GAB Decision 694
September 26, 1985
California Department of Social Services;
Settle, Norval D. (John); Teitz, Alexander G. Garrett, Donald F.
Docket No. 85-64;
Audit Control No. 10252-09
DECISION
The California Department of Social Services (State) appealed a
determination by the Acting Commissioner, Social Security Administration
(Agency), disallowing $4,263,577 claimed as Aid to Families with
Dependent Children (AFDC) under title IV-A of the Social Security Act
(Act). The Agency found that the State had understated by that amount
the federal share of child support payments collected by the State under
title IV-D of the Act during the period October 1, 1978 through
September 30, 1980. The Agency determined that the State was required
by section 457(b)(1) of the Act and 45 CFR 302.51(b)(2) (1975) to reduce
its title IV-A claim to account for the additional child support
collections due the federal government. On appeal, the State asserted
that the method it used to calculate the federal share of such
collections, which, as explained below, was based on a five-year moving
average of the total amount paid by the federal government as AFDC, was
included in its title IV-A plan approved by the Agency. The State
argued that since the method was part of its approved State plan, the
federal share of child support collections was properly calculated using
that method until a hearing was held pursuant to 45 CFR 201.6 to
determine whether the approval plan failed to conform to federal
requirements. As discussed below, we find that the five-year moving
average method specified in the approved title IV-A plan did not apply
to child support collections. Thus, there is no basis for the State's
procedural objection to the disallowance. We further find that there is
no evidence that the Agency's calculation of the amount of the
understated federal share was in error, as alleged by the State.
Accordingly, we sustain the disallowance in full.
Applicable Law
Title IV-D of the Act, enacted in 1975, established the Child Support
Enforcement program for the purpose of enforcing the support obligations
owed by absent parents to(2) their children, locating absent parents,
establishing paternity, and obtaining child support. Section 457(b)(1)
of that title states that:
such amounts as are collected periodically (by a state pursuant to
its approved title IV-D plan) which represent monthly support payments
shall be retained by the State to reimburse it for assistance payments
to the family during such period (with appropriate reimbursement of the
Federal Government to the extent of its participation in the financing).
. . .
The implementing regulations at 45 CFR 302.51(b) provide in pertinent
part that:
The amounts collected as support by the IV-D agency pursuant to the
State plan for children who are current recipients of aid under the
State's title IV-A plan . . . shall be distributed as follows:
* * *
(2) Any amount that is collected in a month which represents payment
on the required support obligation for that month . . . shall be
retained by the State to reimburse, in whole or in part, the assistance
payment for the month in which the child support was collected or the
next month. Of the amount retained by the State as reimbursement for
that month's assistance payment, the IV-D agency shall determine the
Federal Government's share of the amount so retained so the IV-A agency
may reimburse the Federal Government to the extent of its participation
in the financing of the assistance payment. . . .
Factual Background
The State determined the federal share of child support collections for
the period in question based on a five-year moving average. Under this
method, the State returned to the federal government a percentage of
child support collections which was equal to the percentage of total
AFDC payments funded by the federal government for the five years
immediately preceding the year in which the collection was made. In a
letter dated August 22, 1978, the Regional Representative of the Office
of Child Support Enforcement (OCSE), which administers the title IV-D
program, wrote the(3) State regarding its use of this method. The
letter stated that this method did "not result in an equitable sharing
of collections . . . ," and continued:
Please change your procedures to assure that the Federal government
is reimbursed to the full extent of its participation in the financing
of the assistance payment.
Please assure that these changes are effective for collections
reports for the quarter ending September 30, 1978.
(Appellant's appeal file, Exhibit C-7) The State responded to the Agency
in a letter dated September 19, 1978, which stated that the five year
moving average was "more simple and less costly than distributing
collections by aid category." The letter also stated that under the
latter method, "(t)he shift in dollars disbursed to the Federal
government would be minimal (probably less than the administrative cost
of changing the process)." The letter concluded:
Since this is a IV-A related problem, we believe that a meeting
between IV-D and IV-A staff is needed. Please contact me regarding a
meeting date or if you have any further concerns.
(Appellant's appeal file, Exhibit C-6) OCSE did not respond to the
State's letter and the State continued to use the five-year moving
average.
In early 1980, an audit of this matter was begun by the Department of
Health and Human Services (DHHS) Audit Agency. During the course of the
audit, the State notified DHHS that the State was changing its method of
calculating the federal share of child support collections; the change
was implememted for the quarter beginning October 1, 1980.
(Respondent's brief dated July 23, 1985, p. 6) The final audit report
issued on March 19, 1981 covered the period 10/1/75 - 6/30/79, and
concluded that the federal share of child support collections for that
period had been understated by $4,395,107. (Appellant's appeal file,
Exhibit A) An audit by OCSE's own auditing staff covering the period 7/
1/79 - 9/30/80 identified an additional understatement of the federal
share of child support collections of $2,610,865. (Respondent's appeal
file, Exhibit 3) A disallowance based on the former audit was issued on
September 10, 1981 by the Regional Commissioner, Social Security
Administration. (Respondent's appeal file,(4) Exhibit 2) That decision,
however, changed the period for which payments were disallowed to 7/1/
78 - 6/30/79, consequently reducing the disallowance amount, because the
State had not been requested to discontinue using the five year moving
average until August 22, 1978. A disallowance based on the later audit
was issued on December 16, 1983 by the Associate Commissioner for Family
Assistance in the Social Security Administration. (Respondent's appeal
file, Exhibit 4) The Acting Commissioner on February 4, 1985 affirmed
both disallowances but eliminated the 7/1/78 - 9/30/78 quarter from the
disallowance period. (Appellant's letter to Board dated March 14, 1985,
attachment)
The State Plan
The State asserted that the five-year moving average method for
calculating the federal share of child support collections was included
in its approved title IV-A plan. /1/ As indicated below, the version of
the title IV-A plan relied on by the State was approved in 1967 or 1968.
Although this preceded the enactment of title IV-D, the State apparently
collected child support payments made to an AFDC recipient and retained
them to offset AFDC payments even before this was required by title
IV-D.
Despite its reliance on plan provisions dating back to at least 1968,
the State conceded that from 1968 until 1976, it did not in fact apply
the five-year moving average method to child support collections. The
State argued, however, that it had misinterpreted the provisions in its
State plan and that it merely changed its procedure in 1976 to comply
with the previously approved plan. (Appellant's appeal file,(5) Exhibit
B, p. 1) In our view, however, the plan provisions in question are not
subject to the misinterpretation alleged by the State. As discussed
below, under the plan provisions submitted by the State, the five-year
moving average is reflected in ratios which are applicable only to
repayments, and the definition of repayments does not include child
support collections. Thus, the State's earlier failure to apply the
repayment ratios to child support collections was in conformance with
the State plan and the subsequent application of the ratios to those
collections was unauthorized by the plan.
The materials submitted by the State include a form dated November 7,
1968 which indicates that the State was forwarding to the Regional
Office "for approval as part of the State's plans for public assistance"
section 25-702.20 of its revised Fiscal Manual Handbook. /2/
(Supplement to Appellant's Reply Brief, dated August 23, 1985,
attachment; Appellant's Appeal file, Exhibit C-4) Section 25-702.20 is
captioned "Data Affecting Expenditure and Participation Totals" and
states that recoveries will be segregated into two classes, abatements
and repayments. The term "abatements" is defined as including, inter
alia, "absent parent contributions." The term "repayments"
is defined as
consisting of "recoveries of overpayments" and "voluntary repayments."
The section then proceeds to state that "effective July 1, 1968, the
repayment sharing ratio is 45% federal, 42% state, and 13% county for
OAS, AB, ATD, AFDC, and AFDC-BHI." (Different percentages are given for
the fiscal year beginning July 1, 1967.) Although the section does not
state how the repayment ratios were arrived at, the record indicates
elsewhere that they were based on a five-year moving average. (See,
e.g., Appellant's appeal file, Exhibit C-6, letter dated September 19,
1978) The use of the term "repayment ratios" here clearly indicates,
however, that the five-year moving average does not apply to absent
parent contributions since such contributions are specifically excluded
from the definition of repayments. Since the State elsewhere indicated
that its practice was to treat child support collections "as an
abatement of (6) assistance paid," (Appellant's appeal file, Exhibit
C-7, All-County Letter No. 76-44, p.1), it is clear that "absent parent
contributions" is another name for "child support collections"
and
therefore that the five-year moving average does not apply to child
support collections.
The State also submitted a form dated July 31, 1967 forwarding "for
approval as part of the State's plans for public assistance" Fiscal
Manual Letter No. 31. (Supplement to Appellant's Reply Brief, dated
August 23, 1985, attachment) Fiscal Manual Letter No. 31 states in
pertinent part that "(a) fiscal circular letter will provide for the
distribution of voluntary repayments and repayments of overpayments on a
percentage basis to federal, state, and county shares." This document
does not support the State's position, however, since it fails to define
the term "repayments" and the later definition of the same term in
section 25-702.20 of the revised Fiscal Manual Handbook excludes child
support collections.
Accordingly, we conclude that the State's title IV-A plan did not
provide for use of a five-year moving average to calculate the federal
share of child support collections. In view of that conclusion, the
State's argument that a plan conformity hearing pursuant to 45 CFR 201.6
must precede any disallowance based on use of the five-year moving
average must fail.
The Handbook of Public Assistance Administration
The State also asserted that it was advised by an official from the
regional office that the repayment ratios were properly applied to child
support collections based on section 3340 of Part V of the Handbook of
Public Assistance Administration (HB-V-3340). (Appellant's brief dated
May 1, 1985, p. 3; Appellant's appeal file, Exhibit A, pp. 12-13 and
Exhibit B, pp. 1-2) The State specifically stated, however, that it was
not arguing that the federal government was thereby estopped from taking
the disallowance. (Appellant's brief dated May 1, 1985, p. 4) If the
State was not arguing estoppel, then it may have been arguing that the
Handbook was an independent authority for application of the five-year
moving average to child support collections. HB-V-3344 sets out several
methods which may be used to compute the federal share of collections of
assistance payments, including the five-year moving average method used
by the State. Collections are defined in HB-V-3340 as:
any recoupment by the State . . . of part or all of one or more
assistance payments which have been included in amounts claimed for
federal participation . . . (and)$(7) not related to (an) overpayment
(of assistance) for specific months but . . . of a general nature
resulting from the right of the State to recover from or on behalf of
the recipient or his estate all assistance paid to him.
(Appellant's appeal file, Exhibit 3) These Handbook provisions pre-dated
the enactment of title IV-D and do not specifically refer to child
support collections. However, the Agency apparently viewed the
definition of "collections" as broad enough to include child support
collections pursuant to title IV-D since it stated that the five-year
moving average method specified in the Handbook is applicable to child
support collections under title IV-D "if the requisite studies are
completed and the requisite formal approvals are obtained."
(Respondent's brief dated July 23, 1985, p. 13) /3/ Nevertheless, we are
unable to conclude that the Handbook independently authorizes the
State's application of the five-year moving average to such collections.
HB-V-3344.d. states that:
States wishing to apply simplified methods for computing the Federal
share of collections (including the five-year moving average) shall
submit plan material, for prior approval. . . .
The State did not offer any evidence of prior approval other than the
plan material discussed above, which we conclude did not prove for
application of the five-year moving average to child support
collections. Accordingly, the State's method of calculating the federal
share of child support collections was not authorized by the Handbook.
The State also argued that OCSE's August 22, 1978 letter was not
adequate to put the State on notice that its continued use of the
five-year moving average method was disapproved.(8)
(Appellant's brief, dated May 1, 1985, pp. 4-6) However, since the
State's use of this method was never approved, and is not specifically
authorized by statute or regulation, the Agency was not required to have
given notice that future use of the method might be a basis for
disallowance.
Calculation of Disallowance Amount
The State also argued for reversal of the Agency's determination on the
ground that the Agency improperly calculated the amount of the
disallowance. Specifically, the State asserted that instead of
reviewing "all repayments under title IV" to determine the amount
by
which the federal share of child support collections was understated,
the Agency considered only whether the five-year moving average method
accurately reflected the percentage of collections attributable to one
category of AFDC: AFDC-Family Group (the other categories being
AFDC-Unemployed Parent and AFDC-Boarding Home and Institutions).
(Appellant's brief dated May 1, 1985, pp. 5-6) The Agency responded that
this was "erroneous as a matter of fact," and asserted that "(t)he
Federal auditors examined all of the child support collections data,
distributed the collections among the three AFDC-related programs
according to their frequency and FFP percentages, and recalculated the
total Federal share." (Respondent's brief dated July 23, 1985, pp.
14-15) The Agency cited the HHS Audit Agency report, which specifically
states that the additional federal share of child support collections
owned by the State was determined "(u)sing individual aid category rates
. . . ." (Appellant's appeal file, Exhibit 1, p. 4) The OCSE audit
report which was the basis for part of the disallowance contains a
similar statement. (Respondent's appeal file, Exhibit 3, p. 3)
It is not entirely clear from the State's allusion to "all repayments
under title IV" that the State meant what the Agency understood it to
mean: that the Agency should have determined the appropriate federal
share for each category of AFDC used by the State. Nevertheless, we
assume that this is what the State intended since the State did not
indicate otherwise in its reply to the Agency's brief, and we conclude,
in the absence of evidence to the contrary, that the Agency did in fact
consider all three categories of AFDC in calculating the amount of the
disallowance. Accordingly, we sustain the disallowance in the amount
stated by the Agency in the determination appealed from.(9)
Conclusion
For the foregoing reasons, we conclude that the federal share of child
support collections was understated by $4,263,577, and sustain the
disallowance in that amount. /1/ The State did not make any arguments
with respect to its approved title IV-D plan, nor did the State
argue that the title IV-D statute or regulations authorized its use of
the five-year moving average. According to the Agency, the State's title
IV-D plan merely incorporated the provisions of section 457(b)(1) of the
Act and 45 CFR 302.51 quoted above. (Respondent's brief dated July 23,
1985, p. 3) Those provisions do not include any specific authority for
the method used by the State to calculate the federal share of child
support collections.The Agency argued further that title IV-D precluded
the use of that method and thus vitiated any approval of that method
given prior to its enactment. (Respondent's brief dated July 23, 1985,
pp. 11-12) We do not reach this issue since we conclude below that no
approval was given. /2/ This form, as well as the form dated
July 31, 1967 referred to later, includes a space for the Agency to
indicate what items have been accepted for incorporation into the
State's approved plan. The copy submitted by the State does not show
what action, if any, was taken by the Agency. The Agency did not
dispute, however, that the materials in question were part of the
approved State plan. /3/ The "studies" referred to by the Agency
are required by HB-IV-3344.d.1.(b), which states that "(t)he
acceptability of this method is dependent upon the results of a
comparison of the percentage of Federal participation in total
collections during the previous five years computed on a case-by-case
basis with the percentage of Federal participation in total assistance
expenditures for that period." We need not decide whether the State
completed the studies required by the Handbook -- the Agency asserted it
did not -- since we find below that the State failed to obtain prior
approval to use the method, as required by the Handbook.
JANUARY 14, 1986