Indiana Department of Public Welfare. DAB No. 434 (1983)

GAB Decision 434
Docket No. 82-179

May 31, 1983

Indiana Department of Public Welfare;
Ford, Cecilia; Settle, Norval Garrett, Donald


The Indiana Department of Public Welfare appealed the disallowance of
$104,545 by the Associate Commissioner for Family Assistance, Office of
Family Assistance, Social Security Administration (Agency) in costs for
the State's 1980 Low Income Energy Assistance Program (EAP). The
disallowance represents EAP payments totalling $91,000 made to
ineligible recipients and duplicate payments totalling $13,045. The
State withdrew its appeal concerning payments made after June 30, 1980
in the amount of $500. Accordingly, the total amount in dispute is
$104,045.

Under the energy assistance legislation and program instructions,
states were given wide latitude to decide how they would use energy
assistance funds. To receive the funds, each State had to submit for
approval by HHS, a plan for distributing the funds to low income people
and to agree to administer its program in accordance with the statute
and instructions. Under Indiana's State plan, energy assistance
payments were distributed to "(e)ach AFDC... assistance unit that was
receiving assistance under Title IV-A of the Social Security Act for the
month of December, 1979." The Agency in its disallowance determination
concluded that EAP payments had been made to 707 individuals who were
ineligible for AFDC because the State failed to use revised AFDC payment
schedules in preparing its EAP payment checks. While timely revisions
in the schedule enabled the State to withdraw and void AFDC checks to
specified individuals, the State nevertheless proceeded to make the EAP
payments to these individuals on the unrevised schedule. Further, the
State made duplicate payments to 115 individuals who were included on
lists for more than one type of AFDC payment for December 1979 and to 12
recipients who had moved to other counties and were listed on the
December 1979 payment schedules for both the new and old counties.

(2) The State did not contest the existence of payments to
ineligibles or the existence of duplicate payments. The State's major
argument on appeal was that the Agency's attempt to disallow and recover
these funds impermissibly penalizes the State since there is no clear
and unambiguous statutory language informing the State of the
possibility of a disallowance. The State also made a number of
additional arguments concerning each of the two categories of payments
in the disallowance.

For reasons set forth below, we uphold the disallowance. Our
decision is based on the parties' written submissions and on the
transcript of a telephone conference held on May 5, 1983.

I. Statutory Authority for the Disallowance

Indiana's major argument on appeal was that there is no statutory
authority for a "penalty" in the energy assistance program, and that as
a consequence, any regulation that provided for a penalty would be "null
and void." The State noted that Pub. L. 96-126 required an annual audit
but did not state that there could be "disallowances... based upon...
audits," as did the implementing rule published in the Federal Register.
The State analogized its situation with that faced by the court in State
of New Jersey Department of Education v. Hufstedler, 662 F. 2d 208 (3d
Cir. 1981). *


In New Jersey, the court refused to permit the Department of
Education to order repayment of misspent or misapplied program funds
because of the lack of any "clear expression" by Congress that such
repayment may be required of the states. Indiana cited the court's
concern that a participant in a grant program be made aware, at the
outset, of the risks involved in participating in the program. The
State noted the New Jersey court's heavy dependence on the principle
from Pennhurst State School and Hospital v. Halderman, 451 U.S. 1
(1981), that "(i)f Congress intends to impose a condition on the grant
of federal moneys, it must do so unambiguously." State Reply Brief, p.
2. Finally, (3) the State argued that the regulation authorizing the
disallowance here goes beyond the authority of the statute and is "null
and void," citing Reser v. Califano, 467 F. Supp. 446 (W.D. Mo., 1979).
State Reply Brief, p. 3.

The Agency argued that the Federal Government has an inherent right
to recover monies that are improperly paid out, citing United States v.
Carr, 132 U.S. 644 (1890). According to the Agency, the Government's
right to recover funds from one who is not entitled to retain them is
not barred unless Congress has clearly manifested its intent to permit
retention of the funds. United States v. Wurts, 303 U.S. 414 (1938).
The Agency argued that the lack of express administrative recoupment
authority in the 1980 energy assistance legislation, which was part of
an appropriation act, was likely "a reflection of Congress' view that it
was unnecessary to confirm this well settled power." Transcript, pp.
19-20. According to the Agency, the general administrative requirements
in the energy program (to which Indiana agreed in its State plan)
permitted the Secretary to determine what are allowable costs and to
make disallowances. The Agency argued that these requirements were
critical distinguishing features from the program considered by the
court in New Jersey. Finally, the Agency argued that the State's
dependence on New Jersey was misplaced because the case was on appeal
before the Supreme Court and would be reversed.

Board Analysis

Pub. L. 96-126 requires that eligibility standards be promulgated
within certain specified criteria and that proof of income eligibility
be required of all applicants. It does not provide for federal payment
where payment is made to an ineligible household. It also provides that
an annual audit be made of the energy assistance program, "and all of
its components." Pub. L. 96-126.

The action transmittal (AT-79-42) sent to the states on the date of
the enactment of the legislation alerted the states to the fact that
federal payments would not be made for assistance to households
ineligible under a State plan or in incorrect amounts. In particular,
part D of tab E of the instructions entitled "General Administrative
Requirements for (Plan A)" states that:

(4) (t)he 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; 2. any portion of an EAP assistance
payment which exceeds the amount set forth in the State plan;... 7. any
expenditures which are not made in accordance with the State plan....

The allowability of costs claimed for reimbursement under the EAP
will be determined by the Secretary.

A State may appeal a determination that expenditures are not
reimbursable under the EAP. Procedures for such appeals will be
established by the Department.

Section VI of the instructions, entitled "Auditing and Monitoring,"
also specifically alerts the States that disallowances could be taken
for incorrect payments:

States shall maintain an accounting system and records adequate to
demonstrate that EAP funds are used in accordance with the requirements
of this Program Instruction, the State Plan, and Congressional intent.

Financial review may be conducted by the Social Security
Administration and audits may be conducted by the HEW Audit Agency and
disallowances may be made based upon such reviews and audits.

The foregoing program rules were published in the Federal Register.
44 Fed. Reg. 69039 (November 30, 1979). The Department did not provide
for a public comment period because of the urgency with which the funds
had to be distributed to the states and ultimately to the low-income
population.

The Board is bound by all applicable laws and regulations. 45 CFR
16.14. Even if the program "rules" published in the Federal Register
technically are not viewed as "regulations" to which the Board is bound,
the Board has traditionally given deference to formal policy rules of
which the states have received notice. See, e.g., Tennessee Department
of Public Health, Decision No. 167, April 30, 1981. Thus, a serious
question exists whether the Board could fail to apply these rules
regardless of the merit of the State's arguments concerning the New
Jersey case.

(5) Furthermore, we believe that the State's arguments concerning New
Jersey lack merit since the case is distinguishable in critical respects
from the disallowance here.

The Secretary here issued timely rules that make it clear that energy
funding would not be available for erroneous payments and that
"disallowances" could be taken. "Disallowances" traditionally enable
the Secretary to require repayment from State funds where there are no
remaining program funds from which to make adjustments. These rules are
clearly within the Secretary's discretion under the authorizing energy
assistance legislation.

Further, in the instant program we have no basis for concluding that
the Secretary's discretion to interpret the audit provision was as
limited as under the education program considered in New Jersey. The
court in New Jersey concluded that a statutory provision giving full
access to records "for the purpose of audit and examination" should be
interpreted restrictively in view of the court's belief that it was
"enacted as a means of assuring the continued flow of information to the
Department and Congress" and in view of a subsequent amendment which
explicitly authorized the Secretary to collect refunds of misspent
monies and which left intact the original audit language. The
authorizing statute for the energy assistance program was part of an
appropriations act and was skeletal. The statute authorizes use of
funds only for categories of eligible beneficiaries and, indeed, the
audit provision follows a requirement imposed on the states that proof
of income eligibility must be required of all applicants. The parties
here have pointed to nothing in the legislative history which would
indicate that the provision must be interpreted in a particular
restrictive manner and no subsequent amendments provide any clue as to
Congress' intent here. Further, the provision arguably implements case
law cited by the Agency which suggests that the federal government has
an inherent right to recover monies that have been improperly used.
Finally, the State here bound itself to application of disallowance
procedures when it agreed to execute its program in accordance with the
program rules as a condition for receiving federal energy funding.

(6) (NOTE - On May 31, 1983, the Supreme Court reversed the circuit
court's decision in New Jersey, holding that the federal government had
the right to recover misused funds under overpayment provisions of the
education statutes involved. Bell v. New Jersey and Pennsylvania, 51
U.S.L.W. 4647 (May 31, 1983).)

Moreover, a recent case from the U.S. Court of Appeals, Sixth
Circuit, Kentucky v. Donovan, No. 81-3140 (6th Cir., filed April 5,
1983), takes a contrary approach from the court in New Jersey in
reviewing a decision of the Secretary of Labor. The Kentucky case
involved the appeal of Kentucky of a decision of the Secretary requiring
the Commonwealth to provide back pay under the Comprehensive Employment
and Training Act of 1973 (CETA). The Commonwealth argued that the back
pay award, even if appropriate under the CETA provisions, cannot be
ordered against a state out of non-CETA funds.In resolving that issue,
the court made the following statements concerning the relationship
between the states and the federal government in grant programs:

The Secretary's... regulations make clear that the states receive
CETA grants laden with conditions and liability.

* * *

The state, in joining the CETA program, opens itself up to possible
federal intrusion into the state treasury, even if due only to the
malfeasance of the subgrantees. (The regulations) grant the Secretary
the power to diminish funding to the prime sponsor in cases where there
has been a spending of funds in violation of the Act or regulations.
The state cannot, in that situation, decrease the level of funding for
the program.... Thus, it must subsidize the program out of its own
treasury.

In short, the CETA scheme clearly places conditions upon the states
that voluntarily receive funds under the program. They must accept
liability for their subgrantees' actions and, if the Secretary so
determines, may be required to pay restitution for improprieties in the
administration of the program. (pages 22-23)

(7) The Court also discussed from the perspective of the Supreme
Court's decision in Pennhurst the question of the Secretary of Labor's
rulemaking authority in the absence of a specific and detailed statute
from Congress:

We do not read Pennhurst, which involved the issue as to whether a
particular grant of funds was conditional at all, to require Congress to
expressly provide for each and every detail of a spending program. To
do so would obliterate Congress's power to use agencies to carry out and
develop policy under a general scheme or statutory design. Rather,
Pennhurst, may require that when an agency fills in the specifics of a
program, as the Secretary did here with respect to remedy, that it not
be so unanticipated and detached from the original design as to
constitute a change in the fundamental scheme. Here, there is no such
problem. (page 23)

Thus, it appears that the Sixth Circuit would have approached the
issues in New Jersey in an altogether different way.

On the basis of the foregoing analysis, we cannot agree with Indiana
that the disallowance here would be an impermissible penalty under the
energy assistance legislation.

II. Other Arguments

The State also made in summary fashion a series of general arguments
concerning each of the two categories of payments at issue.

A. Duplicate Payments

The State argued that the duplicate payments occurred solely as a
result of administering the program and logically should be the
liability of the federal government. The State argued that since there
was no State match, and since program rather than administrative costs
were involved, the costs should be federally funded. The State argued
that section K, tab E of the program instructions for the plan used by
it did not require the State to establish separate procedures to
preclude duplicate payments. Finally, the State argued that its program
was administered in good faith and with due care, and as a result it
should not be held responsible for the duplicate payments.

(8) None of the State's arguments provide a basis for reversing the
disallowance for duplicate payments. Pub. L. 96-126 does not provide
for duplicate EAP payments to individuals under programs administered by
the states. Further, section D.2 of tab E of the program instructions
provides that payments in excess of those set forth in the approved
State plan are not subject to federal reimbursement. The State's
arguments here raise policy considerations which, regardless of their
merit, cannot overcome the clear program rule barring federal
reimbursement for duplicate payments. The State knew of this rule at
the time it accepted federal funding for the program, and agreed to
adhere as a condition for funding. Finally, the reference to separate
procedures in the program instruction does not apply to the situation
that occurred here in which an individual eligible under the State plan
incorrectly received two payments. The program instruction addresses
procedures for preventing duplicate payments to an individual who is
both eligible for EAP because of their eligibility for SSI (Supplemental
Security Income) and who is eligible under State plan criteria as well.
Also, while the State here argued that it administered the program with
due care, it did not attempt to demonstrate specifically why it could
not have avoided the duplicate payments.

B. Payments to Ineligibles

The State argued that the definition of eligibility for EAP payments
was vague in the program instructions and inconsistently applied
nation-wide because the states were given options in determining who
could be eligible for the payments and because eligibility even under a
plan such as Indiana's depended on the individual's eligibility for a
AFDC benefit in a given month. The State felt that the use of a single
point in time to define eligibility was purely an administrative
convenience, and not a requirement in the statute. The State argued
that the Agency should have determined whether any of the individuals
ineligible for AFDC were eligible for SSI benefits. The State suggested
that any such individuals would be eligible for EAP payments under
section K, tab E of the program instructions. Finally, the State argued
that since the State was delegated the responsibility for determining
the "methods of eligibility determination" in section A, tab E of the
program instructions, the Agency was precluded from being the sole
arbiter concerning eligibility.

(9) Again, none of the State's arguments provides a basis for
reversing the disallowance. We disagree that the definition of
eligibility in the State plan was vague merely because the State
initially was given options for determining who would be eligible. Once
the State made its choice of eligibility criteria in its State plan, the
conditions of eligibility were quite clear. Further, the fact that the
State might have selected a different set of eligibility criteria does
not mean that the set selected was nuclear or that the State should be
reimbursed for payments to individuals who are within an eligibility
category the State might have selected but did not. Contrary to what
the State has suggested, consistent implementation of the eligibility
criteria selected would be consistent with the statute and would further
program purposes.

Further, the section of the instructions pertaining to duplicate
payments does not support the State's position. Section K, tab E
provides that State plan payments made to SSI recipients who also
receive payments under a special separate program allocation for SSI
beneficiaries and payments to households eligible for both SSI payments
and EAP payments, need not be considered duplicate payments.

The State plan here would not authorize EAP payments to individuals
who are ineligible for AFDC regardless of whether the same individual
may be eligible under SSI. Payments to these ineligible individuals
clearly would not be the type of permissible "duplicate" payments
contemplated by the instructions. Finally, we cannot agree with the
State that by virtue of being responsible for determining methods of
eligibility it was entitled as well to be reimbursed for payments
outside the eligibility criteria.

Conclusion

For the reasons stated above, we uphold the disallowance. * As we
note subsequently in the text, the Supreme Court reversed the Circuit
Court's decision on May 31, 1983.

JULY 07, 1984