Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
DATE: January 19, 1993
Docket No. A-92-186
Decision No. 1382
DECISION
The New York State Department of Social Services (New York) appealed
a
determination by the Administration for Children and Families
(ACF)
disallowing $9,832,974 in federal financial participation claimed
under
Title IV-E of the Social Security Act (Act). ACF denied New
York's
claim because New York did not file it within the two-year time
limit
established by section 1132 of the Act. ACF also denied the
claim
because it was based on projected expenditures identified from
sample
cases rather than on "actual expenditures made under the state plan"
as
specified in Form IV-E-12 (ACYF-PI-90-07).
The initial issue presented is whether the disallowed claim resulted
from
an "audit exception" and thus was not barred by the two-year
filing
limitation of section 1132. Based on the following analysis, we
find
that the claim did not come within the "audit exception" provision
of
section 1132(a) and consequently was subject to the two-year
filing
limitation. Accordingly, we sustain the disallowance.
Because we
uphold ACF's initial basis for the disallowance, we do not reach
the
issue of the allowability of Title IV-E claims based on
projected
expenditures.
Statutory Background
Title IV-E authorizes appropriations to enable a state "to provide,
in
appropriate cases, foster care and adoption assistance for children
who
otherwise would be eligible for assistance" under the state's Title
IV-A
program or, in the case of adoption assistance, would be eligible
for
benefits under the Supplemental Security Income program found at
Title
XVI of the Act. Section 474(a) establishes three categories of
Title
IV-E expenditures: foster care maintenance payments for children
in
foster family homes or child care institutions; adoption
assistance
payments; and administrative expenses. The disallowance at
issue
involves foster care maintenance payments.
Section 1132(a) requires that a claim by a state for federal funds
under
Title IV-E "with respect to an expenditure made during any
calendar
quarter" must be filed within the two-year period which begins on
the
first day of the calendar quarter immediately following such
quarter.
This section also provides that no payment of federal funds shall
be
made for expenditures not claimed within this period, except
that
payment will not be denied "with respect to any expenditure
involving
court-ordered retroactive payments or audit exceptions, or
adjustments
to prior year costs."
The expenditures at issue were made in 1983, 1984 and 1985 but were
not
claimed until 1991. However, New York asserted that its claim for
these
expenditures involved an audit exception and therefore was not barred
by
section 1132(a).
Factual Background
1. The Federal Audit
New York argued that this claim involved an audit exception resulting
from
an audit, by the Office of the Inspector General, of Title IV-E
foster care
cases administered by the New York City Department of Social
Services
(NYCDSS) during the period from October 1, 1983 through
September 30, 1985.
1/ The primary purpose of this audit was "to
determine whether NYCDSS'
claims for FFP for maintenance payments for
foster care under the Title IV-E
AFDC-FC program were made on behalf of
eligible children." New York
Exhibit (Ex.) 2, Office of Inspector
General Audit Report No. A-02-87-02016,
at 2.
The audit was conducted in the following manner. New York furnished
the
auditors with an unduplicated computer listing from its
statewide
automated Welfare Management System (WMS) representing the universe
of
New York City foster children in care for at least one day during
the
audit period and identified in WMS as being eligible for federal
funds
under Title IV-E during the audit period. Separate universe
listings of
foster children were drawn for federal fiscal years 1984 and 1985
to
develop a stratified sample for the review. The sampling
universe
originally consisted of 20,446 children for 1984 and 23,639 children
for
1985.
From this universe of children, a scientific random sample of 300
cases
was compiled and manual reviews conducted in each of these cases.
In
the reviews, the auditors examined specific eligibility criteria
to
determine whether each of the sample children was eligible for
Title
IV-E. Once the sample cases were reviewed, the auditors matched
the
financial data maintained in the automated foster care billing
systems
to each case in the sample. From the sample cases and related
financial
data, the auditors projected an amount of unallowable Title
IV-E
maintenance payments which had been made on behalf of
ineligible
children.
In the course of reviewing the 300 files, the auditors found 44 cases
for
which Title IV-E costs were not claimed during the audit period.
"For sample
extrapolation purposes, the error amount for these cases is
shown as zero;
that is, we [the auditors] did not take exception to or
determine an error
amount for these cases." New York Ex. 2, at 6.
The auditors recommended that New York process a financial adjustment
of
$128,247,464 ($64,123,732 federal share) for maintenance payments
and
$55,728,584 ($27,991,567 federal share) for administrative costs
which
New York claimed under Title IV-E but which the auditors determined
to
be unallowable. ACF adopted the auditors' recommendations
and
disallowed $92,115,289 in federal funds. Of this amount,
$64,123,732
represented maintenance payments claimed on behalf of
ineligible
children. The remainder represented disallowed
administrative costs.
New York appealed this $92,115,289 disallowance to the Board in Docket
No.
91-14. In its decision in that case, the Board upheld
ACF's
disallowance of the maintenance payments, subject to downward
adjustment
based on the Board's further review of ACF's findings in
individual
sample cases. New York State Dept. of Social Services, DAB
No. 1358
(1992). . 2. New York's Present Claim
Subsequent to the issuance of the federal audit that led to
the
disallowance considered in DAB No. 1358, New York's Office of Audit
and
Quality Control reviewed the documentation relied on by the
federal
auditors in 55 cases for which no Title IV-E claims were made or
for
which less than the full amount of Title IV-E payments was
claimed.
From its foster care billing systems, New York calculated the amount
of
its expenditures made on behalf of these children but not claimed
under
Title IV-E. New York divided the cases into two schedules.
Schedule I
consisted of sample cases found by the federal auditors to be
eligible
for Title IV-E. Schedule II consisted of sample cases which
the
auditors found to be ineligible for Title IV-E under one or more of
the
criteria used in the audit but for which no Title IV-E claims had
been
made. New York disputed these criteria in DAB Docket No. 91-14
and
compiled this list in anticipation of a favorable decision in the
case.
New York then projected the results of its calculations
concerning
unclaimed expenditures to the sample universe to determine
unclaimed
amounts of Title IV-E maintenance payments. It represented
that it used
the statistical extrapolation methodology used by the
auditors. It
concluded that the federal share of such unclaimed
payments was
$2,889,582 for Schedule I and $6,943,392 for Schedule II.
New York then
submitted a retroactive claim under Title IV-E in the amount
of
$9,832,974 in its Quarterly Report of Estimates and Expenditures
of
claims for the quarter ending March 31, 1991. This is the claim that
is
presently before us.
Parties' Arguments
New York argued that its claim involved an audit exception and was
not
subject to the two-year limitation of section 1132. It contended
that
the claim was the direct result of the federal audit of Title
IV-E
claims and not of an independent New York review. New York based
its
argument on the fact that the federal audit universe consisted
of
children coded as eligible for Title IV-E rather than a universe
of
foster care maintenance payments claimed by New York. New York
argued
that the design of the audit universe resulted in identification of
a
significant number of sample cases for which Title IV-E claims were
not
made and therefore the federal audit identified an underclaim of
Title
IV-E funds but failed to calculate its dollar amount. New
York
concluded that "[i]t is fundamentally unfair and unduly restrictive
to
apply the audit findings in a selective manner that maximizes
the
recovery of unallowable Title IV-E claims while disregarding results
and
information that could and should be applied to reduce or offset
the
recommended monetary recovery." New York Appeal Brief at 16-17.
ACF argued that New York's construction of the audit exception
provision
was too broad and would result in routine application of the
provision
to almost all audits. ACF asserted that the provision had
been
construed by the Board to be limited to situations in which
the
responsible federal agency had accepted the audit adjustment or
the
audit directed or directly caused an otherwise untimely claim to
be
filed. In this case, ACF maintained that New York had expanded
the
initial federal audit by conducting a separate audit and generating
a
claim which was independent of the federal audit.
Analysis
As previously noted, section 1132(a) establishes a two-year limit
for
filing claims for federal reimbursement for formula grant programs.
It
also provides for three exceptions to that limit:
court-ordered
retroactive payments, audit exceptions, and adjustments to
prior year
costs.
Section 1132(a) is implemented by 45 C.F.R. Part 95, Subpart A.
Those
regulations define an audit exception as "a proposed adjustment by
the
responsible Federal agency to any expenditure claimed by a State
by
virtue of an audit." 45 C.F.R. . 95.4. The regulatory
definition of
audit exception has two primary elements: the adjustment
of a claimed
expenditure must result from an audit and the adjustment must
be
proposed by the responsible Federal agency.
We conclude that New York cannot prevail here because it did not show
that
its claim results from an adjustment proposed by the responsible
federal
agency. As discussed below, it is clear that neither the
Inspector
General, whose office conducted the audit, nor ACF, the agency
responsible
for administering the IV-E program, proposed an adjustment
in New York's
prior Title IV-E claims to include the expenditures at
issue here.
Throughout the audit, the auditors were consistent and clear about
the
audit's primary goal: to review the allowability of
maintenance
payments which had been .actually claimed by New York under Title
IV-E.
New York Ex. 2, at 2. Consistent with the goal of the audit, the
audit
recommendations were limited to maintenance payment expenditures
which
New York actually claimed and to methods of improving New York's
future
Title IV-E management. 2/ The auditors never even determined the
value
of maintenance payments which New York failed to claim and
never
suggested to New York that it make calculations concerning
these
maintenance payments. Rather, New York personnel
independently
ascertained the value of the payments New York failed to claim
on behalf
of these children and extrapolated the results of their research to
the
universe of payments. (ACF, in this appeal, disputed the
methodology
New York used to calculate this claim and the propriety of basing
a
Title IV-E claim on an extrapolation.)
After the auditors issued their report, ACF took a disallowance based
on
the audit. Nothing in ACF's disallowance could be remotely construed
as
expanding the scope of the audit to include consideration of
unclaimed
maintenance payment expenditures or as recommending an adjustment
for
these unclaimed expenditures.
While the audit recommendations and ACF's subsequent disallowance
clearly
did not propose an adjustment for these expenditures, New York
nevertheless
argued that its claim should be considered to involve an
audit exception
under the Board's application of the exception in prior
cases. It cited
several cases in which the Board recognized that an
adjustment had in effect
been proposed or accepted by the responsible
federal agency if there was a
direct cause and effect relationship
between the audit and the adjusted
claim. New York State Dept. of
Social Services, DAB No. 982
(1988); Minnesota Dept. of Human Services,
DAB No. 911 (1987); Oklahoma
Dept. of Human Services, DAB No. 809
(1986); Illinois Dept. of Public Aid,
DAB No. 715 (1986).
Pursuant to these cases, New York argued that its claim was
directly
caused by the audit because the audit universe was broader
than
necessary to achieve the audit goal and resulted in the
identification
of children for whom the State had failed to claim Title IV-E
funds.
For the reasons discussed below, we conclude that New York's argument
is
without merit.
o The fact that an audit universe is broader than necessary
is
not a basis in and of itself to create an audit exception.
New
York did not argue that the presence of these children in
the
audit universe made the audit results, contemplated by the
audit
goal, unreliable or inaccurate. Nor has New York argued
that it
was prejudiced by the use of a universe of Title IV-E
children
rather than a universe of monthly Title IV-E
maintenance
payments. Finally, New York did not argue that it was
misled in
the process of the audit to believe the auditors were
reviewing
the broader question of whether claims had been actually
made
for all allowable maintenance payments.
o In the initial stages of the audit, the auditors
performed
validation tests on the universe listing supplied by New
York
and recognized that the sample universe might contain
children
coded as eligible for Title IV-E for whom claims had not
been
made. The auditors planned for this contingency: "If
such a
case is selected in our sample, for sample
extrapolation
purposes, the difference or error amount will be shown as
zero."
New York Ex. 5, Sampling Plan, A-02-87-02016, at 4.
Therefore,
the auditors adjusted for this characteristic of the
universe
listing to prevent it from interfering with their
calculations
concerning amounts of Title IV-E claimed by New York.
o Moreover, it appears that the auditors used the
broader
universe of Title IV-E children because developing a
more
limited but reliable universe of Title IV-E maintenance
payments
would have been more difficult or impossible. New
York
indicated that its WMS did not maintain "an automated system
of
foster care payments made and of the way in which such
payments
were claimed." New York Appeal Brief at 14-15.
Although New
York argued that the I.G. could have proceeded with an
audit
universe that more closely corresponded to the audit goal,
New
York did not identify specifically which systems
and
documentation could have been used to implement that
option,
whether the option would have been as economical as the
approach
actually taken, and whether the auditors were made aware of
the
option and rejected it nevertheless. In considering the
design
of the audit universe, the auditors noted that the "book
value"
for each child could not be obtained from the WMS and would
have
to be accumulated from two different placement agencies
which
operated the foster care billing system during the audit
period.
New York Ex. 5, at 2.
Thus, we conclude that under the circumstances of this audit, the
fact
that the audit universe was broader than necessary to fulfill
the
express audit goal should not be viewed as "directly causing" the
claims
in question and cannot be relied upon as creating an audit
exception.
The cases cited by New York actually illustrate why the federal audit
at
issue did not directly cause the filing of New York's claim and do
not
further New York's position. In Oklahoma, DAB No. 809, the Health
Care
Financing Administration (HCFA) audited Oklahoma's
Medicaid
expenditures. The review resulted in a determination that
Oklahoma had
not allocated certain administrative expenditures associated
with the
audited services in accordance with its Cost Allocation Plan
(CAP).
Consequently, Oklahoma agreed to reduce Medicaid's allocation of
costs
of under the CAP. This adjustment affected the share of
administrative
costs properly charged to other public assistance programs,
such as
Title IV-A. Oklahoma subsequently claimed federal funds from
Title IV-A
to reflect the increased Title IV-A CAP allocation precipitated by
the
HCFA audit. The Board determined that the Title IV-A claim involved
an
audit exception because the Medicaid audit directly impacted on
Title
IV-A related costs: it was clearly foreseeable that HCFA's
directive to
Oklahoma to reduce Medicaid costs under its CAP would result
in
reallocation of those costs to other public assistance programs such
as
Title IV-A.
In this case, New York did not show any cause and effect
relationship
comparable to that found in Oklahoma between the audit and its
claim.
Rather, the circumstances of this case are closer to that of
Illinois,
DAB No. 715, in which an audit merely caused the State to discover
an
error beyond the scope of the audit. In that case, agency
personnel
reviewed Illinois' Emergency Assistance payments, a component of
the
Illinois Title IV-A program. As a result of the review,
Illinois
discovered that it had made underclaiming errors in a related
component
of Title IV-A, its Special Assistance payments. The Board
ruled that
Illinois' subsequent claim for Special Assistance errors did not
involve
an audit exception. The Board concluded that even if the
Emergency
Assistance audit caused the State to discover an underclaim in
its
Special Assistance program, there was no audit exception pertaining
to
the Special Assistance program. 3/
New York argued that it was fundamentally unfair to disregard
information
that New York had failed to fully claim Title IV-E funds for
these children
and not to use that information to reduce or offset the
disallowance
recommended pursuant to the audit. However, New York's
position is
contrary to the audit exception provision on which New York
relied.
Section 1132(a) by its own terms appears to require a formal
audit finding
proposing an adjustment to a claim. Further, this
Department has
promulgated a definition of "audit exception" which
requires evidence of a
proposed adjustment by the responsible federal
agency. 45 C.F.R. .
95.4. The Board is bound by these statutory and
regulatory standards
which place authority for defining the scope of
federal audits and resulting
exceptions with the responsible federal
agency. 4/ New York's position
that "fairness" requires that it be
allowed to recover unclaimed Title IV-E
expenditures beyond the two-year
limit would unduly compromise section
1132(a) by shifting the authority
to define audit goals and findings to
states. Indeed, this construction
of section 1132(a) could potentially
enable states to circumvent the
regulatory and statutory standards by
resurrecting unfiled claims
associated with any audited program.
Moreover, in the context of a federal audit, an audit exception
should
ordinarily mean that the federal auditors have examined the
relevant
underlying documentation and determined that the expenditures
associated
with the documentation are allowable. Here, it was New York
that
determined (apparently based only on its computer billing
information)
that it had in fact incurred allowable expenditures.
Before this
conclusion could be accepted by ACF, federal auditors would have
to
review New York's additional documentation. 5/ The federal
auditors
would also have to consider other factors such as whether
these
expenditures had been claimed under another federal program such
as
Title IV-B of the Act or paid to unlicensed foster care providers.
Such
an investigation could easily be hampered by the passage of time.
To
interpret the audit exception provision to allow a state to build on
a
federal audit by creating a claim based on a new set of
documentation,
which in turn would have to be independently reviewed by
federal
auditors, conflicts with the statutory intent of section 1132(a)
to
encourage timely filing of claims. It also conflicts with the role
of
the audit exception in a federal audit which is to
reimburse
expenditures that, but for the passage of time, have been
determined by
federal auditors to be allowable. Finally, in considering
the question
of fairness raised by New York, we note that section 1132(b)
authorizes
the Secretary to waive the applicable two-year period based on
a
determination of good cause for failure to file within that
period.
Thus, the statute specifically permits consideration of good
cause
factors in the decision to grant a waiver. Section 1132(b)
specifically
adds, however, that a failure to file "attributable to neglect
or
administrative inadequacies shall be deemed not to be for good
cause."
Here, it is unclear whether New York has even filed a waiver request
or
whether it thought its failure to file the claim in question was
not
attributable to neglect or administrative inadequacies.
Conclusion
For the foregoing reasons, we uphold ACF's disallowance of $9,832,974.
Judith A. Ballard
Cecilia Sparks Ford
Donald F. Garrett Presiding Board Member
1. The Common Identification Number for this audit was
A-02-87-02016.
It was subsequently adjusted based on additional data supplied
by New
York. The Common Identification Number of this follow-up action
was
A-02-90-02019.
2. New York argued that data concerning payments it failed to
claim
should have been developed by the auditors because government
accounting
standards encourage audit findings and conclusions to be based on
a full
and objective evaluation of pertinent evidence. New York cited
Chapter
3, . 29(b) and Chapter 7, .. 17-20 and 59-61 of the Government
Audit
Standards. New York Ex. 17. However, since payments New
York failed to
claim were not within scope of the audit, data concerning such
payments
was not pertinent evidence, and the auditors had no obligation
to
evaluate it.
Further, we note that any audit requires the auditors to make
decisions
about the design of the audit and the range of information that
will be
evaluated in the course of the audit. For example, in
validation tests
conducted at the initial stages of this audit, the auditors
recognized
two problems with the sample universe: (1) the universe
contained
children coded as eligible for Title IV-E for whom reimbursement
had not
been claimed, and (2) the universe did not contain children for
whom
Title IV-E reimbursement had been claimed but who had been
reclassified
as federally nonparticipating prior to the generation of the
audit
universe listing. New York Ex. 5, at 3 and 4. The first
problem
represented potential underpayments and the other represented
potential
overpayments. The auditors declined to evaluate either of
these
characteristics of the universe. This decision was within
the
legitimate scope of their professional responsibility and
demonstrates
that not all discretionary decisions prejudice New York.
3. The other cases cited by New York also fail to support its
position.
In Minnesota, DAB No. 911, the Board found a cause and
effect
relationship between the federal audit and the State's claim because
the
reviewer, after questioning 50 percent of the State's
administrative
costs for its Refugee Resettlement program, indicated that it
should
seek these costs under the AFDC program. New York, DAB No.
982,
concerned a state audit which the Board determined did not involve
an
audit exception.
4. The Board has previously considered similar fairness arguments
by
states as to the construction of the audit exception provision and
in
each instance determined that the Department's application of
section
1132(a) was reasonable. See New York State Dept. of Social
Services,
DAB No. 982 (1988); Illinois, DAB No. 715; South Carolina Dept.
of
Social Services, DAB No. 612 (1984).
5. In fact, $6,943,392 of New York's claim relates to individuals
whom
the federal auditors found were