Department of Health and Human Services
Departmental Appeals Board
AFDC QUALITY CONTROL REVIEW PANEL
SUBJECT: Indiana Family
& Social Services
Administration
Docket Nos. A-95-185,
A-96-012,
A-96-031,
A-96-032
Decision No. QC94
DATE: January 24, 1996
DECISION
The Indiana Family and Social Services Administration
(Indiana) appealed
four Aid to Families with Dependent
Children (AFDC) quality control (QC)
review
determinations of the Regional Administrator of the
Administration for Children and Families (ACF). With the
consent
of the parties, the Panel consolidated the
proceedings in these four appeals
since they raise the
same issue. In each case, the local agency had
erroneously budgeted less income than that actually
received by the
clients. Indiana QC calculated the
resulting QC errors based on actual
review month income.
ACF contends that the overpayments must be
calculated
using the best estimate of income, which is slightly
higher
than actual review month income in these cases.
Indiana concedes that
ACF's calculation, and not
Indiana's, conforms to the applicable QC Manual
(QCM)
provision. However, Indiana contends that ACF gave
permission for Indiana to depart from the QCM
requirement. Indiana
also contends that ACF verbally
agreed not to cite QC errors based on this
calculation
for review months prior to December 1994. Indiana agreed
to change its calculation method after December 1994.
We conclude that Indiana has not proved that ACF
employees made such
representations to Indiana. However,
even if the ACF employees had
done so, ACF would not be
bound because: 1) the advice was oral; 2)
Indiana knew
that the advice was contrary to written policy contained
in
the QCM; and 3) the employees lacked authority to bind
ACF to a position
that is clearly contrary to the QCM.
Accordingly, we uphold ACF's
error determination.
Factual Background
There is no dispute as to the facts in these appeals.
In Docket No. A-95-185 (Indiana QC Review No. AFI-300102;
Federal Review
No. 0657), the local agency had estimated
the client's income at zero when
she was first authorized
to receive AFDC payments in September 1993.
During State
QC review, Indiana discovered that the client had been
earning unreported income since June 1993. The review
month was
March 1994. In such a situation, the QCM
requires that the best
estimate be recalculated. The
calculation is done by multiplying the
client's income,
in this case $40 per week, by 4.3, for a result of $172.
Because the estimate was greater than the client's
actual review
month income of $160, Indiana calculated
the overpayment to the client using
actual review month
income. This resulted in a finding of a $70
overpayment
in the review month. On re-review, ACF determined that
Indiana's calculation violated section 3420 of the QCM.
ACF found
that, when calculated based on the best
estimate of income, as required by
the QCM, the
overpayment to the client was $82.
In Docket No. A-96-012 (Indiana QC Review No. RCP-100755;
Federal Review
No. 1239), the local agency estimate of
the client's income was also
zero. The review month was
September 1994. In this case the
client had unreported
child support payments of $70 biweekly.
According to the
QCM calculation, the best estimate of income here would
be $70 x 2.15 = $150.50. Again, because the best
estimate was
greater than the client's actual review
month income of $140, Indiana used
the client's actual
review month income to calculate an overpayment of
$90.
On re-review ACF found a $100 overpayment based on the
best
estimate of review month income.
In Docket No. A-96-031 (Indiana QC Review No. RCP-100350;
Federal Review
No. 0763), the client had reported her
earnings when she became
self-employed as a babysitter in
January 1994. The local agency
calculated the estimate
of the client's earnings incorrectly, however.
The case
was selected for QC review for the month of May 1994.
Indiana QC correctly recalculated the estimate to
$139.32. Based
on its methodology, however, Indiana QC
reviewed the case based on the
actual review month income
of $57.60, because that amount was less than the
recalculated estimate. After applying the earned income
disregards
to the client's actual review month income,
Indiana QC determined that the
client had no countable
income. Therefore, Indiana found the case
correctly
paid. Federal re-review found that, when calculated
based on the best estimate of income, as required by the
QCM, the
overpayment to the client was $13.
Similarly, in Docket No. A-96-032 (Indiana QC Review No.
AFI-300121;
Federal Review No. 0920), the local agency
was aware of the client's
employment, but had
miscalculated the estimate. The case was reviewed
by
Indiana QC for the month of April 1994. Indiana QC
recalculated
the best estimate to be $180.60. Because
that amount was greater than
the actual review month
income of $107.63, Indiana QC reviewed the case
based on
actual review month income. Based on this methodology,
Indiana found a $26 underpayment. Federal re-review
found a $35
overpayment, based on the best estimate of
review month income.
Analysis
Indiana calculates AFDC assistance amounts using
prospective budgeting
for all cases. Prospective
budgeting is defined by regulation:
"Prospective budgeting" means that the agency shall
. . .
compute the amount of assistance . . . based
on its best estimate of income
and circumstances
that will exist in that month. This estimate shall
be based on the agency's reasonable expectation and
knowledge of
current, past or future circumstances.
45 C.F.R. � 233.31(b)(1).
Section 3420 of the QCM further explains the concept of
prospective
budgeting:
Inherent in prospective budgeting is the use of a
"best estimate"
of income and income-related factors
to determine the amount of payment for
current
and/or future months. A "best estimate" of income
and
income-related factors which will exist in the
payment month is defined as
one which: (1) is based
on a specific time frame which the State uses
to
determine the estimate; (2) accurately reflects all
facts that
occurred (whether known or unknown to the
State) during the time frame(s)
which the State uses
to determine the estimate; (3) is calculated
correctly; and (4) remains an accurate reflection of
the likely
situation in the payment month because no
change in circumstances (as
defined by PSP) has
occurred since the time frame used for the estimate.
The QCM additionally provides that "If the [original]
estimate was
inaccurate, including an estimate of no
income when income was received, . .
. the reviewer will
recalculate payment based on the best estimate, as
described above." QCM, section 3420.C.2(c). In each of
these
cases, it is undisputed that the local agency's
estimate of income was
inaccurate. Indiana concedes
that, in such situations, section 3420 of
the QCM
requires that the reviewer use the best estimate of
income, and
not actual review month income, in
calculating the resulting error.
Indeed, in each case,
State QC did recalculate the best estimate of income,
but
disregarded the estimate because it was greater than
actual review
month income.
Indiana contends that it was entitled to follow
the practice of
calculating overpayments based on actual
review month income, if actual
income is lower than the
best estimate. According to Indiana, it was
justified in
doing so because: 1) ACF verbally approved Indiana's
methodology; 2) ACF verbally agreed not to cite errors
based on the
methodology for review months before
December 1994; 3) ACF never objected to
flow charts
including the methodology that were submitted by Indiana;
and 4) Indiana's methodology is more equitable. We do
not
find any of these arguments persuasive.
Indiana's argument that it should not be charged with
errors because of
assurances it allegedly received from
ACF is, in essence, an argument that
ACF should be
estopped from enforcing QCM requirements in this case.
As an initial matter, we note that it is not clear that
estoppel will
ever lie against the federal government.
See, e.g., Colorado Dep't of
Social Services, DAB QC6
(1991); Kansas Dep't of Social Services, DAB QC61
(1994);
Virginia Dep't of Social Services, DAB QC75-R (1994).
See
also Wisconsin Dep't of Health and Social Services,
DAB 1493 (1994).
But even if estoppel could lie against
ACF, Indiana has not proved the
elements of estoppel in
this case. 1/
A party seeking to assert estoppel must prove that: 1)
the party
against whom estoppel is sought made false
representations; 2) the party
claiming estoppel relied on
the false representations to the party's
detriment; and
3) the reliance was reasonable, in that the party
claiming the estoppel neither knew nor should have known
that its
adversary's conduct was misleading. Heckler v.
Community Health
Services, 467 U.S. 51, 59 (1984). Here,
Indiana has failed to
establish two of these elements.
First of all, Indiana has not proved
that ACF made false
representations. But, even if we were to assume
that ACF
had made misrepresentations, upon which Indiana relied,
we
would find that Indiana's reliance on the alleged
statements was
unreasonable.
Indiana alleges that former and current ACF officials
made
representations on which Indiana relied. Indiana
asserts that, in
1990, Terrence Lechner, then ACF's QC
Branch Chief for the Chicago Regional
Office, "agreed
that budgeting actual review month income when the
recalculated estimate was higher was indeed appropriate
and fair."
Indiana Brief at 2. 2/ ACF has offered the
declaration of
Mr. Lechner that he has no recollection of
ever agreeing that Indiana could
budget actual review
month income when the recalculated estimate was
higher.
ACF Exhibit (Ex.) D at 1. Indiana did not offer the
statement of any witness to corroborate its argument that
such
statements were made. However, even were we to
assume that Indiana's
allegations were true, we note that
Indiana's representation and Mr.
Lechner's declaration
need not be viewed as contradictory. In our
view,
Indiana's assertion that Mr. Lechner agreed that its
methodology
was appropriate and fair is not necessarily
the same as his approval for
Indiana to employ that
methodology contrary to the QCM directive. It
is
possible that Mr. Lechner simply meant to convey that
Indiana's
methodology, in the abstract, was fair, without
conceding that Indiana had
the right to disregard the
QCM. Thus, we are not convinced that Mr.
Lechner made
any statement which can be construed as a
misrepresentation.
Indiana alleged also that, in a December 1994 telephone
conference with
Gloria Walker, ACF's present QC Branch
Chief for the Chicago Regional
Office, "It was verbally
agreed by all parties . . . that no differences
resulting
from budgeting of review month income because it was less
than
the corrected estimate, would be cited." Indiana
Brief at 2. ACF
has offered the declaration of Ms.
Walker as ACF Ex. E. In her
declaration, Ms. Walker
states that neither she nor any other ACF official
participating in the conference made such an agreement.
ACF Ex. E
at 1. Moreover, attached to Ms. Walker's
declaration are copies of
correspondence between ACF and
Indiana which refer to the December 1994
telephone
conference. As Ms. Walker's declaration points out, none
of this correspondence makes any reference to an
agreement not to cite
errors for QC purposes based on the
practice at issue. We find that
this correspondence
corroborates ACF's contention that no such agreement was
made. We note particularly that Indiana's letter, dated
March 27,
1995, restates Indiana's position that its
practice of budgeting the lesser
of the corrected
estimate or actual review month income was a longstanding
one. The March 27 letter contains Indiana's allegation
that it had
received verbal permission from Mr. Lechner
to continue its practice.
However, the letter makes no
mention of any agreement that QC errors would
not be
cited based on this practice. ACF Ex. E at 6.
For the reasons just discussed, we conclude that Indiana
has not proved,
by a preponderance of the evidence, that
either Mr. Lechner or Ms. Walker
made false
representations to Indiana. Nor can Indiana rely on
silence by ACF as implicit approval for its policy.
Indiana argues
that, from 1991 through December 1994,
State QC used flow charts which set
forth Indiana's
practice of using actual review month income when the
best estimate was greater. According to Indiana, copies
of these
flow charts were included in all case files with
income-related
discrepancies. Indiana appears to argue
that, because these flow
charts were in files sent to
ACF's regional office for federal QC
subsampling, ACF was
on notice of Indiana's practice. Indiana asserts
that
federal QC never cited differences on these cases during
the three
years 1991 to 1994. Indiana's point appears to
be that it interpreted
ACF's silence as acquiescence in
Indiana's methodology. However, this
Panel has
previously held that ACF is not deemed to have approved a
calculation recorded in a document in its possession
simply because it
failed to object to the calculation.
Illinois Dep't of Public Aid, DAB
QC48, at 9 (1993)
("Merely not objecting to a payment calculation contained
in a State AFDC manual to which ACF subscribes . . . does
not constitute
approval of such calculations"). We see
no reason to reach a different
result in this case.
Thus, ACF's silence cannot be viewed as a
misrepresentation.
In any event, even were we able to conclude that ACF had
given Indiana
express or implied permission to budget
actual review month income, or
assurances that no QC
errors would be cited, we would nevertheless conclude
that Indiana was not entitled to prevail here. This is
so because
we conclude that Indiana could not reasonably
have relied on such
representations, had they been made,
because they were: 1) oral; 2)
contrary to agency
written policy as contained in the QCM; and 3) made by
individuals without authority to bind ACF.
First of all, erroneous oral advice is inadequate, as a
matter of law, to
estop the government from enforcing
federal law. Heckler v. Community
Health Services, 467
U.S. at 65; see also Wisconsin Dep't of Health and
Social
Services, DAB 1493, at 15. The Supreme Court reasoned in
the Community Health Services case:
The necessity for ensuring that governmental agents
stay within the
lawful scope of their authority, and
that those who seek public funds act
with scrupulous
exactitude, argues strongly for the conclusion that
an
estoppel cannot be erected on the basis of the
oral advice that underlay
respondent's cost reports.
That is especially true when a complex program
such
as Medicare is involved, in which the need for
written records is
manifest.
467 U.S. at 65. The AFDC QC program, like Medicare, is a
complex
program, subject to detailed regulations and
procedures. We think it
equally important here that oral
advice--if given--not override the contrary
written
policy contained in the QCM. See Wisconsin Department of
Social Services, DAB 1493, at 13.
Second, the fact that ACF's alleged oral representations
were contrary to
written statements of federal policy is
further evidence that Indiana's
reliance on such
statements was unreasonable. Parties who deal with
the
federal government cannot be found reasonably to have
relied on
advice of a governmental agent that is contrary
to federal law or
regulation. Community Health Services,
467 U.S. at 60-63. As the
Court held in that case,
"those who deal with the Government are expected to
know
the law and may not rely on the conduct of Government
agents
contrary to law." Id. at 63. Here, the QCM
clearly requires that
states budget using the corrected
best estimate, rather than actual review
month income.
Indiana was well aware of this requirement, see ACF Ex.
E
at 6, but chose to rely on alleged oral representations
to the
contrary. Indiana did so at its peril. It cannot
now claim
reasonably to have relied on representations
that it knew to be contrary to
federal policy.
Third, Indiana's reliance on alleged statements by Mr.
Lechner and Ms.
Walker was unreasonable because those
individuals lacked authority to
approve budgeting
procedures that conflict with the QCM. According to
Mr.
Lechner's declaration, the only person with such
authority in ACF's
Chicago Regional Office is the
Regional Administrator. ACF Ex. D at
1. The Supreme
Court has held that an agent who lacks actual authority
cannot bind the federal government:
Whatever the form in which the Government functions,
anyone
entering into an arrangement with the
Government takes the risk of having
accurately
ascertained that he who purports to act for the
Government
stays within the bounds of his authority.
The scope of this authority may be
explicitly
defined by Congress or be limited by delegated
legislation,
properly exercised through the
rule-making power. And this is so even
though, as
here, the agent himself may have been unaware of the
limitations upon his authority.
Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380,
384 (1947).
Therefore, even if Mr. Lechner or Ms. Walker
had orally advised Indiana that
it could use a
methodology contrary to the QCM, their representations
would not bind ACF here, as they lacked authority to make
such
statements.
As a final matter, Indiana has argued that requiring it
to calculate
errors for QC purposes based on the
corrected best estimate is unfair
because to do so would
increase Indiana's ineligible and overpayment error
rate
in instances where actual review month income is lower
than the
corrected estimate. ACF disputes that the QCM
method is unfair.
ACF Brief at 9 n.4. We take no
position on the fairness of either
calculation because
the question of fairness is not relevant to our
determination on these appeals. To paraphrase our
decision in
Illinois Dep't of Public Aid, once we have
found that Indiana's calculation
is in conflict with the
QCM, we cannot sustain that practice. DAB
QC48, at 9-10.
Conclusion
For the reasons stated, we conclude that Indiana was
required to compute
the errors in these cases using the
corrected best estimate, as required by
the QCM. It is
not clear that a party can ever prevail in a claim of
estoppel against the federal government. Nevertheless,
here
Indiana has failed to prove even the minimum
elements that would establish
such a claim. Therefore,
we sustain ACF's error finding in each
case.
___________________________
Sara
Anderson
___________________________
Maxine
Winerman
___________________________
Leslie
A. Weyn
* * * Footnotes * * *
1. Section 408(c)(3)(C) of
the Social Security
Act creates a statutory exception similar to
estoppel.
That section provides that a payment is not considered
erroneous if the payment is in error solely by reason of
the state's
reliance on and correct use of written
statements of federal policy provided
to the state by the
Secretary of Health and Human Services. Indiana
has not
argued that the statutory exception applies in this case.
We note that, even if this exception is read to apply to
error
calculations by state QC, Indiana would not satisfy
the conditions for the
exception to apply. ACF has
defined written statements of Federal
policy provided by
the Secretary to mean written statements by the Assistant
Secretary for Children and Families, the ACF Regional
Administrator, the
ACF Assistant Regional Administrator
for AFDC programs, or the director of
the Office of
Family Assistance. 45 C.F.R. 205.42(d)(2)(ii). As
discussed more fully below, in this case there were no
written
statements by any federal officials, and the
alleged oral statements, even
if made, were not made by
the officials named in the
regulation.
2. Citations to
the parties' briefs are to the
submissions in Docket No.
A-95-185.