Again, we recommended that the security weaknesses identified in our report be corrected and that Social Security continue to pursue an active and aggressive security program.

At the requests of Congressmen Charles Rose and Robert F. Drinan, and Senator Max Baucus, we are reviewing the actions taken by Social Security to implement the recommendations contained in our previous reports and other security matters related to records maintained by Social Security.

Our work at Social Security over the past few years has underscored the need for the agency to establish an effective organization of its own to independently carry out ongoing performance evaluations and operational reviews, In this regard, the reorganization of Social Security announced last January established the Office of Assessment to handle these overview responsibilities.

Social Security has scheduled full implementation of its reorganization this July. We believe that the Office of Assessment-if used to its fullest potential-should provide the agency with the basic tools it needs to identify operational weaknesses and needed legislative improvements, such as those we have described today. Its activities, supplemented by the continued efforts of our staff and the Inspector General's staff, should assure continued improvements in the administration's delivery of services to the American people.

That hits the highlights of the statement, Mr. Chairman, and we would be pleased to respond to any questions you may have.

Senator NELSON. Thank you very much for your very helpful testimony.

Mr. Ross, in his testimony, commented on the tremendous size of the program, which is by far and away, the largest program involving the most people of any in the private sector in the country, and stated that, like any program, it needed improvements and so forth and so on.

However, he went on to say that there was about a 2-percent overhead cost of administration-well, his own testimony will speak for itself, but my paraphrasing would be that he went on to say that neither in the private sector nor elsewhere was there a better administered program.

Would you agree with his testimony on that?

Mr. AHART. Well, we have not made a comparison, of course, between the administration of that program and the private sector. As I pointed out in my statement, when you get into a program that is this massive in terms of money amounts, the number of transactions involved, it is a difficult management task to keep it error free, and obviously it is impossible to get it totally error free.

I think I would like to join the Commissioner's statement that despite the level of administration that has been achieved-and obviously, most people get their checks, they get them on time, and so on-that his people and our people and everyone still needs to work at whatever improvements we can make to bring that level higher than it is.

Senator NELSON. Well, I guess anybody would agree with that. He stated, as I recall, that the overhead administrative costs were 2 percent, and had been from the beginning, that that was-however he said it a very commendable achievement. Would you agree with that?

Mr. AHART. Well, again, I really do not have any way to measure, Mr. Chairman, whether that should be 2 percent or 1.5 percent or 3 percent, so I really do not have any basis of comparison for that to say whether it is a lot of accomplishment or not.

Mr. Zimmerman might have some comments on that.

Mr. ZIMMERMAN. I think that we have looked at enough of the management activities, Mr. Chairman, to feel that while the agency is doing a commendable job of delivering services to the public, there are a number of instances that we have reported on where their activities could be improved. Right now we are working closely with Social Security and looking at the services provided in the district offices to see if they can be done in a more efficient manner.

As Mr. Ahart says, there is always room for improvement, even in a program as big as this, and we all recognize that.

Senator NELSON. Thank you very much. We may have some questions to submit to you after we have gone through the record that you can answer in writing.

We appreciate your taking the time to come today and present your testimony. Thank you.

[The prepared statement of Mr. Ahart follows:]

STATEMENT OF GREGORY J. AHART, DIRECTOR, HUMAN RESOURCES DIVISION

Mr. Chairman and members of the subcommittee, we are here today at your request to discuss our activities directed at evaluating the programs managed by the Social Security Administration. We appreciate your interest and concern over media reports that billions of dollars in public funds are misspent annually in these programs.

We in GAO have had a long and continuing interest in the efficient use of public funds and over the past few years have undertaken major efforts devoted to identifying weaknesses and pointing out improvements needed in the administration of Social Security programs with particular emphasis on eliminating or reducing errors and waste. From January 1, 1976, to March 31, 1979, we issued 40 reports to the Congress or its committees and members, and 20 reports to HEW or Social Security officials and testified before Congressional committees on 6 occasions on matters relating to our audit work on social security programs. Presently, we have 34 assignments underway at Social Security. Our testimony today draws heavily on these past and current efforts.

We understand that the purposes of today's hearings are to examine the following two issues:

(1) The accuracy of the waste and fraud reports presented in the media, and

(2) The management of the Social Security programs and the question of what improvements in this area, legislative or administrative, may be necessary.

Because of our understanding of the Subcommittee's interest, we are limiting our testimony largely to matters relating to the administration of the Old Age, Survivors, and Disability Insurance programs and the management functions supporting these programs.

Before proceeding with these two issues, let us take a moment to look at the Social Security programs in terms of benefits paid and numbers of beneficiaries served.

In 1980, Social Security outlays are estimated to be $128 billion, or about 25 percent of the total Federal budget. Of the $128 billion, $99 billion will be spent in providing Old Age and Survivors Insurance benefits to over 30 million beneficiaries and over $15 billion will be spent in providing Disability Insurance benefits to about 5 million disabled recipients. This represents about 90 percent of Social Security's 1980 estimated budget, The remaining $14 billion is to be spent on cash assistance and other programs providing aid and services to about 10 million other recipients. Over the past 10 years, the insurance program outlays have grown 300 percent and beneficiaries on the rolls have increased 40 percent. Considering the magnitude of these programs and the management tasks they involve, it is reasonable to expect some problems and even relatively small prob

lems can translate into large dollar amounts. So I would stress that the thrust of our work and reports is not to condemn the management of the programs, but to constructively criticize and foster needed improvements both legislatively and administratively.

HOW MUCH IS BEING MISSPENT?

In March 1979, the Los Angeles Times reported that over $2 billion annually in Social Security programs is wasted or lost through administrative errors and poor management. While our audit activities at Social Security indicate millions of dollars have and continue to be misspent, overall accurate figures on the total amount are not available. According to the HEW Inspector General's March 1979 Annual Report, as much as $1.6 billion is misspent due to fraud, abuse, or waste annually by Social Security. However, the report states that it would be speculative to use any figures relating to the social insurance programs until the measurement systems discussed below are developed.

Social Security recently established an Office of Payment Eligibility Quality, independent of its program operating components, whose principal function is to develop and maintain an agency-wide quality assurance system. A quality assurance system properly implemented could provide an estimate of misspent funds. Of the five largest Social Security programs-Old Age and_Survivors Insurance, Disability Insurance, Black Lung, Aid to Families With Dependent Children, and Supplemental Security Income (SSI)-the Office of Payment Eligibility Quality has ongoing comprehensive quality assurance systems covering only the latter two. These two programs, however, account for less than 10 percent of total Federal funds spent by all Social Security programs. The Office is currently carrying out a pilot test for a quality assurance system for the Old Age and Survivors Insurance program and plans to implement this system some time this fall. In addition, it plans to begin pilot testing a system for the Disability Insurance program next month. Implementation of this system is expected in 1980. The Inspector General estimates that the range of misspent funds in these two programs may exceed $1 billion annually.

We reviewed the SSI quality assurance system and reported our findings to the Congress in May 1978. One of the principal weaknesses noted, which we believe could result in a sizable understatement of estimated SSI payment errors, is the fact that the medical aspects of disability and blindness are not reviewed or reported on by the system. Over 2 million or about one-half of the SSI recipients on the rolls are blind or disabled. Based on the results of other work performed in this area which will be discussed later, we do not consider the SSI quality assurance system a reliable source for estimating the magnitude of waste in this program. We might add that no efforts are presently underway at Social Security to review the medical eligibility of disabled and blind SSI recipients and measure the related payment error.

We are currently reviewing the adequacy of the AFDC quality assurance system at the request of the Chairman of the Senate Finance Committee. Also we have established a Special Task Force on the Prevention of Fraud and Abuse which is presently reviewing Social Security's and other Federal agencies' systems for the prevention of and the handling of cases involving fraud and abuse.

WHAT IMPROVEMENTS ARE NEEDED?

We have recommended a number of legislative and administrative actions to improve the management and reduce the cost of social insurance programs. These actions cover a wide range of issues which could lead to improvements in the accuracy, timeliness and uniformity of eligibility decisions and payments to beneficiaries, more effective and efficient use of resources for carrying out program operations, and the strengthening of controls and other mechanisms for securing and protecting beneficiary records. While a number of these recommended actions are in the process of being implemented, more needs to be done.

For purposes of my testimony, I have grouped these actions under four headings-Old Age and Survivors Insurance, Disability Insurance, Data Processing Activities, and Privacy and Security.

OLD-AGE AND SURVIVORS INSURANCE

In view of mounting congressional and public concern over rising taxes to - finance Social Security's trust fund programs, we intensified our review of the Old Age and Survivors Insurance program in July 1977. Our work has resulted

in a number of reports, briefings, and congressional testimonies on ways to reduce program expenditures through improved program management or to eliminate unnecessary or wasteful legislative provisions.

The following are two of the more significant legislative issues which we have pursued or are currently pursuing:

(1) In September 1978 we reported to the Subcommittee on Social Security, House Committee on Ways and Means, that rounding Social Security payments to the nearest $.01 instead of to the next highest dime would, if legislation was enacted, save $386 million between 1980 and 1986.

(2) In February 1979 we testified before the Subcommittee on Oversight, House Committee on Ways and Means, on problems with using the Social Security system for targeting money to student beneficiaries for school attendance.

The Social Security Act as amended provides for the payment of benefits to children aged 18 to 22 of entitled retired, disabled, and deceased workers, if they are attending school full-time and are not married. Payments of Social Security student benefits have rapidly grown from $325 million in 1966, the first full year of operation to $1.6 billion during 1978. The Social Security Administration estimates the program will continue to grow, reaching $2.5 billion in 1982.

Social Security student benefits, like all Social Security benefits, are based on the entitled workers' earnings in covered employment. During the 1977 school year, annual benefit payments to students ranged from less than $100 to more than $4,000. The average annual benefit was about $1,700.

We pointed out in our testimony that about seven out of every ten Social Security students could receive money from the Office of Education's Basic Grant program, considered to be the foundation or starting point for financial assistance. The Basic Grant program was not in existance when the Social Security student program began in 1965.

We found that more than 100,000 students expected to receive more in Social Security and Basic Grant benefits than their total cost of going to school. About 40 percent of these students received more in Social Security student benefits alone than their total educational cost for the year, with some students having excess benefits of more than $2,200.

The Administration is proposing to phase out the payment of Social Security benefits to postsecondary students which would result in a savings of $1.8 billion to the trust funds in fiscal year 1984. The results of our work to date support a phase out of these benefits.

In addition to these legislative matters, we have made the following recommendations to SSA which should result in substantial savings or improvements in program administration.

In July 1978 we testified before the Subcommittee on Social Security, House Committee on Ways and Means, on the then pending Social Security agreement with Italy. We pointed out that very limited cost and benefit data was submitted to the Congress supporting this agreement. We also pointed out that experience with the Italian agreement would be useful in assessing future agreements and the agency should set up specific procedures for measuring its impact on the Social Security trust funds.

In December 1978 we reported to the Congress and in January 1979 we testified before this Subcommittee that the Social Security Administration could have earned about $1.1 billion in interest for the years 1961 through 1979 if States had been required to make more frequent deposits of Social Security contributions as other employers are required to do. We pointed out that if requirements were not changed, the trust funds would lose an additional $1 billion for the years 1980 through 1984 and significant amounts each year thereafter.

New regulations were published in the Federal Register on November 20, 1978, but under law are not effective until July 1, 1980. While these regulations will partially correct the problem, they are still too liberal and will not maximize interest income to the trust funds.

In December 1978 we reported to the Secretary, HEW, that $6.1 million in duplicate payments were made to Social Security beneficiaries because the agency's detection systems were either not fully operational or too restrictive, and the agency was not taking follow-up action. While the $6.1 million affected only about 2,350 beneficiaries, the individual cases of abuse can be rather startling. For example, a family of 3 persons received a total of $26,000 in duplicate disability payments over a 4-year period, and the improper payments were undetected because of a minor misspelling of the father's first name and because the checks were being sent to 2 different zip code locations.

In January 1979 we reported to the Congress on improvements needed in the recovery of overpayments made to Old Age, Survivors, and Disability Insurance beneficiaries. While Social Security collects most of the overpayments made to these beneficiaries by offsetting their benefits, a total of $234 million is owed by others who were overpaid and were subsequently removed from the benefit rolls before repayment could begin. These persons represent a very difficult recovery problem. We made recommendations to improve Social Security's management of collection activities which should result in more efficient and effective recovery methods. I might add that we have also reported on the need for the Social Security Administration to improve its overpayment collection practices for its cash assistance programs.

In our February 1979 testimony before the Subcommittee on Oversight, House Committee on Ways and Means we also pointed out that the Social Security Administration is making overpayments to ineligible student beneficiaries.

The Social Security Administration relies primarily on students to provide timely and accurate reports of their school attendance. To verify attendance and evaluate the reliability of student reporting, we examined high school and postsecondary school records for a sample of students in Los Angeles County and upstate New York.

We determined that many students were ineligible for payments because they had dropped out of school or attended only part-time. Nine percent of the payments made to the students in our upstate New York sample and 19 percent of the payments to students in our Los Angeles sample were made to ineligible students. The Social Security Administration was not aware of most of these improper payments.

We also determined that 86 percent of the sampled students who attended school part-time or dropped out did not notify Social Security as required. Further, at least 31 percent of the sampled students who were no longer attending school full-time, incorrectly reported that they were full-time students. For example, a student reported after the school year ended that he had been attending school; however, the school records showed that he had dropped out several months before the end of the school year. Consequently, the student was paid about $1,700 in benefits to which he was not entitled.

The Social Security Administration was notified of our findings during our review and is taking corrective action by

(1) measuring the nationwide magnitude of payments to ineligible students, (preliminary results indicate annual payments to ineligible students of over $100 million),

(2) revising its student reporting form to require school verification, and (3) obtaining other verifying data from the Office of Education on students receiving Social Security benefits.

In March 1979 the Commissioner informed us of a number of actions which he had started directed at problems we brought to his attention on the operations of Social Security's field offices. We pointed out to the Commissioner and his staff that Social Security needed to redirect its priorities to assure that its 1,300 field offices are better managed thereby improving their performance and productivity. Some of the specific areas which we pointed out that required improvement include the need for:

(1) better controls over the volume and accuracy of communications and forms impacting on field offices;

(2) adequate field testing of new procedures before being implemented; (3) providing field offices with improved capability to make computations with computers rather than manually; and

(4) improving field office work flow and layouts.

In March 1979 we briefed Social Security officials regarding our preliminary findings that the agency had made approximately $50 million in over payments during the years 1974-1976 to beneficiaries who had income that should have reduced their benefits. We found that the Social Security Administration had not completed actions or had never initiated actions to fully identify and collect these overpayments.

In April 1979 we briefed the staff of the Subcommittee on Social Security, House Committee on Ways and Means on our review of foreign Social Security beneficiaries, pointing out that in fiscal year 1978 over $600 million was paid to Social Security beneficiaries residing in foreign countries. Some beneficiaries have only worked in this country a short period of time; others have never lived in this country; and others appeared to have worked in this country illegally, but all were accorded full coverage under the Social Security program. We expect to issue a report on this matter in the near future.