Missouri Department of Social Services, QC No. 59 (1994)

Department of Health and Human Services

Departmental Appeals Board

AFDC QUALITY CONTROL REVIEW PANEL

SUBJECT: Missouri Department
of Social Services
Docket No. A-94-007
Decision No. QC59

DATE: January 25, 1994

DECISION

The Missouri Department of Social Services (Missouri)
appealed a quality control (QC) review determination by
the Regional Administrator for the Administration for
Children and Families (ACF) that an Aid to Families with
Dependent Children (AFDC) grant recipient was ineligible
for the grant she received because she had unreported
earnings in excess of the standard of need. Missouri did
not dispute that the recipient had unreported earnings.
Missouri argued, however, that it did not commit an error
for QC review purposes by failing to discover the
recipient's earnings because its State QC review had
relied on a negative Income Eligibility Verification
System (IEVS) report that was current as of the time of
the State review. In support of this argument, Missouri
cited our decision in Alabama Department of Human
Resources, DAB QC13, reconsideration denied, DAB QC44-R
(1992).

For the reasons stated below, we conclude that ACF has
revised its regulations and the QC Manual (QCM) to remove
the implied exception for errors committed in reliance on
IEVS data which we found in the QCM and on which we based
our Alabama decision and denial of reconsideration.
Accordingly, we uphold ACF's determination that the
recipient was ineligible.

Applicable Authority

Section 408(a) of the Social Security Act (Act) provides:

In General.--In order to improve the accuracy of
payments of [AFDC], 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. Subsequently, 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
erroneous payments. See Section 408(b)(1)(A) of the Act.

Section 402(a)(7)(A) of the Act requires the State
agency, in determining need, to take into consideration
any income and resources of any child or relative
receiving AFDC payments. Further, 45 C.F.R. �
233.20(a)(3)(ii) provides that all income and resources,
after all policies governing the reserves and allowances
and disregard or setting aside of income and resources
have been uniformly applied, shall be considered in
determining need and the amount of assistance payment.

The regulations, at 45 C.F.R. � 205.40(a)(2), define
"case error" to include: "overpayment, underpayment, or
payment to ineligibles." Section 205.42(d)(2)(ii) of the
regulations provides that the following will not be
counted as errors in determining a state's error rate:

Payment errors which result solely from a State's
reliance on, and correct use of, incorrect written
factual information provided by the Department [of
Health and Human Services] about matters of fact
. . . . "Written factual information" means hard
copy documentation, such as a signed statement, a
computer printout or data tape, and reports of
specific data provided by the Department about a
given individual (e.g., social security data).

Section 3552 of the QCM, governing verification of wages
and salaries, provides, in part:

B. Negative Allegation

When an individual states that he/she has no
earnings, further development is necessary. . . .

Routinely review wage records from the appropriate
State agency or agencies, as well as Federal wage
matching sources available to the reviewer.
Although the information obtained from these sources
may not always be current, it can provide leads for
possible sources of income for the review and other
relevant months.

Where information from any source (e.g., State wage
records, Federal wage matching sources, or any other
lead information which surfaces during the review
process) indicates employment within the past year,
check with the recipient and past employers to
verify the employment situation for the review
month. The primary/secondary evidence listed below
are examples of leads used to confirm or to
contradict the recipient's negative allegation; if
this information or any other information reveals
that the recipient is in fact working, all earnings
for the review month must be considered.

Primary Evidence

1. State agency wage records, State employment
security records, State income tax
records

2. Data obtained from IEVS

3. SSA records

4. The primary evidence under "positive
allegation" when information reveals possible
or actual receipt of earnings

Secondary Evidence

1. Past employers's records, where known

2. Bank loan information

Analysis

The facts in this case are undisputed. The recipient had
earned income in the review month (December 1992) which
made her ineligible for the AFDC payment she received.
At the time Missouri completed its QC review, IEVS
reports dated January 10 and February 17, 1993, did not
reveal income during the review month. Federal QC
discovered the recipient's employment through an IEVS
report dated April 17, 1993, which contained information
which had not yet been posted to the automated system at
the time Missouri conducted its review. ACF did not
contend that Missouri's failure to discover the
recipient's unreported income resulted from failure to
follow proper procedures, as outlined in the QCM. Thus,
the only issue in this case is whether Missouri can be
cited for a QC error where the income information proving
that the recipient was ineligible for AFDC did not become
available on IEVS until after State QC review had been
completed.

Missouri argued that the result in this case should be
governed by our Alabama decision, as upheld on
reconsideration. In Alabama, we held that the provisions
of the QCM then in effect created an implied exception to
the error rate computation for technically erroneous
payments made in reliance on IEVS data that was current
as of the time the state conducted its QC review. The
present case, however, is governed by different
regulations and QCM provisions than those in effect when
we decided Alabama. Those different provisions compel a
different result here.

Both our initial decision and the decision on
reconsideration recognized that ACF was free to modify or
remove the implied exception for errors committed in
reliance on IEVS data by promulgating regulations or by
amending the QCM. Since our Alabama decision, and prior
to the review month at issue here, ACF promulgated
regulations which, in our view, foreclose Missouri from
asserting an exception based on reliance on IEVS data.
ACF has also amended the applicable QCM provision.

On October 13, 1992, ACF promulgated final regulations
governing the AFDC QC system. 57 Fed. Reg. 46,782. 1/
Section 205.42(d)(2)(ii) of the regulations, quoted
above, specifies that an AFDC payment made by a state
should not be considered an erroneous payment if the
payment was in error solely because the state relied on
incorrect factual information provided by the Department.

Missouri did not argue that the incorrect information
upon which it relied, i.e., the negative IEVS report, was
provided by the Department. Instead, Missouri argued, as
we reasoned in Alabama, that the Department requires
states to implement IEVS, and thus states should not be
penalized for relying on IEVS data.

While we found that argument persuasive in Alabama, that
line of reasoning has now been foreclosed. The preamble
to the revised regulations specifically addressed the
argument that errors made in reliance on incorrect IEVS
information should be excluded from a state's error rate:

The exemption of payment errors as a result of
incorrect written factual information is applicable
only to the extent that such information is
maintained and provided by the Secretary [of Health
and Human Services]. . . . Even though there is a
Federal mandate for States to use IEVS, the
Secretary does not have administrative oversight
over each of the data files used in the IEVS
matching.

* * *

Therefore, based on the above discussion, we decline
to reference IEVS . . . in the final regulations as
[a] potential data source[] from which incorrect
information could have been provided.

57 Fed. Reg. at 46,792. The preamble to the regulations
served to notify the states that, to the extent an
implied exception for reliance on incorrect IEVS data may
have been created by provisions of the QCM in effect
prior to October 13, 1992, ACF would no longer recognize
such an exception after that date.

In addition to promulgating the regulations, including
the preamble, ACF modified section 3552 of the QCM.
Prior to October 1992, the QCM advised states to verify a
recipient's allegation of no income by reviewing the
listed wage records and matching sources (e.g., IEVS).
The Manual stated:

If these records do not indicate employment within
the past year, and there is no information to the
contrary, no further verification is required.

This language created a strong inference that states
could rely on negative IEVS reports so long as there was
no evidence that the recipient had worked during the
previous year. It was based on this language, in part,
that we concluded that the QCM had created an implied
exception for errors committed in reliance on IEVS
reports that were current as of the State QC review.
On October 27, 1992, however, ACF published and
distributed changes to the QCM. Among the changes
effected by that transmittal was the revision of section
3552. ACF deleted the language just quoted. The
relevant language now provides:

QCM, section 3552 (emphasis added). In our view, section
3552 can no longer reasonably be read to contain an
implied exception for IEVS reports. The QCM is clear
that if information from any source reveals that the
recipient was working during the review month, all
earnings must be counted. The quoted language does not
contain any time limitation on when the information must
become available.

The essence of Missouri's several arguments was that it
would be punitive to charge a state with an error where
the state has complied with all required QC procedures
and failed to discover unreported income solely because
of the lag between the time the recipient earned the
income and the time the income was posted to the IEVS.
Missouri also argued that an error finding in such cases
does nothing to improve payment accuracy. The Panel is
aware that the regulation and QCM, as amended, establish
essentially a standard of strict liability for states in
cases where the recipient conceals employment earnings.
As we stated in our Alabama decision, the AFDC QC review
process has two main purposes: 1) to provide a strong
incentive for improved program accuracy; and 2) to avoid
federal participation in erroneous payments. See Senate
Finance Committee Report, Tax Equity and Fiscal
Responsibility Act of 1982, reprinted in 1982
U.S.C.C.A.N. 781, 827. Presumably, from ACF's
perspective, the policy encourages states to find ways to
improve accuracy and serves the program goal of avoiding
federal participation in what is undeniably an erroneous
payment, as it was made to an ineligible individual.
Moreover, we can find nothing in the regulation, the
interpretation of the regulation contained in the
preamble, or the QCM provision that would contravene any
requirement found in the Act. Indeed, as ACF pointed
out, even if we concluded that these provisions were
contrary to the Act, we would lack the authority to
overturn them. See 45 C.F.R. � 16.14.

The review at issue here, for the month of December 1992,
was conducted after ACF promulgated the regulations,
including the clear expression of intent to include
errors made in reliance on IEVS data contained in the
preamble. The review month also followed ACF's
promulgation of the revisions to the QCM. There is no
dispute that the recipient in this case had income during
the review month which made her ineligible for the AFDC
payment she received. We can find no basis to depart
from the result required by the regulation and the QCM,
namely, that Missouri must be charged with an error
because the AFDC payment in question was made to an
ineligible individual.

Conclusion

For the reasons stated, we conclude that ACF was correct
in determining that the payment at issue was erroneous
because it was made to an individual who was ineligible
for assistance because of excess income which she failed
to report.

_____________________________
Thomas Horvath

_____________________________
Peggy McFadden-Elmore

_____________________________
Leslie A. Weyn

* * * Footnotes * * *

1. Our reconsideration decision in the Alabama
case was issued on October 14, 1992. ACF did not argue
that the regulations promulgated on October 13, 1992
should have applied in that case. Accordingly, our
Alabama reconsideration did not address the new
regulations.

(..continued)