Railroad Retirement Board: Additional Controls and Oversight of Financial Interchange Transfers Needed
Highlights
What GAO Found
Established in 1937, the Railroad Retirement Board (RRB) administers retirement and disability benefits for rail workers and their families. A financial interchange between RRB and the Social Security Administration (SSA) was created in 1951, which as GAO previously reported, helped finance RRB benefits as they increased over time to keep pace with growing Social Security benefits to individuals. Through its financial interchange calculation, RRB takes steps each year to estimate the amount of funds that would have flowed in and out of Social Security's trust funds if rail beneficiaries were covered by Social Security instead of RRB. Five key steps go into the annual calculation:
RRB is credited for (1) the estimated amount of benefits it would have paid to beneficiaries under SSA rules, (2) administrative costs, and (3) interest accrued on the financial interchange amount.
SSA is credited for the revenues it would have received from rail workers if they paid into Social Security; specifically, (4) payroll taxes and (5) income taxes paid on benefits received.
The determined net amounts are transferred between the agencies, which since 1958 have been from SSA to RRB each year. RRB received $4.1 billion in fiscal year 2016, almost one-third of the $12.4 billion in retirement and disability benefits it paid that year. The financial interchange was expanded to Medicare in 1965 to facilitate funding of Medicare benefits to rail workers; RRB transfers Medicare payroll taxes collected, income taxes paid on benefits received, and interest, minus administrative costs to the Department of Health and Human Services (HHS).
A high ratio of beneficiaries to active railroad workers primarily explains the net transfers from Social Security's trust funds to RRB each year since 1958. Rail employment has fallen steadily since World War II, and the number of beneficiaries has exceeded the number of workers since 1961. RRB had 2.7 beneficiaries for every worker in 2015. As a result, RRB has paid out more in benefits than it has collected in payroll taxes and projects this to continue for the foreseeable future.
RRB takes a number of steps each year to ensure the accuracy of its calculations, such as checking that the sample of cases used to estimate benefit payments is complete, reviewing the work of new employees, and using electronic alerts to help prevent staff from entering incorrect information into its computer system. SSA and HHS also conduct high-level reviews of the calculation results to identify any significant changes from one year to the next. However, RRB's process includes manual data entry and its electronic edit checks cannot flag entries that are incorrect but plausible, which could lead to calculation errors. RRB also has limited documentation of its calculation process, and does not have formal policies on how staff should address some potential calculation errors and on how supervisors should review staff work. This is contrary to internal control standards for having quality data and documenting procedures. In terms of SSA and HHS, they do not currently review case-level calculations made by RRB, and cannot reasonably ensure that work used to determine the transfers they made and received is correct.
Why GAO Did This Study
RRB collects payroll taxes and administers retirement, disability, and Medicare benefits for rail workers and their families. A financial interchange exists between RRB, SSA, and HHS in order to put the trust funds for these benefits in the same financial position as if Social Security covered rail workers. RRB generally transfers to the Social Security and Hospital Insurance trust funds the taxes that would be collected from rail workers and employers, while SSA provides RRB the benefits that would otherwise be paid directly to rail workers. GAO was asked to review the financial interchange calculation process.
This report examines (1) the steps taken to calculate financial interchange amounts, (2) factors that could account for trends in transfers over time, and (3) the extent to which RRB, SSA, and HHS provide oversight to ensure calculations are accurate. GAO reviewed agency policies, procedures, and regulations; observed RRB staff calculating four cases selected for beneficiary type; reviewed data on payment and beneficiary trends; and interviewed agency officials.
Recommendations
GAO makes eight recommendations, including that RRB create formal policies and improve documentation of its processes, work with SSA to obtain data electronically, and that SSA and HHS increase their oversight. RRB and SSA agreed, while HHS did not, asserting that statute limits its authority; however, HHS continues to review this issue. HHS should seek this authority if it determines it necessary.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Railroad Retirement Board | The Board should work with SSA to explore options for obtaining data electronically and limiting the reliance of the financial interchange process on manual data entry. (Recommendation 1) |
As of August 2022, RRB and SSA have explored options for electronically sharing financial interchange data, implementing this recommendation. The agencies concluded that their legacy systems' current architecture will not support an electronic exchange. SSA, however, reports that is it developing a technical approach for sharing data and is seeking to obtain system resources for implementation. GAO encourages the agencies to continue developing an electronic data exchange which could reduce the potential for errors and help automate a time-consuming process.
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| Railroad Retirement Board | The Board should produce written documentation on the financial interchange process such that a knowledgeable third party could carry out and replicate its process consistently without further explanation. (Recommendation 2) |
RRB produced written documentation of its financial interchange process. As of September 2022, RRB provided a draft of its documentation to SSA, which validated the written process by duplicating it with actual wage data. RRB reported that SSA had no additional comments,. By documenting its process, RRB has decreased the risk that staff inconsistently perform calculations or that operational knowledge is lost when staff leave the agency.
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| Railroad Retirement Board | The Board should produce written documentation of its computer system and its structure, such as a manual for the computer system, and data dictionary to provide information on the data elements in the system, their definitions, descriptions, and range of potential values. (Recommendation 3) |
RRB produced written documentation of its computer system for calculating financial interchange amounts. This documentation includes a data dictionary, instructions on how to use RRB's system, and other information to help users understand the steps in the calculation process. This documentation should help RRB ensure that staff carry out the financial calculation process consistently and preserve operational knowledge when staff leave or retire.
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| Railroad Retirement Board | The Board should produce written documentation of its procedures for instances when staff override error alerts generated by its computer system. (Recommendation 4) |
RRB officials produced written guidance on its procedures for dealing with instances when staff override error alerts. This includes directions for staff to document justification for overriding alerts, and how the agency will review these instances to determine if they were correctly overridden. RRB also plans to annually review its computer code to determine if RRB can improve its ability to identify errors. Producing this documentation should help ensure that RRB staff consistently and correctly override error alerts.
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| Railroad Retirement Board | The Board should produce formal policies on how the work of staff performing the financial interchange is reviewed. (Recommendation 5) |
As June 2022, RRB reported that the agency is still in the process of developing formal review policies. RRB revised some of its policies in response to its use of electronic records and personnel changes in its financial interchange division. RRB expects that additional hiring will allow it to devote more resources to the review of financial interchange calculations. GAO will close this recommendation once RRB's formal review policy is complete.
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| Social Security Administration | The Commissioner of SSA should work with RRB to explore options for electronically sharing data and limiting the reliance of the financial interchange process on manual data entry. (Recommendation 6) |
As of August 2022, RRB and SSA have explored options for electronically sharing financial interchange data, implementing this recommendation. The agencies concluded that their legacy systems' current architecture will not support an electronic exchange. SSA reports, however, that is it developing a technical approach for sharing data and is seeking to obtain system resources for implementation. GAO encourages the agencies to continue developing an electronic data exchange that could reduce the potential for errors and help automate a time-consuming process.
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| Social Security Administration | The Commissioner of SSA should take additional steps to provide oversight of financial interchange calculations at the individual-case level. This could include periodically reviewing a subset of these cases. (Recommendation 7) |
SSA developed a technical review guide and validated the RRB data required for an individual-case level review. In July 2023, SSA successfully completed its review, replicating RRB's methodology to confirm calculations for 150 cases processed in the 2019 financial interchange. SSA uncovered many disagreements with RRB's calculations, documenting the reasons for the calculation discrepancy and issuing four recommendations to RRB to reduce future discrepancies. We encourage SSA to take further action beyond this recommendation: share the report with RRB; meet with RRB officials in order to discuss the root cause of the discrepancies and come to an agreement on the correct calculations and methodology; create an action plan to correct any inaccuracies; and continue to audit RRB's calculation and follow up with them as necessary in order to ensure that the annual financial interchange amounts are calculated accurately.
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| Department of Health and Human Services | The Secretary of HHS should, consistent with its existing statutory authority, take additional steps to provide oversight of financial interchange calculations at the individual-case level. If the Secretary concludes that there are limitations in its authority in this area, the Secretary should seek to obtain the necessary additional authority. (Recommendation 8) |
As of May 2022, HHS continues to disagree with this recommendation. HHS officials previously stated that RRB is responsible for certifying its costs through the financial interchange, and that they believe the department lacks the authority to question RRB's calculations. We continue to believe that HHS would be better positioned to ensure that the transfers it makes and receives through the interchange are calculated correctly if it reviews case-level calculations. We will close this recommendation if HHS seeks the authority to review financial interchange calculations or takes other steps to ensure the accuracy of financial interchange calculations performed by RRB.
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