Department of Health and Human Services
Departmental Appeals Board
AFDC QUALITY CONTROL REVIEW PANEL
SUBJECT: North Carolina Department of Human Resources
Docket No. A-96-37
Decision No. QC99
DATE: May 21, 1996
DECISION
The North Carolina Department of Human Resources (North Carolina) appealed the October 10, 1995 quality control (QC) review determination of the Regional Administrator of the Administration for Children and Families (ACF) that an Aid to Families with Dependent Children (AFDC) recipient was ineligible for the assistance payment she received in the review month of March 1994. 1/ North Carolina did not dispute that the recipient's earned income in the review month rendered her ineligible for that month. However, North Carolina contended that the resulting error should not be counted in its error rate because the error should be classified as a Payment Adjustment Lag (PAL) error. For the reasons discussed below, we conclude that the payment error in this case is regular rather than PAL. Therefore, we uphold ACF's error determination.
Applicable authority
Title IV, Part A of the Social Security Act (Act) establishes the AFDC program to provide assistance to needy children and their caretakers. Under section 408(a) of the Act, the Secretary of the Department of Health and Human Services must establish a quality control system to determine the amount of any erroneous AFDC payments made by a state. Pursuant to this statutory mandate, the Secretary has issued regulations for the operation of the federal and state AFDC QC systems. 45 C.F.R. §§ 205.40 through 205.43. Those regulations provide that a state agency must operate its QC system in accordance with applicable regulations and the policies and procedures prescribed in the Quality Control Manuals issued by the Department. 45 C.F.R. § 205.40(d)(1)
QC reviews are conducted against permissible state practice (PSP). 45 C.F.R. § 205.42(b). PSP is defined as "written rules and policies relating to eligibility and payment that are in accordance with existing, approved State plan provisions or with proposed plan amendments submitted to, but not acted upon, by the Department." 45 C.F.R. § 205.40(b)(12).
Section 402(a)(7) of the Act requires that a state plan for AFDC determine applicants' need taking into consideration the income and resources of individuals required to be included in an AFDC assistance unit (AU). Section 402(a)(18) provides that an AU is ineligible for AFDC in any month in which total income exceeds 185% of a state's standard of need.
The regulation at 45 C.F.R. § 233.33 requires that eligibility for AFDC be determined prospectively for all payment months. The regulation explains, "Thus, the State agency shall establish eligibility based on its best estimate of income and circumstances which will exist in the month for which the assistance payment is made."
If an AU is eligible for assistance, income is again considered in determining the amount of assistance the AU receives. The AU's income, less certain "disregards," is subtracted from the state's payment standard to arrive at the assistance payment to the AU. States may compute payments to recipients in ongoing cases based on either "prospective" or "retrospective" budgeting of income. Prospective budgeting, similar to prospective eligibility determination, requires a state to compute the payment to a recipient based on its best estimate of the income and circumstances which will exist in the payment month. 45 C.F.R. § 233.31(b)(1). Retrospective budgeting permits a state to calculate the amount of assistance for a payment month based on the actual income which a recipient earned in a previous "budget" month. 45 C.F.R. § 233.31(b)(2). States may adopt either one-month retrospective budgeting, in which the budget month is the month immediately preceding the payment month, or two-month retrospective budgeting, in which the budget month is two months prior to the payment month. 45 C.F.R. § 233.32.
If an AU which has been receiving AFDC becomes ineligible, payment must be terminated and the AU must reapply if it again becomes eligible for AFDC. However, in retrospectively budgeted cases, the regulations permit states to suspend, rather than terminate, assistance if the following criteria are met:
(1) The agency has knowledge of, or reason to believe that ineligibility would be only for one payment month; and
(2) Ineligibility for that one payment month was caused by income or other circumstances in the corresponding budget month.
45 C.F.R. § 233.34(d). The QC Manual (QCM) explains:
The most common circumstance resulting in suspension occurs when an extra weekly or bi-weekly paycheck is received which results in case ineligibility for only one month.
Suspension must be limited to a one month period unless the AU becomes ineligible for a second consecutive month for a different reason. The two- month suspension rule does not apply if the unit was ineligible for two consecutive months for the same reason.
QCM § 3430, at IV-21. The QCM directs the reviewer to assume termination in cases where suspension is inapplicable:
If the budget month, intervening month, or review month's income and circumstances result in ineligibility and suspension is not appropriate, assume termination, revert to prospective budgeting, and use actual review month income to determine the amount of payment for the review month.
Id. at IV-24 - IV-25. In this case, the parties agreed that North Carolina's suspension policy does not apply to the facts of this case and suspension is not appropriate. North Carolina letter of March 26, 1996; ACF letter of March 28, 1996.
After state or federal QC reviewers determine that a case received an incorrect payment or that payment was made to an ineligible case, the reviewer must determine whether the discrepancy is "regular," which is countable in the state's error rate, or "payment adjustment lag" (PAL), which is not countable as an error. A PAL error "results from a change in circumstances that first occurred in the
review month or the month immediately preceding the review month." QCM § 3300, at III-1.
The QCM defines a change in circumstance as:
any status-changing event which will result in ineligibility or a different amount of assistance when reviewed against PSP (the basis for the QC review). Examples of changes in circumstance generally include changes in income (start of/end of), changes in employment status (full/part-time, loss of, promotion/demotion, etc.), changes in resources, changes in conditions of eligibility.
Id. However, the QCM specifically provides that "fluctuating income is not considered a change in circumstance." Id. at III-6.
Background
There is no dispute as to the underlying facts. The recipient, EW, apparently had been receiving AFDC since February 1990. 2/ In January 1994, EW started working at a temporary services agency. She reported her new employment and the amount of her January earnings within the time period prescribed by State policy. The company for whom the recipient worked gives employees temporary work assignments based on orders received; employees' hours--and earnings--fluctuate based on the assignments received.
EW's case was selected for QC review for the month of March 1994. North Carolina uses two-month retrospective budgeting. Accordingly, North Carolina had paid assistance to EW for March based on the budget month of January 1994. North Carolina had budgeted gross income of $188.75 for January 1994. In the intervening month of February 1994, EW had earned and reported gross income of $871.25. In the review month of March 1994, the recipient earned and reported $1014.65.
EW's AU consisted of three persons. An applicant or recipient is ineligible for AFDC if the AU's income exceeds 185% of the standard of need. Section 402(a)(18) of the Act. In North Carolina, 185% of the standard of need for three persons was $1006.00. Thus, EW was prospectively ineligible, based on earned income, for the month of March 1994. North Carolina did not contend that EW was, in fact, eligible for AFDC for the month of March. Instead, North Carolina QC characterized the payment error as a PAL error because EW's fluctuating wages first resulted in ineligibility in the review month.
On re-review, federal QC determined that the case was ineligible and that the error was regular. In its request for reconsideration to ACF, North Carolina conceded that the AU was ineligible for the March payment and that the QCM requires that a regular error be cited in this case. However, North Carolina's argued that the error in this case should be considered PAL rather than regular because otherwise the QC process unfairly penalizes North Carolina by charging it with knowledge it could not have acquired until after the review month was over. North Carolina asserted that the QCM is "punitive and incorrectly written for monitoring proper compliance and operating procedures for a State who chooses to use Retrospective Budgeting procedures." North Carolina Appeal at 1. North Carolina argued that citing a regular error in the circumstances of this case was improper for several reasons. First, North Carolina argued that the QCM provisions violate the retrospective budgeting regulations and its PSP. Second, North Carolina asserted, and ACF did not dispute, that income from the recipient's job was inherently subject to fluctuation because of fluctuating hours. Thus, according to North Carolina, absent "mystical abilities" to foresee the future, local agencies cannot predict when a recipient's earnings will first exceed 185% of the standard of need. In these circumstances, North Carolina argued that to cite it with an error would be punitive. Finally, North Carolina argued that citing it with a regular error in this case is unfair because, it argued, a prospective budgeting state would not be cited with an error in these circumstances.
Analysis
North Carolina concedes that, under section 402(a)(18) of the Act, this AU was not eligible for AFDC during the review month because its income exceeded 185% of North Carolina's standard of need. North Carolina also agrees that, under the standards set forth in the QCM, the error in this case is classified as regular. For the following reasons, we conclude that these QCM standards do not violate the Act or regulations and that the standards are not more advantageous in prospectively budgeted cases than in retrospectively budgeted cases.
First, we reject North Carolina's argument that a QC error cannot be cited "for an incident which occurs in a time period in which the client is not required to report and the agency is not required to act." North Carolina Appeal at 3. In implementing the QC program, ACF could have designed a system that focused entirely on whether or not the eligibility worker properly applied state and federal rules to the facts known at the time payment was authorized. Under such a standard, the payment in this case would have been correct. However, ACF has instead designed the QC system to determine whether or not a payment is correct based on events which actually occurred, even if the eligibility worker could not have known of the facts or adjusted the payment at the time payment was authorized. See QCM, §§ 3010, 3020, 3140. Where a federal statute is subject to more than one interpretation, the administering federal agency's interpretation is entitled to deference if that interpretation is reasonable and appropriate notice of the interpretation has been given to the state. Pennsylvania Dept. of Public Welfare v. United States Dept. of Health and Human Services, 928 F.2d 1378 (3rd Cir. 1991).
ACF's decision to measure the accuracy of states' payments in the light of actual circumstances, whether known or unknown to the states, is consistent with the purpose of section 408 and therefore reasonable. First, the QC program is intended "to improve the accuracy of payments" to AFDC recipients. Section 408(a) of the Act. Second, the QC program serves as a disallowance system to recover the federal share of a certain proportion of erroneous payments. Id.; Senate Finance Committee Report, Tax Equity and Fiscal Responsibility Act of 1982, reprinted in 1982 U.S. Code Cong. & Admin. News 781, 827 ("The purpose of the provision is to provide a strong incentive for improved program accuracy and to avoid federal participation in erroneous payments.") Ascertaining all erroneous payments serves this latter purpose.
Second, we reject North Carolina's argument that ACF's failure to include fluctuating income as a change in circumstance is punitive or violates the retrospective budgeting regulations and North Carolina's PSP. The PAL classification is an administratively created exception based on the concept of change in circumstance. ACF defined a change in circumstance as a status changing event and specifically excluded fluctuating income from its definition. ACF's decision is consistent with the operation of both retrospective and prospective budgeting. In the context of retrospective budgeting, excluding fluctuating income is appropriate because the retrospective budgeting process is designed to correct for such fluctuations: the assistance in a payment month is based on the actual income of a previous budget month. 3/ In the context of prospective budgeting, excluding fluctuating income is appropriate because not to do so would require agencies to re-estimate constantly. While we recognize that ACF's definition results in a regular error when fluctuating income renders an AU ineligible, North Carolina has failed to establish why this result is contrary to applicable law or regulations.
Finally, we conclude that this error would also have been classified as a regular error in a prospectively budgeted case. Federal regulations, at 45 C.F.R. § 233.33, require that eligibility in all cases be determined prospectively for each month. Only if the AU is prospectively eligible for assistance, based on income and other factors, do states proceed to calculate the amount of assistance. QC review follows this process: first the case is reviewed for eligibility (QCM, § 3410) and, if the case is eligible, the amount of assistance is reviewed using prospective (QCM, § 3420) or retrospective (QCM, § 3430) standards. Under the QCM, determining eligibility "prospectively" takes into account actual review month income, if actual review month income differs from the estimate used at the time payment was authorized:
An unanticipated change in income or resources during the [payment month] may render an AU ineligible for that month. The determination of financial eligibility is based on information available at the time payment is authorized, and is therefore an estimate, which may be subject to revision if additional information is obtained. Therefore, the local agency must review the determination of eligibility after the month is over
to determine if projected income and resources were accurately considered in determining eligibility.
QCM § 3400, at IV-4. Applying this provision to the facts of this case would result in a finding that a payment had been made to an ineligible AU regardless of whether North Carolina employed prospective or retrospective budgeting. An example cited in the QCM leaves no doubt of the result in this case, as it almost exactly describes the circumstances of EW's case:
In the last week of March, a wage earner is asked to work and is paid for several unexpected hours of overtime. These extra wages are then reported to the local agency on the March monthly report. If the higher-than-estimated income for March brings total countable income above the State need standard, the unit is ineligible for March, and the entire payment must be recovered, unless suspension . . . is appropriate.
QCM § 3400, at IV-5. North Carolina acknowledged that its suspension policy is not applicable on the facts of EW's case.
The Panel is bound by the QCM absent a showing that its provisions are contrary to the Act or AFDC regulations. As we have stated, based on the arguments before us, we find that the QCM provisions are consistent with the Act and regulations. The facts of this case fall squarely within the QCM rule that fluctuating income is not a change in circumstance. North Carolina has failed to identify any change in circumstance which occurred in the PAL period. Calculating eligibility prospectively, as required by 45 C.F.R. § 233.33, both parties agree that the case was ineligible. Therefore, ACF's determination must be upheld.
Conclusion
For the reasons stated, we uphold ACF's finding that EW was ineligible for the AFDC payment she received in March 1994 and that the error in this case is a regular error.
__________________________
Sara Anderson
__________________________
Maxine Winerman
__________________________
Leslie A. Weyn
* * * Footnotes * * *
1. The state QC review number is 803009. The federal QC number is ANC-403-194.
2. We refer to the recipient by her initials to protect her privacy.
3. We note that North Carolina relied on 45 C.F.R. § 233.26(a)(3) for the proposition that "if a change in income makes the family ineligible, the agency shall wait until the corresponding payment month to terminate assistance." However, this regulation does not apply to AFDC cases. 45 C.F.R. § 233.21(a). The AFDC budgeting regulations have no corresponding provision. See 45 C.F.R. §§ 233.31 - 233.37.