GAB Decision 539
Docket No. 84-3
May 31, 1984
Utah Department of Social Services;
Ballard, Judith A.; Garrett, Donald F. Teitz, Alexander
The Utah Department of Social Services (State) appealed a decision by
the Office of Child Support Enforcement (OCSE) disallowing $79,312 in
federal financial participation (FFP) claimed by the State for
administrative expenses incurred under the Social Security Act (Act)
Title IV-D Support Fraud program for the period July 1, 1982 through
March 31, 1983. /1/ OCSE based the disallowance on the allegation that
the State did not incur the expenses in accordance with its approved
state plan. Specifically, OCSE charged that, in recouping improperly
retained child support payments, the State had employed both the Title
IV-A and Title IV-D recovery methods. OCSE noted that the approved
state plan specifically limited the State to the IV-D method of recovery
and that FFP was available only for necessary administrative expenses
incurred under the state plan. Since the state plan precluded use of
the IV-A recovery method and the State did not distinguish between the
IV-A and IV-D administrative costs, OCSE denied FFP for all
administrative costs incurred during the period when both methods were
used.
The State did not deny that its state plan provided only for use of
the IV-D method and admitted that it had used both methods of support
recovery. Rather, the State justified its actions based upon its
application for a waiver which would have allowed it to use both
recovery methods concurrently.
(2) The State indicated that it had applied for the waiver in
September 1982 and although this request was denied by OCSE in November
1982, the State was not informed of the denial until March 1983. The
State argued that it had acted reasonably and in good faith in using
both recovery systems and, therefore, it should not be subject to a
disallowance while awaiting a ruling on the waiver.
The State also argued that even if we were to find that it was not
justified in using both recovery methods concurrently, the disallowance
should be limited to that amount of FFP attributable to its use of the
IV-A recovery method.
For the reasons set out below, we uphold OCSE's decision to take a
disallowance, but we find that the disallowance should be limited to the
amount of FFP claimed in connection with the IV-A administrative costs.
BACKGROUND
A. Factual History
Title IV-D of the Act was established by Pub. L. 93-647 for the
general purpose of enforcing support obligations owed by absent parents
to their children and spouses (and former spouses) with whom the
children are living. See, 42 U.S.C. 651. States participating in this
program must do so in accordance with a state plan approved by the
Secretary. Both the statute and implementing regulations provide FFP
for expenditures incurred in the operation of the plan, including its
administration. See, 42 U.S.C. 655(a)(1); 45 CFR 304.11; and 45 CFR
304.20(b).
The Aid to Families with Dependent Children (AFDC) program under
Title IV-A of the Act provides that, as a condition of eligibility for
benefits, an applicant must assign to the state any right to support the
applicant may have from any other person. See, section 402(a)(2)( A) of
the Act; 45 CFR 232.11(a)(1)(i) and (ii). Further, AFDC recipients
must cooperate with the state in obtaining support payments. See,
section 402(a)(26)(B)(ii) of the Act; 45 CFR 232.12(a)(3). In spite of
the statutory mandate and the efforts of the various state IV-D agencies
to control the flow of support payments by absent parents, support
payments are sometimes paid directly to the recipients. In turn, the
AFDC recipients often do not turn those payments over to the IV-D
agency.
Various state agencies administering public assistance plans under
Title IV-A and child support enforcement plans under Title IV-D raised
questions concerning the appropriate course of action in light of the
improper retention of support payments by AFDC applicants or recipients.
In response to these (3) concerns, on March 27, 1981, the OCSE and the
Office of Family Assistance (OFA) issued a joint Action Transmittal /2/
(AT-81-7) to "provide joint Federal policy and procedures for handling
situations in which AFDC applicants or recipients receive and retain
child support payments from an absent parent when there is a valid
assignment under 45 CFR 232.11." (OCSE Exhibit 1)
The Action Transmittal revealed that states were handling retained
support payments in one of two ways. One group of states employed the
"IV-A grant reduction" method of recovery. Under the grant reduction
system, retained support payments are considered by the IV-A agency as
income to meet needs. Therefore, recipients who retained support
payments would face a corresponding reduction in their AFDC grants. A
second group of states employed the "IV-D recovery" method whereby
state
IV-D agencies engage in recovery of direct payments, and the AFDC grant
remains the same. The Action Transmittal sanctioned both methods of
recovery. However, in the interest of efficiency (specifically, hoping
to avoid subjecting recipients to duplicate recovery systems) OCSE and
OFA indicated that the states, "may implement only one or the other of
the two alternative methods." The Action Transmittal also noted that
"there is no mechanism under current Federal law . . . which permits
IV-A agencies to either collect assigned child support payments or
transfer any recouped assistance payments to IV-D." Further, AT-81-7
indicated that states opting for the IV-D recovery method would have to
amend their state plans to include the IV-D option. OFA informed the
states that it would provide a change to the IV-A state plan preprint
which would require states to indicate the method of recovery they
wished to follow. /3/
By letter dated July 13, 1982, the State notified OFA that effective
July 1, 1982, "Utah became a IV-D recovery State regarding the treatment
of assigned child support payments received directly and retained by
AFDC applicants or recipients." (State Document 1) In that letter, the
State also addressed certain "problem areas" raised by having to make
an
election between the two methods of recovery and informed OFA that it
was preparing a request for a waiver which would allow it to employ both
the IV-D and the IV-A (4) recovery methods. The State submitted its
request for a waiver on September 13, 1982. OCSE denied the waiver in a
letter to the regional office dated November 24, 1982. However, the
State did not learn of OCSE's decision until March 1983.
In spite of its decision to become a "IV-D State," the State employed
both recovery methods during the period July 1, 1982 - March 31, 1983.
In December 1983, OCSE issued its final decision disallowing $79,312 in
FFP claimed by the State for administration of the Title IV-D recovery
program during that period.
B. The State's Case
The State's principal argument was that it should not have been held
strictly to the IV-D recovery method while awaiting a ruling on the
waiver request.
The State admitted that it employed both the IV-A and IV-D recovery
methods during the period in question. The State contended that in
using both methods it was "acting in good faith and on the reasonable
assumption that, pending a decision on the waiver request, the partial
use of the IV-A income method . . . would not adversely effect any
entity involved . . . the State utilized both . . . recovery methods as
appeared best suited to the particular situation of each individual
case." (State Brief, p. 3) Noting that the point at issue was one of
procedure rather than a substantive right, the State argued that the
regulation at 45 CFR 303.80 did not "mandate that the IV-D method be
followed entirely and that any deviation, whatsoever, from the IV-D
direct method, no matter how small or for what reason, is a basis to
disallow the entire amount of the FFP for the period of time in
question." (State Brief, p. 4) The State concluded this line of argument
with the reasoning that since it did recover some child support monies
using the IV-A method, it should not be subject to a disallowance.
In the alternative, the State contended that if any disallowance was
warranted, the amount of FFP disallowed should be proportionate to those
administrative expenses incurred in use of the IV-A method of recovery.
The State argued that to interpret 45 CFR 303.80 in such a way as to
disallow FFP for both IV-A and IV-D recoveries in effect jeopardizes
every IV-D state which may "inadvertently violate some small aspect of
collection procedure set forth in its plan as a IV-D state . . ." (State
Brief, p. 5)
ANALYSIS
There is no dispute as to any material fact in this appeal. The
primary question for our consideration is whether the State was
justified in claiming FFP for administrative costs (5) associated with
the IV-A recovery method when its state plan only provided for the use
of the IV-D recovery method. There is no question that the State
recouped child support payments using both recovery methods. The State
indicated that it applied either the IV-A or IV-D recovery method
depending on which was best suited to a particular situation. OCSE did
not argue that either recovery method was so obviously superior so as to
preclude the use of the other. Since both methods seemed to benefit the
AFDC program, i.e., retained support payments were either recovered or
accounted for, the State may have acted reasonably in incurring the
costs associated with use of both methods. However, we do not believe
that the State acted reasonably in claiming FFP for the administrative
costs of the IV-A recovery method.
The State's argument is negated by the plain language of AT-81-7,
which provided at page 3: "States may implement only one or the other
of the two alternative methods." (OCSE Exhibit 1) The State did not
claim ignorance of this provision or that it chose to use both recovery
methods in response to another Action Transmittal or regulation which
justified that course of action. Based on an express concern for
efficient administration of each method and the fear that concurrent
recovery methods might subject recipients to duplicate recovery systems,
AT-81-7 clearly limited states to the use of only one recovery method.
The State's argument that the regulation at 45 CFR 303.80 does not
mandate that the IV-D method be followed entirely is without merit. As
OCSE noted, the regulation at 45 CFR 303.80 sets out the procedures that
must be followed by states employing the IV-D method of recovery. The
regulation at 45 CFR 302.31(a)(3) provides the states with the option to
use one method or the other and implicitly rules out the IV-A method
when a state opts for the IV-D method. (OCSE Brief, pp. 8-9) The
preamble to the regulations establishing the IV-D recovery method
clearly indicated that those regulations codify the policy set out in
AT-81-7.
The preamble provided:
Under these regulations, States must implement on a Statewide basis
one of two methods for the treatment of retained direct support
payments. (emphasis supplied) 47 Fed. Reg. 43954 (October 5, 1982)
The preamble also indicated:
(3) This final rule will codify the Department's existing policies
and procedures for accounting for all support payments received by an
AFDC recipient from an absent parent. The regulation ensures that
either the IV-A or (6) the IV-D agency must account for all collections
. . . . (emphasis supplied) Id. at p. 43955
Additionally, the regulation at 45 CFR 304.11 provides that FFP is
available for expenditures made under the state plan. The IV-A recovery
was not part of the approved state plan.
Further, the regulation at 45 CFR 304.20(a)(1) provides in part:
(a) Federal financial participation . . . is available for:
(1) Necessary expenditures under the State Title IV-D plan for the
child support enforcement services . . . .
There is no dispute that the IV-A and IV-D methods of recovery are
separate procedures. Thus, given the clear language of the regulations
and AT-81-7 we do not believe the State could properly claim FFP for the
IV-A recovery costs.
While the State may have felt that its attempt to obtain a waiver
allowing use of both recovery methods was reasonable, we believe that
the State acted unreasonably in presuming that it could receive FFP for
the costs of using the IV-A recovery method while awaiting OCSE approval
to pursue the very course of action for which it recognized the need to
obtain a waiver. This is especially true in light of the language of
AT-81-7 prohibiting concurrent use of both methods as well as the fact
that the State's request for waiver was based, not on any express
statute or regulation providing that option, but merely its own belief
that use of both methods was in its own best interest. Further,
although we find it somewhat disquieting that OCSE may not have acted in
a timely manner to inform the State that its request for a waiver had
been denied, we find that the State had some responsibility to follow up
on the status of its request in light of the plain language of AT-81-7
prohibiting the use of both recovery methods. The State has not
presented any basis for us to conclude that mere inaction by OCSE should
preclude OCSE from taking this disallowance.
Given the above analysis, we conclude that the State improperly
employed the IV-A recovery method when it had chosen to rely solely on
the IV-D recovery method. Since the State could not demonstrate, in
light of the plain language of AT-81-7 or any other applicable standard,
that its concurrent use of both recovery methods was justified, we do
not believe that the apparent failure of OCSE to inform the State of the
denial of its waiver request mitigates the disallowance.
(7) Although we conclude that the State improperly claimed FFP for
administrative costs associated with its use of the IV-A recovery
method, we do find merit in the State's argument that FFP associated
with its use of the IV-D recovery method should be allowable.
OCSE admitted that to the extent the State's IV-D efforts and
concurrent expenditures conformed to 45 CFR 303.80, FFP would be
available. However, OCSE indicated that the State's "method of
computing the disallowance does not take into account whether the
expenditures were incurred in performing the functions described in 45
CFR 303.80 and, therefore, it cannot be used as a basis for determining
the amount of FFP that is available in those expenditures, in the
absence of evidence from the State that they were so incurred." (OCSE
Brief, p. 10)
OCSE's position demonstrates an apparent willingness to accept
evidence offered by the State which would properly allocate
administrative costs between the IV-D and IV-A recovery methods, thereby
possibly reducing the amount of the disallowance.
The State did not present a clear picture as to the precise
percentage of recovered funds attributable to the IV-A method. See,
State Documents 12 and 13 and State Brief, p. 6. Further, we do not
have before us the evidence necessary to arrive at the proper
percentage, nor to demonstrate that FFP would be allocated to each
recovery method in a proportionate manner. Therefore, within 30 days of
receipt of this Decision (or longer if OCSE permits), the State should
submit to OCSE the information necessary to calculate the percentage of
payments attributable to each recovery method as well as the amount of
FFP attributable to the use of each method. The disallowance should
then be adjusted to reflect only that amount of FFP attributable to the
IV-A method.
CONCLUSION
Based on the evidence in the record and the foregoing analysis, we
uphold this disallowance as modified above. /1/ In its Notice of Appeal
(State Document 12), the State indicated that it had been
"verbally informed" by OCSE that it would also be subject to a
disallowance of $30,588.60 in FFP for the period April 1 to June 30,
1983 and that it was requesting a "formal appeal" of that disallowance
as well. In our Acknowledgement of Notice of Appeal we informed the
State that absent a final written decision, there is no appealable
disallowance to which our procedures apply. (45 CFR 16.13(b)) During
the course of this appeal the State did not inform us that it had
received a final written decision regarding the April - June period and
our Decision addresses only those issues raised in regard to the period
July 1, 1982 through March 31, 1983. /2/ OFA, SSA-AT-81-7;
OCSE-AT-81-7. /3/ The policy set out in AT-81-7 was codified by
amendments to 45 CFR Parts 232, 233, 302, and 303. See, 47 Fed. Reg.
43953 (October 5, 1982). Of particular importance to this decision is
45 CFR 303.80 (1983) which sets out the procedures for the recovery of
direct payments.
NOVEMBER 14, 1984