Indiana Family & Social Services Administration, QC No. 94 (1996)

Department of Health and Human Services

Departmental Appeals Board

AFDC QUALITY CONTROL REVIEW PANEL

SUBJECT: Indiana Family & Social Services
Administration
Docket Nos. A-95-185,
A-96-012, A-96-031,
A-96-032
Decision No. QC94

DATE: January 24, 1996

DECISION

The Indiana Family and Social Services Administration
(Indiana) appealed four Aid to Families with Dependent
Children (AFDC) quality control (QC) review
determinations of the Regional Administrator of the
Administration for Children and Families (ACF). With the
consent of the parties, the Panel consolidated the
proceedings in these four appeals since they raise the
same issue. In each case, the local agency had
erroneously budgeted less income than that actually
received by the clients. Indiana QC calculated the
resulting QC errors based on actual review month income.
ACF contends that the overpayments must be calculated
using the best estimate of income, which is slightly
higher than actual review month income in these cases.
Indiana concedes that ACF's calculation, and not
Indiana's, conforms to the applicable QC Manual (QCM)
provision. However, Indiana contends that ACF gave
permission for Indiana to depart from the QCM
requirement. Indiana also contends that ACF verbally
agreed not to cite QC errors based on this calculation
for review months prior to December 1994. Indiana agreed
to change its calculation method after December 1994.

We conclude that Indiana has not proved that ACF
employees made such representations to Indiana. However,
even if the ACF employees had done so, ACF would not be
bound because: 1) the advice was oral; 2) Indiana knew
that the advice was contrary to written policy contained
in the QCM; and 3) the employees lacked authority to bind
ACF to a position that is clearly contrary to the QCM.
Accordingly, we uphold ACF's error determination.

Factual Background

There is no dispute as to the facts in these appeals.

In Docket No. A-95-185 (Indiana QC Review No. AFI-300102;
Federal Review No. 0657), the local agency had estimated
the client's income at zero when she was first authorized
to receive AFDC payments in September 1993. During State
QC review, Indiana discovered that the client had been
earning unreported income since June 1993. The review
month was March 1994. In such a situation, the QCM
requires that the best estimate be recalculated. The
calculation is done by multiplying the client's income,
in this case $40 per week, by 4.3, for a result of $172.
Because the estimate was greater than the client's
actual review month income of $160, Indiana calculated
the overpayment to the client using actual review month
income. This resulted in a finding of a $70 overpayment
in the review month. On re-review, ACF determined that
Indiana's calculation violated section 3420 of the QCM.
ACF found that, when calculated based on the best
estimate of income, as required by the QCM, the
overpayment to the client was $82.

In Docket No. A-96-012 (Indiana QC Review No. RCP-100755;
Federal Review No. 1239), the local agency estimate of
the client's income was also zero. The review month was
September 1994. In this case the client had unreported
child support payments of $70 biweekly. According to the
QCM calculation, the best estimate of income here would
be $70 x 2.15 = $150.50. Again, because the best
estimate was greater than the client's actual review
month income of $140, Indiana used the client's actual
review month income to calculate an overpayment of $90.
On re-review ACF found a $100 overpayment based on the
best estimate of review month income.

In Docket No. A-96-031 (Indiana QC Review No. RCP-100350;
Federal Review No. 0763), the client had reported her
earnings when she became self-employed as a babysitter in
January 1994. The local agency calculated the estimate
of the client's earnings incorrectly, however. The case
was selected for QC review for the month of May 1994.
Indiana QC correctly recalculated the estimate to
$139.32. Based on its methodology, however, Indiana QC
reviewed the case based on the actual review month income
of $57.60, because that amount was less than the
recalculated estimate. After applying the earned income
disregards to the client's actual review month income,
Indiana QC determined that the client had no countable
income. Therefore, Indiana found the case correctly
paid. Federal re-review found that, when calculated
based on the best estimate of income, as required by the
QCM, the overpayment to the client was $13.

Similarly, in Docket No. A-96-032 (Indiana QC Review No.
AFI-300121; Federal Review No. 0920), the local agency
was aware of the client's employment, but had
miscalculated the estimate. The case was reviewed by
Indiana QC for the month of April 1994. Indiana QC
recalculated the best estimate to be $180.60. Because
that amount was greater than the actual review month
income of $107.63, Indiana QC reviewed the case based on
actual review month income. Based on this methodology,
Indiana found a $26 underpayment. Federal re-review
found a $35 overpayment, based on the best estimate of
review month income.


Analysis

Indiana calculates AFDC assistance amounts using
prospective budgeting for all cases. Prospective
budgeting is defined by regulation:

"Prospective budgeting" means that the agency shall
. . . compute the amount of assistance . . . based
on its best estimate of income and circumstances
that will exist in that month. This estimate shall
be based on the agency's reasonable expectation and
knowledge of current, past or future circumstances.

45 C.F.R. 233.31(b)(1).

Section 3420 of the QCM further explains the concept of
prospective budgeting:

Inherent in prospective budgeting is the use of a
"best estimate" of income and income-related factors
to determine the amount of payment for current
and/or future months. A "best estimate" of income
and income-related factors which will exist in the
payment month is defined as one which: (1) is based
on a specific time frame which the State uses to
determine the estimate; (2) accurately reflects all
facts that occurred (whether known or unknown to the
State) during the time frame(s) which the State uses
to determine the estimate; (3) is calculated
correctly; and (4) remains an accurate reflection of
the likely situation in the payment month because no
change in circumstances (as defined by PSP) has
occurred since the time frame used for the estimate.

The QCM additionally provides that "If the [original]
estimate was inaccurate, including an estimate of no
income when income was received, . . . the reviewer will
recalculate payment based on the best estimate, as
described above." QCM, section 3420.C.2(c). In each of
these cases, it is undisputed that the local agency's
estimate of income was inaccurate. Indiana concedes
that, in such situations, section 3420 of the QCM
requires that the reviewer use the best estimate of
income, and not actual review month income, in
calculating the resulting error. Indeed, in each case,
State QC did recalculate the best estimate of income, but
disregarded the estimate because it was greater than
actual review month income.

Indiana contends that it was entitled to follow
the practice of calculating overpayments based on actual
review month income, if actual income is lower than the
best estimate. According to Indiana, it was justified in
doing so because: 1) ACF verbally approved Indiana's
methodology; 2) ACF verbally agreed not to cite errors
based on the methodology for review months before
December 1994; 3) ACF never objected to flow charts
including the methodology that were submitted by Indiana;
and 4) Indiana's methodology is more equitable. We do
not find any of these arguments persuasive.

Indiana's argument that it should not be charged with
errors because of assurances it allegedly received from
ACF is, in essence, an argument that ACF should be
estopped from enforcing QCM requirements in this case.
As an initial matter, we note that it is not clear that
estoppel will ever lie against the federal government.
See, e.g., Colorado Dep't of Social Services, DAB QC6
(1991); Kansas Dep't of Social Services, DAB QC61 (1994);
Virginia Dep't of Social Services, DAB QC75-R (1994).
See also Wisconsin Dep't of Health and Social Services,
DAB 1493 (1994). But even if estoppel could lie against
ACF, Indiana has not proved the elements of estoppel in
this case. 1/

A party seeking to assert estoppel must prove that: 1)
the party against whom estoppel is sought made false
representations; 2) the party claiming estoppel relied on
the false representations to the party's detriment; and
3) the reliance was reasonable, in that the party
claiming the estoppel neither knew nor should have known
that its adversary's conduct was misleading. Heckler v.
Community Health Services, 467 U.S. 51, 59 (1984). Here,
Indiana has failed to establish two of these elements.
First of all, Indiana has not proved that ACF made false
representations. But, even if we were to assume that ACF
had made misrepresentations, upon which Indiana relied,
we would find that Indiana's reliance on the alleged
statements was unreasonable.

Indiana alleges that former and current ACF officials
made representations on which Indiana relied. Indiana
asserts that, in 1990, Terrence Lechner, then ACF's QC
Branch Chief for the Chicago Regional Office, "agreed
that budgeting actual review month income when the
recalculated estimate was higher was indeed appropriate
and fair." Indiana Brief at 2. 2/ ACF has offered the
declaration of Mr. Lechner that he has no recollection of
ever agreeing that Indiana could budget actual review
month income when the recalculated estimate was higher.
ACF Exhibit (Ex.) D at 1. Indiana did not offer the
statement of any witness to corroborate its argument that
such statements were made. However, even were we to
assume that Indiana's allegations were true, we note that
Indiana's representation and Mr. Lechner's declaration
need not be viewed as contradictory. In our view,
Indiana's assertion that Mr. Lechner agreed that its
methodology was appropriate and fair is not necessarily
the same as his approval for Indiana to employ that
methodology contrary to the QCM directive. It is
possible that Mr. Lechner simply meant to convey that
Indiana's methodology, in the abstract, was fair, without
conceding that Indiana had the right to disregard the
QCM. Thus, we are not convinced that Mr. Lechner made
any statement which can be construed as a
misrepresentation.

Indiana alleged also that, in a December 1994 telephone
conference with Gloria Walker, ACF's present QC Branch
Chief for the Chicago Regional Office, "It was verbally
agreed by all parties . . . that no differences resulting
from budgeting of review month income because it was less
than the corrected estimate, would be cited." Indiana
Brief at 2. ACF has offered the declaration of Ms.
Walker as ACF Ex. E. In her declaration, Ms. Walker
states that neither she nor any other ACF official
participating in the conference made such an agreement.
ACF Ex. E at 1. Moreover, attached to Ms. Walker's
declaration are copies of correspondence between ACF and
Indiana which refer to the December 1994 telephone
conference. As Ms. Walker's declaration points out, none
of this correspondence makes any reference to an
agreement not to cite errors for QC purposes based on the
practice at issue. We find that this correspondence
corroborates ACF's contention that no such agreement was
made. We note particularly that Indiana's letter, dated
March 27, 1995, restates Indiana's position that its
practice of budgeting the lesser of the corrected
estimate or actual review month income was a longstanding
one. The March 27 letter contains Indiana's allegation
that it had received verbal permission from Mr. Lechner
to continue its practice. However, the letter makes no
mention of any agreement that QC errors would not be
cited based on this practice. ACF Ex. E at 6.

For the reasons just discussed, we conclude that Indiana
has not proved, by a preponderance of the evidence, that
either Mr. Lechner or Ms. Walker made false
representations to Indiana. Nor can Indiana rely on
silence by ACF as implicit approval for its policy.
Indiana argues that, from 1991 through December 1994,
State QC used flow charts which set forth Indiana's
practice of using actual review month income when the
best estimate was greater. According to Indiana, copies
of these flow charts were included in all case files with
income-related discrepancies. Indiana appears to argue
that, because these flow charts were in files sent to
ACF's regional office for federal QC subsampling, ACF was
on notice of Indiana's practice. Indiana asserts that
federal QC never cited differences on these cases during
the three years 1991 to 1994. Indiana's point appears to
be that it interpreted ACF's silence as acquiescence in
Indiana's methodology. However, this Panel has
previously held that ACF is not deemed to have approved a
calculation recorded in a document in its possession
simply because it failed to object to the calculation.
Illinois Dep't of Public Aid, DAB QC48, at 9 (1993)
("Merely not objecting to a payment calculation contained
in a State AFDC manual to which ACF subscribes . . . does
not constitute approval of such calculations"). We see
no reason to reach a different result in this case.
Thus, ACF's silence cannot be viewed as a
misrepresentation.

In any event, even were we able to conclude that ACF had
given Indiana express or implied permission to budget
actual review month income, or assurances that no QC
errors would be cited, we would nevertheless conclude
that Indiana was not entitled to prevail here. This is
so because we conclude that Indiana could not reasonably
have relied on such representations, had they been made,
because they were: 1) oral; 2) contrary to agency
written policy as contained in the QCM; and 3) made by
individuals without authority to bind ACF.

First of all, erroneous oral advice is inadequate, as a
matter of law, to estop the government from enforcing
federal law. Heckler v. Community Health Services, 467
U.S. at 65; see also Wisconsin Dep't of Health and Social
Services, DAB 1493, at 15. The Supreme Court reasoned in
the Community Health Services case:

The necessity for ensuring that governmental agents
stay within the lawful scope of their authority, and
that those who seek public funds act with scrupulous
exactitude, argues strongly for the conclusion that
an estoppel cannot be erected on the basis of the
oral advice that underlay respondent's cost reports.
That is especially true when a complex program such
as Medicare is involved, in which the need for
written records is manifest.

467 U.S. at 65. The AFDC QC program, like Medicare, is a
complex program, subject to detailed regulations and
procedures. We think it equally important here that oral
advice--if given--not override the contrary written
policy contained in the QCM. See Wisconsin Department of
Social Services, DAB 1493, at 13.

Second, the fact that ACF's alleged oral representations
were contrary to written statements of federal policy is
further evidence that Indiana's reliance on such
statements was unreasonable. Parties who deal with the
federal government cannot be found reasonably to have
relied on advice of a governmental agent that is contrary
to federal law or regulation. Community Health Services,
467 U.S. at 60-63. As the Court held in that case,
"those who deal with the Government are expected to know
the law and may not rely on the conduct of Government
agents contrary to law." Id. at 63. Here, the QCM
clearly requires that states budget using the corrected
best estimate, rather than actual review month income.
Indiana was well aware of this requirement, see ACF Ex. E
at 6, but chose to rely on alleged oral representations
to the contrary. Indiana did so at its peril. It cannot
now claim reasonably to have relied on representations
that it knew to be contrary to federal policy.

Third, Indiana's reliance on alleged statements by Mr.
Lechner and Ms. Walker was unreasonable because those
individuals lacked authority to approve budgeting
procedures that conflict with the QCM. According to Mr.
Lechner's declaration, the only person with such
authority in ACF's Chicago Regional Office is the
Regional Administrator. ACF Ex. D at 1. The Supreme
Court has held that an agent who lacks actual authority
cannot bind the federal government:

Whatever the form in which the Government functions,
anyone entering into an arrangement with the
Government takes the risk of having accurately
ascertained that he who purports to act for the
Government stays within the bounds of his authority.
The scope of this authority may be explicitly
defined by Congress or be limited by delegated
legislation, properly exercised through the
rule-making power. And this is so even though, as
here, the agent himself may have been unaware of the
limitations upon his authority.

Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380,
384 (1947). Therefore, even if Mr. Lechner or Ms. Walker
had orally advised Indiana that it could use a
methodology contrary to the QCM, their representations
would not bind ACF here, as they lacked authority to make
such statements.

As a final matter, Indiana has argued that requiring it
to calculate errors for QC purposes based on the
corrected best estimate is unfair because to do so would
increase Indiana's ineligible and overpayment error rate
in instances where actual review month income is lower
than the corrected estimate. ACF disputes that the QCM
method is unfair. ACF Brief at 9 n.4. We take no
position on the fairness of either calculation because
the question of fairness is not relevant to our
determination on these appeals. To paraphrase our
decision in Illinois Dep't of Public Aid, once we have
found that Indiana's calculation is in conflict with the
QCM, we cannot sustain that practice. DAB QC48, at 9-10.

Conclusion

For the reasons stated, we conclude that Indiana was
required to compute the errors in these cases using the
corrected best estimate, as required by the QCM. It is
not clear that a party can ever prevail in a claim of
estoppel against the federal government. Nevertheless,
here Indiana has failed to prove even the minimum
elements that would establish such a claim. Therefore,
we sustain ACF's error finding in each case.


___________________________
Sara Anderson


___________________________
Maxine Winerman


___________________________
Leslie A. Weyn


* * * Footnotes * * *

1. Section 408(c)(3)(C) of the Social Security
Act creates a statutory exception similar to estoppel.
That section provides that a payment is not considered
erroneous if the payment is in error solely by reason of
the state's reliance on and correct use of written
statements of federal policy provided to the state by the
Secretary of Health and Human Services. Indiana has not
argued that the statutory exception applies in this case.
We note that, even if this exception is read to apply to
error calculations by state QC, Indiana would not satisfy
the conditions for the exception to apply. ACF has
defined written statements of Federal policy provided by
the Secretary to mean written statements by the Assistant
Secretary for Children and Families, the ACF Regional
Administrator, the ACF Assistant Regional Administrator
for AFDC programs, or the director of the Office of
Family Assistance. 45 C.F.R. 205.42(d)(2)(ii). As
discussed more fully below, in this case there were no
written statements by any federal officials, and the
alleged oral statements, even if made, were not made by
the officials named in the regulation.
2. Citations to the parties' briefs are to the
submissions in Docket No. A-95-185.