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)

                                 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

           by     .te i.;e i
                  ,L~tuos        '_,c-:-i

          REPORT OF THE
o .~.ii

          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
                          WASHINGTON, D.C.   201-


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
                                       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.


             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

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


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

processing.  Providing the needed capabil-
ity would entail an addctional undetermined

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.

DIGEST                                                      i

      1     INTRODUCTION                                    1
                The check claims process                    1
                Check claims volume                         2
                Scope of review                             3
                No systemwide measurement of check
                  replacement time                          4
                    Treasury                                5
                    SSA                                     6
                    VA                                      8
                    Other agencies                          8
              BEEN DETERMINED                              9
                Immediate replacement poses problems       9
                Variations of the immediate replacement
                  process                                 10
                Administrative improvements               11
                    Expediting check clearing             12
             CHECKS                                       14
               Direct deposit/electronic funds trans-
                 fer program                              14
                    Outlook for program                   15
               Check cycling                              15
      5    CONCLUSIONS                                    17

      I    Letter da'ed March 26, 1976, from Repre-
             sentative Elizabeth Holtzman                 19
GAO        General Accounting Office
SSA        Social Security Administration
SSI        supplemental security income
VA         Veterans Administration
                             CHAPTER 1

     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

     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.

     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.


     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.


                      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
       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.


     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.

                            CHAPTER 2


     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-


     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.


     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

     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.


      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.

     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

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

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.


     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.

                         CHAPTER 3


     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.


     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

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-

     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.


     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

to immediately issue another check even though it has not
determined whether the original cneck was outstanding or

     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.


     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

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

roll of microfilm and make a copy on a microfilm reader/
     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.

                          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.

     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.

     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.


     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

       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.

                            CHAPTER 5

     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

      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

have been classified as outstanding and reFlacement checks

     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.

                                                                                                  APPENDIX I
,LIM.N-B               HOMTZMAN                                                           MUrrr
                                                                                           c        on0mg   0

               B-40A)         31(4                                                        commamn
                                                                                          Qom       ON 7Ou wUDa
                                  Acomm            Offic*

               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
            issued in the vast majority of cases without jeopardizing
           any legitimate government interest.

                           T'HsrA ToeQtY   PRINTeO ON PAPEmt MAE WITH tE'CYCLzeD   lamm

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
           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
          Thank you very much for your attention to this matter.
     I look forward to hearing from you at your earliest
                                          -20 er ly,       !

                                          Member of    ongr ss