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I am rep payee on her account. The nursing home has failed to have themselves set up as rep payee. Could this be the problem?

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Example: She went into the nursing home Jan 1. Since she gets $1290, all but $30 would have to have been paid to the nursing home = $1260. She only gets to keep $30 a month for personal expenses. You need to prove that is where the money went. It's a whole lot easier to just make them the rep payee and let them worry about the financial reports.
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The denial letter should be very specific and you need to sit down with the nursing home and get them as the representative payee. It will save you a lot of headaches down the road.
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