California Department of Social Services, DAB No. 253 (1982)

GAB Decision 253

February 5, 1982 California Department of Social Services; Docket Nos.
80-82-CA-SS, 81-11-CA-SS Garrett, Donald; Settle, Norval Ford, Cecilia


The California Department of Social Services (State) appealed
disallowances of $660,436 (Board Docket No. 80-82-CA-SS) and $295,373
(Board Docket No. 81-11-CA-SS) by the Social Security Administration
(Agency). The Agency disallowed retroactive claims for federal
financial participation (FFP) for foster care services under Title IV-A
of the Social Security Act to the extent the claims were not based on
actual expenditures. The dispute here concerns the method used by the
State to calculate the retroactive FFP claims.

Board Docket No. 80-82-CA-SS involves claims made by Los Angeles
County in 1977 for 26,617 additional child care months over a twelve
year period. Board Docket No. 81-11-CA-SS involves claims made by
twelve counties for 15,211 child care months over a comparable time
period, including additional retroactive claims made in 1978 and 1979 by
Los Angeles County.

THE RETROACTIVE ADJUSTMENTS

In 1976, the State, in All-County Letter No. 76-136, instructed its
counties to make retroactive claims for FFP for certain foster care
services costs, incurred beginning in the 1960s, that were originally
thought to be subject only to state and county financial participation.
The State divided its claims into chronological groups according to the
applicable federal/state/county sharing formula and multiplied the
average service cost for the last month of the period by the number of
child care months retroactively claimed. Accordingly, all adjustment
for child care service months for the period January 1, 1966 through
October 31, 1968 were based on the average service costs in October of
1968. All adjustments for child care service months for the period
November 1, 1968 to December 31, 1972 were claimed based on the average
(2) service cost in December of 1972. All adjustments for child care
service months for the period January 1, 1973 forward were based on the
average service cost for the month that the adjustment was claimed. /1/


The State calculated the retroactive FFP claims using the same method
that it used for regular, ongoing adjustments, where changes were
routinely made both to add and subtract from the claimed child care
service months.

Since service costs increased with time during the period covered by
these disallowances, the Social Security Administration found that there
were overclaims for the earlier months of each period and therefore
disallowed the overclaims. The audits upon which the disallowances were
made did not question the allowability of the individual claims, only
the method used for calculating the claims.

The record shows that the parties agreed that calculating ongoing
adjustments by multiplying the number of recipients involved in the
adjustment by the average cost in the month in which the adjustment was
claimed resulted in reduced administrative costs for both the Agency and
the State. In a letter dated April 7, 1980 commenting on the draft of
Audit Report No. 00264-09, the basis for the disallowance in Docket No.
81-11-CA-SS, the State described the method of calculating adjustments
made on an ongoing basis as follows:

The process currently used is to change the persons count on a
current claim and multiply the persons count times the average payment.
If the adjustment is for a period involving a different sharing formula,
the adjustment is made on the basis of information contained on the last
claim for that period.

This is a historical method dating back to periods prior to 1966.
The system was continued in the State plan after 1966 when the Federal
share changed to a percentage method.

(3) In concluding that the method of calculating routine adjustments
did not create in inequity, the federal auditors pointed out that such
adjustments generally "involve both decreases and increases to claims
and there is not usually a significant time span between the month of
payment and the adjustment." (Audit Report No. 00264-09, page 3)
Adjustments for 41,828 child care months over a twelve year period are
involved here. The question is whether the magnitude of these
adjustments set them apart from routine adjustments appropriately
calculated in the State's usual way.

The Agency's position was that, (1) the one-time large-scale
adjustment involved here was so large an increase in the number of
child-months claimed that no decreasing adjustments could offset this
increase, and (2) the length of time between the month of service and
the month of claim resulted in large overclaims. Audit Report No.
00264-09 gives an example of the extent of overclaim on page 3:

(In) one county a child placement in January 1973 incurred an average
payment of $168.18. However, when the retroactive adjustment was made
in May 1979, the child was claimed using the May 1979 average payment of
$426.44. This was $258.26 more . . . . (The) costs claimed did not
reasonbly reflect actual costs incurred.

THE BOARD'S ORDER

The Board issued an order tentatively concluding that the Agency's
disallowance of the portion of the FFP claim which exceeded a claim
based on the actual expenditures for services should be sustained.

The order relied on Section 403(a) of the Social Security which
states that:

(The) Secretary of the Treasury shall pay to each State . . . .

(1) . . . an amount equal to the sum of the following proportions of
the total amounts expended in such quarter . . . .

The Board concluded in the order that Section 403(a) of the Social
Security Act dictated that any claim reflect the amounts that were
actually expended, i.e., the product of the number of eligibles whose
status changed multiplied by the average payment for the month the
services were provided. These figures are readily available in
documents submitted to the Board by both parties, and it is clear that
the State (4) made a claim for more money than it spent. Accordingly,
the Board concluded in the order that this claim was improper under
Section 403(a) of the Social Security Act.

In concluding that the State's claim must reflect its actual
expenditures, the Board rejected the State's arguments that its method
of calculating its one-time, large-scale retroactive adjustment was
mandated either by the State plan or by the State's cash basis
accounting system. The Board found that the portion of the State plan
that the State claimed governs the calculation of adjustments did not
actually mention any method of calculation and that cash basis
accounting principles did not determine the value of a capital exchange.
The Board also concluded both that the State could not rely on the
absence of guidance from the Agency about how the retroactive
adjustments should be calculated to legitimize an otherwise improper
claim and that none of the retroactive adjustments were regular, ongoing
adjustments.

In its response to the order the State renewed its argument that some
of the retroactive claims included in the disallowance in Board Docket
No. 81-11-CA-SS were not part of the one-time, large-scale retroactive
adjustment but were appropriately claimed, regular adjustments. With
regard to the remainder of the order, the State, while disputing the
Board's conclusion, acknowledged that the order "fairly states the facts
and the applicable law." (Response to Order to Show Cause, p. 4)
Accordingly, for the reasons set forth above the Board sustains the
Agency's disallowance of costs attributable to the one-time, large-scale
adjustment.

WHETHER THE DISALLOWANCE IN BOARD DOCKET NO. 81-11-CA-SS INCLUDED
SOME REGULAR ADJUSTMENTS

The question remains, then, whether the State's appeal should be
sustained with regard to a portion of the amount disallowed in Board
Docket No. 81-11-CA-SS. The State argued that $52,005 of the amount
disallowed was for ongoing adjustments made under normal circumstances
by Los Angeles County during 1978 and 1979.

The Agency maintained that Board Docket No. 81-11-CA-SS did not
include the disallowance of any ongoing adjustments stating that Audit
Report No. 00264-09 "clearly explains that the review was limited to (5)
retroactive adjustments." /2/ (Agency's Response to the Appeal, p. 2)
Pursuant to a request by the Board, both parties supplied working papers
related to the disallowance in Board Docket No. 81-11-CA-SS.


The State contended that the one-time, large-scale adjustments for
Los Angeles were made in 1977 and were covered by the disallowance in
Board Docket No. 80-82-CA-SS. The State argued that (1) the difference
between the $52,005 disallowed for Los Angeles County in Board Docket
No. 81-11-CA-SS and the $660,436 disallowed for Los Angeles County in
Board Docket No. 80-82-CA-SS shows that the county made its "massive
one-time retroactive claim" in 1977, and (2) the monthly claiming
pattern for the years covered by the retroactive claims made by Los
Angeles County during 1978 and 1979 is different than the monthly
claiming patterns for certain other counties whose claims are part of
Board Docket No. 81-11-CA-SS. (Response to Order to Show Cause, p 2)

With regard to the latter point, the State asserted:

The one-time retroactive claims stand out by their regularity.
Fresno County, for example, on its April 1977 claim, shows a count
change of 6 for 6/69 through November 1972; the count change then rises
to 13 and drops again gradually. A single additional person who added
on the June 1977 claim. A similar pattern is shown for Imperial County.
Kern County had a change of one person for June 1966 through February
1973, a change of two persons for March 1973 through September 1976, and
a change of one person from October 1976 to March 1977. Los Angeles
County, which next follows in the workpapers, presents a marked
contrast.With very limited exceptions, there are no regular patterns.
Rather, claims very widely from month to month, and stop and start at
irregular intervals. The figures from the March 1978 (footnote omitted)
claim are particularly striking. Is it really likely that the
adjustment for 63 persons for October 1967 is a claim for 63 children
who received care for only one month rather than simply an adjustment of
an error disclosed by some type of (6) review? The same is true of the
odd figures which appear during the first half of 1969.The numbers
simply do not suggest retroactive readjustments for children who were in
foster care for long periods of time but were not then federally
claimed.

(Response to Order to Show Cause, pp. 2 and 3)

The State also argued that ongoing adjustments can go back a
considerable time and sometimes cover a long period. (Response to Order
to show Cause, p. 1)

The State concluded that an irregular adjustment pattern was proof
that the disallowance for Los Angeles County contained in 81-11-CA-SS
was for ongoing adjustments. However, the State has not provided
analysis of the pattern of adjustments for 1977 which the State claimed
contained all of the one-time adjustments for Los Angeles nor has it
provided a detailed comparison of the two.

The State had instructed its counties how to make retroactive claims
for "children who initially met all the requirements for federal
participation, but who were erroneously claimed as nonfederal."
(All-County Letter No. 76-136, December 9, 1976) When these claims were
audited the State did not dispute the consideration of the claims made
by Los Angeles in 1978 and 1979 as part of the retroactive claim but
argued in general in support of the method used by all the counties to
compute their claims. (See, State's letter of April 7, 1980 commenting
on the draft of Audit No. 00264-09) In this appeal, the State attempted
to distinguish certain Los Angeles County claims as indicated above.
The State submitted no information about either the procedures followed
by Los Angeles County to identify the adjustments it claimed in 1977 in
contrast to the disputed adjustments made in 1978 and 1979 or a basis in
county records for concluding that the adjustments claimed in 1977 were
different from those at issue now.

This appeal covers claims made by Los Angeles County for January,
February, March, April, May, September, and October of 1978 and February
of 1979. With the exception of the claims made for October of 1978 and
February of 1979, each month's claim covered adjustments for periods
beginning in the mid to late 1960s. For October of 1978 the earliest
adjustment was for October of 1974; for February of 1979 the earliest
adjustment was for May of 1973.

In examining the State's contention that "(with) very limited
exceptions" Los Angeles County's claiming pattern was irregular, we
first look at the claim for January of 1978. The State made adjustments
(7) adding 2 persons for most months from July of 1966 through October
of 1968, adjustments adding 1 person from November of 1969 through June
of 1972, adjustments for 3, 4, or 5 persons from July of 1972 through
August of 1973 -- with adjustments for 2 persons claimed for the
remainder of 1973; and isolated adjustments of 1, 11, and 7 persons in
August, September, and October of 1977, respectively. In the Board's
view the claiming pattern for January of 1978, as well as for some other
months of 1978 and 1979, is remarkably similar to the claiming pattern
for the counties which the State attempts to distinguish. (See, the
quotation from the State's Response to the Order on p. 5 of this
decision)

While an examination of the claims made by Los Angeles County during
1978 and 1979 reveals some irregular claiming, /3/ we cannot conclude
from this that the 1978 and 1979 claims were appropriately made using
the State's current month claiming method for ongoing adjustments. As
the State pointed out, "Los Angeles County, because of its size and the
nature of its population, has a more significant record keeping problem
than any other county." (Response to Order to Show Cause, p. 3, fn. 2)
The State also concluded that the Los Angeles County adjustments were
not for children receiving foster care services over a long period of
time and not initially claimed for FFP. Yet, All-County Letter No.
76-136 does not characterize the retroactive adjustments as only
covering long periods of time but describes them simply as those for
children "erroneously claimed as nonfederal."


There has been no dispute that Los Angeles County made retroactive
adjustments adding to the federally eligible category in 1978 and 1979
and that, in general, the retroactive claims for FFP were based on
amounts that exceeded the actual expenditures for foster care services.
Despite the State's arguments to the contrary, there is no basis in the
record for distinguishing the claims made in 1978 and 1979 from the ones
by Los Angeles, and the other counties, in 1977. The (8) State has not
provided any basis for concluding that some retroactive adjustments were
part of a one-time, large-scale adjustment while other adjustments for
the same time period were ongoing. There was an acknowledged record
keeping problem in Los Angeles County and nothing to show that the
adjustments made in 1978 and 1979 were not for children "erroneously
claimed as nonfederal" Record keeping problems alone could account for
both the larger amount of FFP claimed for retroactive adjustments in
1977 and for an irregular claiming pattern. Accordingly, the Board can
not sustain the State's appeal of the disallowance for claims made by
Los Angeles County in Board Docket No. 81-11-CA-HC.

CONCLUSION

For the reasons stated above, the Board upholds the disallowances of
$660,436 in Board Docket No. 80-82-CA-SS and $295,373 in Board Docket
No. 81-11-CA-SS. /1/ For example, since the average service cost for
May 1978 was $322.24, all adjustments for January 1973 forward
made by Los Angeles County in its claims for May 1978 were calculated
based on $322.24 per adjustment. The actual average service cost for
January 1973 was $220.25. /2/ The Agency explained that the
disallowance was calculated to account for ongoing adjustments by
excluding adjustments for the three month period prior to a claim.
(Agency's letter to the Board dated July 27, 1981, p. 2; workpapers
submitted with this letter substantiate this statement) For example,
adjustments for October, November, and December of 1977 were excluded
when analyzing the claim made for January of 1978. /3/ As the
State said, the March 1978 claim adjusted for 63 persons in October of
1967. Here, the State's actual expenditure was $80 per person while its
claim was for $130 per person. Other adjustments made in this claim
added: 1 person in August, November, and December of 1967; 4 persons
in September of 1967; 1 person in July of 1972; 2 persons in January
of 1969; 3 persons in February of 1969; 109 persons in March of 1969;
125 persons in April of 1969; 124 persons in May of 1969; 3 persons in
June of 1969; 142 persons in July of 1969; 5 persons in August of
1977; 8 persons for September of 1977; 9 persons for October of 1977;
11 persons for Novemver of 1977; and 2 persons for December of 1977.

OCTOBER 22, 1983