GAB Decision 612
December 19, 1984
South Carolina Department of Social Services;
Ford, Cecilia; Settle, Norval Teitz, Alexander
Docket Nos. 84-94, 84-114, 84-171, 84-176, 84-194
The South Carolina Department of Social Services (State) appealed
four decisions by the Office of Family Assistance (Agency), disallowing
a total of $11,423 in federal financial participation (FFP) that the
State had claimed under Title IV-A of the Social Security Act. The
Agency said that the State's claims were filed later than the two-year
time limit provided in federal statute and regulations. The State
maintained that some of its claims were timely filed in the quarterly
expenditure report for the last quarter within the two-year limit, while
other claims were exempted from the two-year filing limit. /1/ The
appeals are being considered jointly by agreement of the parties.
As explained below, we do not accept the State's interpretation of
the two-year limit on filing claims for FFP. Nor do we find that any of
the State's claims qualify for an exception to the two-year limit. This
decision does not preclude the State from requesting a waiver of the
deadline under the regulations which allow a waiver for good cause.
(2) Factual Background
84-94
On October 31, 1983 the State filed its Quarterly Expenditure Report
(QER) for the quarter ended September 30, 1983. After reviewing the
QER, the Agency, citing 45 CFR 95.7, disallowed the following items
relating to the operation of the State's Aid to Families with Dependent
Children (AFDC) program:
1. $212 for an adjustment of county expenditures in the quarter
ended June 30, 1981. The State did not appeal the disallowance of this
item.
2. $1,081 for an adjustment for equipment depreciation related to
the acquisition of equipment purchased before June 30, 1981. In a
telephone conference the State informed the Board that it was not going
forward on its appeal of the depreciation issue. This action by the
State, in effect, resulted in a withdrawal of Docket No. 84-94. Because
of the absence of a formal written withdrawal, we have included Docket
No. 84-94 in this decision.
84-114
On January 31, 1984 the State filed its QER for the quarter ended
December 31, 1983. The Agency disallowed, on the basis of 45 CFR 95.7
and 95.10, the following AFDC-related items:
1. $1,830 for an adjustment of county audit expenses for the period
July 1, 1979 through June 30, 1981.
2. $636 for an adjustment of county expenditures for the quarter
ended December 31, 1981.
3. $1,904 for county audit expenses for the period April 1, 1981
through December 31, 1981.
84-171 and 84-176
On April 30, 1984 the State filed its QER for the quarter ended March
31, 1984. The following items were disallowed:
1. $124 for county expense claims for the period January 1, 1982
through March 31, 1982 disallowed on the basis of 45 CFR 95.7.
2. $3,338 for county audit expenses for the period July 1, 1977
through December 31, 1981. While finding this entire claim untimely
under 45 CFR 95.7, the Agency further found that a portion of this
claim, $1,421 for the period July 1, 1977 (3) through September 30,
1979, also violated 45 CFR 95.10. /2/
84-194
On July 30, 1984 the State filed its QER for the quarter ended June
30, 1984. Citing 45 CFR 94.7, the Agency disallowed the following:
1. $1,366 for county audit expenses for the period July 1, 1980 to
June 30, 1981.
2. $1,144 for county expense late claims for the period April 1,
1982 to June 30, 1982.
Statutory and Regulatory Background
There was no statutory time limitation upon the filing of retroactive
claims by the states before Pub. L. 96-272, although attempts had been
made at limitations in appropriation bills.
Section 306(a) of Pub. L. 96-272 required claims by states for
expenditures during a calendar quarter under the various public
assistance programs to be filed "within the two year period which begins
on the first day of the calendar quarter (4) immediately following such
calendar quarter," or payment would not be made. Subsection (a) stated
that it was not to be applied so as to deny payment with respect to any
expenditure "involving court-ordered retroactive payments or audit
exceptions, or adjustments to prior year costs." Subsection (b) provided
for the granting of a waiver by the Secretary for good cause.
Subsection (b)(1) stated that subsection (a) applied only to claims for
expenditures in quarters beginning on or after October 1, 1979.
For claims for expenditures prior to October 1, 1979, there were two
different provisions in the statute. If these claims were filed prior
to the date of enactment of 96-272 (June 17, 1980), there was no time
limitation for their payment. Section 306(b)(2). If claims for
expenditures prior to October 1, 1979 were not filed by June 18, 1980,
they had to be filed by January 1, 1981. Section (b)(3). The
exceptions for "adjustments to prior year costs or court-ordered
retroactive payments or audit exceptions" found in subsection (a) were
also provided for claims for pre-October 1, 1979 expenditures. Section
(b)(4). This same paragraph, (b)(4), authorized the Secretary to waive
the requirements of (b)(3) in the same manner as under section 1132(b).
/3/
The statutory provisions were implemented by 45 CFR Part 95, Subpart
A (1981). The regulatory provisions on time limits in general track the
statutory requirements.
45 CFR 95.7 provides that expenditures made after September 30, 1979
will be paid only if the State files a claim within two years after the
calendar quarter in which the expenditure was made.
45 CFR 95.10 provides that expenditures made before October 1, 1979
will be paid only if the State's claim is filed before January 1, 1981
(extended to May 15, 1981; see n.3).
The exceptions in the statute or claims for adjustment to prior year
costs, resulting from an audit exception, resulting from a court-ordered
retroactive payment, and for a good cause waiver, are spelled out in
section 95.19.
(5) Analysis
The State's claims for AFDC administration costs at issue here fall
into two categories: those costs which were claimed on a QER for a
quarter which was within the two-year limit specified in section 95.7,
but where the QER was nevertheless filed a month after the deadline
expired; and claims which were filed well beyond the deadlines, but for
which the State asserts a section 95.19 exemption because audit
exceptions were involved.
I.Did the State comply wih the two-year filing requirements of section
95.7?
The State insisted that section 95.7 must be interpreted in
conjunction with the normal reporting cycles provided for in 45 CFR
304.25(b). This latter regulation provides that a state quarterly
statement of expenditures is due 30 days after the end of a quarter.
The State argued that the normal reporting cycle should be recognized
when applying the two-year limitation for submitting claims. For
example, in Docket No. 84-114 the State submitted a claim for $636 for
expenditures in the quarter ended December 31, 1981 on its QER for the
quarter ended December 31, 1983. In accord with 45 CFR 304.25(b), the
State filed this QER within one month of the end of the quarter, on
January 31, 1984. Thus, according to the State, it had fulfilled the
statutory and regulatory requirement of filing the claim within two
years.
The Board has examined the two-year limitation on filing calims in
Arizona Department of Economic Security, Decision No. 386, January 31,
1983, and Illinois Department of Public Aid, Decision No. 440, January
16, 1983. In both those cases the appellants advanced arguments similar
to the State's contentions here. In both Arizona and Illinois the Board
adopted the Agency's interpretation that section 1132(a) of the Act and
45 CFR 95.7 clearly require a state to file its claim with the Agency
within the two-year period defined in the statute. The Board held that
a State "cannot rely on section 304.25(b) for authority to violate the
specific deadline established by statute." Illinois, p. 3. In
discussing the relationship between section 95.7 and section 304.25(b),
the Board said that --
merely because the State has an opportunity to submit its quarterly
report a month after the close of a quarter does not mean that the State
can ignore the specific requirement that no claim can be submitted later
thn two years after the quarter . . . in which the expenditure was
incurred.
Arizona, p. 4.
(6) Nothing the State has submitted has convinced us that the Board's
reasoning in the Arizona and Illinois decision was incorrect.
II. Does the State qualify for an exemption to the two-year filing
requirement?
As noted above, 45 CFR 95.19 provides for several exceptions to the
time limits specified in sections 95.7 and 95.10. One of these,
subsection (b), states that the time limits do not apply to "any claim
resulting from an audit exception."
The State maintained that most, if not all, of the disallowed items
arose from a State audit of county welfare expenditures. /4/ The State
argued that it is charged with the responsibility of administering
federal grant funds, and part of this responsibility is conducting
audits of each of South Carolina's 46 county welfare offices. The State
claimed that, in conducting these audits, it was acting, in effect, as
the administrative agent for federal funds.
The State further explained that due to staffing limitations it can
audit only one-half of the 46 counties each year. According to the
State, "Since some costs are over one year old when the first audits of
a particular year are begun, it follows that, when the other half of the
counties have begun being audited during the second year, then some or
all of the costs are past the two year limitation." (State's
Supplemental Brief, p. 2) The State questioned the equity of the
Agency's acceptance of overpayments, discovered through the audit
process, that were over two years old, and its refusal to allow FFP for
underpayments revealed as a result of the county audits.
The Board examined similar arguments concerning the section 95.19(b)
audit exception in New York Department of Social Services, Decision No.
521, March 6, 1984. There the Board noted that, while the term "audit
exception" is not defined in section 1132 of the Act, there is a
specific regulatory definition of "audit exception" at 45 CFR 95.4:
Audit exception means a proposed adjustment by the responsible
Federal agency to any expenditure claimed by a State by virtue of an
audit.
(7) The Board declared:
The regulation's definition of "audit exception" could on its face
apply to an "audit" conducted by the State, as well as one by an
Inspector General or by the General Accounting Office. However, the
vital issue is not who does the audit, but who accepts it. The
regulation requires a proposed adjustment "by the responsible federal
agency."
The regulation makes it clear that a proposed adjustment to claims
for prior year costs based on a state audit is not enough to constitute
an "audit exception." The federal government--the responsible federal
agency--must propose to make an adjustment in the claims for prior
years. Only then does the statute of limitations not run on the time
for filing or amending such claims.
New York, p. 7.
In order for the section 95.19(b) audit exception to be triggered,
then, there must be some type of federal agency involvement, by approval
or adoption, of the State audit process. The State would have us
believe that this criteria has been met here because the State has acted
as the "agent" of the Agency in administering the AFDC funds. Yet,
as
the Agency has pointed out, the State has provided no support that a
principal-agent relationship exists in the AFDC program between the
federal government and the states. Nor has the State contradicted the
Agency's assertion that the audits in question were not required under
the AFDC program.
The AFDC program, like the Medicaid program, is an example of
cooperative federalism, in which the State's participation is voluntary
and the program's expenses are shared by the federal government and the
State. The AFDC program is thus a type of partnership, rather than a
principal-agent relationship.
The Agency supplied the Board with a 1982 DHHS interpretation (Agency
Ex. A) of 45 CFR 95.19. That interpretation explained that, for any
proposed adjustment to qualify for the exemption from the two-year
limitation, the underlying audit finding must be approved by federal
rather than state officials. The State has not provided us with any
evidence that the audits in question here were approved or adopted by
the Agency. /5/ As the Board stated in New York:
(Merely) having a state audit which on its face shows that the state
has underclaimed is not enough. As the (8) Agency points out, this
interpretation by the State would be contrary to the statutory
requirements and intent "because it would permit the state at any time
to perform audits and adjust prior year claims upward accordingly."
(Citation omitted)
New York, p. 9.
As to the State's position that it is inequitable for the Agency to
recover overpaymens, while denying claims for underpayments, beyond the
two-year limit, we note that the states are given considerable
discretion in fashioning and administering their AFDC programs.
Congress allowed the states a reasonable amount of time, two years, to
submit their claims for AFDC programs. The State should be able to
develop and administer its program within this reasonable deadline. The
consequences for not adhering to the deadline are the State's
responsibility. And, as noted below, if good cause can be shown, the
Agency can waive the two-year filing requirement. We thus do not see
anything inequitable in the Agency's position.
This Board is bound by all applicable laws and regulations. 45 CFR
16.14. The State has not shown us any reason why the Agency
interpretation of the statutory provisions on audit exceptions is not
reasonable and we therefore uphold it.
The "Good Cause" Waiver
In a letter dated October 5, 1984 to the Board, the State requested,
under the provisions set forth at 45 CFR 95.19 to 95.34, "good cause"
waivers for the AFDC administration claims in these appeals not filed
within the time limits specified in 45 CFR 95.7 and 95.10. The Board
informed the State that it did not have the authority to grant such
waivers, and that such waivers could be acted upon by only the Secretary
of the Department of Health and Human Services (or her delegee). 45 CFR
95.34. Our decision in these appeals does not preclude the State from
now requesting "good cause" waivers of the deadlines. See also, Arizona
and Illinois.
Conclusion
Based on the reasons stated above, we sustain the disallowances in
the following appealed amounts:
84-94 $1,081 FFP; 84-114 $4,370 FFP; 84-171 $2,584
FFP; 84-176 $878 FFP; 84-194 $2,510 FFP.
252:00100000657 D1060 /1/ As explained below in n.2, one of the claims
here, a claim for $878, was for expenditures before October 1,
1978, and was disallowed because it did not meet the 45 CFR 95.10 filing
deadline of May 15, 1981, as extended. No contention was made that this
claim was in fact filed by May 15, 1981. The Board isolated this amount
from other claims that had been disallowed in the same determination
letter and assigned it a separate docket number. Although there were
only four disallowance decisions by the Agency, because the Board
divided one disallowance, the result was five cases. /2/ The
Agency further distinguished $878 of the $1,421 as being claimed for the
period July 1, 1977 through September 30, 1978. Because this particular
claim of $878 was also disallowed under section 136 of Pub. L. 97-276,
which the Agency said permanently barred pre-1979 claims which were not
claimed within one year of the expenditures, the Board segretated this
$878 and assigned it its own docket number, 84-176. Subsequently,
however, the State indicated that its position on the $878 claim in
84-176 was reflected in its arguments in the other four appeals, and
agreed that Docket No. 84-176 should be joined in this decision. The
Agency also agreed that Docket No. 84-176 should be joined to the other
four appeals; however, in addition to its arguments presented in the
four appeals, the Agency also argued in 84-176 that Joint Consideration
- Timely Filing of Claims, Decision No. 576, October 5, 1984, in which
the Board found that section 136 of Pub. L. 97-276 did not permanently
bar payment of pre-1979 claims was decided wrongly and should be
reversed based on the arguments made earlier by the Agency in the Joint
Consideration. In rejecting the Agency's conclusory argument on this
issue, we find that the Agency did not provide any substantive basis
whatsoever which would merit reversal of the Board's previous decision.
/3/ It was under this authority that the January 1, 1981
deadline in section (b)(3) was extended to May 15, 1981. See, 46 Fed.
Reg. 3528, January 15, 1981. Subsection (a) of section 306 was codified
as section 1132 of the Social Security Act; subsection (b) was never
codified. /4/ We assume that the claims for county audit
expenses refer to normal AFDC administrative costs. The fact that they
were audit expenses does not in any way make them "audit exceptions"
under the statute and the regulations. /5/ In fact, the Agency
states that it "has not approved, reviewed, or even seen such audits."
(Respondent's Supplemental Brief, p. 4)
MARCH 19, 1985