MORE RISKS AND EXPENSE BUT HOW MUCH HAS NOT BEEN DETERMINED Treasury officials have sought to improve the check claims process. Treasury statistics show that productivity increased 43 percent from fiscal year 1971 to fiscal year 1975 while costs increased by only 5 percent. This increased productivity was cost oriented and not tne result of working toward a specific processing time goal. Treasury, however, recently implemented or is consider- ing improvements which could shorten the processing cycle. Precisely how much shorter and whether the resulting time frame will meet the needs of the claimants are unknown Also being considered are some variations of the SSI proceF in which replacement checks are issued before it is determined whether the original check is outstanding or paid. All of the alternatives available could mean more risk and/or ex- pense but how much has not been determined. IMMEDIATE REPLACEMENT POSES PROBLEMS Probably the most timely action for replacing a lost or stolen check (with the exception of paying the claimant upon presentation of the claim) is to replace the check before determining whether the original has been paid. This is the process used for SSI checks (see ch. 2) if the claim is filed within the current month of the original check. This procedure, however, results in duplicate payments to a number of recipients. Recovery of these payments is not that certain. For example, in calendar year 1975, Treas- ury received 110,030 claims on SSI checks, of which 70,044 (64 percent) fell within the current month. A total of 13,910 claims (20 percent of all immediate payments) resulted in checks for $2,235,377 that were duplicate payments because the claimant cashed both the original and the replacement. For a 2-year period ending in August 1976, duplicate payments amounted to $5.3 million. SSA has begun to collect but does not know how much has been recovered. An official said that duplicate payments are a small portion of overpay- ments; therefore, they are not classified separately when collections are made. Because of the single overpayment 9 classification of collections, SSA is not determining the re- payment amount of duplicate payments. Recovery of duplicate payments could be slow and uncer- tain. For example, an SSA official said that deductions from future benefits for duplicate payments cannot be made with- out advising the claimant of his rights to appeal tnis type of action. The claimant may requesc a conference with agency officials to discuss the circumstances of the case or ne may request the matter be reviewed under a reconsideration proc- ess. After reconsideration, SSA can withhold payments from future checks if it is determined that the claimant must re- fund the money. The claimant may appeal this decision and request a formal hearing by an administrative law judge. Further appeals can be taken to an Appeals Council and to a civil court. If the appeal is grantc'- SSA must return the money withheld. Because the amount of money involved in individual cases is small, the administrative costs of recovery could exceed the amount recovered. For example, an SSA official estimated that the cost of an initial conference is $50, that of the reconsideration process is $50 to $100, and that of a hearing could be as high as $300. The average duplicate payment is estimated to be $155. In the end, many claimants are not in a financial position to make restitution. SSA officials state that, because of the administrative costs involved, hardly any of the cases go all the way through the process. Somewhere along the line, SSA either waives the duplicate payment or the person agrees to return the overpay- ment. In addition to risks of duplicate payments, Treasury maintains that to provide other agencies the expedited processing afforded SSI claims wculd require agencies to improve their communication systems at added unknown expense. VARIATIONS OF THE IMMEDIATE REPLACEMENT PROCESS In July 1976, SSA proposed to Treasury other ways of expediting the issuance of replacement checks to regular social security program recipients. One proposal was the Immediate Payment Critical Case system. When a claimant asserts he needs, but has not re- ceived, a replacement check, the local SSA office determines if his needs are critical. If so, Treasury is requested 10 to immediately issue another check even though it has not determined whether the original cneck was outstanding or paid. Another proposal would authorize the SSA district office to monitor the processing of all claims and, if a claim was not settled after a specified time, request Treasury to im- mediately issue a replacement check. Complaints by the claimant would not be required. The Director of the Check Claims Division stated that Treasury has met with SSA officials and is currently con- sidering these and other proposals. ADMINISTRATIVE IMPROVEMENTS Much of the productivity improvement is attributable to new procedures and workflow within the Division. The following schedule shows these improvements. Fiscal No. of Completed Cases per Cost per year employees cases employee claim 1971 353 732,344 2,075 $4.86 1972 372 763,401 2,052 5.53 1973 368 787,50. 2,140 6.11 1974 378 924,877 2,447 .4.88 1975 389 1,156,402 2,973 5.10 Within Treasury there are actions either being imple- mented or under consideration which should shorten the processing time for check claims. A December 19, 1976, memorandum to the Fiscal Assistant Secretary, from the Commissioner, Bureau of Government Finan- cial Operations, led to the formation of a Bureau steering committee and tag. forces. The task forces will concentrate on (1) implementing the feasible automation changes proposed in previous studies, (2) documenting operational procedures, (3) measuring performance and productivity achievements for all units, and (4) considering the need for legal changes such as a change to the statute of limitations on how long a per- son has to file a claim. He said that the first short-term objective will be to establish a simple, reliable reporting system tc monitor progress on meeting the time goals. The memorandum also established overall time goals for other than SSA and SSI claims, from the time Treasury received the authorizing agency's request for s.op payment through the time the claimant should receive the replacement check. For example, for March 1977, a goal of 49 days was established 11 to replace a paid check. For June 1977, it was 38 days and for October 1977, 37 days. The overall goal for replacing an outstanding check is 15 days for all three time periods. However, the faster the process the greater the chance of duplicate payments. Expediting the process will result in more checks being shown as outstanding because of time re- quired for the original check to clear the banking system and be returned to Treasury. As noted on page 5, under the c. rrent claim processing procedures, 510,000 claims involved paid original checks. Of these claims, 320,000 (63 percent) were either abandoned by the claimants or denied by Treasury presumably because the claimants had cashed the originial check. Under expedited processing, replacement checks might have been issued to these claimants with the attendant risk that they would have cashed them. Expediting check clearing In June 1976, Treasury and the Federal Reserve System began testing a system designed to accelerate the clearing of Treasury checks and to facilitate subsequent access to paid checks. The Federal Reserve has approved the system and will start phasing in the process in December 1977. The system should be fully operational in April 1978. Previously, when checks were received at a Federal Reserve Bank, the accounts of the presenting banks were cred- ited and the checks and a listing of them were shipped to Treasury for reconciliation. At Treasury, the checks were read into a computer and 10-digit locator numbers were as- signed to each check. The checks were filed by batch to facilitate retrieval and shipped to the Federal Records Center in Mechanicsburg, Pennsylvania. When the Check Claims Division needed a check photo- copied, the locator number was retrieved from either magne- tic tape, microfilm, or hard copy; then the check was located and sent to the Division. The new system will decentralize the storage of paid checks to most of the Federal Reserve Districts. Check data will be recorded on magnetic tape and sent to Treasury for reconciliation. The Federal Reserve Banks will also micro- film both the front and back of all checks and this micro- film copy will be kept at the Division. There will be no need to retrieve the original check when only a copy is required. Once the locator number is obtained the Division will only have to go to the designated 12 roll of microfilm and make a copy on a microfilm reader/ printer. Reduced cost and increased efficiency in the check clearing operation were the primary reasons for the new sys- tem. There will be a saving of time in processing a check claim but it has not been measured. 13 CHAPTER 4 WAYS TO REDUCE THE NEED FOR REPLACEMENT CHECKS There are two programs which, i- fully implemented, could significantly reduce the need f'-r replacement checks. These are direct &eposit/electronic runds transfer and check cycling. Treasury estimates that the formner program would even- tually eliminate about 40 percent of check-; issued for re- curring payments. Thus, an estimated 216 i3]ilion checks per vear would never have to be issued. Check cycling would spread the payments made to social security and other beneficiaries throughout the month in- stead of making all payments at the beginning of each month. Both programs should result in fewer cnecks being lost or stolen and, hence, fewer claims for replacement checks. The electronic funds transfer program was available to most social security recipients by January 1977; the check cycling proposal is being considered by the Office of Management and Budget. The outlook for the former is prom- ising but the 40-percent participation rate Treasury anti- cipates is uncertain. Treasury has been proposing check cycling for over 25 years. DIRECT DEPOSIT/ELECTRONIC FUNDS TRANSFER PROGRAM This program has three major benefits. 1. To the beneficiaries--improved service through the elimination of check loss, theft, and forgery; the elimination of check cashing problems; and the convenience of uninterrupted deposits. 2. To the financial community--reduced operating and forgery costs as well as increased deposits; a more efficient new depositors system; and improved customer relations. 3. To the Government--reduced costs in the issuance and clearance of checks. 14 The Government is authorized to make recurring Federal benefit payments directly to financial organizations at a beneficiary's request. Participation is entirely voluntary. Under the direct deposit program, an individual's pay- ment was sent directly to a financial institution of his or her choice. Under the electronic funds transfer program, which has superseded direct deposit, payment is made elec- tronically and no physical check is issued. Outlook for program Treashry estimates that direct deposit/electronic funds transfer will save the Government $25 million annually by 1980. This program is expected to reduce the number of lost and stolen Government checks--thus reducing the number of check claims. Whether the program will significantly reduce the number of checks stolen or lost depends on whether those most often victimized--such as people living in areas with high crime rates--participate. These people may not have a bank account, may not trust banks, and/or would prefer to receive the check at home. Treasury is optimistic that its goal of 40-percent participation by 1980 will be achieved. Florida which was a pilot State and subjected to an intensive promotional campaign, has the highest participation rate--29 percent-- of all the States. As of June 1976, 48 States and terri- tories out of a total of 55 had participation rates of less than 20 percent. Treasury is planning to send information on direct deposit/electronic funds transfer to claimants in an attempt to have them participate in the program and reduce the chances of check loss or theft. CHECK CYCLING For over 25 years Treasury has been proposing cycling monthly social security payments. Cycling involves spread- ing the release of checks several dates throughout each month. Treasury wrote about 35 million social security and SSI checks each month during fiscal year 1976; all were mailed out around the first of the month. Some advantages of cycling are -- smoothing out and streamlining Government check clearing and reconciling peak load operations, -- reducing Government check thefts and forgeries because checks would be reaching individuals at 15 different times of the month making it difficult for a thief to know when a particular person receives his check, -- alleviating check cashing peak loads for banks which occur at the beginning of each month when social security checks are issued, and -- reducing space requirements in the disbursing offices because storage facilities for social security checks which are written throughout the month and held for a mass mailing on the first of the next month will no longer be needed. The disadvantages of cycling are: -- Internal control problems. There is only one dead- line to meet under current procedures. Under cycling there would be a number of deadlines which SSA feels it could not meet. -- SSA would have the expense of reprograming its sys- tem for the transition into cycling. Treasury estimates that cycling would save it $2,578,000 per year if implemented. Treasury has presented the cycling proposal to the Of- fice of Management and Budget for consideration. In January 1977 the Assistant Fiscal Assistant Secretary said that Treasury officials had met with Office of Management and Bud- get officials during 1976 but that no positive action has been taken on cycling. 16 CHAPTER 5 CONCLUSIONS Replacement time for a lost or stolen Government check varies depending on which agency author-zed the orginal ck and whether the original check has been paid or is -tanding. The recipients of SSI checks receive the fastest replace- ment of lost or stolen checks because of their perceived need. ThiM group, which accounts for 13 percent of all check claims, has oeen receiving replacement checks in 12 days but Treasury and SSA have established a system to reduce the time to 4 days. To achieve the SSI check time requires unique processing proce- dures. Under these procedures, there is increased risk of duplicate payments. Recovery of these duplicate payments-- averaging about $155--can be a problem in terms of administra- tive expense as well as the inability of some claimants to make restitution. Other programs--Sociil Security and Veterans--also provida recurring payments. The nonreceipt of these may also be an immediate hardship for some intended recipients. For these programs, check replacement time in fiscal year 1976 averaged from 22 to 85 days. Steps are being taken to shorten the normal check replacement process, but the re- sulting time frames may not be satisfactory. As of March 1977, 8 bills on this subject had been introduced in the 95th Congress, most requiring, among other things, that replacement time frames for all SSA claims be 10 days or less. TLeasury officials assume that the time frame would be applicable to all claimants receiving recurring payments including those in the Civil Service Retirement and Railroad Retirement programs. Providing the needed capability to expedite check processing would involve unknown additional expense. Also, the 10-day time frame will mean bypassing the safeguard of determining whether the original check has been cashed before Treasury issues a replacement or expediting that determination. This will probably result in more dupli- cate payments. Treasury recei-ed 1 million claims for replacements checks in 1976. In many cases the original checks were cashed and the claimants abandoned the claims. Under ex- pedited processing, most of these original checks would 17 have been classified as outstanding and reFlacement checks issued. Replacing lost or stolen checks presents the Government with the dilemma of minimizing recipients' hardship without incurring excessive costs and risks. Decisions to expedite the current replacement process are difficult to make with- out adequate data on the timeliness, costs, and risks of the various alternatives. Such data is not available. Treasury and the agencies involved are working toward developing the number of duplicate payments resulting from expedited proceising; the costs of recovering these payments; the number uncollected; a profile of those making claims, particularly their need for immediate check replacement; and the impact of electronic funds transfer and other means of assuring that the rightful payee obtains Federal funds. This type of data should help the Government solve the check re- placement dilemma. 18 APPENDIX I APPENDIX I ,LIM.N-B HOMTZMAN MUrrr c on0mg 0 sammumep B-40A) 31(4 commamn Qom ON 7Ou wUDa Geral (I* IeIIIl Acomm Offic* Ofting ear Mr Staats: . Several hundred of my constituents have complained government checks, on which many people depend for day-to-day survival, are lost or stolen. Replacement of Supplementary Security Income checks which, according to Social Security regulations, take no longer than 10 days, takes from 3-5 weeks.should emergency procedures exist to expedite replacement No Social Security or Veterans of benefits checks; the process can, and frequently does, take months. Such delays intolerable hardship on those who very literally work rely on these checks to live. The problem with S.S.I. checks appears to be an overlong procedure in Treasury for sending the replacement since the Social "3curity office reports a missing to Treasury within one day after a claim is filed. check as Social Security and Veterans benefits are concerned, As far staff tells me that Treasury personnel have stated my one of the major reasons for lengthy delay is that the Secret Service fraud investigation. Virtually all recipients Social Security and Veterans benefits, are continuing of beneficiaries -- a fact which can be verified easily individual case by the Social Security or Veterans in an Administration. If'an improper check is isissued, on the -basis of a I#audulent report of loss, overpayment recauped frdifuture benefits. Stringent penaltiescan be fraud, already provided for in the law, can be enforced. for It seems to me that replacement checks could be immediately issued in the vast majority of cases without jeopardizing any legitimate government interest. 4<70 T'HsrA ToeQtY PRINTeO ON PAPEmt MAE WITH tE'CYCLzeD lamm 19 APFENDIX I APPENDIX I Comptroller Elmer B. Staats: March 26, 1976 In fact, several interests would be served by such a procedure. The beneficiary would receive hil or her payment quickly, avoiding the harsh effects delays cause for these people now living on the strictest and most minimal budgets. Additionally, comprehensive investigation of the facts and circumstances attendant on each case could be undertaken without the necessity of arriving at a decision under pressure. I have asked Secretary Simon to consider this matter, but because the problems raised by the current replacement procedures are so serious and affect so many thousands of impoverished Americans, I would appreciate your studying the question as well, with the objective of suggesting means by which current replacement procedures could be expedited. Thank you very much for your attention to this matter. I look forward to hearing from you at your earliest convenience. -20 er ly, ! Member of ongr ss 20
Replacing Lost or Stolen Government Checks: Expedited Service Versus Costs and Risks
Published by the Government Accountability Office on 1977-07-19.
Below is a raw (and likely hideous) rendition of the original report. (PDF)