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Regulation and Compliance > State Regulation

GAO critical of Death Master File

By Arthur D. Postal

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The Social Security Administration Death Master File (DMF) list is not necessarily the last word on death reports, the Government Accountability Office (GAO) says in a new study released this week.

However, the head of an accounting firm that is using the DMF to verify on behalf of states whether insurance companies are going the last mile in trying to find the rightful beneficiaries of insurance policies that have been purchased argues that the latest GAO study confirms that the DMF is the proper tool to use in verifying that insurers are aggressive in pursuing beneficiaries, or, in the alternative, complying with the letter of state unclaimed property statutes.

“The DMF is an extremely accurate and valuable tool that may be utilized by insurance companies and financial institutions to identify deceased individuals, and the GAO’s testimony is simply part of on-going efforts by the government to make the DMF even more reliable,” said Jeffrey Drubner, president of Verus Financial, a Waterbury, Conn., auditing firm.

See also: The Verus Financial Story

The issue is a growing one to the insurance industry because use of the DMF is a key component of an aggressive move by states to determine whether insurers are doing enough to find beneficiaries, or, in the alternative, turn the money over to the states.

In fact, 45 states have retained Verus to verify compliance. Verus uses the DMF in the software it uses to verify that insurance companies are complying with unclaimed property statutes and are aggressively seeking to find the proper owners of life insurance policies.

John Hancock, MetLife, Prudential, AIG and Nationwide have settled with groups of states who have alleged noncompliance with unclaimed property laws.

The states are now turning their attention to smaller insurers, according to industry lawyers.

And, recently, the John Hancock Companies were hit with a class action lawsuit regarding their life insurance death benefit payments policy.

See also: Unclaimed property issue escalates

The lawsuit is a new turn in an investigation of insurance companies for compliance with unclaimed property statutes, industry lawyers say.

The DMF is the key tool used for verification of compliance even though the GAO says in its latest report that the SSA risks including incorrect death information in the DMF, such as including living individuals in the file or not including deceased individuals.

That’s because SSA verifies no death reports for individuals who are not beneficiaries, GAO said in the report.

The report says that for death reports that are not verified, SSA would not know with certainty if the individuals are correctly reported as dead.

“SSA also does not record some deaths because incorrect or incomplete information included in death reports generally prevents SSA from matching decedents to SSA records,” the report says.

For example, if SSA is unable to match a death report to data in its records such as name and Social Security Number (SSN), it generally does not follow up to correct the nonmatch and does not record the death,” the GAO report says.

The GAO report makes no recommendations because it does not plan to issue a final report until later this year.

In defending use of the DMF, Verus’ Drubner acknowledges that it is true that SSA does not independently verify all of the reports of deaths it receives.

“However, it regularly corrects mistakes in the entries on an on-going basis,’ Drubner said.

Moreover, Drubner said, “the government expends significant effort to monitor the accuracy of the DMF.”

The report released by the GAO “is just one example of on-going efforts by the Social Security Administration to improve procedures related to the inclusion of information in the DMF,” Drubner said.

He added that previous government reports and testimony have found that the DMF is already over 99.5 percent accurate, and the new report “is consistent with this conclusion.”

Drubner’s comments constitute the auditing firm’s first efforts to justify its audits in detail.

He said that, in general, the vast majority of people who die in the United States today will be listed on the DMF within in a year or less.

“To the extent that there is a small percentage of errors on the DMF, they relate to delays in inclusion rather than over inclusion,” Drubner said.

He said that in January 2009, the SSA’s Office of the Inspector General released a report entitled, “Sources of Erroneous Death Entries Input into the Death Master File.”

Drubner said the report concluded that the number of living individuals erroneously entered on the DMF as deceased relative to number of death entries added to the DMF during the period examined was extremely small, representing “an error rate of less than one-quarter of 1 percent.”

Moreover, Drubner said, “in the rare instances when people are erroneously listed on the DMF they are likely to discover this fact relatively quickly and will take action to have themselves removed within a period of months or less due to the hardships caused by the mistaken listing, including having their bank accounts frozen, having their benefits terminated, having checks bounce, being unable to obtain credit, etc.,” Drubner said.

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