A report issued last week by the Office of the Inspector General (OIG) found that the Social Security Administration spent nearly three times as much as it took in to try to collect on mistakenly issued overpayments over the six year period ending in 2013.

The objective of the report was to analyze the cost-benefit of processing overpayments for the Retirement and Survivors Insurance, Disability Insurance, and Supplemental Security Income programs. Benefit payments greater than the amount to which individuals are entitled are considered overpayments. When the Social Security Administration (SSA) determines an individual has been overpaid, it generally initiates recovery actions regardless of the dollar amount.

The report noted that generally, SSA attempted to collect overpayments regardless of the amount, and in some cases, the value of the overpayment was less than what SSA spent to collect it. Based on OIG analysis using average cost data, they estimated SSA spent over $323 million to collect low-dollar overpayments in FYs 2008 through 2013. Using SSA’s overpayment collection percentages for these FYs, OIG estimated SSA collected approximately $109.4 million of the low-dollar overpayments. This resulted in SSA spending over $213.6 million more than it collected.

Among OIG recommendations to SSA is to re-evaluate its process for collecting overpayments where the value of the overpayment is less than what SSA spends to collect the overpayment to ensure it expends resources on activities that result in the greatest return on investment. The report stated that SSA agreed with this and its other recommendations.

Another finding was that the accounting system used by SSA was not capable of capturing the cost of collections where more than one action was required.

SSA expressed concerns with OIG’s methodology of applying the average cost to collect an SSI overpayment to all overpayments because those that did not require any actions by an SSA employee would not have an associated cost. While OIG acknowledges that this may be true for some overpayments, they also state that since SSA does not track the number of actions taken on SSI overpayments, they were unable to exclude those that did not require any actions by an SSA employee. Conversely, some SSI overpayments may have required more than one action. Since SSA did not track the number of actions taken, OIG considered a minimum of one action taken on all SSI overpayments, and believes this is a conservative average.

insideARM Perspective

If nothing else, it seems that outsourcing this type of collection work to private collection agencies on a contingency fee would immediately solve the upside down cost/recovery problem. This is reminiscent of the Internal Revenue Service collection saga of the early 2000′s. Arguments flew back and forth about it being both cheaper and more expensive for IRS employees to collect on back taxes. Ultimately, the program was terminated in a sea of politics.

A similar story is currently playing out with the Department of Education in the Federal student loan collection arena, with some arguing that private collectors should not be used.

What those in the debt collection industry know is that one action – on average – returns very little from a consumer. If this were the case, there would in fact be little need for companies that specialize in collections. Companies, and government agencies, would simply send a letter requesting the money, and checks would arrive. Wouldn’t it be a great country.

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