GAB Decision 246
January 18, 1982 Maryland Department of Human Resoures; Docket No.
80-58-MD-SS Ford, Cecilia; Garrett, Donald Settle, Norval
The Maryland Department of Human Resources (appellant) appealed from
a disallowance by the Commissioner of Social Security (respondent) in
the amount of $112,581 in Federal financial participation (FFP) claimed
under the Social Security Act, Title IV-A program, Aid to Families with
Dependent Children -- Foster Care (AFDC-FC). The disallowance was based
on a determination by federal auditors that the appellant made erroneous
eligibility determinations in 100 AFDC-FC cases. The issues in this
appeal are (A) whether the respondent has authority to recover the FFP
in erroneous payments under Title IV-A of the Social Security Act, (B)
whether a tolerance level should be applied to the errors, and (C)
whether the respondent's denial of the appellant's retroactive claim for
other children affects the disallowance. We sustain this disallowance
for the reasons stated below.
This decision is based on the appellant's application for review and
response to the Board's Order to Show Cause, and the respondent's brief.
We have determined that there are no material facts in dispute.
The Federal Audit and Review
The Regional Office of the Departmental Audit Agency conducted an
audit and program review of the AFDC-FC program in Maryland for the
period April 1, 1972 through June 30, 1975. The audit covered the city
of Baltimore and three Maryland counties. The AFDC-FC case load in
those areas of the State represented 75% of the state-wide case load
(Audit Report, Audit Control No. 03-70256, February 1977, page 2).
The auditors randomly selected 238 cases from 827 cases involving
children who had been placed in the AFDC-FC program under new State
eligibility standards. These standards had been revised in 1972 to
conform to Federal standards which interpreted eligibility more broadly
than the previous State standards. The auditors determined that, in 107
of the 238 cases reviewed, the children did not meet the Federal
eligibility standards set out in Section 408 of the Social Security Act.
The auditors also reviewed 108 cases which were active in May 1975 to
determine whether ineligible children were still being included in the
program. The auditors determined that 28 of these were (2) ineligible
under the Federal standards. The appellant challenged the auditors'
findings, and, after the Regional Commissioner's Office conducted an
on-site review, the respondent revised the figures downward to a total
of 100 children ineligible for payment under the AFDC-FC program but for
whom the appellant had received FFP during the period audited. The
appellant did not deny that the 100 cases were indeed ineligible for
AFDC-FC payments, but raised the issues discussed below.
Discussion
A. Respondent's authority to recover FFP for payments to ineligible
persons under Title IV-A.
The appellant argued that there is no statutory or regulatory
authority for recovery of FFP for payments to ineligible persons under
Title IV-A and cited a recent decision by the U.S. Court of Appeals for
the Third Circuit, State of New Jersey Department of Education v.
Hufstedler, Slip Op., October 13, 1981, No. 80-1991.
The respondent argued that Section 408 of the Social Security Act
sets clear standards for AFDC-FC eligibility, and that payments made to
persons who do not meet these standards are unauthorized under Title
IV-A. Where unauthorized payments are made, Section 403(b)(2) allows
recovery of the payments by reducing future payments. Furthermore, the
respondent argued, the right to disallow claims for FFP is implied from
the common law right to recover Federal funds which have been improperly
or illegally disbursed. Mount Sinai Hosp. of Gr. Miami, Inc. v.
Weinberger, 517 F.2d 329, 337 (5th Cir., 1975), reh. and reh. en banc
denied, 522 F.2d. 179.
Section 403(b) of the Social Security Act authorizes the payment of
Title IV-A funds to the States on the basis of an estimate, and the
reduction or increase of the sum paid on the estimate "by any sum . . .
which the Secretary . . . finds . . . was greater or less than the
amount which should have been paid to the State for such quarter . . .
." Section 403(a)(1) allows FFP only for payments under a State plan,
and has been interpreted to mean that improper payments "are not to be
matched by federal funds." Maryland v. Mathews, 415 F. Supp. 1206, 1212
(D.D.C. 1976); see also State of Georgia Dept. of Human Resources v.
Califano, 446 F. Supp. 404, 412 (N.D. Ga. 1977). Section 408 of the Act
sets out clear standards by which the Secretary may determine whether
the recipients of AFDC-FC funds were eligible, and, therefore, whether
FFP in payments to the recipients should have been paid to the State.
Moreover, disallowance of actual expenditures is contemplated by Section
1116(d) of the Social Security Act. Georgia Dept. of Human Resources,
supra, at 412. Because we have concluded that these (3) provisions of
Titles IV and XI provide a statutory basis for the adjustment of FFP
claims related to improper AFDC-FC payments, we need not discusss the
common law right to recover these funds.
The case cited by the appellant, New Jersey Dept of Ed. v.
Hufstedler, supra, interprets Title I of the Elementary and Secondary
Education Act of 1965 as amended; its holding is in no way dispositive
of issues arising under the Social Security Act. The holding supports
this Board's conclusion, however. The Court held that an administrative
agency has no authority to order repayments of funds unless Congress had
declared, at the time the funds were received, that the agency has
authority to exercise such a remedy. The situation presented in this
appeal is an adjustment of improper payments under Section 403(b) and
was therefore specifically authorized.
B. Application of a tolerance level to the errors made in these
eligibility determinations under AFDC-FC.
In 1964 the Department of Health, Education, and Welfare now
Deparement of Health and Human Services) developed a quality control
system to be implemented in all states because of a nationwide study
indicating that in some states there were many payments made to persons
ineligible under AFDC standards. S. Rep. 95-572, 95th Cong., 1st Sess.,
42 (1977). This system sampled assistance cases to assess the accuracy
of eligibility determinations and calculations of payments and to
"provide information on the nature and causes of errors so that
corrective actions and other administrative improvements may be
undertaken." 43 FR 29311, July 7, 1978. In 1971 the quality control
system was implemented by regulations.In 1972 the Department proposed
that disallowances of FFP for the AFDC program be based on quality
control data and, in 1973, proposed regulations which established
targets for error rates in payments to ineligibles, and provided for
tolerance levels using these error rates. The use of these tolerance
levels would have allowed 3% and 5% of the erroneous payments to be
included in the amount for which FFP would be paid.
The appellant argued that the respondent had stated that it
recognized that requiring States to eliminate all erroneous payments is
unrealistic. The appellant also argued that Congress, by providing
incentives to States whose error rates are less than 4% (in Section
403(j) of the Act), recognized the impracticality of eliminating all
erroneous payments.
The respondent argued that the quality control system has never
applied to the AFDC-FC program and that tolerance levels were instituted
for the quality control disallowances because of the nature of the
quality control system, which takes a sample and extrapolates the errors
found (4) to the universe of a state-wide case load. The respondent
pointed out that the field audit which served as the basis for this
disallowance did not extrapolate the errors on a state-wide basis and,
therefore, did not consider the entire universe. It simply rejected the
individual eligibility determinations among those examined which did not
meet the standards of Section 408 of the Act.
(1) Applicability of quality control regulations to the AFDC-FC
program.
The respondent argued that the quality control regulations do not
apply to AFDC-FC. Neither the proposed nor the final quality control
regulations ever specifically stated which Title IV-A programs were
subject to quality control, although some versions of the preambles to
these regulations referred to the AFDC program and others referred
simply to Title IV-A. The only specific exclusion of any programs
within Title IV-A contained in the quality control regulations was a
sentence, added to 45 C.F.R. Section 205.41(d) (40 FR 32958, August 5,
1975), which excludes payments for AFDC-FC from the expenditures to
which dollar error rates are applied. The respondent, in a related
appeal (Docket No. 80-38-PA-SS), relied on this sentence for support of
its assertion that AFDC-FC is not included in quality control. This
sentence, however, does not unambiguously exclude AFDC-FC from quality
control. Merely because the foster care cases are excluded from the
universe where dollar error rates are applied to a disallowance, does
not mean that the foster care cases are excluded from the samples used
to determine whether the tolerance levels have been exceeded. However,
the SRS Quality Control Manual published in June 1972 (SRS 72-21205)
specifically stated:
The QC system described in these instructions covers a major segment
but not all public assistance programs. It does not include . . . (3)
AFDC foster care, . . . . (page I-3)
The Manual further stated that quality control reviewers are to
eliminate AFDC foster care cases if they reach the reviewer without
being eliminated from the sample (pages III-3 and 4).Action Transmittal
AT-77-55, May 17, 1977, stated that AFDC-FC cases are excluded from the
universe from which quality control samples are selected, and that for
such cases excluded from the universe, States were required to adjust
their claims for individual payments to ineligibles and for
overpayments.
We conclude that the quality control regulations did not apply to the
AFDC-FC program. Although there is no clear statement in the
regulations themselves, the Quality Control Manual, which is a published
(5) interpretation of the regulations, specifically states that this
program is excluded. Furthermore, the appellant has not submitted
anything to show that quality control tolerance levels did apply to
AFDC-FC.
Even if we were to conclude that quality control did apply to the
AFDC-FC program, however, no tolerance levels were used in connection
with disallowances under the quality control system until August 5, 1975
(40 FR 32957), which is after the period of this disallowance. Prior to
August 5, 1975, disallowances were made on the basis of specific
erroneous payments identified in the quality control samples or other
audits.
(2) Whether the rationale for using tolerance levels in the quality
control system requires use of tolerance levels generally for erroneous
eligibility determinations.
The early policy articulations for quality control refer to two
purposes for the use of tolerance levels: (1) to set the maximum
acceptable level of error in elegibility determinations, and (2) to
indicate when a State must take corrective action to reduce the error
rate (Quality Control Manual, 1972, I-1). Later, the respondent decided
to use the quality control system as a basis for disallowing erroneous
payments, and, eventually, the respondent chose to follow a policy of
not recovering erroneous payments falling within the tolerance levels.
We find little in the history of the respondent's use of tolerance
levels and the respondent's articulation of the rationale for their use
in AFDC eligibility determinations to support a finding that the
respondent is unreasonable in not applying tolerance levels to all types
of errors. Nor did the Court in Maryland v. Mathews, supra, hold that
the Secretary must use tolerance levels. The court simply stated that
use of tolerance levels for quality control was consistent with the
Secretary's power under Section 1102 of the Act to assure the efficient
administration of the Act, 415 F. Supp. at 1212.
Furthermore, the Congressional mandate in Section 403(j) of the
Social Security Act, which offers incentives to States to reduce their
error rates to 4% or less, refers specifically to AFDC and not
necessarily to AFDC-FC. The legislative history of Section 403(j) is
not enlightening with regard to possible Congressional intent to include
AFDC-FC. Even if AFDC-FC were included, however, a
legislatively-developed error rate for an incentive offer does not
necessarily justify using tolerance levels in connection with
disallowances such as this one.
Thus, we cannot conclude that the respondent acted unreasonably or in
violation of law by not applying tolerance levels to the errors made (6)
by the State in eligibility determinations made between 1972 and June
30, 1975 under the AFDC-FC program.
Even if we were to conclude that AFDC-FC was included in the quality
control program, there were no tolerance levels in effect for the period
of this disallowance. There is no statutory basis for requiring the
Secretary to apply tolerance levels to errors. We cannot require an
administrator to apply such a policy retroactively where the statute
does not mandate such action, and where there is no evidence that the
respondent has acted in an unreasonable or arbitrary manner.
C. The effect on this disallowance of the respondent's refusal to
allow the appellant's retroactive claims for certain children under the
AFDC-FC program.
The appellant asserted that it claimed FFP retroactive to April 1,
1972 for foster care children eligible for AFDC-FC at that time, and
that the respondent had disallowed the claim. The appellant argued that
this denial was inconsistent with the disallowance in this appeal. The
respondent alleged that the appellant's retroactive claim was refused
because the eligibility determinations did not meet the Federal
standards. The record on this issue contains nothing more than these
allegations. The appellant has not clarified, in response to the
Board's Order to Show Cause, the relevance of this claim to the
disallowance, nor has the appellant provided any evidence to support its
claim. Therefore, we conclude that the respondent's rejection of a
retroactive claim for payment in other cases does not provide a basis
for overturning this disallowance.
Conclusion
We conclude that this disallowance should be sustained. The
appellant has not denied that the determinations were erroneous. The
respondent has statutory authority under Title IV to disallow FFP for
unauthorized payments such as these, and there is no statutory or
regulatory basis for requiring tolerance levels to be applied to these
errors.
OCTOBER 22, 1983