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CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
IN THE CASE OF  


SUBJECT: Iowa Department of Human Services

DATE: April 4, 2003
          


 

Docket No. A-03-4
Control No. A-07-02-03012
Decision No. 1874
DECISION
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DECISION

The Iowa Department of Human Services (DHS) appealed the October 10, 2002 determination of the Administration for Children and Families (ACF) disallowing $1,616,368. This amount represented the federal share of overpayments made by DHS under the Aid to Families with Dependent Children (AFDC) program established by title IV-A of the Social Security Act (Act) and recovered by DHS after title IV-A was amended to replace AFDC with the Temporary Assistance for Needy Families (TANF) program. DHS used the overpayments it recovered from January 1, 1997 through June 30, 2001 to make new payments under Iowa's Family Investment Program, the state's cash assistance program, which was now funded by TANF instead of AFDC. ACF determined that DHS's use of the funds involved a transfer of funds from one appropriation account (AFDC) to another (TANF), that such a transfer was prohibited by federal appropriations law, and that DHS should have remitted the federal share of the overpayments to ACF by check.

For the reasons discussed below, we conclude that the funds in question were required to be remitted to ACF. (1) Although DHS alleged that its use of the overpayment recoveries for new cash assistance payments reduced its drawdown of TANF funds, DHS failed to document that any such reduction occurred or that it was authorized by statute. In the absence of a documented (and authorized) reduction, DHS's use of these funds for cash assistance payments under TANF violates federal appropriations law. Under these circumstances, any lack of clear guidance from ACF regarding the treatment of AFDC overpayment recoveries is not a basis for reversing any part of the disallowance.

The record in this case consists of DHS's appeal brief and exhibits and ACF's response brief and exhibits. Although given an opportunity to reply to ACF's response, DHS declined to do so.

Background on Title IV-A

Title IV-A of the Act originally established a program of aid for needy dependent children and the parents or relatives with whom they were living, known as the Aid to Families With Dependent Children (AFDC) program. The Act provided for reimbursement of a percentage of the total amount expended by a state during each quarter as aid to families with dependent children under an approved state plan. Section 403(b) of the Act.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), Public Law No. 104-193, amended title IV-A to abolish the AFDC program and establish the Temporary Assistance for Needy Families (TANF) program. TANF is a block grant program under which each state may receive an annual TANF grant in a set amount. Section 403(a)(1) of the Act. States were eligible to participate in the TANF program beginning as early as October 1, 1996. DHS began participating on January 1, 1997.

The AFDC regulations at 45 C.F.R. § 233.10(a)(13)(i)(A) required that "[t]he State must take all reasonable steps necessary to promptly correct any overpayment . . ." for AFDC. The regulations defined "overpayment" as "a financial assistance payment received by or for an assistance unit for the payment month which exceeds the amount for which that unit was eligible." Section 233.10(a)(13)(i).

Prior to the enactment of PRWORA, title IV-A of the Act provided that the federal share of AFDC funds paid to the states shall be:

reduced by a sum equivalent to the pro rata share to which the United States is equitably entitled, as determined by the Secretary of Health and Human Services, of the net amount recovered during any prior quarter by the State or any political subdivision thereof with respect to aid to families with dependent children furnished under the State plan . . . .

Act, section 403(b)(2)(B). Thus, this section required a state to reduce its claims for AFDC funds by the amount of the federal share of any AFDC overpayments it had recovered.

ACF issued three program instructions directing states how to treat AFDC overpayments recovered after October 1, 1996 (the effective date of TANF): TANF-ACF-PI-99-2, dated March 9, 1999; TANF-ACF-PI-99-2 (Revised), dated May 1, 2000; and TANF-ACF-PI-2000-2, dated September 1, 2000. The first of these issuances required states to remit the federal share of AFDC overpayment recoveries to ACF by check. The second issuance reversed this policy and stated that states were to use the AFDC overpayment recoveries for TANF program costs. The third issuance reverted to the original policy, rescinding the prior issuances.

ANALYSIS
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We conclude that ACF properly determined that DHS was required to remit to ACF the federal share of the AFDC overpayment recoveries at issue here. ACF originally cited as the basis for the disallowance a program instruction it issued in September 2000. The disallowance letter stated that TANF-ACF-PI-2000-2 "clearly instructs States to return the Federal portion of recoveries of AFDC overpayment[s] occurring before October 1, 1996 regardless of the fiscal year in which the recoveries are collected and received." DHS Ex. 11, at 7. As ACF later recognized in its response brief before the Board, however, this policy was not simply a matter of agency discretion but is necessary to prevent states from violating federal appropriations law. (2) Section 1301(a) of 31 U.S.C. provides that "[a]ppropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law." (3) That section has been described as follows: "Simply stated, 31 U.S.C. § 1301(a) says that public funds may be used only for the purpose or purposes for which they were appropriated." Principles of Federal Appropriations Law, 2d ed., U.S. General Accounting Office, Office of the General Counsel, July 1991, OGC-91-5, at 4-2. Thus, the Board has observed that Congress appropriates funds only for authorized purposes and that a grantee's entitlement to federal funds does not extend beyond the federal financial participation authorized in the grant statute. See, e.g., New York State Dept. of Social Services, DAB No. 1358 (1992).

The overpayments in the case before us were paid as cash assistance payments under DHS's Family Investment Program (FIP), which at that time received federal funding under the AFDC program. When the AFDC program was still extant, DHS, as authorized by former section 403(2)(b) of the Act, used the overpayment recoveries for new FIP payments, reducing the amount of federal funding it would otherwise have claimed under the AFDC program for each quarter in which the new FIP payments were made. Beginning January 1, 1997, however, DHS received federal funding for its FIP payments under the TANF program. Thus, by continuing to use AFDC overpayments recovered after that date for FIP payments, DHS was using funds that had been appropriated for the AFDC program for the TANF program instead, in violation of 31 U.S.C. § 1301(a).

DHS asserted, however, that its use of the AFDC overpayment recoveries for its cash assistance program "resulted in the state using less of its TANF funds in a corresponding amount for its cash assistance program during the time period in question." DHS Ex. 13, at 2. No such reduction, or offset, is authorized under the TANF statute, however: PRWORA contains no provision comparable to former section 403(b)(2)(B) of the Act for reducing the title IV-A grant by the amount of overpayments to individual recipients which are recovered by the state.

DHS nevertheless argued that section 116(b)(2) of PRWORA permitted states to use recoveries of AFDC overpayments for cash assistance payments under TANF. Section 116(b)(2) of PRWORA states:

CLAIMS, ACTIONS, AND PROCEEDINGS- The amendments made by this title shall not apply with respect to--

(A) powers, duties, functions, rights, claims, penalties, or obligations applicable to aid, assistance, or services provided before the effective date of this title under the provisions amended . . . .

According to DHS, this provision permitted the continued application of section 403(b)(2) of the Social Security Act, which required amounts claimed by a state under the AFDC program to be reduced by the amount of any overpayments recovered during the quarter. DHS contended specifically that its "request for a refund is a 'claim' contemplated by section 116(b)(2)." DHS Br. at 3. DHS asserted that ACF itself had "acknowledged that PRWORA did not affect Iowa's process to 'retain' the federal share of collected AFDC overpayments." DHS Br. at 4. In support of this assertion, DHS pointed to a program instruction issued by ACF on August 29, 1997 which stated that "ACF is considering the policies and procedure pertaining to the collection of overpayments and the correction of underpayments in light of Section 116(b)(2) of PRWORA," and that ACF would soon be issuing guidance on this subject. Id., quoting TANF-ACF-PI-97-4 (DHS Ex. 1).

We see no basis for DHS's contention that it had a claim to the federal share of any AFDC overpayment recoveries after the demise of the AFDC program when it was no longer able to reduce its title IV-A grant by the amount of the overpayment recoveries in accord with former section 403(b)(2)(B) of the Act. Under the former title IV-A regulations, an overpayment was a payment "which exceeds the amount for which [the assistance] unit was eligible." 45 C.F.R. § 233.10(a)(13)(i)(A). Such excess payments would not constitute amounts expended under the state's title IV-A plan for which the state was entitled to be reimbursed under former section 403(a) of the Act. Section 116(b)(2) of PRWORA could not preserve a "claim" that never arose to begin with. Accordingly, section 116(b)(2) is not a basis for finding that, notwithstanding the enactment of PRWORA, DHS could properly account for AFDC overpayment recoveries by continuing to use them for new cash assistance payments under FIP. That ACF may have considered whether section 116(b)(2) permitted states to account for the recoveries in that manner, as indicated by TANF-ACF-PI-97-4, is irrelevant since ACF ultimately concluded that this was not permissible. Thus, although 31 U.S.C. § 1301(a) recognizes that there may be some situations in which Congress has permitted funds to be used for a purpose other than that for which they are appropriated, this is not such a situation.

Moreover, DHS did not identify, much less produce, any documentation which purported to establish that it reduced its TANF grants for each of the years in question in the amount of the AFDC overpayment recoveries made in that year, or even describe the mechanism it allegedly used to make any such reduction. It is a fundamental principle of grants management that a grantee is required to document its costs. See, e.g., Texas Migrant Council, Inc., DAB No. 1743 (2000), and decisions cited therein; see also 45 C.F.R. §§ 74.50-74.53 (1994). We therefore conclude that, even if a reduction were authorized by statute, DHS simply supplemented rather than reduced its TANF grant when it used the AFDC overpayment recoveries for new cash assistance payments.

DHS also argued in the alternative that it was required to remit only the amount of overpayments recovered from March 1999 to May 2000. According to DHS, it should not be required to remit the amount of overpayments recovered earlier than March 1999 because ACF had not yet issued any guidance on how such overpayments should be treated. Moreover, in DHS's view, it should not be required to remit the amount of overpayments that it recovered beginning in May 2000, when ACF issued a program instruction directing states to use AFDC overpayment recoveries for TANF program costs.

DHS's reliance on ACF guidance, or the lack thereof, regarding the treatment of AFDC overpayment recoveries is misplaced. As discussed above, the clear effect of DHS's treatment of the AFDC overpayment recoveries was to supplement its TANF grant, without authority in either the TANF or AFDC statute, in violation of appropriations law. Moreover, TANF-ACF-PI-99-2 (Revised), the program instruction that directed states to use AFDC overpayment recoveries for TANF program costs, was rescinded by ACF four months after its issuance. See TANF-ACF-PI-2002-2, dated September 1, 2000. In any event, DHS clearly did not rely on TANF-ACF-99-2 (Revised) since DHS was using its AFDC overpayment recoveries for TANF costs long before this program instruction was issued.

Conclusion

For the reasons discussed above, we uphold the disallowance in full.

JUDGE
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Cecilia Sparks Ford

Marc R. Hillson

Donald F. Garrett
Presiding Board Member

FOOTNOTES
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1. Since DHS has already repaid these funds to ACF to avoid liability for interest on the disallowance, however, no further payment is required.

2. The Board has held that the federal agency may raise new grounds for a disallowance after a disallowance letter is issued as long as the appellant is afforded an opportunity to respond. See, e.g., New York State Dept. of Health, DAB No. 1867, at n.10 (2003). DHS had ample opportunity to address the basis for the disallowance as clarified by ACF and did not request any additional Board proceedings.

3. ACF cited instead 31 U.S.C. § 1532, which states that "[a]n amount available under law may be withdrawn from one appropriation account and credited to another ... only when authorized by law." The effect of this section is the same as that of section 1301(a), except that section 1532 is stated as a limitation on the actions of federal agencies.

CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES