Texas Department Human Resources, QC No. 81 (1995)

Department of Health and Human Services

Departmental Appeals Board

QUALITY CONTROL REVIEW PANEL

SUBJECT:  Texas Department of      
Human Resources
Docket No. A-95-77
Decision No. QC81

DATE: May 17, 1995

DECISION

The Texas Department of Human Services (Texas) appealed a
February 2, 1995 quality control determination by the
Assistant Regional Administrator of the Administration
for Children and Families (ACF) in State Quality Control
Review No. CP0713.  The Assistant Regional Administrator
sustained the federal Quality Control (QC) review finding
that the sample case was ineligible for Aid to Families
with Dependent Children (AFDC) assistance in the amount
of $17 for the May 1994 review month based on a finding
that the most recent "best estimate" was inaccurate due
to an erroneous amount of dependent care expenses being
used at the April 1994 redetermination.  Thus, because
there was another change in child care expenses
subsequent to the inaccurate best estimate, the federal
reviewer was obligated to use review month income and
circumstances to determine the amount of the error.

For the reasons discussed below, we sustain the Assistant
Regional Administrator's finding that this case is
ineligible.

Facts

In the review month, May 1994, the assistance unit (AU)
consisted of the three children of LDE.  The
payee/mother, LDE, was in sanction status for non-
cooperation with child support enforcement.  At the time
of the review, the assistance unit was authorized to
receive an AFDC payment of $17, which represented the
recognized needs for a non-caretaker three-member AU
($130) less countable earned income of $112 attributed to
LDE's employment.

The State QC review found that the local agency had
accurately estimated the AU's countable earned income
until changes occurred in income circumstances within the
Payment Adjustment Lag (PAL) period.   1/  The State QC
reviewer, however, also determined that a change in child
care expenses reported by LDE at the April 4, 1994
redetermination interview did not affect the
eligibility/payment computation for the review month. 
The federal QC reviewer disagreed with the State finding
for this element (Element 323 - Dependent Care).

The federal review found that the case record information
indicated that the client reported a change in the amount
of child care costs at the April 4, 1994 redetermination
interview, yet this information was not used by the
eligibility worker when a new "best estimate" was
determined on April 20, 1994.  Rather, the local agency
continued to use the same amount of $40 per week ($174
after monthly conversion), as opposed to the new
information given at the interview of $100 biweekly (or
$217 per month after monthly conversion).  As a result,
the local agency used an incorrect amount of earned
income deductions in determining the countable earned
income, resulting in an incorrect "best estimate."  The
federal reviewer also determined that LDE's child care
costs were reduced to zero as of May 1, 1994, resulting
in yet another change in the earned income deduction
calculation.  The federal reviewer stated that since
there was a change in circumstance since the agency's
most recent estimate which was not acted upon, the QC
Manual specifies that the reviewer should use actual
review month income and circumstances to determine the
amount of the error.  The recomputation using actual
review month income and circumstances resulted in an
ineligible case.  The federal reviewer determined that
the error was a regular payment error since the original
best estimate was incorrect and all payment errors linked
to or associated with an inaccurate estimate are
classified as regular discrepancies.

Relevant Authority

Title IV, Part A of the Social Security Act (Act)
establishes the Aid to Families with Dependent Children
program (AFDC) to provide assistance to certain needy
children and their caretakers.  Under section 408(a) of
the Act, states must establish a quality control system
to determine the amount of any erroneous AFDC payments
made by a state.  Under this system, states review a
sample of AFDC payments made during the review period in
order to determine the level of erroneous payments.  The
Act then provides for federal QC re-review of a subsample
of the cases reviewed by the state.  See section
408(b)(1)(A) of the Act.  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 the 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).

States use prospective budgeting to determine eligibility
for AFDC and have the option of using that method to
determine the amount of AFDC assistance payments.  42
C.F.R. � 233.31.  Under prospective budgeting, the state
AFDC agency computes the amount of assistance for future
months based on the state agency's best estimate of
income and circumstances which will exist in those
months.  45 C.F.R. � 233.31(b)(1); QC Manual (QCM) � 3420
at IV-7.  This estimate is based on the agency's
reasonable expectation and knowledge of current, past or
future circumstances.  Monthly assistance payments
thereafter are based on this estimate unless there is a
change in the AU's circumstances or the estimate expires.

A change in circumstances means a change occurring after
the date of authorization of the initial payment which
may affect the AU's eligibility or payment amount.  45
C.F.R. � 205.42(d)(1).  In QC, an error resulting from a
change in circumstance is classified as either a regular
discrepancy, which counts towards the state's error rate,
or a PAL discrepancy, which is not counted in the state's
error rate.  QCM � 3300 at III-1.  Generally, errors
occurring because of a change in circumstance which
occurred in the review month or the month immediately
preceding the review month are PAL errors.  45 C.F.R. �
205.42(d)(1); QCM � 3300 at III-1.  However, under
prospective budgeting, if a local agency's best estimate
of income was incorrect at the time it was made, all
income and income related discrepancies in the review
month which are linked to or associated with the
inaccurate estimate are considered regular errors.  QCM �
3300 E. at III-9; � 3420 A. at IV-9; QCM � 3420 B. at IV-
11; and � 3420 C.2.(b) and (c) at IV-18 and 19.  The
Manual further specifies that if an income and or income-
related change in an individual's circumstances occurred
subsequent to the most recent estimate but the agency did
not act on it, the reviewer shall recalculate the best
estimate for the review month using actual review month
income and circumstances.  QCM � 3420 B.2.b at IV-11 and
� 3420 C.2.(c) at IV-19.   

Texas' Position

Texas does not dispute that an error occurred in the
estimate, but disagreed with the QC method used to
measure the error.  Consequently, Texas contended that it
should be responsible only for the actual mistake made by
the eligibility worker in using incorrect child care
costs in the estimate.  Thus, if the case had been
correctly budgeted, the correct payment would have been
$61, resulting in an underpayment of $44 to the
assistance unit and the subsequent change in child care
costs of zero in May 1994 would have occurred in the PAL
period and would not be relevant to the error
determination.

Thus, Texas disagreed with the federal reviewer's
application of the QC Manual procedures which resulted in
the client's ineligibility for any payment.  Texas argued
that the QC Manual procedures requiring use of actual
review month circumstances to determine the amount of the
error is beyond the scope of the QC review process as the
PAL period is not considered.

Texas also contended that its permissible state practice
requires that changes in income and circumstances that
affect the amount of benefit must be reported within 10
days after the household knows about the change.  Texas
argued that the changes in child care costs were directly
related to the client's changes in income as a result of
her employment status.  Texas stated that since the
changes in income were appropriately considered as PAL
errors, the change in child care should also be
considered a PAL error.

Analysis

We agree with the Regional Administrator that a $17
ineligible finding must be cited for this case.

The relevant authority provides that QC reviews are to be
conducted in accordance with 45 C.F.R. � 205.42 and the
QC Manual.  45 C.F.R. � 205.40(d)(3).  The QC Manual
specifically provides how to determine the amount of any
error associated with a prospectively budgeted case and
how to determine whether that error is classified as PAL
or regular.

Central to the use of 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.  The Manual explains that QC procedures for
prospectively budgeted cases require consideration of two
concepts to determine whether there is any error in the
assistance payment and the amount of and type of the
error.  These concepts are (1) whether the state agency's
most recent best estimate is accurate and (2) whether a
change in circumstance occurred since the estimate was
established, and if so, when it occurred and whether it
is a change in income or income-related factors or non-
income related factors.  QCM � 3420 at IV-7.

The Manual specifies that pursuant to federal regulations
at 45 C.F.R. � 206.10(a)(9), the state agency must
recalculate the best estimate at every redetermination of
eligibility and payment and whenever there are changes in
an individual's situation or circumstances that may
affect the amount of assistance.  Therefore, the QC
procedures require that the reviewers determine the
accuracy of the agency most recent best estimate used as
the basis for the review month's payment.

In a prospectively budgeted case, the Manual specifies
that if an income or income-related change in
circumstance occurred subsequent to the state agency's
most recent best estimate, the reviewer must recalculate
the best estimate using actual review month income and
circumstances in order to determine the amount of the
error.  QCM � 3420 B. at IV-9; QCM � 3420 C. 2.(c). 

In this case, there is no dispute that there was a
income-related change in circumstances which occurred
after the agency's most recent estimate (no child care
costs beginning May 1, 1994).  Thus, according to the QCM
Manual, in these circumstances, the QC reviewers should
have used actual review month income and circumstances to
determine the amount of the error.  Using these
procedures, the AU's actual circumstances showed that
beginning May 1, 1994, LDE's child care costs were
reduced to zero.  With no child care costs to reduce
LDE's earned income, the unit was ineligible for AFDC in
the review month because of excess income and the amount
of the payment error was $17 (amount paid of $17 less the
amount due of $0 = $17).

In addition to explaining how to calculate the amount of
an error when there has been a change of circumstances in
a prospectively budgeted case, the Manual provides for
how to determine whether such an error should be
classified as regular or PAL.  The Manual provides that
if the state agency's most recent best estimate was not
calculated correctly, then any income or income-related
discrepancies linked to or associated with the inaccurate
estimate are classified as regular errors even if the
subsequent change of circumstances occurred in the PAL
period.  QCM � 3420 A. at IV-8-10; QCM � 3420 C. 2.(c) at
IV-19.  The errors are classified as regular because the
agency's most recent best estimate is the basis for the
review month's payment and the best estimate must
accurately reflect the facts regarding the income and
income-related factors for each individual in the AU. 
The assistance payment, therefore, must be calculated
correctly based on these facts.  The purpose behind
classifying such a payment error as regular is to prevent
a state from using a change of circumstance, occurring in
the PAL period, to avoid an error which would have
resulted from the initial incorrect estimate.

In this case there is no dispute that the estimate the
state agency used in calculating the review month payment
was incorrect due to the fact that the state agency used
the incorrect amount of child care expenses; the April
1994 best estimate did not consider the increase in child
care costs which LDE had incurred in March and which had
been reported to the local agency well in advance of the
redetermination.  Further, the subsequent payment
discrepancy in the review month, resulting from the fact
the recipient had no child care costs, was linked to or
associated with the initial inaccurate estimate.  The
recipient's child care costs had been budgeted
incorrectly since the most recent estimate and the review
month's payment would have been in error as a result of
the inaccurate estimate despite the subsequent change in
child care costs during the review month.  Therefore, we
conclude that the ACF properly determined that the error
was a regular error rather than a PAL error. 

Further, we reject Texas' argument that Manual provisions
as applied by ACF in this case are beyond the scope of
the QC review process or contrary to 45 C.F.R. �
205.42(d)(1), which establishes when a change in
circumstances does not count as a regular payment error.
 The preamble to the final regulations explains why the
QC operating procedures of using the actual review month
income to determine the amount of the payment error in
prospectively budgeted cases are entirely consistent with
45 C.F.R. � 205.42(d)(1)(i).  The preamble states --

 where the estimate is no longer valid because it was
incorrectly calculated and a change in income
circumstances subsequently occurs, it is appropriate
to use actual review month income.  Likewise, if the
income estimate was incorrectly calculated and a
subsequent change occurred in the PAL period, the
payment error would be included in the State's error
rate since the change in the PAL period does not
negate the initial incorrect estimate.  The best
estimate of what income should have been budgeted,
given both an incorrect estimate and a change in
circumstances, is actual review month income.

57 Fed. Reg. 46,782 at 46,790 (October 13, 1992).

ACF might have chosen another method, such as the
suggestion of one commenter to the final regulations that
the estimate of income should be recalculated based on
information that existed prior to the PAL period and the
amount of error should not reflect the change in
circumstances that occurred in the PAL period.  57 Fed
Reg. at 46,790 (October 13, 1992).  ACF, however,
specifically rejected that suggestion and stated that the
most appropriate method for determining the amount of the
error in those circumstances where there is an incorrect
estimate and a subsequent change in income or income-
related circumstances was to use actual review month
circumstances because it is the best estimate of what
income should have been budgeted under the circumstances.
 
Finally, Texas contended that the change in child care
costs was related to the changes in the client's earned
income and, therefore, the child care cost change, like
the earned income change, should be considered a PAL
error.  However, Texas cited no Manual provisions or
authority for its position.  Rather, the QC Manual
provides that the QC review independently establishes and
verifies the facts about each element of eligibility. 
QCM � 3020 at 2.  The QC procedures also require the
reviewer to isolate each individual discrepancy and the
payment error effect on each discrepancy.  QCM, Appendix
A.  Consequently, Texas failed to explain why the federal
reviewer erred in considering the earned income changes
(Element 311) and the child care costs (Element 323) and
in isolating the error finding for each element to
determine the countable error amount.  Further, Texas
provided no explanation or evidence in the record as to
how the change in child care costs was related to the
client's changes in employment status.

Conclusion

For the reasons discussed above, we sustain ACF's
determination that a regular ineligible discrepancy
exists in the amount of $17 for the May 1994 review
month.


     _____________________________
     Sara Anderson


     _____________________________
     Thomas D. Horvath


     ____________________________
     Andrea M. Selzer


* * * Footnotes * * *

       1.    Texas uses a prospective budgeting method to
determine eligibility and the amount of assistance to be
paid.
 

(..continued)