beneficiaries lost nearly $17 a month. SSA or IRS needs to contact about 2.5 million employers to try to determine whether SSA did not record some earnings for their employees. Further, although the actual number of individuals affected is unknown, GAO estimates that the records of 9.7 million individuals could have uncredited earnings.

This backlog of unreconciled employers' earnings reports resulted from SSA's failure to take action once IRS Said its resources precluded the reconciling of all reports. The contributing factors were SSA's organizational structure, which diffuses responsibility; the absence of leadership and a financial management focal point and perspective; and pressures to reduce staff.

Principal Findings

SSA and IRS Have Not
Resolved Differences

SSA and IRS have not worked well together to resolve identified differ-
ences in employers' earnings reports. By January 1986, unresolved dif-
ferences in employee earnings amounts involved 3.5 million employers'
reports for 1978-83. Although IRS had agreed to resolve such differ-
ences, by 1980 it had concluded that it was unable to. Each year IRS has
left unresolved at least 500,000 reports. Disagreement between SSA orga-
nizational components and a reluctance to commit additional resources
to address the problem permitted the unresolved reports to increase. In
early 1986, after maintaining since 1978 that resolving the differences
was IRS's responsibility, SSA began attempting to resolve reports that IRS
did not. As of October 1986, SSA had more than 3 million reports that
had not been resolved.

Contacts With Employers
Show Success and
Problems

SSA's contacts with employers to resolve the many report differences that IRS did not resolve resulted in recording about $3.6 billion in additional earnings for about 700,000 employees. However, about half the employers SSA attempted to contact did not respond to SSA's request for information. Further, neither SSA nor IRS has compiled sufficient data from contacts with employers to identify the causes of differences and the actions necessary to prevent or reduce future occurrences.

Executive Summary

GAO, using a selection of current beneficiaries whom an SSA study had identified as having uncredited earnings, determined the actual effect of uncredited earnings on these beneficiaries. For half of the beneficiaries, uncredited earnings had not been considered in calculating benefits. Inclusion of the uncredited earnings entitled one of every two of these beneficiaries to an average of $16.81 more each month. Accumulated monthly benefits should have been higher by an average of $456. GAO also measured the effect uncredited earnings could potentially have on individuals identified from the same SSA study. GAO found that three of every five individuals with uncredited earnings faced the possible loss of monthly Social Security benefits averaging $17.

SSA plans to contact employers to resolve 1 million of the backlogged earnings reports by the end of 1987. SSA also plans to exclude about 723,000 reports from review because it believes the earnings difference is too small to even try to resolve. Not investigating such reports, however, could mean the loss of about $9 in monthly benefits for low-income individuals. In addition, SSA's plans do not address how it will

deal with the remaining 1.7 million backlogged employer reports and the 1 million 1984 and 1985 reports it expects to receive from IRS,

deal with employers who do not reply to SSA's request for data, and ensure that affected employers save employees' earnings records that could be discarded because of the expiration of the record retention period specified by IRS.

Trust Funds Retain Tax
Money for Earnings Not
Credited

The differences in earnings recorded by the two agencies raise questions about the amount of tax revenue to which SSA is entitled. Since 1978, when the dual reporting system began, SSA has received tax revenues based on quarterly earnings reported to IRS. Despite these interim transfers, the law requires the Secretary of Health and Human Services (HHS) to certify the earnings amounts SSA recorded because Social Security is entitled to retain tax revenues based on that amount only. The law does not specify a time by which earnings for a given year must be certified, and SSA has not certified any since 1978.

The absence of a high-level SSA focal point for financial management contributed to this matter's going unaddressed. As a result, SSA has recorded about $58.5 billion less in earnings than IRS as of March 1987; therefore, SSA may not have a legal basis for retaining a portion of the related tax money of $7.7 billion once it certifies the earnings it has

recorded. For 1978-82, years for which employers are no longer required to maintain wage data that could be needed for future reconciliation, SSA could have to return $2.8 billion to the Treasury, based on SSA's records as of March 1987.

Matters for
Congressional
Consideration

The Congress should consider

requiring SSA and IRS to submit a plan of action to appropriate congressional committees specifying (1) a time-phased schedule for eliminating the backlog and resolving new discrepancies and (2) any additional resources that will be required and

amending section 201(a) of the Social Security Act, either to specify a time limit for the Secretary of HHS to certify earnings based on SSA's records or to permit SSA to retain tax revenues based on earnings amounts recorded by IRS rather than amounts recorded by SSA.

GAO recommends that the Secretaries of HHS and the Treasury direct the
Commissioners of Social Security and Internal Revenue to

develop and pursue a strategy for examining the backlogged and newer cases and report their plans to the Congress and

determine the major causes of recording differences in SSA and IRS earnings totals and take corrective action to prevent their occurrence or reduce their frequency.

GAO also makes a separate recommendation to the Secretary of HHS to direct the Commissioner of Social Security to require that the chief financial officer of SSA Serve as a focal point for ensuring that the matters discussed in this report are addressed.

Agency Comments

HHS and IRS generally agreed with GAO's recommendations and said they would develop a plan to resolve the earnings crediting problem. HHS did not indicate when it would begin certifying earnings based on SSA records.

Differences Total More Earnings Differences Involved Half a Million Employers'

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