From Laws to Liability: Mastering Government Payment Processes

Episode Summary
In this episode of "Wrestling Payments," Joseph Casali dives into the often-misunderstood realm of government benefit payments and their reclamation process. Highlighting a new course he's developed; Joe explains the crucial difference between the Nacha Rules and those dictated by government agencies when a beneficiary passes away. His insights illuminate the complex interactions between the law, the "Green Book" guidelines, and real-world banking practices, emphasizing the practical implications for those managing such funds.

Joe also introduces the concept of constructive knowledge, explaining its vital role in determining financial institution liability. Through compelling examples, he outlines how seemingly simple knowledge can trigger significant financial responsibilities, stressing the importance of being proactive and informed.

The episode wraps up with a call to action, inviting listeners to engage with the course that not only educates but also equips financial professionals with the tools to navigate these intricate scenarios effectively. Joe's approachable discussion aims to enhance understanding and help institutions limit their financial risks associated with government benefit reclamation.

Key Insights

• Government Benefit Payments Are Bound by Dual Regulatory FrameworksNavigating the realm of government benefit payments demands understanding the distinct yet overlapping rules set by federal agencies and the Treasury. While agencies may deem a person "eligible" for certain payments, financial institutions must adhere strictly to the regulations, which only recognize allow benefit payments if the recipient was alive on pay day. This discrepancy creates a complex scenario, especially in situations the deaths of beneficiaries is unknown to their financial institution, leading to significant operational challenges for banks and credit unions as they reconcile these obligations and liabilities.
•  Constructive Knowledge Determines Financial Liability
• The concept of constructive knowledge plays a critical role in managing the liability associated for government payments. Financial institutions are expected to act upon any commercially reasonable information indicating a beneficiary's death, which sets their liability from that point forward. This encompasses various scenarios where knowledge can come from direct notifications like letters from nursing homes or even more informal sources like local knowledge of a death. Ignoring such information can significantly increase the institution's financial risk and legal exposure.
• Effective Training Reduces Risk in Payment Reclamations
  Proper training in handling reclamations is essential for reducing potential liabilities. Financial institutions must implement robust procedures to manage and respond to death notifications and other signals of beneficiary status changes. Through well-structured courses and tools, institutions can ensure their staff is equipped to adhere to both the legal framework and operational best practices, thereby minimizing financial losses and enhancing compliance with regulatory requirements.

31 Code of Federal Regulation Part 210
The GREEN BOOK
NEACHU - "Notified of Death, Now What?"

Transcript

Wrestling Payments - 

From Laws to Liability: Mastering Government Payment Processes ep 2.7

Host: Joe Casali

[00:00:00] Welcome to Wrestling Payments! Today is going to be a little bit of a different day. So there's a couple of things on my mind. One is, we, I'm just finishing up a course, it's going to be live any second now. And I'm really kind of proud of this course. If you were going to hire me to build courses for you, you would be pretty unimpressed.

And I say that because usually I start from scratch on everything I do, even if it's a repeat. I'm getting prepared to go to payments next week. It'll be in the past for you. But I redid, I'm teaching file formats. File formats have been around for 50 years. I have a new course on file formats. So that's what I do.

This course and the problem is understanding reclamation entries, and if you're an average listener, you're going to be, I have no idea what you're talking about. Don't really care. [00:01:00] But it's interesting. And I'm going to start with the biggest point right now. The biggest point is the government sends payments, benefit payments.

We're really talking about only benefit payments, retirement, VA, railroad retirement, only benefits, not IRS tax refunds. They are not subject to reclamation, but so that's only benefit payments. And one of the disconnects with government benefit payments is there are actually two sets of rules and what happens.

Unfortunately, when someone passes, what happens is they go to the social security office and the social security office says, you're entitled to that money. That may be true. It probably is true, but from a financial institution perspective, a bank, a credit union, [00:02:00] their rules are different. Their rules are, if you are alive, you're entitled — hate that word — you're entitled to the payment.

And if you've passed, you're not entitled to the payment. Has nothing to do with the agency, the benefit program. The benefit program and the agency will figure it out later and send any survivor benefits to them. But the conflict, if you're a financial institution. You've probably had this happen to you. You're grieving, right?

So first of all, they're grieving, which is super unfortunate. They've just lost a loved one, but they come in and say, I just went to the social security office. I'm entitled to that money. And the financial institution isn't saying you're not, it's just saying, the rules we have is if you are alive for even a second on the day that payment comes in, so if I [00:03:00] died at 12:01 a.m. on payday, I'm entitled to that money. 

That money doesn't go anywhere. It is not a post death benefit payment. I was alive. I might have been alive for only a minute. But I was alive. So the financial institution is under that pressure that you have a customer in front of you.

They're grieving. They're sad. They don't know what they're going to do. They don't know how their life has changed. It's very sad. It's honestly very sad. There's no sarcasm in that. The financial institution has the rules that the government is coming for that money. And you know, they can send the money back.

They can say, no, we're not sending the money back. But with the government, in the case of these payments, they just go into the bank and take it and they don't take it from the person. They take it from the bank. They take it from the credit union. So they're trying to do their best [00:04:00] at following the government rules on reclamation entries.

Just wanted to give you a couple more tips and this is really, I hate doing these things, but this is an advertisement for the course because I think it's a really new look at things. What we do in this course is we start with the law. When you're at an institution, a financial institution, typically when you talk about government payments, you say, the Green Book, you gotta look at the Green Book.

Yes, that's true, but the Green Book isn't the law. The Green Book is a user manual for the law, and the Green Book changes from time to time. The law, you know, I don't know if you've watched Congress, laws don't change like that. They take years to change. So we're talking about 31, Code of Federal Regulations (CFR) Part 210.

And there's a couple of parts in here that are really interesting. Everyone should know. I'm not giving away anything from the class. Everyone's going to know [00:05:00] this. You're going to learn it again in the class, but I figured I'd give you a couple of learning points on government payments.

And one of those learning points, one of the biggest learning points is constructive knowledge. You may say to yourself, what the heck is constructive knowledge? Constructive knowledge is the knowledge that someone has passed. From whatever means you get it and it's gotta be commercially reasonable. So an unconfirmed report that someone died in a coffee shop, it's not constructive knowledge, in my opinion.

Government may think differently, in my opinion. That's just a rumor. That's just gossip. Receiving a letter from a funeral home, receiving a letter from a nursing home, receiving a DNE, someone on staff knowing. that that person has died and they have an account at the institution, all of those are constructive knowledge.

[00:06:00] And the government expects you to do whatever you can to obtain that constructive knowledge. So easy answers, things we heard in the past, that nursing home notification coming in to the person who handles DNEs or death notifications or constructive knowledge while they're on vacation and not opening it for weeks.

You had constructive knowledge when that letter came in. That staff member telling you, I know my neighbor died last night. There were fire engines out there. The ambulances are out there. I know they died. Ignoring that is ignoring constructive knowledge. And if you know government payments at all, that sets up your liability.

Your liability starts at that point. Some of the processes not going to go on this episode, but some of the processes include someone saying, I swear that I had no constructive [00:07:00] knowledge. If you did that in the situations I just said, you would be lying. Lying's not good. The government doesn't like lying.

So, they may say you had constructive knowledge. We know you had constructive knowledge. We want all the money back and not going to get into it on this call, but limiting your liability. Financial institutions can limit their liability by following the rules. It's just a few rules. It's not really a lot of rules, but that person on vacation, having someone open their mail is important.

Listening to that staff member who said, Oh, poor someone, so and so died last night and knowing their account holder, that's important to capture. Those were really the two points I wanted to talk about. I wanted to talk a little bit about my class. This class, this course, is in the latest technology.

For us, it's the latest tool available to [00:08:00] develop content. It is not a PowerPoint with someone talking behind it, which are fine. It is interactive. There's exercises to confirm what's constructive knowledge, what's not constructive knowledge, little flashcards to talk about some really key points that everyone should do.

And I got to sign this course, and I take my time with courses. I get them done as fast as I can, but as fast as I can isn't tomorrow. They take time. And one of the pieces of this assignment, which was the assignment, I'm going to do it, was the last part. The last part of this assignment includes a trainer tool.

So you're going to walk away with a lesson plan on how to train internal staff on reclamations, whether they be government [00:09:00] reclamations, whether they be commercial, like a teacher's retirement association benefits. There's a lesson plan in here that goes through exactly how the course goes. So the course goes through the law, then it goes through the Green Book, and then it goes through the ACH rules.

And they're in that order for a reason. If you take the course, you'll find out. I'm not salesy, I'm sorry. I'm trying to be salesy. If you take the course, you'll find out, there is no way to avoid liability on benefit payments. There's none. You're going to have a liability, but limiting your liability is important because you want to save the institution as much money as you can.

I'll end on this. We had a case a few years ago and the law [00:10:00] states that the government can come back to you for six years of payments and even more, if the money's all there, they'll come back for all the money they paid, but their limited liability is six years. 

Six years is a lot of money. Six years is 12 months times six years of payments. I think it was in the $90,000 range. So the institution got a letter, said, Oh, by the way, so and so died six years ago, seven years ago, we need to take back six years of payment from you and if they were not able to successfully limit their liability, it is a process.

It is a procedure. There are steps in it. You have to fill out all the steps accurately, completely and within a time frame. If they were not able to limit their liability, the government would have come into the bank's account themselves and pulled [00:11:00] that money out and the bank would have suffered a $90,000 loss because of paperwork, really, because what we did, we helped them. NEACH Payments Association, we walked them through the process, they successfully limited their liability, they were subject to just the limits set out in law, it's a balance in the account plus a 45-day amount.

You'll get all that in the course. If you take it, I highly recommend you take it. It is a new type of course. You can listen to me talking through it. You don't have to, you can just go through it yourself. All of it works the same. So thanks for your attention today. I'm sorry. I was salesy. If you have an idea for a topic you want us to cover, or if you want to be a guest, please let us know through the whole like and subscribe thing that you should do to help our numbers grow.

We really appreciate that and I'll see you next time or you'll hear me next time. Thank you very [00:12:00] much.