Department of Health and Human Services
Departmental Appeals Board
AFDC QUALITY CONTROL REVIEW PANEL
SUBJECT: Arizona Department
of Economic Security
Docket Nos. A-92-171
A-92-173
A-92-206
Decision No. QC31
DATE: December 1, 1992
DECISION
The Arizona Department of Economic Security (Arizona or
State) appealed
three quality control (QC) review
determinations by the Regional
Administrator of the
Administration for Children and Families
(Agency). The
three determinations involved a total of 30 cases, and
the Agency notified the State of the determinations on
May 14, June 1,
and July 7, 1992, respectively. While
the determinations involved a
total of 30 cases, the
parties agreed that the only issue is whether the
payment
adjustment lag (PAL) principle should be applied to these
cases.*
For the reasons discussed below, we find that the PAL
principle is not
applicable to these cases. Accordingly,
we sustain the Agency's
determinations that the State
made erroneous payments in these cases.
Applicable Authority
Section 408(a) of the Social Security Act (Act) provides:
IN GENERAL.--In order to improve the accuracy of
payments of aid to
families with dependent children,
the Secretary shall establish and operate
a quality
control system under which the Secretary shall
determine, with
respect to each State, the amount
(if any) of the disallowance required to
be repaid
to the Secretary due to erroneous payments made by
the State
in carrying out the State plan approved
under this part.
Further, the Act requires each state to review a sample
of cases in which
AFDC payments were made during the
review period in order to determine the
level of
erroneous payments. The Act provides that the Secretary
shall review a subsample of the cases reviewed by the
state, and notify
the state of any case in the subsample
which the Secretary finds involves an
erroneous payment.
See sections 408(b)(1) and (2) of the Act.
Each state is required to operate its quality control
system in
accordance with policies and procedures
prescribed in a Quality Control
Manual (QCM) issued by
the Department of Health and Human Services
(Department).
45 C.F.R. �205.40(b)(1).
The QCM provides that a PAL discrepancy --
results from a change in the [assistance unit's]
circumstances that
occurred in the review month or
the month immediately preceding the review
month.
However, only changes that affect the review
month(s)
payment are considered PAL discrepancies.
QCM Section 3300. State's Ex. 4.
A regular payment discrepancy occurs when --
(1) a change in circumstance occurred before the
month immediately
preceding the review month; or,
(2) an incorrect adjustment was made to the
review
month's payment, including a supplemental payment,
based on a
change in circumstances which occurred
during, or in the month immediately
preceding the
review month; or, (3) a change in circumstance
occurred
prior to authorization of the first check
to a newly eligible [assistance
unit].
Id.
The significance of whether a discrepancy is considered
regular or PAL is
that in the determination of the amount
of any payment error a PAL
discrepancy, depending on the
totality of the circumstances, may not result
in a
finding of payment error. See QCM Section 3, Appendix A.
Factual Background and State's Position
During the 1990 legislative session, the Arizona State
Legislature passed
legislation which provided that
beginning on June 1, 1991 the AFDC payment
level would be
"not less than 36 percent of the 1990 federal poverty
level," and beginning on July 1, 1991, and each year
thereafter, the
AFDC payment level would be "not less
than 36 percent of the federal poverty
level for the
current year." State's Exhibit (Ex.) 5 at 1. The
State
submitted State Plan Amendment 91-4 (Amendment 91-4) to
the Agency
on May 8, 1991 to provide cost of living
adjustment (COLA) increases to AFDC
recipients effective
June 1, 1991, but did not include the July 1, 1991 COLA
increase. The Agency approved Amendment 91-4 on June 21,
1991, and
it was incorporated into Arizona's AFDC State
plan. The State admitted
that it did not report the July
1, 1991 COLA increase in Amendment 91-4
--
because HB 2500, which would postpone the July 1,
1991 increase to
June 1, 1992, was already pending
in the State Legislature and passage
seemed fairly
certain.
State's Ex. 5 at 1.
The State took the position that --
if HB 2500 did not pass, the July 1, 1991 increase
would remain law
and [Arizona] would submit a Plan
amendment to report it. But if HB
2500 did pass,
repealing the July 1, 1991 increase, Plan amendment
91-4
would remain in force and be correct and
current until June 1, 1992.
Id.
HB 2500 was passed on June 21, 1991. However, since the
bill was
not passed as an emergency measure, it did not
become effective until 91
days after the State
legislature adjourned. Hence, the State paid the
increased amount for July, August and September. Arizona
was
nevertheless aware that once the bill did become
effective, it would repeal
the July 1, 1991 increase.
On September 17, 1991, Arizona passed SB 1001, with an
emergency clause,
which repealed HB 2500 and restored the
July 1, 1991 benefit increase.
Thereafter, on October
10, 1991, Arizona submitted State Plan Amendment 91-6
(Amendment 91-6) "to notify [the Agency] of the passage
of SB 1001
reinstating the annual July 1 benefit
adjustment." State's Ex. 5 at
1. The Agency approved
Amendment 91-6 effective October 1, 1991.
The State maintained that the PAL period involves two
consecutive months
and is measured from the date an event
(or "change in circumstance")
actually takes place.
Since the increased benefit standard was
implemented by
the State effective July 1, 1991, and the mailing of the
first checks with the new standard occurred on July 1,
1991, Arizona
argued that both July and August would be
PAL months. We disagree with
the State's position and
find that the errors identified for August 1991 are
regular discrepancies.
Analysis
It is uncontested that the only issue in these 30 cases
is whether the
August 1991 payments made by the State to
AFDC recipients should be
considered regular or PAL
discrepancies. The disagreement between the
parties
concerns the application of section 3300 of the QCM to
the facts
here and the purpose underlying the PAL
concept. As noted above,
Arizona argued that both July
and August 1991 were PAL months. The
Agency argued that
the August discrepancies did not arise out of a "change
of circumstance" under the QCM definition, nor did they
fit within the
rationale underlying the PAL concept. The
Agency reasoned that the
"change in circumstance" was
Amendment 91-4, and hence QC reviewers were
required to
review AFDC payments against the new standard of benefits
set by Amendment 91-4 beginning June 1, 1991. Therefore,
August
discrepancies arising from Amendment 91-4 were not
PAL errors, but regular
errors. We agree with the
Agency's position.
Section 3130 of the QCM provides:
"Permissible State practice" as defined at 45 CFR
205.40(a)(8)
means State written policy instructions
that are consistent with the State
plan or with plan
amendments which have been submitted to, but have
not
been acted upon by the Department.
The only State amendment that had been submitted to the
Agency by August
1991 was Arizona's Amendment 91-4, which
was approved on June 21, 1991
(effective June 1, 1991).
It is therefore reasonable to conclude that
under
permissible State practice (PSP), Amendment 91-4 created
a "change
in circumstance" by mandating a COLA increase
beginning in June 1991.
Consequently, discrepancies
arising from Amendment 91-4 in June or July (as
a review
month) would be considered PAL discrepancies. However,
discrepancies in August 1991 (as a review month), which
were caused by
the COLA increase mandated by Amendment
91-4 that was approved in June 1991,
would not be
considered PAL discrepancies.
While Arizona provided an in-depth explanation concerning
the actions of
its State legislature, the State,
nevertheless, admitted that it did not
include the July
1991 COLA increase in Amendment 91-4. Indeed,
considering the uncertainty caused by the actions of its
own State
legislature, Arizona's position is weakened by
the fact that it could have
included the July 1991 COLA
increase in Amendment 91-4, which would have
allowed
errors in August 1991 to be considered PAL discrepancies,
but it
chose not to do so.
Moreover, Arizona has pointed to nothing that would
indicate that its
situation fits the purpose behind the
PAL concept. Section 3300 of the
QCM provides that --
[t]he PAL concept was established to take into
account the fact
that advance notice requirements or
systems limitations may prevent the
[state] agency
from making timely adjustments to the review month's
payment when changes in circumstance occur.
It is uncontested that the PAL "grace period" concept was
created to
consider advance notice requirements and the
time lag caused by systems
limitations. Advance notice
and system limitations are not issues in
these cases. No
one was better aware of the possible changes in
circumstances and the subsequent requirements than the
State. In
addition, while the State maintained that it
would have submitted a plan
amendment for the July 1991
increase "if HB 2500 did not pass," the State
should bear
the burden of the consequences of its decision not to
include the July 1991 COLA increase in Amendment 91-4.
Finally, we find that Arizona's submission of Amendment
91-6, which
purported to increase Arizona's AFDC payment
standard effective July 1,
1991, did not affect the
August 1991 errors. Section 201.3(g) of 45
C.F.R.
provides, in relevant part:
The effective date of a new plan may not be earlier
than the first
day of the calendar quarter in which
an approvable plan is submitted . . .
.
Further, 45 C.F.R. section 205.5(b) provides, in relevant
part:
Except where otherwise provided, Federal financial
participation is
available in the additional
expenditures resulting from an amended provision
of
the State plan as of the first day of the calendar
quarter in which
an approvable amendment is
submitted or the date on which the amended
provision
becomes effective in the State, whichever is later.
Arizona submitted Amendment 91-6 on October 10, 1991.
Since the
State did not submit Amendment 91-6 in August
or by the quarter ended
September 30, 1991, this
amendment and its increased payment standard could
not be
considered PSP for August. Therefore, it was appropriate
for the reviewers not to review the August AFDC payments
against the
increase submitted in Amendment 91-6. The
earliest possible effective
date for Amendment 91-6 was
October 1, 1991, the first day of the calendar
quarter in
which the amendment was submitted. Thus, the applicable
provisions would allow September 1991 (as a review month)
to be a PAL
month, but not August.
Conclusion
Based on the foregoing, we find that the PAL principle is
not applicable
to the cases at issue. We therefore
sustain the Agency's
determinations that the State made
erroneous payments in these cases.
Andrea M. Selzer
Maxine Winerman
Peggy
McFadden-Elmore
APPENDIX
We list below the docket numbers for each case, the
initials of the
recipients and the State quality control
review numbers. The initials
of the recipients are used
in order to protect their privacy.
Docket Nos. Recipient initials Review numbers
A-92-171 A.F. 081044
A-92-173 E.D. 082010
R.S. 082016
P.G. 081001
G.G. 081005
O.D.R. 081015
D.W. 081018
L.E. 081019
J.M. 081024
M.V. 081027
S.B. 081032
G.V. 081040
L.B.W. 081047
C.R. 081050
L.W. 081053
E.H. 081055
D.W. 081064
L.A. 081065
T.Y. 081068
C.W. 081071
R.C. 081073
L.W. 081075
R.A. 081080
S.B. 081084
C.M. 081087
M.R. 081091
L.F. 082006
D.G. 082013
T.S. 082021
A-92-206 D.R. 082001
* * * Footnotes * * *
* Docket No. A-92-171 involved one case,
Docket No.
A-92-173 involved 28 cases and Docket No. A-92-206
involved
one case. The review numbers for all the cases
are listed in Appendix
A of this decision.