GAB Decision 421
Docket No. 82-180
April 29, 1983
Kentucky Department of Human Services;
Ford, Cecilia; Settle, Norval Garrett, Donald
Background
The Kentucky Department of Human Resources, now known as the Cabinet
for Human Resources, (Appellant, State) appealed a decision of the
Associate Commissioner for Family Assistance (Agency, Respondent)
disallowing $16,800 which the State claimed for the 1980 Low Income
Energy Assistance Program (EAP). The State requested review of findings
totaling $16,150 (the State did not request review of findings related
to $650 for duplicate payments). The disallowance represents EAP
payments totaling $7,400 made to recipients who did not receive aid from
the Aid To Families With Dependent Children program (AFDC) in December
1979 because their AFDC checks for that month were voided after issuance
by the State, and a total of $8,750 in EAP checks which were issued by
the State to recipients in February and April 1980 and which remained
uncashed one year later.
Under Kentucky's EAP State Plan, energy assistance funds were
distributed as grants to AFDC assistance units that were "receiving
assistance under Title IV-A of the Social Security Act for the month of
December 1979." Appellant's Appeal File, Tab F. Kentucky was required
to operate its program in accordance with the provisions of the Program
Instruction (SSA-AT-79-42, dated November 27, 1979) and the provisions
of its State Plan.
Based on the record, which includes the parties' arguments and
exhibits, we sustain the disallowance.
I. Payments to Ineligible Recipients
The Agency disallowed payments totaling $7,400 under the EAP grants
made to assistance units which had not received AFDC assistance for
December, 1979 because their AFDC checks were (2) voided subsequent to
their issuance. The Agency claimed that since the AFDC checks were
voided, those units did not receive AFDC assistance and were ineligible
under the EAP State Plan for energy assistance. The record indicates
that the AFDC checks were voided for one of the following reasons:
the case had been discontinued;
the client had moved out of state;
the client could not be located;
the client had returned the check;
the children were no longer in the home; or
the client was deceased.
State's Appeal File, Tab E, p. 3.
a. State's Arguments
The State argued that a voided AFDC check has no effect on AFDC
eligibility. The State contended that at the time the AFDC check was
issued to a recipient the recipient was eligible to receive the check,
according to the December 1979 eligibility file. The State argued that
the term "receiving assistance" as used in the EAP State Plan means
the
individual was eligible to receive assistance and was issued a benefit
check under AFDC for the month of December, 1979. The State contended
that if the AFDC checks had been cashed, the State would have received
FFP.
The State also argued that at the time the EAP checks were issued,
which the State's Brief indicates was on February 7, 1980, the State had
no method of knowing which AFDC checks would be voided and which would
not. (The appellant indicated in its brief that AFDC checks were issued
December 1, 1979 for December eligible active cases, and issued daily
after December 1 for new approvals who were eligible in December.)
The State's final argument analogized its situation to one covered by
an Agency policy interpretation, applicable to another HHS program,
which concerned the recovery of erroneous EAP payments by the states
where a recipient is presumed eligible but later determined ineligible.
The State contended that this interpretation substantiates its claim
that at the time the December, 1979 AFDC payments were made, they were
made to eligible recipients.
(3) b. Agency's Arguments
The Agency argued that the EAP State Plan specifically required that
an AFDC unit be receiving assistance under AFDC for the month of
December, 1979 to be eligible for energy assistance and that an AFDC
unit which had its AFDC check voided by the State did not receive such
assistance for December, 1979 as required. The Agency also argued that
implicit in the term "receiving assistance" is that the assistance
must
be received by households actually eligible for AFDC assistance. The
Agency also contended that the policy interpretation cited by the State
is by its terms applicable only to distribution of energy assistance
payments to recipients of benefit under the Supplemental Security Income
(SSI) program and inapplicable to the distribution of EAP payments to
recipients of AFDC.
c. Discussion
Under the terms of the Kentucky State Plan, each AFDC assistance unit
that "was receiving assistance under Title IV-A of the Social Security
Act for the month of December, 1979" was eligible for energy assistance.
The State has argued that the meaning of the term "receiving assistance"
is that the individual was eligible to receive assistance and was issued
a check for the month of December, 1979. This argument, however,
overlooks the undisputed fact that the AFDC checks in question here were
voided by the State itself subsequent to their issuance and no longer
had any force or effect. The State has not contended that the checks
should not have been voided. The intended payee of the check did not
receive the proceeds from the check, was not entitled to the proceeds of
the check, and could not compel payment from the State for the check.
Furthermore, if an AFDC check was voided, as in the instant case, or any
check is voided, the practical effect of that action is that the check
never existed. A voided check cannot be cashed. Therefore, the AFDC
units, even if they were eligible for AFDC assistance for the month of
December, 1979, could not be receiving assistance, under the terms of
the State Plan, if the check did not exist.
We agree with the Agency's argument that implicit in the term
"receiving assistance" is that the units receiving assistance under
AFDC
must have been determined eligible for that assistance. The record
states reasons for voiding the (4) AFDC checks such as: the case was
discontinued, the client had moved out of state, the children were no
longer in the home, and the client was deceased. The fact that the
checks were voided for these reasons indicates that the AFDC unit had
become ineligible for AFDC assistance during December, 1979, was not
entitled to receive an assistance check under the AFDC program, and
consequently, was not "receiving AFDC assistance" as required by the
EAP
State Plan.
The State's argument that it had no way of knowing which AFDC checks
would or would not be voided at the time it made the EAP payment has
little merit. The auditors reviewed the voided AFDC checks for
December, 1979 and found that 82 percent of those checks had been
returned to be voided during December 1979. State's Appeal File, Tab E,
p. 4. The record indicates that the first energy assistance checks had
not been issued until February 7, 1980. State's Brief, p. 2. At the
very least, for these voided AFDC checks, the State knew or should have
known by the time it issued its first EAP checks that the assistance
units were not receiving assistance during the month of December 1979,
the month stated for determining eligibility for EAP under the State
Plan. Furthermore, under the Program Instruction, and the State Plan
which includes at Tab E general administrative requirements which the
State must meet, the State is not excused from bearing the cost of
payments to ineligible recipients merely because it had no method of
knowing which AFDC checks would be returned and voided prior to making
its EAP payments. The general administrative requirements at Tab E,
Section D, 1. and 7. provide as follows:
(the) following expenditures are not subject to Federal reimbursement
and will not be claimed:
1. EAP assistance payments to households not meeting the eligibility
requirements under the State plan...
7. any expenditures which are not made in accordance with the State
plan....
Kentucky State Plan A, Tab E, Section D.1. and 7; Program
Instruction, SSA-AT-79-42, Tab E; Section D.1 and 7.
(5) Therefore, under the terms of the Program Instruction and the
provisions of the State Plan cited above, the payments made to the
ineligible recipients were not reimbursable by the Agency under EAP
because the payments were to households not meeting the eligibility
requirements under the State Plan and were expenditures not made in
accordance with the provisions of the State Plan.
The policy interpretation cited by the State as substantiation for
its claim is inapplicable to the situation here. That interpretation is
as follows:
(if) an EAP is based upon presumptive SSI eligibility and it is later
determined that the recipient was ineligible for the SSI, and therefore
ineligible for the EAP payment, what is the policy concerning recovery
of the EAP?
This is up to the State.
HHS Action Transmittal, SSA-OFA-79-44, dated December 6, 1979;
State's Appeal File, Tab G.
As the Agency pointed out, that interpretation is applicable only to
distribution of energy assistance payments to SSI recipients, and an
SSI-EAP payment may be based on presumptive SSI eligibility. Under
State Plan A, the State Plan in issue here, eligibility for an EAP
payment is based on receipt of AFDC which in turn is based on documented
eligibility for AFDC.
For the reasons stated above, we conclude that the Agency correctly
disallowed payments of $7,400 made under EAP to AFDC assistance units
whose December, 1979 AFDC assitance checks were voided subsequent to
issuance.
II. Outstanding Checks
HHS disallowed $8,750 in outstanding EAP checks issued to recipients
in February and April 1980. These checks had not been cashed by the
recipients within one year after the date of issuance, and were
cancelled by the State.
(6) a. State's Arguments
The State argued that under its state law, it still has an obligation
to honor the outstanding checks if presented within five years and
contended that State liability still existed for payment. The State also
argued that since the checks to EAP recipients were state checks signed
by the state treasurer, state law would have to prevail in the
cancellation and reissue of these checks. The State cited the
provisions of KRS 41.370(1) and (2) which covers the cancellation of
outstanding checks in support of its position. State's Brief, p. 5.
The State also cited an opinion of the Kentucky Attorney General
regarding the applicability of KRS 41.370 in the reissuance of checks.
See, State's Brief, p. 5-6 and State's Appeal File, Tab J. That opinion
explained that where a properly endorsed check issued by the state
treasurer is presented for payment more than one year after its date of
issue, the state treasurer shall, upon satisfactory proof of ownership,
cancel the check and forward it to the Secretary of the Department for
Finance and Administration, with the date and number of the
pay-in-voucher which credited the amount of the check to a particular
fund. The Secretary of Finance then will draw a warrant against the
check. After the warrant is presented to the treasurer, a new check
will be issued and charged against the fund upon which the surrendered
check was drawn. The opinion also states that if there is an
insufficiency in the proper fund, the legislature would have to pass a
specific bill to authorize its payment.
b. Agency's Arguments
The Agency argued that based on the Attorney General's opinion,
Kentucky's obligation and authority to honor the outstanding EAP checks
ceases when the $8,700 is returned to the federal government, since this
will result in a depletion of the State's 1980 EAP fund.
The Agency also contended that the money retained by Kentucky must be
returned to the federal government because it is not a reimbursable
expenditure under EAP. The Agency argued that under the State Plan,
Item D.2., the EAP payment must be a one-time unrestricted money payment
as defined in 45 CFR 234.11(a). That section defines money payments as
(7) payments in cash, checks, or warrants immediately redeemable at par
with no restrictions imposed by the Agency on the use of funds. The
Agency contended that "payment," for federal reimbursement purposes,
means that the funds represented by the check are immediately available
to the recipient. The Agency argued that in this instance, when
Kentucky cancelled the EAP checks, the EAP funds were no longer
immediately available to the intended recipients. The Agency contended
that since these payments lost their status as money payments made in
accordance with the state plan, they are not reimbursable under EAP,
State Plan A, Tab E, D.7., which provides that any expenditures which
are not made in accordance with the state plan are not reimbursable.
c. Discussion
The State argued that under state statute it still has an obligation
to honor the outstanding EAP checks and therefore, the State should
receive Federal reimbursement for these payments. We do not agree. The
State has overlooked the purpose and operation of EAP under Public Law
96-126. Congress only appropriated funds for EAP for providing to
eligible recipients a one time payment to relieve the burden of rising
energy costs for the 1979-80 winter season. The states under this
program, unlike other federal grant-in-aid programs, were not required
to match any federal funds given to them for EAP. The States were
allocated a certain sum based upon a statutory formula to provide
payments to recipients and administer the program.
The Congress, realizing time was of the essence, given the fact that
Public Law 96-126 was passed November 27, 1979, and payments to
recipients for the imminent winter season had to be issued shortly,
transferred a certain sum of money to HHS, which was responsible for
disbursing the funds to the states. The states were selected to
distribute these funds because they were best able to determine, under
the criteria established for other assistance programs such as AFDC, who
would be eligible for EAP. The reason for this was that the states are
responsible for making the eligibility determinations for these programs
and all the records relating to eligibility, for example, AFDC, are in
the state's custody. The states agreed, as a condition to the receipt
of the federal funds for EAP, to administer EAP for the federal
government in accordance with the requirements (8) in Program
Instruction SSA-AT-79-42, Tab E of that instruction, the provisions of
the State plan, 45 CFR 74 (administration of grants), and other EAP
policies and interpretations that may be issued by HHS. See, Program
Instruction SSA-AT-79-42, dated November 27, 1979, Item A of Plans A, B,
C, and D.
Although the State asserted here that federal law does not preempt
state legislation on the question of honoring outstanding checks,
Kentucky law does not attempt to control the subject of recovery of
federal reimbursement.The question of state return of federal financial
participation is a question decided by federal law not state law.
Implicit in the State's argument, is that the EAP funds are expended
or paid when a check is issued to the recipient. We cannot agree. The
State's procedure for honoring an outstanding check requires the State
first to cancel the check, and, if an outstanding check is later
presented for payment and there is an amount to cover the check in the
fund to which the cancelled check was credited, to issue a new check. *
The fact that the State is required to issue a new check indicates that
at the time the outstanding check was cancelled, it no longer had any
force or effect. If the outstanding check was no longer valid for
immediate payment, the logical extension of that is that the check, in
this instance, cannot be considered paid to a recipient when issued.
Therefore, we agree with the Agency and conclude that the outstanding
checks are not now a one-time unrestricted money payment as defined in
45 CFR 234.11(a) as the checks are not immediately redeemable.
Therefore, these checks are not reimbursable expenditures under the
State Plan.
Also, under the Kentucky State Plan, which the State agreed to
administer in accordance with the requirements enumerated more fully
above, the State is required to return to HHS any (9) funds not expended
for EAP. Kentucky State Plan A, Tab E, section O. Since the EAP checks
in question here were outstanding for more than one year, at the time
the checks were cancelled by the State, the funds had not been expended
or paid by the State. The State, therefore, is required under the State
Plan to return to HSS the amount of $8,700 which was not expended under
EAP.
Furthermore, if the State is required under its procedures to issue a
new check, and considering the check has been outstanding for at least
one year, the State also would run afoul of the provision in the State
Plan which provides that costs due to awards made to applicants after
June 30, 1980 are not reimbursable under EAP. Kentucky State Plan A,
Tab E, section D.6.
Finally, as the Agency argued, if the $8,700 held by the State is
returned, even if Kentucky had an obligation to honor these checks, the
State's obligation would cease when the money is returned, inasmuch as
the State's 1980 EAP fund would be depleted and the State, because EAP
was a wholly federally funded program, would not be required to
appropriate funds for this purpose.
For the reasons above, we sustain the Agency's disallowance of
$8,700.
Conclusion
Based on the analysis above, we uphold the disallowance. * We also
note that the provisions of KRS 41.370(1) state that any check issued by
the state treasurer shall not be valid as an order for payment after one
year from the date of its issue and that this limitation was required to
appear on all issued checks. At the very least, therefore, intended
payees were on notice here that the EAP checks were not valid as an
order for payment after one year.
JULY 07, 1984