3. The provision of section 2 (a) (6) of the Social Security Act, requiring the compliance with such provisions as are necessary to assure the correctness and verification of reports to the Social Security Board by the State agency. 4. Section 15a of the Ohio old-age assistance law, General Code 1359, effective May 10, 1937, providing among other things the following:

"The division shall also have the duty and authority to submit the plan for old-age assistance embodied in this Act and in the rules and regulations made under authority of this Act to the Social Security Board, established by said the 'Social Security Act'; to make such reports as said Board may from time to time require; to comply with such provisions as said Board may from time to time find necessary to assure the correctness and verification of such reports; to put into effect such methods of administration, authorized by this Act, as are found by said Board to be necessary to the efficient operation of said plan; to administer and expend, pursuant to this Act, all sums paid to the State of Ohio by the Secretary of the Treasury of the United States as authorized by said Act of Congress or any Act amendatory thereof, and to pay to the United States, from moneys appropriated for the purpose of administering this Act, such share or portion of the net amount collected by it from the estate of any recipient of aid, pursuant to this Act, as may be required by said Act of Congress or any Act amendatory thereof."

(5) Said section 15a of the Ohio law providing in part as follows:

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"Every rule and regulation of the division governing the method of appeal from decisions of a subdivision, shall provide for granting to the individual concerned such opportunity for a fair hearing as may be necessary to meet the conditions in that behalf, prescribed by or under authority of section 2 (a) (4) of title I of the Act of the Congress of the United States, known as the 'Social Security Act'."

In order to comply with these requirements of State and Federal law, the Ohio division of aid to the aged must do and perform the following acts or take the steps necessary to accomplish the following results, as the case may be:

(a) Prepare and submit to the Social Security Board a detailed statement of steps which can and will be taken by the State agency to simplify the process and procedures of the said division in the determination of need in respect of all persons who may be eligible for old-age assistance and in respect to the making of awards.

(b) Prepare and submit to the Board a detailed statement of steps which can and will be taken by the officials of the State agency to investigate the need of all recipients whose awards have been increased without investigation of the indi.idual circumstances in such cases, and to alter the awards in these cases so that they will conform with the results of the investigation.

(c) Prepare and submit to the Board a detailed statement of steps which can and will be taken by the officials of the State agency to investigate the circumstances of applicants with respect to whom no investigation has been made, to determine their eligibility, the amount of the awards to which they are entitled, to insure prompt payment of such awards, and to notify promptly such applicants of the action taken by the State agency.

(d) Give notice to all persons whose applications are denied by the State agency of their right to a fair hearing which will be held in accordance with State and Federal law.

(e) Render an accurate report to the Board of the number of applications now pending, the number of eligible recipients receiving awards, and the amount of moneys heretofore expended by the State agency and establish a reporting system which will hereafter insure accurate monthly reports to the Board of the number of applications now pending, the number of eligible recipients, and the moneys expended.

(f) Prepare and submit to the Board a detailed statement of steps which can and will be taken by the officials of the State agency to establish accounting controls that will show the number and value of properties held in trust by the State agency and the number and value of the insurance policies assigned to the State agency.

(g) Prepare and submit to the Board a detailed statement of steps which can and will be taken by the State agency to coordinate the work of the various employees, officials, and sections of the said agency, so as to avoid overlapping of jobs and functions and to insure that the acts of all employees and officials of the said agency will be in accordance with the authority and responsible direction of the chief executive officer thereof.

(h) Prepare and submit to the Board at the earliest possible date a manual which will contain all rules and regulations of the State agency and a statement of all its policies and procedures governing the administration of old-age assistance in the State of Ohio.

(i) Prepare and submit to the Board a detailed statement of steps which can and will be taken by the State agency to instruct the employees of the division in the application of such policies and procedures and in the performance of the duties assigned to such employees.

(j) Determine what individual employees of the division are not qualified in accordance with the law to perform the duties assigned to them, apply to the civil-service commission of the State for lists of eligible persons, and replace unqualified employees with qualified employees as rapidly as this can be accomplished under the powers conferred upon and the facilities available to the officials of the State agency and the Ohio Civil Service Commission.

(k) Prepare and submit to the Board a detailed statement of steps which can and will be taken by the officials of the State agency to employ sufficient qualified persons to fulfill the foregoing requirements.

(1) Prepare and submit to the Board a detailed statement of the steps which can and will be taken by the State agency to insure that all employees of the State agency shall perform their duties solely in the interest of a nonpolitical, nondiscriminatory administration.

Done in Washington, D. C., this twenty-ninth day of September, One Thousand Nine Hundred and Thirty Eight.

SOCIAL SECURITY BOARD,

By

Chairman.

SOCIAL SECURITY BOARD,

July 20, 1939.

To: Mr. Oscar M. Powell, Executive Director (for the attention of the Board). From: Jack B. Tate, General Counsel.

Subject: Construction of section 4 of the Social Security Act.

The Social Security Act provides a definite scheme of grants-in-aid to the States for old-age assistance, aid to the blind, and aid to dependent children. In each of these titles there is set up a regular and continuing procedure of quarterly grants based upon the State's advance estimate of its expenditures upon which the Board shall act at the outset of each quarter. Provision is then made for the prepayment of the Federal one-half to the State. When later the State's expenditures are accurately known, appropriate adjustments are provided for. Thus the Federal grant is measured by one-half of the expenditures of the State. It is specifically so provided in section 3 of the Social Security Act where it is said that the grant is equal to “one-half of the total of the sums expended during such quarter as old-age assistance under the State plan, etc."

"Under the State plan"-these words, of course, derive their significance from the preceding section 2 where they are defined. There the basic requirements are set forth, the reasonable insistence upon which, on the part of Congress, is derived from the years of past experience in public administration of this character. They include among other things such basic conditions as the delegation of authority to a single responsible agency, State-wide operation adequately supervised on the State level, reasonable standards of efficiency in operation the major points of which in this sphere can be told off by an experienced administrator with any desired degree of precision, and certain basic checks which the law has always regarded as the most effective means of avoiding capricious and discriminatory action, such as the individual's right of access to the agency under conditions compatible with due process of law.

There appears to be no escape in the act from the basic assumption that the justification for the certification of grants to the State upon the above basis in the mind of Congress was the substantial compliance of the State with these basic conditions. It may be assumed that where such underlying conditions are met the decisions and payments of the agency may properly constitute a sound basis for the computation of the Federal grant. But what if they are not? Upon the basis of experience we must be realistic enough to bear in mind a situation which at least takes adequate account of the possibilities.

In State X, for example, there is no written manual or guide to law or procedure: none, that is, except one long superseded, out of print and based on

a prior statute-a misguide. The many individual members of the staff who deal with individuals throughout the State have recourse to no authoritative statement except the broad statutory provisions as to who is eligible and who is not what cash, what property, what income, and what kinds of income they may possess. There is provided for them no standard or frame against which they may compute awards but they are left to their own individual judgments. They are not advised as to the proper construction of their law in relation to inmates of private institutions, incompetents, members of large families, persons who derive large measures of support from relatives yet have no resources of their own, persons who have potential earning power, persons who have not. They are not told what residence means at law in terms of home, intent or absence from the State, nor have they any means of knowing what constitutes a discrimination between American citizens and what does not. For one individual there may be 10 such questions to be answered. For each individual some new question may arise.

In State X there is no delineation of function, no clear line of authority, no specific assignment of duty. You will find there a staff of 15 or 20 persons, unsupervised and engaged perhaps in reviewing grant applications, but you can trace no decision to any one person nor can you ask any person to whom and for what he is responsible or what his particular duties may be, and get any satisfactory answer.

In State X there is no regular means of supervision over the counties by a competently instructed field force with the result that each county construes the law in its own fashion and develops its own standards of eligibility and assistance. The drafts upon the State fund, which each county makes, bear no relation to the relative needs of different portions of the State or of the individuals therein.

In State X there is no master index of eligible persons-hence no means of determining whether the same individual is not deriving assistance through various channels, in various counties—and there is no systematic or timely method of recording his change of residence, his death, his absence, or his accrual of wealth or poverty.

In State X there is no comparison between the register of warrants sent out perhaps by the State Treasurer and the decisions upon which they are presumably based. This failure to take account of the facts disclosed in actual payment, or lack of encashment, has in time led to a wide discrepancy in the State's account, and the payment process has yielded none of its wealth of information to the agency in the meantime.

In this same State X there is no check upon the agency's action in denying assistance to eligible people, or in respect to its awards. No method of hearing, no right of access of the individual to the agency guaranteed by the fair-hearing provisions of the Federal act is afforded. Complaints and demands for hearing are ignored or are answered perfunctorily but by no single section to which responsibility for this important function has been assigned. In fact denial of right is being used in aid of a general scheme or desire to secure political favor as a condition to favorable action.

Now the result in State X is found to be as follows: First, hundreds and thousands of individuals in the State are not getting what they are entitled to; secondly, other thousands are getting what they are not entitled to. The question then is, Can the Federal grant be measured by expenditures made upon this basis, and if so, for how long?

The answer suggested is that if and when the State has revised its procedures, has introduced some systematic plan, some standards, some order, some supervision, has provided a fair-hearing procedure, has developed a manual or put it back into circulation, and has at last adopted some moaus of adjusting its rolls and awards to the actual facts, that then the grants should be resumed with reimbursement for the intervening period. It is said that this should be done because section 4 which is to be invoked upon substantial failure of the State to comply with these basic requirements, provides that grants shall not be made until the Board is satisfied that there is no longer a substantial failure of compliance. It is said that the Board shall then resume its quarterly grants and make a retroactive grant for the interim period.

The first question is, What grant shall be made for the interim? Is the Social Security Board to accept the statement of the State's expenditures made upon this basis? Or is it to make the grant on the basis of what it believes the State should properly have expended?

It is said that audit is available. Audit is a fiscal procedure, a fiscal check. The failures of the State are administrative. They present no satisfactory records to the auditors. Different standards have been applied to different people based upon the individual judgment of hundreds of different local and State employees. There has been a denial of justice, favoritism on a broad scale, and wastage of funds on a substantial scale. The process of audit is not keyed to this problem, is not relied upon, is not mentioned, in the Social Security Act.

When audit exceptions which must obviously be based for the most part upon the records of the agency, increase substantially in amount or reach considerable sums, they will of course serve as some indication, but for the reasons cited they will constitute no measure, of fund diversion. Conversely, as well, a substantial increase in individual complaints and demands for a fair hearing in any State, for which indeed the State may have made no adequate arrangements, may serve to indicate that great many persons in the State who are really entitled to this money are not getting it. But, in either case, an actual reinvestigation of case loads and a competent redetermination of eligibility and award in accordance with the facts may presumably indicate that while a really large proportion of those upon the rolls are in fact ineligible for assistance, an equally large number of those not on the rolls are in fact eligible for this assistance.

A rule that applies to one State must apply to all States, and one that applies to one plan must apply to all plans, and one that applies at one time must apply at all times. It must then according to the suggestion made be conceded that the act contemplates, potentially, indefinite periods of interregnum in any State during which the State may even concede lack of conformity; and being out of conformity already may presumably deem itself bound by no condition of the Federal law, may adopt any residence requirement it pleases, pay to whom it pleases, and deny assistance to whomever it pleases, and yet, pending its determination again to cooperate in the national scheme, may act in the assurance that its decisions will in the interim, bind the Federal Treasury, subject, it may be, to audit disclosures, which might then run to such lengths as to constitute administration itself, and in any event involve a prohibitive expense to the Treasury. Once gaining an up-todate payment of its grants, moreover, the State may again relapse and so remain for the most part out of conformity in any respect.

Assume a trustee is appointed to whom responsibility is given for the certification to various institutions of a large educational fund. Conditions are imposed whereby the fund shall be used only for the administration of described institutions and for payment of the expenses of individuals who study there, chosen by a fair scheme of classification. Submission of a plan of administration, and of a course of study, and of a basis of awards to individual students, is provided for. Adequate supervision over courses of study is to be maintained, adequate classrooms and facilities provided according to number and purpose, and other basic standards complied with. The trustee's inspection of a particular institution shows wide departures. No regular courses of study, no assignments to individual teachers, no written standards for the selection and classification of eligible students. Each professor or each official chooses students on bases of his own devising. There is widespread discrimination. Equipment bears no adequate relation to the purposes of the foundation. There is no adequate system of accounting.

If the trust provides that resumption of disbursements shall not be made to any such institution until the trustees are satisfied that the original conditions are substantially complied with, can the trustee disburse this particular fund in behalf of that university measured by the expenses and unworthy scholarships and other purposes for which the funds may have been used, knowing that there are hundreds and thousands of other eligible students that have been rejected and that the funds used have not been properly applied?

It would seem that if the trustee was held to do so upon the condition of compliance at some future time and the same rule was applied to all the beneficiaries of the fund, powers would be delegated in relation to the basic uses of the fund itself which the trustee would in any individual case be powerless to overcome.

Neither can any bank or other custodian of funds, knowing them to be held in a fiduciary capacity, legally honor any draft upon the fund after it has been appropriately brought to the knowledge of the bank that the funds are being applied unlawfully.

The recent case of Bischoff v. Yorkville Bank (218 N. Y. 106), is, we think, closely in point. The court dealt here with the case of a bank in which there had been deposited moneys held in a fiduciary capacity. It was held that the bank being placed with actual knowledge of such fact as would reasonably cause it to think that the moneys were being used improperly, could not lawfully honor further drafts upon the fund, except such as would be properly applied.

The case contains this significant language: "The presumption that he would not thus violate his duty and lawful right-that he would apply the moneys to their proper purposes under the will then ceased to exist. There was absolute proof in the possession of the defendant to the contrary. The defendant had no longer the right to assume that in paying the checks of Pit was paying the executor's money to the executor * or that Puse the moneys lawfully."

*

would

Thus once the situation had been established to the knowledge of the bank it became bound as the court said, "to take the reasonable steps or action essential to see" that any further draft was applied in accordance with the trust provisions.

It seems to me, too, that the Comptroller General's decision of February 6, 1929, known by the number A-2328 and published in 8 Decisions of the Comptroller 411, constitutes also a precedent in this situation. Here the issue was whether a State which had failed to comply with certain conditions to the certification of a grant on July 1, 1928, but which sought to qualify thereafter, was entitled to the certificate of the Secretary of Agriculture by reason thereof. The Comptroller General was of the opinion that this would nullify the condition precedent fixed by the plain terms of the act.

It will not be claimed that the Social Security Board could, ab initio, grant funds to a State which had not submitted a plan that substantially complied with these basic requiremens. Failing to do so, the State loses the benefits of the fund, as some States have to this day in the case of the blind and dependent children and in certain instances during long periods of delay in the case of the aged. Why should one rule apply initially and another rule later on? After all it is the option of the State when and how it will act.

I am of the opinion that this intent cannot be read into language which, reading the act as a whole, seems to me quite unambiguous.

There is, of course, no need for any State to sacrifice participation in any grant, even if it delays cooperation until after the issues have been established upon a hearing. Those having administrative experience, or even experience in financial projects, know that it is possible to set up a general scheme of administration or provide a substantial reorganization with appropriate implementation in a comparatively short space of time. If the organization itself is at hand this may be accomplished in a few days, at least to such extent that completion of all details may be taken for granted on the bases undertaken.

In the case of Oklahoma, for example, the State within 10 days had completed an administrative reorganization which involved the replacement of 125 individuals upon the staff; and in the case of Ohio the basis upon which grants might well have been resumed had been fully outlined by the head of the State agency within 2 weeks after the hearing. However, in this instance, the plan itself was repudiated by the State administration and the plan's author released from his official duties.

It would seem that if precedents are established whereby refusal of cooperation can be indulged with relative impunity, then all of the considerations above outlined would be plainly applicable in the case of any State.

JACK B. TATE, General Counsel.

STATEMENT OF HON. THOMAS A. JENKINS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. JENKINS. Mr. Chairman, with your permission I should like to say a few words in reply to what Dr. Altmeyer has said, or rather what he has failed to say. In the first place, he seeks to discuss the difference between the situation when the Board made the November payment and when it refused to make the October pay

ment.