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CASE | DECISION | JUDGE | FOOTNOTES

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
IN THE CASE OF  


SUBJECT:

Social Security Administration,

DATE: September 10, 2003
                                          
             - v -
 

Clara Sloan

Respondent.

 

Docket No.C-01-453
Decision No. CR1081
DECISION
...TO TOP

DECISION

I sustain the imposition by the Social Security Administration (SSA), Office of the Inspector General (OIG), Petitioner, of a civil money penalty (CMP) against Clara Sloan, Respondent, pursuant to section 1129 of the Social Security Act (Act), 42 U.S.C. 1320a - 8. I also find that the $35,000 CMP imposed by the OIG in this case is reasonable.

I. Procedural History

On November 27, 2000, SSA-OIG sent Respondent a letter (Notice letter) advising her of its intention to commence a civil action against her for false statements she made to SSA in order to receive title II survivors benefits as representative payee for her son and mother's benefits for herself to which she was not entitled. SSA-OIG informed Respondent that it was open to discuss settlement prior to issuance of a formal demand letter. A second letter from SSA-OIG was sent to Respondent on January 5, 2001 (Penalty letter), which notified her of SSA-OIG's decision to impose a CMP against her in the amount of $122,804. The Penalty letter also provided Respondent with a listing of the aggravating factors which SSA-OIG found existed in Respondent's case. Respondent filed a timely request for a hearing before an administrative law judge (ALJ). This case was docketed at the Departmental Appeals Board (DAB), Civil Remedies Division, and assigned to me for hearing and decision.

By letter dated May 4, 2001, SSA-OIG requested that proceedings be stayed so the parties could enter into settlement negotiations. An order was issued on my behalf staying proceedings in this case until August 21, 2001. SSA-OIG subsequently notified me by letter dated August 20, 2001, that settlement had not been achieved, and requested that the proceedings in this matter resume.

A telephone prehearing conference was conducted on October 23, 2001, at which Mr. Terry Sloan, Respondent's son who is not an attorney, notified me that he would be representing his mother, Clara Sloan, a pro se Respondent, in this matter. The parties jointly requested that this case be referred to the Alternative Dispute Resolution Division (ADR) of the DAB. Efforts to resolve this matter through ADR were unsuccessful and, on April 22, 2002, a second telephone prehearing conference was conducted. At that time I granted Mr. Sloan's request for additional time to seek legal counsel to represent his mother in these proceedings. On July 19, 2002, a third telephone prehearing conference was conducted where I granted Mr. Sloan an additional two weeks to obtain legal counsel. On August 5, 2002, I convened a fourth telephone prehearing at which Mr. Sloan informed me he had not retained counsel to represent his mother in this case. In addition Mr. Sloan indicated he could not provide any information as to when or if an attorney would be retained. SSA-OIG, who had not previously objected to the various stays in the case to allow Respondent to retain counsel, now expressed the opinion that the case should proceed to hearing. Mr. Sloan did not object to proceeding to hearing on the matter.

Respondent has been informed of her right to have legal counsel represent her in this matter, and had also been fully apprized of the benefits of having an attorney represent her in these proceedings from the onset of the case. Respondent has been afforded ample opportunity in these proceedings to secure legal counsel. However, after numerous stays, Respondent had not retained counsel and was unable to provide any indication as to when or if an attorney would be retained. Therefore, without objection from either party, the matter was schedule for trial.

An administrative hearing was held in Las Vegas, Nevada from November 13 - 14, 2002. SSA-OIG submitted 19 exhibits which were marked as P. Exs. 1 - 19. Respondent did not object to SSA-OIG's exhibits, and they were admitted into evidence. Respondent submitted eight exhibits which were marked as R. Exs. 1 - 8, and were admitted into evidence without objection from SSA-OIG. Three witnesses testified at the hearing on behalf of SSA-OIG: Ms. Amanda McWilliams, Operations Supervisor for the North Las Vegas Social Security Office; Special Agent David Cheloha of the Office of Investigations for the Office of Inspector General; and Kathy A Buller, Counsel to the Inspector General. Respondent testified on her own behalf.

The parties filed their initial post-hearing briefs in a timely manner. Respondent requested and was granted additional time to file her reply to SSA-OIG's rebuttal brief. SSA-OIG's post-hearing brief (P. Br.) was filed February 6, 2003; Respondent's post-hearing brief (R. Br.) with two attachments was received March 25, 2003. The attachments were marked as R. Exs. 9 and 10. SSA-OIG's rebuttal brief (P. Rebuttal) was filed April 4, 2003 in which it was noted that there was no objection to the admission of Respondent's additional exhibits. I admit into evidence R. Exs. 9 and 10. Respondent's response, titled as "Respondent Rebuttal Brief" (R. Rebuttal) was received May 28, 2003.

During the course of the proceedings in this case SSA-OIG reduced the proposed CMP and assessment in this matter. SSA-OIG: (1) rescinded the request for an assessment in lieu of damages; (2) decreased the number of false statements charged to 14; and (3) reduced the total CMP from $100,000 to $35,000. (1) P. Br. at 37. In its post-hearing brief, SSA-OIG stated that the record in this case supports a complete waiver of the authorized assessment in lieu of damages. (2) P. Br. at 2. SSA is recouping the overpayment of damages in this case through offsetting $250 per month from Respondent's current title II benefits. (3) P. Br. at 42 - 43; Transcript (Tr.) at 65.

II. Issues

The issues in this case are:

1. Whether Respondent made statements to SSA, in violation of section 1129 of the Act, which she knew or should have known were false or misleading; and,

2. If Respondent did make representations in violation of the law, whether the amount of the proposed CMP ($35,000) is reasonable under the circumstances of this case and within the meaning and intent of the Act and the regulations.

III. Applicable Law and Regulations

Title II of the Act provides for the payment of child survivors benefits to the child of a deceased wage earner. 42 U.S.C. 401, et seq; 20 C.F.R. Part 404. If a child was disabled at the time he attained the age of 18, or can establish that he became disabled by the age of 22, his eligibility for child survivors benefits continues. 42 U.S.C. 402(d)(1)(G); 20 C.F.R. 404.352.

In 1939, Congress amended the Act in order to afford better protection to the family as a unit. The amendment created "mother's insurance benefits" which was intended to provide individuals dependent on a wage earner with protection against the economic hardship occasioned by the loss of the wage earner's support. Specifically, the section was intended to permit parents to elect not to work and to devote themselves to the care of their children. Act, section 202(g); see also H.R. Rep. No. 528, 76th Cong. 1st Sess., 7 (1939). As long as the child remains eligible for child's survivors benefits and in the care of the qualifying parent, then the qualifying parent remains eligible to receive benefits as a surviving parent with a child in care. 20 C.F.R. 404.339. A parent may not be paid title II benefits if the child is no longer under their care. Id.

The regulations at section 404.468 provide that benefits will not be paid to "any individual for any month any part of which the individual is confined to a jail, prison, or other penal institution or correction facility for conviction of a felony." (4) If a child becomes ineligible for title II benefits due to incarceration for a felony, then the child is no longer eligible and neither is the parent eligible for the parent's benefit. (5) 20 C.F.R. 404.468. The regulation provides:

An offense will be considered a felony if -

(1) It is a felony under applicable law: or

(2) In a jurisdiction which does not classify any crime as a felony, it is an offense punishable by death or imprisonment for a term exceeding one year.

20 C.F.R. 404.468(b). Confinement in a facility "continues as long as the individual is under a sentence of confinement and has not been released due to parole or pardon. An individual is considered confined even though he or she is temporarily or intermittently outside of that facility (e.g., on work release, attending school, or hospitalized)." 20 C.F.R. 404.468(c).

Some beneficiaries, either because of their age or disability, are unable to manage their own benefits. In those cases, the regulations at 20 C.F.R. 416.610 provides for payment to be made to a representative payee. SSA will appoint an interested party (often a parent if the beneficiary is a minor) as a representative payee who is authorized to receive payments on behalf of the intended recipient. Representative payees are required to use the benefits properly for the beneficiary's well-being. Representative payees are also required to report any changes that might affect the recipient's eligibility for benefits, and/or their own ability to continue serving as the representative payee. 20 C.F.R. 404.2035; 404.2040. The regulation provides:

A representative payee has a responsibility to -

(a) Use the payments he or she receives only for the use and benefit of the beneficiary . . . ;

(b) Notify [SSA] of any event that will affect the amount of benefits the beneficiary receives or the right of the beneficiary to receive benefits;

(c) Submit to [SSA], upon [its] request, a written report accounting for the benefits received; and

(d) Notify [SSA] of any change in his or her circumstances that would affect performance of the payee responsibilities.

20 C.F.R. 404.2035.

Payments certified to a representative payee are considered by SSA to have been used for the use and benefit of the beneficiary if they are used for the beneficiary's current maintenance. Current maintenance includes costs incurred in obtaining food, shelter, clothing, medical and personal comfort items. 20 C.F.R. 404.2040(a). The statute under 42 U.S.C. 405(j)(3)(A) requires SSA to establish a system of accountability monitoring whereby representative payees report at least annually on how they have used payments. SSA may request that a representative payee provide information confirming a continuing relationship to and a continuing responsibility for the care of the beneficiary. 20 C.F.R. 404.2025. If a representative payee fails to comply with this request, SSA may stop paying the representative payee. Id.

Section 206(b) of the Social Security Independence and Program Improvements Act (SSIPIA) provided expanded authority for SSA-OIG to impose CMPs and assessments against persons who make false statements or representations for use in determining any initial or continuing right to, or amount of, benefit payments under title II or title XVI of the Act, if such person knew or should have known that the statement was false, misleading or omitted a material fact. Section 206(b) of SSIPIA added section 1129 to the Act, effective October 1, 1994. Pursuant to section 1129 authority to impose CMPs, including the authority to issue implementing rules, was delegated to SSA-OIG by the Commissioner of Social Security on June 28, 1995. (6)

Effective October 1, 1994, section 1129 of the Act authorized the imposition of a CMP up to $5,000 for each false or misleading statement or representation of material fact (7) made in connection with the determination of initial or continuing rights to, or amount of, benefits under the Act. Act, section 1129(a)(1). Section 1129 provides that SSA-OIG may prosecute false statements made within six years of the occurrence of the violation.

See also 20 C.F.R. 498.132(b). Section 1129(a)(1) of the Act requires that the person who knows or should have known that the statement or misrepresentation is false or misleading or knows or should know that they omitted a material fact or made such a statement with knowing disregard for the truth shall be subject to a CMP. Section 1129 of the Act also authorizes the imposition of an assessment in lieu of damages of not more than twice the amount of benefits or payments paid as a result of such a statement or representation. (8) See also 20 C.F.R. 498.104.

The language in section 1129 of the Act was directly modeled after language found in section 1128A. Congress intended that the Commissioner of Social Security have the same authority to impose CMPs as did the Secretary of the Department of Health and Human Services (HHS). A congressional conference report notes:

The same authority to impose civil penalties as the Secretary of HHS now has under sections 1128A of the Social Security Act involving false claims in the Medicare and Medicaid programs would be provided for the SSI program. SSA would have direct authority, after approval by the Department of Justice, to impose civil penalties when an individual or entity has been involved in submitting or causing to be submitted any statement that the individual knows or should know is false or misleading, or knows or should know omits a material fact . . . . The process would be similar to that used under section 1128A with respect to false claims in the Medicare and Medicaid programs. SSA would initiate and investigate cases, refer proposed actions to the Department of Justice for review before proceeding, and adjudicate and impose penalties, assessments, or exclusions. As with section 1128A, any person adversely affected by a determination could obtain a review of such determination in the United States Court of Appeals.

H.R. Conf. Rep. No. 103-670, 103rd Cong., 2nd Sess. 1994, reprinted at 1994 U.S.C.C.A.N. 1553, 1994 WL 440345, 144 - 145 (Aug. 4, 1994).

Although there are only a limited number of SSA-OIG CMP cases from which to seek guidance regarding the appropriate amounts in determining the reasonableness of a proposed CMP, reference can be made to HHS-OIG CMP cases previously before the DAB which interpret section 1128A of the Act and outline the purpose and intent of the CMP and assessment provisions. In those cases the standard of knowledge required for liability to attach is that a respondent "know or should know" that the representation is not as claimed. (9) The "know" or "knew" standard indicates that a respondent had the requisite degree of awareness to constitute conscious knowledge. Thus, for a respondent to be found liable under the "know" or "knew" standard, a respondent would have to have conscious knowledge of a fact (or subjective knowledge). See Dean G. Hume, D.O., DAB CR40, at 18 - 21 (1989).

An ALJ is also guided by the preamble to the regulations promulgated by HHS for implementing the enforcement authority outlined in section 1128A of the Act, which states that "[t]he statute sweeps within its ambit not only the knowing, but the negligent . . . ." See 48 Fed. Reg. 38827, 38831 (Aug. 26, 1983). Thus, the phrase "knows or should know" in the Civil Money Penalty Law (CMPL) encompass a spectrum of knowledge where liability attaches on one end when a respondent files a false or misleading statement with actual knowledge and on the other end where a respondent files false or misleading statement in a negligent manner. The Restatement of Torts states:

The words "should know" . . . denote that fact that a person of reasonable prudence and intelligence . . . would ascertain the fact in question in the performance of this duty to another, or would govern his conduct upon the assumption that the fact did exist.

Restatement of Torts (2d) at section 12. Thus, a respondent should be judged in terms of the individual's degree of education, skill, and experience and in terms of the individual's relation to others. In SSA cases involving beneficiaries who are alleged to have submitted false statements or representations, respondents should be judged as a reasonable representative payee. See George A. Kern, M.D., DAB CR12 (1987).

To the extent that a respondent submitted false statements or representations which that individual should have investigated, a respondent is liable under section 1129 of the Act and applicable regulations. Respondents who have assumed the responsibilities of representative payees have a duty to investigate and learn the requirements of SSA rules and regulations.

In determining the amount of a CMP, the regulations at section 498.106 provide that SSA-OIG should consider: (1) the nature of the statements and representations and the circumstances under which they occurred; (2) the degree of culpability; (3) the financial condition of the person committing the offense; (4) any history of prior offenses; and (5) such other matters as justice may require. 20 C.F.R. 498.106(a)(1) - (5).

The hearing rights of a person in any case involving SSA CMPs are governed by regulations found at 20 C.F.R. Part 498. A person against whom a CMP has been imposed can request a hearing before an ALJ of the DAB. (10) 20 C.F.R. 498.202. An ALJ has jurisdiction to determine whether the person should be found liable for a CMP and if liability is found, an ALJ may affirm, increase, or reduce the proposed penalties or assessments. 20 C.F.R. 498.215(a); 498.220(b). The person requesting the hearing, the Respondent, has the burden of going forward and the burden of persuasion with respect to any affirmative defenses and any mitigating circumstances. 20 C.F.R. 498.215(b)(1). SSA-OIG has the burden of going forward as well as the burden of persuasion with respect to all other issues. The burdens of persuasion are to be judged by a preponderance of the evidence. 20 C.F.R. 498.215(c).

IV. Parties' Contentions

A. SSA-OIG's factual and legal contentions.

Respondent's husband, John Sloan died in 1973, leaving respondent, her son Eric Sloan and four other children as survivors. Respondent became entitled to mother's insurance benefits under 42 U.S.C. 402(g)(1), and Eric became entitled to child's insurance benefits under 42 U.S.C. 402(d). P. Br. at 8; Tr. at 48 - 49. In 1985, Eric was determined to be a disabled adult (11) by SSA and became eligible to continue to receive child survivor benefits, and Respondent was appointed the representative payee for her son. (12)

P. Ex. 6. As the representative payee for Eric, Respondent was authorized to receive payments on his behalf. Respondent received two benefits checks from SSA: one as representative payee for Eric's survivor benefit, and the second as a mother's benefit for the care of her disabled son Eric. P. Br. at 10; P. Ex. 6, 8; Tr. at 84 - 85.

For the relevant period of time at issue in this proceeding, February 1995 through August 6, 1995, Eric was incarcerated for a felony conviction. P. Ex. 4. Benefit payments for Eric were never terminated as a consequence of his incarceration. Tr. at 53 - 54. Respondent continued to receive, endorse and cash benefits checks as representative payee for Eric as a disabled survivor beneficiary and for herself under mother's benefits. P. Ex. 8.

Based on an anonymous allegation that Respondent illegally received title II Social Security benefits, the SSA -OIG, Office of Investigations (OI) initiated an investigation in 1997. P. Ex. 3; P. Br. at 11; Tr. at 73. As a result of that investigation, SSA-OIG seeks to impose a CMP for false statements which Respondent made to SSA regarding Eric's living arrangements and incarceration.

SSA-OIG alleges that Respondent violated section 1129 of the Act on 14 separate occasions in 1995, when she endorsed and cashed 14 title II benefit checks issued to her when she knew or should have known that she was not eligible for the benefits because Eric was incarcerated. P. Br. at 1. SSA-OIG maintains that as the result of endorsing and negotiating the 14 benefit checks, Respondent wrongfully received $8,001 in title II benefits for which she was not eligible. 13) Id.

SSA-OIG further asserts that after the 1995 violations, Respondent continued to make false statements to SSA regarding Eric's residential status. SSA-OIG maintains that these false statements should be considered as aggravating factors. P. Br. at 2. SSA-OIG maintains that in 1996 and 1999, Respondent made two false statements to SSA regarding Eric's living arrangements in a Representative Payee Report dated January 1996 and in a Statement of Claimant form dated May 7, 1999. P. Exs. 2, 10. Specifically, SSA-OIG charges that Respondent signed the Representative Payee Report on January 1996, and did not disclose that Eric was incarcerated for part of the year. In addition, SSA-OIG maintains that Respondent also failed to disclose how she was using Eric's benefits while he was incarcerated. P. Br. at 27. SSA-OIG further maintains that Respondent also made representations in a Statement of Claimant, Form SSA-795, on May 7, 1999, that contained false statements. P. Exs. 2, 10. With respect to the May 7, 1999 Statement of Claimant, SSA-OIG alleges that Respondent falsely stated that Eric had always lived with her. P. Br. at 28; P. Ex. 10.

SSA-OIG also asserts that prior to the violations occurring from February 1995 and August 1995, Respondent received and cashed numerous other benefit checks for a period from July 1988 through January 1989 when Eric was incarcerated. SSA-OIG maintains that Respondent also received and cashed numerous checks for the period from March 1992 to January 1995 when Eric was incarcerated. However, SSA-OIG is barred by the statute of limitations from prosecuting those misrepresentation under 20 C.F.R. 498.132. SSA-OIG maintains that those barred misrepresentations should be considered as aggravating factors. P. Br. at 2.

SSA-OIG maintains that the law authorizes the imposition of an assessment in lieu of damages of up to twice the amount wrongfully received, as well as the imposition of a CMP in the amount of $5,000 per false statement. Thus, according to SSA-OIG, the total assessment in this case would be $16,002 and the imposition of a CMP of $70,000, arising from the alleged 14 false statements. Id. SSA-OIG asserts that the total CMP and assessment that could be imposed in this case is $86,002. However, SSA-OIG maintains that the record in this case supports a complete waiver of the authorized assessment in lieu of damages and that a CMP of $35,000 is justified by the evidence in this case. Id.

Finally, SSA-OIG maintains that based on Eric's incarceration, both his benefits checks and his mother's should have been suspended as should have Respondent's mother's benefits checks. Because of this, SSA-OIG argues that the false statements made by Respondent when she endorsed each benefits check concerned "material facts" which SSA considered in evaluating whether Eric and Respondent were entitled to continued benefits payments under title II. Thus, the endorsement and negotiation of each of the 14 checks constitutes a separate false statement by the Respondent. P. Br. at 22 - 24.

B. Respondent's factual and legal contentions.

Respondent advances a number of arguments which are inconsistent and difficult to reconcile. She maintains that she could not have known that she violated section 1129 of the Act as she did not receive instructions from SSA on how to complete representative payee reports until 1998. R. Br. at 1; R. Rebuttal at 1; Tr at 178, 458. She also asserts that the instructions on how to complete representative payee reports provided by SSA in 1992 do not pertain to beneficiaries with disabilities. R. Br. at 1; R. Rebuttal at 3. Respondent further claims that she had visual problems which impeded her ability to read the instructions on how to complete the representative payee report. R. Br. at 2; R. Ex. 4, at 2; Tr. at 189, 199. Respondent also argues that she had no knowledge of the requirement that Eric was ineligible for title II benefits due to his incarceration for a felony. R. Ex. 3, at 1 - 2; R. Ex. 8, at 2; Tr. at 182, 184, 214, 274, 391 - 4. However, Respondent argues that she believes the instructions indicated that since she gave Eric $360 per year for his personal needs while he was incarcerated she was not required to report his incarceration. Tr. at 183, 216, 251, 252 - 3, 261, 386, 391, 492. Respondent further argues that Eric was under house arrest in her home during the relevant period of time at issue in this matter. R. Ex. 9; R. Rebuttal at 2; Tr. 31 - 32.

As a mitigating factor, Respondent states that she has already returned $13,656 to SSA, money which she claims was rightfully hers as partial payment of the overpayment calculated in this case. R. Br. at 2. Respondent maintains that she lacks sufficient resources to pay a CMP. R. Br. at 3; R. Rebuttal at 4.

In her post-hearing brief, Respondent concedes that title II benefits were not suspended by SSA during the period at issue in this matter. R. Br. at 1; Tr. at 224. She also admits that she signed and negotiated the 14 checks at issue in this proceeding. Tr. at 241 - 4.

V. Findings of Fact and Conclusions of Law

I make the following findings of fact and conclusions of law (Findings) to support my decision in this case. I set forth each Finding below in italics and bold as a separate heading. I discuss each Finding in detail and address the parties' arguments.

A. Respondent violated section 1129 of the Act by falsely representing to SSA that her son, Eric, was living with her and that she was using the title II benefits for his personal needs when in fact, he was incarcerated for the commission of a felony. Those material false representations resulted in the improper payment of title II benefits to the Respondent as a parent with a child in care and as the representative payee for her son, Eric.

1. Eric was incarcerated for a felony during the relevant time period.

  Beginning in 1992 and continuing through 1995, Eric was incarcerated in a Nevada state prison. (14) A pre-sentence report (15) offered in this proceeding by Respondent states that in October 1991, Eric was found guilty of robbery and sentenced to six years incarceration. R. Ex. 10. Eric was granted five years probation, but his probation was revoked in March 1992, and the original sentence was imposed. Id. He remained incarcerated until his release on August 6, 1995. Id. P. Ex. 4. SSA-OIG has identified February 1995 to August 6,1995, as the time period at issue for which Eric's benefits should have been suspended as a result of his incarceration. P. Br. at 10; P. Ex. 8; Tr. at 84 - 85. Between February 1995 and August 1995, Respondent received 14 benefits checks, seven were issued to herself as a parent with a child in care, and an additional seven were issued to her as representative payee for Eric. Id.

Respondent offered a pre-sentence report to establish that Eric had been under house arrest in her home during the relevant period of time at issue in this proceeding. R. Ex. 10. However, contrary to what Respondent claimed the report established, the pre-sentencing report clearly confirms that Eric was incarcerated in prison for a felony during the time Respondent received, endorsed and cashed the 14 title II benefits checks at issue. Id.

The pre-sentencing report submitted by Respondent is also consistent with the testimony of Special Agent David Cheloha at the hearing (16) who testified that based on the information and documents obtained during his investigation, he concluded that Eric was incarcerated for a felony from March 30, 1992 until August 6, 1995. P. Ex. 4; Tr. at 75.

The offense for which Eric was incarcerated meets the requirements of a felony as outlined at 20 C.F.R. 404.468(b). Based on the evidence before me, and the credible testimony of Special Agent Cheloha, it is clear that Eric was sentenced to confinement in a state prison and was not released on parole or pardon, including house arrest, between February 1995 and August 6, 1995.

2. Eric's title II disabled survivor benefits should have been suspended while he was incarcerated.

SSA-OIG provided the testimony of Ms. Amanda McWilliams to establish that Respondent was not entitled to title II benefits for herself or as the representative payee for Eric while he was imprisoned. Ms. McWilliams testified that she has worked at SSA for nine years and had served in the capacity of service representative, claims representative, and was currently employed as an operations supervisor. Ms. McWilliams supervises the title II application process in the Social Security Office in North Las Vegas.

Ms. McWilliams testified that beginning in 1983, individuals who are incarcerated for a felony can not maintain eligibility for title II benefits. She further testified that title II benefits for disabled survivor beneficiaries are suspended while the beneficiary is incarcerated, and are reinstated when the disabled survivor beneficiary is no longer incarcerated. Tr. at 41- 42. She also testified that there is no indication that Eric's benefits were suspended while he was incarcerated. Tr. at 50 - 54.

The regulations clearly provide that benefits will not be paid to individuals who are confined to a jail, prison or any other penal institution or correction facility for conviction of a felony. 20 C.F.R. 404.468. Respondent does not dispute that she received and negotiated benefit checks for herself as a parent with a child in care and for Eric as his representative payee between February 1995 and August 1995, while Eric was in prison. The evidence and the regulation establish that Eric's title II disabled survivor benefits should have been suspended while he was incarcerated.

3. The preponderance of the evidence establishes that Respondent knew that she was required to report Eric's incarceration to SSA, and she knew that she and Eric were not eligible for title II benefits when she signed 14 benefits checks between February and August 1995.

(a) SSA-OIG's arguments.

SSA-OIG maintains that as of 1987, SSA required representative payees to file yearly representative payee reports. P. Br. at 9; Tr. at 464. Ms. McWilliams testified that the representative payee program is designed to have someone who is a guardian or relative act as the beneficiary's payee if the beneficiary is unable to manage their own benefits. She further testified that the representative payees receive written instructions as to their duties when they first apply to become representative payees, and they must comply with an annual reporting requirement. A representative payee report is mailed out annually to representative payees which requires the representative payee to provide SSA with certain information. The report requires the representative payee to report beneficiary custody changes and indicate whether the same person or institution took care of the beneficiary during the entire reporting period. If a different person or institution provided care for the beneficiary during any part of the reporting period, the representative payee must so indicate, provide an explanation as to who is providing the beneficiary's care, and provide the beneficiary's current address under the remarks section of the form. Tr. at 43 - 44.

Ms. McWilliams also testified that the representative payee must report the total amount of benefits spent for food and housing for the beneficiary during the reporting period. In addition, the representative payee must provide a total amount of benefits spent on personal items, such as clothing, medical, dental care, educational and recreational items such as toys, movies, cameras etc, during the reporting period. Tr. at 44 - 46.

According to Ms. McWilliams, the instructions require that if a beneficiary is in an institution or nursing home and the representative payee pays monthly charges, those monthly charges must be noted on the report. The instructions to the representative payee also indicate that if the beneficiary lives in an institution or other care facility the representative payee must spend at least $360 a year for the beneficiary's personal needs. Tr. at 46 - 47. It should be noted that the annual contribution for personal needs discussed by Ms. McWillliams does not apply to beneficiaries who are incarcerated for a felony, nor does a prison qualify as a care facility as required for consideration of the $360 annual contribution for the beneficiary's personal needs. See 42 U.S.C. 202(x)(1)(A) and (x)(3)(A); 1611(e)(1)(A) - (G).

Ms. McWilliams was asked to quote from the representative payee report under a section entitled "your job as a representative payee." P. Ex. 1. She testified that the report informs the representative payee that:

"as a payee you must use the Social Security and SSI benefits you receive for the care and well-being of the beneficiary. You need to know about the beneficiary's needs so that you can use the money properly. You must also tell us about any changes which may affect the checks you received. For example, you should tell us if the beneficiary moves, especially if he or she enters or leaves a hospital or institution, marries, goes to work, is in prison, dies, is adopted or does not need a payee any longer or you are no longer responsible for the beneficiary. "

Tr. at 47.

Ms. McWilliams also testified that during the periods during which Eric was incarcerated, July 1988 through January 1989, and March 1992 through August 1995, SSA provided representative payee report forms and instructions to representative payees which included instructions to report changes in custody and incarceration. Tr. at 45. In addition, Ms. McWilliams testified that, because SSA records show that benefits were not suspended during the aforementioned periods, that indicates that Respondent filed her required yearly representative payee reports without disclosing the change in Eric's custody or incarceration. Tr. at 50, 52, 53 - 54.

My review of the instructions on a Representative Payee Report, section titled "How To Fill Out The Form," reveals that question 2, at page 2 of the report, instructs the representative payee to:

"Place an 'X' in the 'YES' box if the same person or institution took care of the beneficiary during the entire report period. Place an 'X' in the 'NO' box if different people or different institutions took care of the beneficiary during any part of the report period, and explain and provide the beneficiary's current address under REMARKS."

P. Ex. 1, at 2. The instructions on the report further state:

Your Job As A Representative Payee

As a payee, you must use the Social

Security and SSI benefits you receive for

the care and well-being of the beneficiary.

****

You must also tell us about any changes

which may affect the checks you receive.

For example, you should tell us if the beneficiary:

 

moves (especially if he/she enters or

leaves a hospital or institution),

****

is imprisoned

Id. at 4. The form also instructs the representative payee to call an 800 number which is provided, or to visit a local Social Security office if they should have questions. Id.

My review of the Representative Payee Report completed by Respondent for the period of December 1, 1994 to November 20, 1995, which is the period during which Respondent received and negotiated the 14 benefit checks at issue, reveals that question 2, at page 1 of the report, asks the representative payee:

"Did the beneficiary live with the same person or in the same institution from 12/01/94 to 11/30/95? If NO, please explain in REMARKS on the back of this form."

P. Ex. 2, at 1. On the report completed by Respondent, dated January 9, 1996, the "YES" box is checked. Id. In fact, Eric was incarcerated and not released from prison until August 6,1995.

It is important to note that the January 9, 1996 Representative Payee Report completed by Respondent required her to certify as to the truth of the statements being provided. The representative payee is required to sign that:

"I certify that the information I have given on this form is true. (A person who conceals or fails to tell SSA about events asked about on this form with the intent to fraudulently receive benefits may be fined, imprisoned or both.)"

P. Ex. 2, at 2. Thus, Respondent's certification of the Representative Payee Report on January 9, 1996, created a duty for the Respondent to investigate the truth, accuracy and completeness of the information she was providing to SSA in the report.

SSA-OIG maintains that before Respondent signed the 14 benefit checks at issue, she had received numerous instructions to report any change in custody and to report if Eric was incarcerated. Thus, SSA-OIG argues, Respondent, at the very least, should have known that she was not eligible for title II social security benefits when she signed the 14 benefits checks while Eric was incarcerated for a felony. Moreover, SSA-OIG argues that Respondent admitted that it was her negligence that caused her to fail to report Eric's incarceration when she stated: "I didn't see the page that said I should report if he was imprisoned or convicted of a felony or entered or left an institution." P. Br. at 26; P. Ex. 17. Thus, SSA-OIG maintains that Respondent's false statements, endorsing the benefit check, were by her own admission at least made negligently, through her failure to read the entire SSA representative payee instruction. That admission alone, argues SSA-OIG, sustains a violation of section 1129 in that respondent should have known she was required to report Eric's incarceration. P. Br. at 27.

SSA-OIG asserts that the evidence in this case establishes that Respondent was more than merely negligent. SSA-OIG argues that Respondent's numerous inconsistent and false statements should lead to the conclusion that Respondent knew that she and Eric were not eligible for title II benefits when she signed the benefits checks issued between February 1995 and August 1995. SSA-OIG asserts that copies of the representative payee report for 1985, (P. Ex. 19) and 1996, (P. Ex. 2) were signed by Respondent. Both of the SSA representative payee reports signed by Respondent required her to report any change in custody as well as report how the benefits were spent. The 1992 and 1996 representative payee instructions admitted into evidence as P. Exs. 1 and 18, respectively, contained instructions to report any change in custody and whether the beneficiary was imprisoned for a felony. Further, SSA-OIG argues that Respondent demonstrated a familiarity with the SSA representative payee reporting instruction forms when she was interviewed by Special Agent Cheloha.

SSA-OIG asserts that Respondent's repeated false statements and changing stories as to what occurred are attempts to conceal the truth and convince this tribunal that: (1) she understood or read one portion of the representative payee report form instructions, but did not read or understand the portion relevant to reporting Eric's incarceration; (2) that Eric was convicted of a felony but home under house arrest with ankle chains, and thus still eligible for title II benefits; (3) that she received instructions in 1995 to disregard her reporting responsibilities if she spent $360 a year on Eric's personal needs while he was incarcerated; and (4) that she never filed representative payee reports prior to 1995. SSA-OIG argues that Respondent even lied about where she cashed the benefit checks to prevent the SSA-OIG from finding out how Eric's benefits were spent. R. Br. at 41.

Respondent's receipt of numerous instruction forms, coupled with the numerous false and inconsistent statements made by Respondent to SSA and SSA-OIG regarding the concealing or minimizing of Eric's incarceration, demonstrates, according to SSA-OIG, that Respondent knew that she and Eric were not eligible for benefits when she endorsed the checks in question. P. Br. at 17 - 34.

(b) Respondent's defenses.

Respondent has not provided a clear or consistent defense or explanation as to why she did not report Eric's incarceration to SSA and continued to negotiate the benefit checks she received during the period from February 1995 to August of 1995, while Eric was incarcerated.

Respondent's first statement relative to the issues occurred during an interview conducted by Special Agent David Cheloha in March 3, 1999. Special Agent Cheloha testified that during the interview Respondent admitted that she received benefits as the representative payee for Eric while he was in jail, but she represented that she did report the incarceration because she thought the incarceration was only temporary. She also indicated that she believed the money was hers to maintain her home for herself and Eric until he was released from jail. Tr. at 82; P. Ex. 7. Special Agent Cheloha also testified that Respondent told him that the benefits checks at issue were cashed at a "check cashing place." Special Agent Cheloha's investigation subsequently revealed that Respondent's claim that the benefit checks were cashed at a check cashing place was false. In fact, the benefit checks were cashed at a bank where Respondent had a joint bank account with her daughter. Tr. at 86. Respondent also claimed that she sent Eric $100 a month while he was in prison. Agent Cheloha's investigation also established that Respondent's claim regarding sending $100.00 a month to Eric in prison was also false. Tr. at 99 - 110; P. Ex 16.

Special Agent Cheloha testified that he conducted a second interview with Respondent on April 29, 1999, at which time Respondent provided a different explanation. Special Agent Cheloha testified that he showed Respondent a blank Representative payee report. Respondent indicated she recognized the form as similar to the forms provided by SSA that she completed and mailed to SSA. Tr. at 89; P. Exs. 1, 9. Respondent also provided a copy of a representative payee form she had in her home and she indicated that the instructions provided that if a beneficiary lives in an institution, the representative payee is required to spend at least $360 a year for the beneficiary's personal needs. Special Agent Cheloha testified that when he asked why she did not report that Eric was living in an institution as required by the representative payee report form, Respondent indicated that she was not familiar with that section of the form. Tr. at 92; P. Exs. 1, at 2 (Question 3 C), 9. Special Agent Cheloha also testified that when he asked Respondent about the instruction to notify SSA if the beneficiary is incarcerated, Respondent replied that she did not remember reading that specific instruction. Tr. at 90; P Exs. 1, at 2 (Question 2), 9.

Respondent maintained that she suffered from vision problems which affected her ability to read the documents at issue. R. Br. at 2; R. Ex. 4, at 2; Tr. at 33. Respondent provided no relevant proof that her vision was impaired during the period in which she completed the relevant representative payee report. Special Agent Cheloha testified at the hearing that when he interviewed Respondent she did not appear to be impaired in any way during the interview, nor was she unable to fully understand what he was saying. Tr. at 80.

On May 7, 1999, Respondent signed a "Statement of Claimant or Other Person", Form SSA - 795. She indicated in that statement that:

"Eric has always lived with me - even when the payee change was requested Eric was still living with me . . . I pay all his bills and maintain the house so he can live there. Eric's disability is a mental deficiency . . . Eric has been incarcerated a couple of times for brief periods and he was under house arrest (ankle chains) and he was convicted of a felony. It was approximately 1993 - 1994."

P. Ex. 10, at 1 - 2.

Form SSA - 795 also requires the representative payee to certify as to the truth of the statements being provided. The representative payee is required to sign that:

" I know that anyone who makes or causes to be made a false statement or representation of material fact in an application or for use in determining a right to payment under the Social Security Act commits a crime punishable under Federal law and/or State law. I affirm that all information I have given in this document is true."

P. Ex. 10, at 2.

Respondent testified on her own behalf at the hearing on this matter. Respondent provided inconsistent testimony on a number of points. She initially testified that she told Special Agent Cheloha that she filed representative payee reports with SSA every year. Tr. at 199. Her testimony regarding the frequency of representative payee reporting is consistent with the testimony of Ms. McWilliams as to the representative payee reporting requirement and it corroborates the testimony of Special Agent Cheloha relative to what Respondent told him about filing a representative payee report every year.

When counsel for the SSA-OIG questioned Respondent about filing representative payee reports for her five children who were receiving benefits while they were minors, Respondent completely contradicted her earlier statement and testified that she had not filed representative payee reports until 1995. Tr. at 207. Respondent was specifically asked if she prepared representative payee reports for Eric to which she responded that she did not file reports in 1988 or 1989, and she had no recollection of filing such reports in 1992, 1993, or 1994. Tr. at 209 - 210 .

Respondent also asserted for the first time at hearing that the representative payee report instructions were changed for the 1995 representative payee report. She testified that the 1995 instructions stated that if the beneficiary lived in any institution, so long as the representative payee provided the beneficiary with $360 during the year, any obligation to report the change in custody or residence or incarceration could be disregarded. Respondent testified that since she was providing Eric with $360 per year while he was in jail, it was her understanding, based on the instructions to representative payees that she had received from SSA, that she was to disregard the information pertaining to reporting of beneficiary imprisonment. Tr. at 182 - 5, 253. However, Respondent has not provided either documentation or witnesses to corroborate her testimony on this point.

As to the issue of what information Respondent was required to report to SSA as a representative payee, Respondent testified that she was not informed by SSA that she must notify SSA if Eric was incarcerated or left her custody. Tr. at 216. However, Respondent testified that she understood that she was receiving benefits for herself because she was taking care of her children. Tr. at 207. As SSA-OIG points out, it is inconsistent for Respondent to claim that she understood she was eligible for benefits as a mother with a child in care for her children in her custody yet claim that she was never informed that she must report to SSA if her children left her custody or were imprisoned.

SSA-OIG also points out other instances where it claims Respondent made misrepresentations that SSA-OIG argues should lead to the conclusion that Respondent knew that she and Eric were not eligible for title II benefits when she signed the 14 benefit checks between February 1995 and August 1995.

SSA-OIG asserts that Respondent falsely stated to Special Agent Cheloha, during a May 13, 2002 interview, that she cashed the benefits checks at a "check cashing place" and she didn't deposit the benefits checks into her joint bank account that she had with her daughter at the Nevada State Bank. P. Ex. 7; Tr. at 83. As part of her defense, Respondent submitted what was identified as Respondent's exhibit 7. The exhibit is a letter from the Nevada State Bank, dated May 13, 2002, regarding a joint savings account (#801246) under Respondent's name and that of her daughter. The letter indicated that the account had not had any activity for the 46 months prior to May 2002, and had been closed. Based on Special Agent Cheloha's testimony at the hearing that the account number referenced in the letter from the Nevada State Bank was the same as the account numbers listed on the backs of the endorsed checks (#801246) for the benefits period of February 1995 through August 1995, it is clear that the referenced checks were negotiated at the Nevada State Bank. It is also clear that Respondent made a false representation to Special Agent Cheloha as to where she negotiated the 14 checks at issue. Tr. at 132 -133.

In addition, SSA-OIG asserts that Respondent made a false statement on the representative payee report as to how Eric's title II benefits were spent from December 1, 1994 to November 30, 1995. Respondent represented that she spent $4,333 for Eric's food and shelter. P. Ex. 2. During that period of time food and shelter was provided by the Department of Prisons for the State of Nevada. Respondent acknowledged that she did not pay the State of Nevada for Eric's food or shelter while he was incarcerated. Tr. at 334 - 335.

Respondent is a 62 year old woman, with a high school education, who has received social security benefits for herself and her children since the death of her husband in 1973. She was also the representative payee for her five children while they were minors. Tr. at 206. She testified that she received mothers benefits for caring for her children and understood that her eligibility for receiving mothers benefits was contingent upon her taking care of her children. Tr. at 207. Based on her testimony at hearing, I conclude that Respondent was capable of understanding the hearing process and the issues in controversy. She was able to read and understand the forms she was asked to review at hearing without apparent difficulty. Her demeanor at trial during cross examination and in interactions with her son, Terry Sloan, lead me to the conclusion that both she and Mr. Sloan are more sophisticated and knowledgeable about the Social Security program than they convey, or wish to convey, in their written submissions, presentation at trial, and their verbal articulation in the cold transcript.

I did not find Respondent's multiple explanations and defenses to be persuasive nor did I find her testimony to be credible. Respondent has had experience in dealing with SSA since 1973 on matters dealing with her mother with a child in care benefits, and she served as representative payee for her five children while they were minors. She served as Eric's representative payee while he was a minor and also when it was determined that he qualified for survivors benefits as a disabled adult. Respondent has made a number of representations during the investigation and the hearing which have proven to be false. Her testimony was at times evasive and nonresponsive on crucial matters, she has not provided a consistent explanation as why she did not report Eric's incarceration, and she continued to receive and negotiate the 14 benefit checks at issue.

In opposition, I found the testimony of Ms. McWilliams and Special Agent Cheloha to be consistent, convincing and completely credible.

The evidence before me and the testimony provided by the witnesses in this case, including the testimony of the Respondent herself, lead me to conclude that at the very least, Respondent should have known that she was not eligible for title II benefits when she signed and negotiated the 14 checks at issue. The duty to investigate, which arose when Respondent certified the Representative Payee Report, renders Respondent liable under section 1129 of the Act for what a reasonable person with the intelligence of the Respondent in similar circumstances should know had she investigated further. Respondent admitted that she did receive a representative payee report each year, but that she did not always read the instructions. Tr. at 396, 399, 400 - 2, 405, 457. Respondent's own admission that she did not read the instruction nor read certain key questions on the representative payee report form establishes that she was negligent and provides the basis for the imposition of CMP in this case.

Furthermore, I find that, on balance, the preponderance of the evidence establishes that Respondent knew that by endorsing the 14 checks at issue she was representing to SSA that her son Eric continued his eligibility for benefits when in fact she knew that both he and she were not entitled to title II benefits because of his incarceration for a felony.

4. Respondent's signature and endorsement of each check was a separate misrepresentation to SSA that there had been no changes that would affect her son Eric's eligibility for title II benefits.

SSA-OIG maintains that when title II checks are issued to a beneficiary or the representative payee, and they are endorsed in the normal course of business, SSA treats this as a representation that there have been no changes and that the beneficiary and representative payee are still eligible for the benefits. P. Br. at 10; Tr. at 47. SSA-OIG argues that the fact title II benefits were not suspended for Eric or Respondent as representative payee indicates that Respondent filed the required representative payee reports for Eric while he was incarcerated, and that she did not report the change in custody or Eric's incarceration. P. Br. at 9; Tr. at 50, 52.

SSA-OIG opines that each title II check endorsement by Respondent between February 1995 and August 1995 was a false representation to SSA that there was no change in the beneficiary's status and that Respondent and her son were still eligible for the title II benefits checks. SSA-OIG maintains that during the relevant period at issue, Respondent received, endorsed, and cashed 14 benefits checks to which she was not entitled. P. Ex. 8. SSA-OIG further claims that Respondent did not use the money from the benefits checks to care for her son as required by law.

SSA-OIG relies upon two federal cases to support its argument that each check endorsed by Respondent is a false representation of Eric's continued eligibility for title II benefits. The first is United States v. Morrison, in which a defendant was charged with willfully and knowingly concealing and failing to disclose the death of her mother to SSA in order to secure continued payment of her mother's widow's benefits. United States v. Morrison, 43 F.R.D. 516 (1976). In Morrison, the defendant was charged with nine counts of false statements and representations of a material fact. The defendant endorsed several checks, thereby representing that her mother continued to qualify to receive title II benefits. The defendant's mother was in fact deceased and no longer entitled to receive title II benefits. Id. at 516. The defendant claimed the counts charged were duplicitous, and motioned the Court to consolidate the nine counts into one. The Court held that the counts were not duplicitous since each count alleged a separate offense and that each representation constituted an offense under section 408(c) of the United States Code. Id. at 518. SSA-OIG argues that section 208(c) of the Act, 42 U.S.C. 408(c), is similar to section 1129 in that it prohibits individuals from "mak[ing] or caus[ing] to be made any false statement or representation of a material fact in any application for any payment or for a disability determination under title II." P. Br. at 23. SSA-OIG further argues that, like section 208(c), section 1129 prohibits individuals from "mak[ing], or caus[ing] to be made, a statement or representation of a material fact for used in determining any initial or continuing right to or the amount [of title II benefits] that the person knows or should know is false or misleading or knows or should know omits a material fact or makes such a statement with knowing disregard for the truth." P. Br. at 23.

SSA-OIG also cites the case of Gilbert v. United States to support the argument that check endorsements in and of themselves have been treated as false statements. Gilbert v. United States, 359 F.2d 285 (9th Cir.), cert. denied, 385 U.S. 882, 17 L.Ed. 2d 109, 87 S.Ct. 169 (1966). In Gilbert v. United States the defendant, an accountant, filed income tax returns on behalf of his clients without their authorization. He was charged with violating 18 U.S.C. 1001 based on his endorsement of tax refund checks as the trustee for his clients. The defendant had failed to inform his clients that they qualified for a refund, and did not remit the refunds to his clients. The Court upheld the defendant's conviction stating that "endorsements themselves constituted representations that [defendant] was duly authorized to make them." Id. at 286. The Court also stated that there was no language in 18 U.S.C. 1001 which required that false statements be made directly to the federal government. Id. SSA-OIG argues that "[l]ike 18 U.S.C. 1001, section 1129 does not require the false statement to be made directly to the SSA, and merely states that 'a material fact is one which the Commissioner of Social Security may consider in evaluating whether an applicant is entitled to benefits.' 42 U.S.C. 1320a-8(a)(2)." P. Br. at 24.

Representative payees are required by law to report any changes that might affect the beneficiary's eligibility for benefits, and/or their own ability to continue serving as representative payees, and to use the benefits properly. 20 C.F.R. 404.2035. SSA-OIG maintains that each endorsement of a benefits check constituted a separate false representation which SSA relied upon in determining Eric's and Respondent's continued eligibility for title II benefits. Thus, SSA-OIG argues, each false representation of a material fact constitutes a separate offense under section 1129 of the Act.

Here, Respondent received, endorsed and cashed a total of 14 checks for title II survivors benefits between February 1995 and August 6, 1995. I find that SSA-OIG's reliance on the holdings in both Morrison and Gilbert to be appropriate, and I conclude that in this case, each endorsed check which Respondent signed was a separate false representation to SSA.

5. Respondent's false statements made to SSA were material in determining Eric's continued entitlement to benefits as a disabled survivor beneficiary, and to Respondent's continued eligibility for mother's benefits with a child in care.

Eric's incarceration is a material fact that SSA would have used in determining Eric's continued eligibility for disabled survivor benefits and Respondent's eligibility for mother's benefits. SSA will suspend title II benefits if incarceration is reported. P. Br. at 9; Tr. at 47. Respondent made material false statements regarding the living arrangements of her son Eric by failing to report his incarceration. Respondent failed to furnish information which she knew to be material, and accepted payments which she knew and should have known were incorrect. Had Respondent reported Eric's incarceration, Eric's title II disabled survivors benefits and Respondents benefits for a mother with a child in care would have been suspended.

6. SSA-OIG has proven, by a preponderance of the evidence, all of the elements required for the imposition of a CMP against Respondent.

There is no question that Eric was incarcerated during the relevant period at issue, and that the incarceration resulted in Respondent being overpaid title II benefits for which Eric and she were not entitled. I find that SSA-OIG has proven by a preponderance of the evidence:

(1) that Respondent made false statements and representations to SSA;

(2) that the false statements and representations were material factors SSA may have used in determining Eric's continued eligibility for title II benefits; and

(3) that based on prior experience with SSA and formal notification from SSA, Respondent knew that the statements and representations were false or misleading to SSA.

The preponderance of the evidence before me indicates that Respondent knew that she was not entitled to mother's benefits she received while Eric was incarcerated. The preponderance of the evidence before me leads me to conclude that Respondent knew that she should have reported Eric's incarceration to SSA and by not doing so, she insured that she and Eric would remain eligible to receive title II benefits. In addition, the evidence supports a finding that Respondent knew that she was not entitled to mother's benefits while Eric was incarcerated and not living in her residence.

SSA-OIG has proven that as a result of her failure to report Eric's incarceration, Respondent received title II benefits to which she and Eric were not entitled. Respondent's failure to report Eric's incarceration for the period from March 1992 through August 1995 resulted in the payment of $46,246 in title II benefits to which she and Eric were not entitled. However, because most of the checks issued during the aforementioned period are barred from prosecution by the statute of limitations, the total amount in controversy resulting from the Respondent's endorsement and negotiation of the 14 checks during the period from February 1995 through August 1995 is $8,001.

B. SSA-OIG's proposed imposition of a $35,000 CMP against Respondent is reasonable.

Having found that SSA-OIG has established a basis for imposing a CMP, I now consider whether the amount imposed is reasonable. Ms. Kathy A. Buller, Counsel to the Inspector General for the Social Security Administration testified at hearing regarding how she weighed the aggravating and mitigating factors listed in 20 C.F.R. 498.106 in determining that a CMP of $35,000 was appropriate in this case. I have considered Ms. Buller's testimony and I have reviewed all of the evidence with respect to the factors in 20 C.F.R 498.106(a)(1) - (5) in order to make a de novo determination as to whether a CMP of $35,000 against Respondent is reasonable.

1. Nature of the statements and representations and the circumstance under which they occurred.

Respondent signed and negotiated survivor benefit checks that were intended for Eric's needs during the relevant period of time of his incarceration, from February 1995 through August 6, 1995. Representative payees are instructed in writing that they are to report any changes in household income, resources, and living arrangements to SSA. P. Ex. 2. Respondent did not report to SSA that Eric was no longer living in her household. To the contrary, when she was contacted by SSA-OIG regarding Eric's continued eligibility to receive title II benefits, she continued to misrepresent Eric's living arrangements. By endorsing the 14 checks at issue she made material misrepresentations which resulted in the payment of title II benefits to which Respondent was not entitled.

During the course of these proceedings, Respondent has provided inconsistent defenses in response to SSA-OIG's allegations of false statements and misrepresentations she made to SSA. I find that throughout the period in question, Respondent had ample opportunity to report to SSA that Eric was incarcerated.

2. Respondent's degree of culpability.

During the period of Eric's incarceration, Respondent continued to sign and cash title II benefits checks, but did not use the money to care for her son Eric. Instead, she used the money for her own well-being. Representative payees are required to use the benefits properly for the beneficiary's well-being. The preponderance of the evidence establishes that Respondent knew that she was not entitled to received the title II benefits when she endorsed and negotiated the 14 checks she received during the period from February 1995 through August of 1995.

It must be noted that, although I do not consider this a mitigating factor, Respondent has paid back some of the overpayment, and is continuing to pay back the balance from her current benefits. Tr. at 146; P. Br. 21 - 22. Thus, Respondent is making an effort to resolve her debt to SSA.

3. Respondent's Financial Condition.

Respondent bears the burden of proving by a preponderance of the evidence that her financial condition would prevent her from being able to pay the penalty imposed against her in this case. Unsupported assertions of financial distress do not justify the reduction of a proposed penalty and assessment. Berney R. Kessler, M.D., DAB CR 107 (1990). During SSA-OIG's development of the case, Respondent filed a financial disclosure report form, dated December 27, 2000. P. Ex. 15. In the report, Respondent claimed that outside of the social security benefits she receives she does not have any other income. Additionally, Respondent documented that her monthly living expenses as of the year 2000 were $1,188 per month. P. Ex. 15; Tr. at 145 - 146. During her testimony, Respondent stated that as of 1999, three of her children each give her $350 per month to assist her with living expenses. Respondent testified that she has received this amount from her children as of 1999. Tr. at 367 - 369.

Respondent is currently eligible for and receiving social security benefits as a widow of a previously insured wage earner. Tr. at 146. However, SSA is presently withholding $250 from Respondent's current title II monthly benefits payments to offset an overpayment amount dating back to March 1992 which included prior periods when Eric was incarcerated. P. Br. at 10 - 11; Tr. at 54, 65. Therefore, Respondent's current monthly benefit amount, after the $250 offset to repay the overpayment, totals $423. Tr. at 65. Calculating Respondent's children's contributions and the balance of her current benefits checks, her monthly income is $1,473.

SSA-OIG maintains that as of the date of the hearing, Respondent still owed SSA $21,885 for overpayments that SSA alleges Respondent received during prior periods of Eric's incarceration prior to February 1995. SSA-OIG calculates that with the recoupment plan currently in place, Respondent should repay that debt in 88 months, or seven years and four months from the date of the November 2002 hearing. P. Br. at 43. SSA-OIG proposes to enter into a similar recoupment plan with Respondent regarding the $35,000 it is proposing as a CMP should that amount be sustained in these proceedings. SSA-OIG plans to recover the CMP which results from these proceedings only after the recovery of the overpayment amount, so as not to diminish Respondent's financial condition. SSA-OIG calculates that "[p]resuming that [the]withholding will remain steady at $250 per month, Respondent should be able to repay the CMP in 11 years and eight months. P. Br. at 43. Thus, SSA-OIG asserts that an imposition of a CMP in the amount of $35,000 would not jeopardize Respondent's financial condition but would simply continue the status quo of a $250 offset after the overpayment is recovered, and continue the offset until the CMP is recovered.

Given the recoupment plan that SSA currently has in place and proposes here, I find that the imposition of a CMP of $35,000 would not jeopardize Respondent's financial condition as she has represented it.

4. History of prior offenses.

SSA-OIG takes into consideration Respondent's prior "bad acts" stating that Respondent has a history of offenses against SSA which include endorsement of numerous benefits checks while her son was incarcerated prior to December 1994. SSA-OIG maintains that Respondent failed to notify SSA of Eric's earlier incarceration in 1988 and 1989 while continuing to receive and endorse title II benefits checks for which she was not eligible. SSA-OIG considers these offenses to be aggravating factors in the calculation of the proposed CMP.

SSA-OIG acknowledges that Respondent's failure to report the 1988 to1989 incarceration occurred prior to the enactment of section 1129 of the Act. However, SSA-OIG argues that Respondent's failure to report Eric's previous incarceration violated SSA instructions and constituted apparent or potential fraud in violation of section 208(c) of the Act. See 42 U.S.C. 408(c).

In addition, SSA-OIG considers the 1996 and 1999 incidents where Respondent made false statements to SSA as aggravating factors in this case. Specifically, on January 9, 1996, Respondent signed a representative payee report stating that her son continued to live with her during the period of December 1, 1994 through November 30, 1995, even though he was incarcerated until August of 1995. The report required that Respondent separately certify that her answers and representations were true. P. Ex. 14, at 2 - 3. These statements misrepresented Respondent's eligibility and Eric's eligibility to receive title II benefits. Additionally, in May of 1999, pertaining to Eric's residential status in 1995, Respondent falsely represented to SSA that her son had always lived with her and that he had been under house arrest (ankle chains). SSA-OIG presented as evidence a letter from the State of Nevada Department of Prisons confirming that Eric was incarcerated from March 1992 until August 6, 1995.

The regulations at 20. C.F.R. 498.106 provide limited guidance as to how I am to look at "prior offenses" of the person committing the alleged misrepresentations. Therefore, I seek guidance from the guidelines used for HHS-OIG CMP cases. The guidelines at 42 C.F.R. 1003.106(b) state that an aggravating factors exists if, prior to the presentation of the improper claims at issue, a respondent had been held liable for criminal, civil, or administrative sanctions in connection with one of the programs covered by the CMPL or any other medical services program. Thus, this guideline prevents consideration of just allegations of past wrongdoing in this case. The argument that Respondent could possibly or potentially have been found guilty of a felony for the failure to report Eric's incarceration in 1988 and 1989, is speculative. A respondent must have been held liable, subjected to actual sanctions, and the false statements or representations must not have been the subject of the instant proceeding. 42 C.F.R 1003.106(b); see also Corazon C. Hobbs, M.D., DAB CR57 (1989); George A. Kern, M.D., DAB CR12 (1987).

In addition, Respondent was never notified of an overpayment following Eric's 1988-1989 incarceration. Prior to January 1971, SSA's procedures did not require that an overpaid beneficiary be notified of the waiver provisions of the statute, 42 U.S.C. 404(b), if the record conclusively established that the beneficiary was with fault in receiving the overpayments. However, on January 14, 1971, Commissioner of Social Security approved procedures with respect to notices or termination and reduction or suspension of benefits. These procedures, currently reflected in SSA's Program Operations Manual, provide that when it is determined that an incorrect payment has been made, the person liable should be given a written notice and an opportunity to request reconsideration of the substantive determination. (17) SSA's Program Operations Manual Systems (POMS) NL 601, et seq; GN 3101.070(A); see also 20 C.F.R. 404.904.

Based on the evidence of record, I find no "prior offenses" which could be construed as aggravating factors in this case. While Respondent was found to have been overpaid prior to December of 1994, particularly during Eric's 1988 to 1989 incarceration, SSA-OIG has not demonstrated in this proceeding that Respondent received proper notice of the overpayments outside of this instant proceeding. Nor has SSA-OIG provided information in this proceeding to establish that there has been any prior final agency determination or a final court adjudication of those overpayments. It also appears from the record that Respondent was initially informed of the 1996 and 1999 false statements as a result of these proceedings.

As to SSA-OIG's arguments regarding Respondent's false statements, although I considered the false statements SSA-OIG presented and gave them substantial weight in determining the credibility of Respondent's testimony and defenses, I do not consider them aggravating factors.

5. Such other matters as justice may require.

Finally, I consider whether there were other factors to be weighted in determining a reasonable CMP. The purpose of a CMP is deterrence and protection of the social security insurance programs rather than retribution or punishment. Deterrence should serve to encourage others to follow the law and to keep individuals from committing the wrong again. Chapman v. United States Department of Health and Human Services, 821 F.2d 523 (10th Cir. 1987).

The facts in this case establish that Respondent made material false representations to SSA. Survivor benefits terminate for a mother with a disabled child in care if the child is no longer in their care or if the child dies or the child's disability ceases. Tr. at 42 - 43. If the disabled child under her care is incarcerated then her eligibility to receive benefits would be suspended. Tr. at 43.

In this case, Respondent used beneficiary funds for her own use which she should have known were intended for the benefit of her son. The SSA program requires protection from the type of misrepresentations that have been established in this case.

In considering all the evidence presented in this case and the testimony provided at the administrative hearing, I find that Respondent's actions resulted in her receiving title II benefits for which both she and Eric were not entitled. SSA-OIG asserts that during the period from 1992 to 1995, Respondent wrongfully received $46,000 in title II benefits to which she and Eric were not entitled. I also find that SSA-OIG established that Respondent repeatedly misrepresented her son's residential status to SSA.

The initial demand letter issued by SSA-OIG proposed a CMP and assessment of $122,804. That amount was subsequently reduced by SSA-OIG after considering new developments in the case. SSA-OIG asserts that the reduced demand was based upon the consideration of Respondent's monthly expenses, the fact that she again became eligible for title II widow's benefits, and the fact that SSA had begun to offset the overpayment amounts against Respondent's current title II benefits. In addition, SSA-OIG indicates that an unrelated underpayment to Respondent was identified and offset against the total overpayment in this case. The SSA-OIG also asserts it became aware of a statute of limitations issue, and elected to only pursue the CMP action based on 14 checks signed after January 1995. Tr. 147. The total potential CMP and assessment for the 14 checks at issue involving an overpayment of $8,001 would total $86,002 in this case. However, SSA-OIG indicates that in consideration of the new development in this case it has proposed a CMP of $35,000.

I have concluded that the failure of Respondent to report Eric's incarceration for the period from 1988 to 1989, cannot be considered an aggravating factor. However, I find the remaining evidence advanced by the SSA-OIG regarding how the applicable mitigating and aggravating factors were considered to reduce the proposed CMP to $35,000 to be reasonable and persuasive. I find that the substantial evidence which underlie the other mitigating and aggravating factors which I must consider lead me to conclude that a finding that a CMP of $35,000 is reasonable under the circumstances of this case.

VI. Conclusion

Based on the evidence of record in this case and the pleadings of the parties, I sustain SSA-OIG's determination to impose a CMP against Respondent. I further find that based on all of the evidence and the circumstances in this case, that a CMP in the amount of $35,000 is reasonable.

JUDGE
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Alfonso J. Montano

Administrative Law Judge

FOOTNOTES
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1. SSA-OIG stated that through Respondent's representation, they were informed of several factors which resulted in SSA-OIG's redetermination of the penalty and assessment in this case. P. Br. at 22, 37 - 38; Tr. at 147, 152.

2. I note that I do not need to address SSA-OIG's prior proposed imposition of an assessment in lieu of damages as they waived imposition of such in the post-hearing brief, and I am not authorized to review recoupment of damages or any appeal to such.

3. I also make no finding or conclusions regarding the adjustments and recovery of overpaid benefits. That is a matter that is reviewed by ALJs within SSA's Office of Hearings and Appeals. See 42. U.S.C. 404(a) and 20 C.F.R. Subpart F. The Social Security Independence and Program Improvements Act (SSIPIA) of 1994 established SSA as an independent agency in the executive branch of the United States Government, effective March 31, 1995, and vested general regulatory authority in the Commissioner of Social Security.

4. As of May 1, 1983, regulations were promulgated which precluded payment of Social Security title II benefits for any month a beneficiary was incarcerated for a felony. However, when Respondent was first appointed representative payee in 1973, beneficiaries were eligible to receive title II benefits while they were incarcerated, and benefits checks were not suspended. Tr. at 44.

5. This rule applies to a child's survivors benefits based on disability under section 404.350 of the regulations and became effective for benefits received on or after October 1, 1980. See 20 C.F.R. 404.350.

6. Pub. L. 103-296; see also 60 FR 58226 (Nov. 27, 1995).

7. A "material fact" is defined as a fact which SSA may consider in evaluating whether an applicant is entitled to benefits under title II. 20 C.F.R. 498.101.

8. As previously noted, although SSA-OIG had initially notified Respondent that it was proposing to impose an assessment in lieu of damages against her, SSA-OIG subsequently decided to rescind imposition of the assessment. P. Br. at 2.

9. The "should know" standard became law on December 22, 1987, as a result of an amendment to the Civil Money Penalty Law (CMPL), enacted by section 4118(e) of the Omnibus Budget Reconciliation Act (OBRA) of 1987, Pub. L. 100-203. The legislation stated that the amendment would "apply to activities occurring before, on, or after the date of (OBRA's) enactment . . ." Section 4118(e)(3) of OBRA. See also Dean G. Hume, DAB CR40, at 18 - 21 (1989).

10. In the preamble to the final rule, SSA stated that it intended to enter into an agreement with the DAB to conduct the hearings in these cases because of the DAB's expertise with CMP cases involving Medicare and Medicaid fraud over a period or more than 10 years. See 61 FR 18079 (Aug. 24, 1996).

11. Eric was determined to have a mental disability prior to reaching 18 years of age.

P. Ex. 6. In 1985, Respondent re-applied for title II benefits on behalf of Eric in order to establish Eric as a disabled child survivor, and re-applied to be Eric's representative payee. P. Br. at 9; Tr. at 49.

12. In May 1999, for a brief period of time, SSA terminated Respondent's title II benefits as a parent with a child in care and as representative payee for Eric. P. Br. at 11; Tr. at 57.

13. Each separate offense charged occurred within six years preceding SSA-OIG's Notice letter to Respondent, as required by the applicable statute of limitations. 20 C.F.R. 498.132(b); see also Bernstein v. Sullivan, 914 F.2d 1395, 1398 (10th Circ. 1999); Edward J. Petrus, Jr., M.D., and The Eye Care Center of Austin, DAB CR1264 (1991).

14. SSA-OIG also presented evidence as to other periods of time which Eric was incarcerated, dating back to July 1988, but they are not relevant to the period of time at issue in this matter as they are outside the statute of limitation SSA-OIG must adhere to when imposing CMPs under section 1129 of the Act. 20 C.F.R. 498.132(b).

15. Respondent offered a document titled "Pre-Sentence Report," undated, as an attachment to her rebuttal brief. See R. Ex. 9.

16. Special Agent David Cheloha testified at the November 2002 hearing. At the time of the hearing, he had worked as a special agent for the SSA-OIG for six years. P. Br. at 11; Tr. at 71 - 72.

17. Section GN 3101.070(A) of SSA's Program Operations Manual System (POMS) provides a listing of initial determinations that require notice. Included in this listing are: (1) failure of mother to have a child in care, and (2) nonpayment of benefits because of incarceration for conviction of a crime.

CASE | DECISION | JUDGE | FOOTNOTES