Department of Health and Human Services
Departmental Appeals Board
AFDC QUALITY CONTROL REVIEW PANEL
SUBJECT: South Carolina Department of Social Services
Docket No. A-96-083
Decision No. QC98-R
DATE: May 16, 1996
DECISION ON RECONSIDERATION
The South Carolina Department of Social Services (South Carolina) requested reconsideration of the Panel's decision in South Carolina Dept. of Social Services, QC95 (1996) (Docket No. A-95-186). In that decision, the Panel sustained the federal quality control (QC) review determination that South Carolina overpaid the Aid to Families with Dependent Children (AFDC) assistance unit (AU) in the sample case during the review month of February 1994.
The Panel's guidelines provide that a party may request reconsideration of a Panel decision upon a showing of clear error of fact or law. South Carolina argued the Panel had committed two errors in sustaining the federal determination: the decision misstated South Carolina's position as to its permissible state practice (PSP) and the decision was inconsistent with a previous decision made by the Panel.
For the reasons explained below, we conclude that South Carolina has not shown that the prior decision in this case was erroneous as a matter of fact or law, and we deny South Carolina's request for reconsideration.
Summary of QC95
South Carolina appealed a determination by the Administration for Children and Families (ACF) that the AU in this case was overpaid $131 in February 1994. ACF's decision was based on a finding that the estimate on which the payment was based was inaccurate because the estimate did not reflect a change in circumstance (the fact that the client had become employed) which occurred during the time frame used to determine the estimate.
The facts of the case were as follows. The AU consisted of the client and two children. The client was interviewed on January 10, 1994 for her biannual redetermination of eligibility. The client was unemployed and reported no income at this time. The client began working on January 19, 1994. On January 21, 1994, the redetermination of the best estimate of the AU's circumstances was certified with no income budgeted. The client reported her employment to the local agency on January 25, 1994. The client received her first paycheck on January 28, 1994. Upon notification by the client on January 25, 1994 of her employment, the local agency sent a Request for Wage Information to the client's employer. The form was completed by the employer on January 28, 1994 and received by the local agency on February 3, 1994. The AU remained eligible and the case was rebudgeted by the local agency on February 7, 1994, effective March 1994, to reflect the client's employment.
South Carolina argued that its estimate on January 21 was accurate because no income was received by the client and no income was budgeted at the time the redetermination was completed. South Carolina took the position that the change in the client's circumstances occurred with the receipt of earnings, which occurred after the redetermination was completed, and not with commencement of employment, which occurred prior to the completion of the redetermination.
The Panel concluded that South Carolina's estimate was inaccurate under the Quality Control Manual (QCM) and South Carolina's PSP. Since the estimate was inaccurate, the resulting error was classified as regular even though the event which produced the error occurred in the month prior to the review month, i.e., during the pay adjustment lag (PAL) period. QCM, §§ 3300 E. at III-9; 3420 A. at IV-8; 3420 B. at IV-11.
In concluding that the estimate was inaccurate, the Panel relied on the portion of the QCM which provides that, in order for an estimate to be accurate, it must "accurately reflect all facts that occurred (whether known or unknown to the State) during the time frame(s) which the State uses to determine the estimate." QCM, § 3420, at IV-6. The Panel also relied on South Carolina's PSP, as set forth in its State Plan, which incorporates this requirement and sets forth the following time frame and methodology for making an estimate.
The calculation of prospective income is based on the combination of the income received in the previous eight consecutive weeks and any changes which have occurred or are expected to occur in the BG's [Budget Group] income up to the point of certification.
ACF Ex. 3, State Plan Attachment 2.3-J. (Emphasis added).
For the following reasons, the Panel concluded that commencement of employment was a "change" which should have been used in formulating the estimate. In prospective budgeting, a state computes the amount of assistance pursuant to an estimate based on "the agency's reasonable expectation and knowledge of current, past or future circumstances." 45 C.F.R. § 233.31(b)(1). This principle is included in the South Carolina State Plan which provides: "For prospective budgeting, the agency computes the assistance payment using its best estimate of income which will exist in the payment month. This estimate is based on the agency's knowledge of past and current circumstances . . . ." Id. (Emphasis added). Therefore, the Panel concluded that an estimate which did not take into account the fact a client was employed simply because the client had not yet received a paycheck would not reflect the local agency's "reasonable expectation and knowledge" of the client's current and future circumstances as required by 45 C.F.R. § 233.21(b)(1) and the South Carolina State Plan. 1/
The Panel rejected South Carolina's argument that, for purposes of making an estimate, a change of circumstances occurs only when the income is received rather than when the client becomes employed. For this argument, South Carolina relied on section 3300 of the QCM at III-5 which provides:
In ongoing cases, after identifying the income each individual is receiving, the change in circumstance is the date the particular identified income first differs from the income circumstances used by the local agency to determine the AU's financial eligibility and the amount of the RM's [review month's] assistance payment.
The Panel reasoned that section 3300 of the QCM and the specific language on which South Carolina relied is relevant to the classification of errors as regular or PAL rather than to the error determination process. The classification process and the error determination process are two different QC processes. First, a QC reviewer determines if there has been an error and then the QC reviewer classifies the error. The section 3300 standards concerning a change in circumstance are used to classify an error as regular or PAL and do not control the determination of whether the estimate was accurate or whether there was an error. Therefore, the Panel concluded that the language on which South Carolina relied presumes the existence of an accurate estimate and merely explains how to date a change in circumstance in relation to the accurate estimate.
Finally, the Panel rejected South Carolina's argument that, because of documentation and advance notice requirements, the local agency would not have had time to change the payment for February even if it had known of the client's employment as of January 19. The Panel concluded that, because the January 21 estimate was the basis for the review month grant, QC must assess the accuracy of that estimate.
Reconsideration Analysis
South Carolina argued the decision should be reconsidered for two reasons: the Panel misstated South Carolina's construction of its PSP and the decision was inconsistent with a previous decision made by the Panel. Below we consider these arguments.
1. Whether the Panel's misstatement of South Carolina's construction of its PSP should result in a different result in this case
South Carolina argued the Panel misstated South Carolina's construction of its PSP by writing that, under South Carolina's construction, a local agency "should ignore the fact that a client had become employed if the client's first paycheck was expected to be received after certification." Request for Reconsideration at 1. South Carolina also argued that the Panel's statement that South Carolina had maintained that "the employment `be it known or unknown' should not have been used in calculation the estimate" was incorrect. Id.
In its request for reconsideration, South Carolina presented the following statement concerning its PSP and why the decision was incorrect:
The state clearly indicated that if the client had reported her employment prior to January 21, 1994 (although not required due to the ten day reporting policy) the local agency would have been required to act on the information. Had that been the situation, State QC would have been in agreement with ACF's finding of an inaccurate estimate. This point was made to the Regional Administrator on June 16, 1995 when the request for reconsideration was made . . . . The same is true if the agency had become aware of the client's employment prior to certification thru other sources. However, since this was not the situation and there was no requirement for the client to report her employment until February 7, 1994 which is ten days [after] receipt of the first paycheck, there was actually no error. When the client went to work on January 19, 1994 (be it known or unknown) the agency had until March 1, 1994 to reflect the change. The client's case was correctly budgeted in a timely manner to reflect the change effective March 1, 1994 when the case was rebudgeted on February 7, 1994. The case was not required to be budgeted effective February 1, 1994, the QC review date. Again, the State reemphasizes that had the client reported her employment prior to January 21, 1994 the agency would have been required to act on this reported change. The QC review encompasses all facts, known or unknown, to the agency at the time the best estimate is established to determine the accuracy of the review month's payment. Emphasis added. (This includes making sure the case is calculated correctly and making sure there are no changes). The review month's payment was accurate because the earnings error was a PAL discrepancy. Even if the State submits to the fact that the change occurred on January 19 when the client began working rather than January 28 when the client received her first paycheck, both events occurred in the PAL period. This client began working and received her first paycheck in January 1994. The QC review date was February 1994. This is clearly a PAL discrepancy.
Id. at 1-2.
South Carolina makes several points in this statement. Below we consider each of these points and explain why they do not require a reversal of our original decision.
First, South Carolina states--
The state clearly indicated that if the client had reported her employment prior to January 21, 1994 (although not required due to the ten day reporting policy) the local agency would have been required to act on the information. Had that been the situation, State QC would have been in agreement with ACF's finding of an inaccurate estimate. This point was made to the Regional Administrator on June 16, 1995 when the request for reconsideration was made . . . . The same is true if the agency had become aware of the client's employment prior to certification thru other sources. . . . Again, the State reemphasizes that had the client reported her employment prior to January 21, 1994 the agency would have been required to act on this reported change.
We acknowledge that in writing our decision we did not completely understand South Carolina's position as to a local agency's responsibility in cases in which the local agency had actual knowledge of the commencement of employment prior to the expiration of the certification period. 2/ We now recognize South Carolina's position is that, if the local agency had actual knowledge of the employment during the certification period, the local agency must use that information, and, if it did not, South Carolina "would have been in agreement with ACF's finding of an inaccurate estimate."
The Panel's misunderstanding of South Carolina's argument on this point resulted in the Panel's not reaching the issue of "whether the employment must be considered to be `known' by South Carolina even though it was, in fact, unknown." South Carolina at 6, at n. 1 (in which the Panel expressly acknowledged that it was not addressing this issue). Given South Carolina's arguments on reconsideration, this issue must be now be addressed and is raised by the next portion of South Carolina's argument. It provides--
However, since this was not the situation [i.e., the local agency did not know of the client's employment] and there was no requirement for the client to report her employment until February 7, 1994 which is ten days [after] receipt of the first paycheck, there was actually no error. When the client went to work on January 19, 1994 (be it known or unknown) the agency had until March 1, 1994 to reflect the change. The client's case was correctly budgeted in a timely manner to reflect the change effective March 1, 1994 when the case was rebudgeted on February 7, 1994. The case was not required to be budgeted effective February 1, 1994, the QC review date.
This may be a correct statement of South Carolina's PSP for cases in which a client experiences a change of circumstances after an accurate estimate has been certified. However, for the following reasons, it is not a correct statement for cases in which a client begins employment during the time frame the state used to determine the estimate.
The QCM defines a "best estimate" of income and income- related factors as one which "accurately reflects all facts that occurred (whether known or unknown to the state) during the time frame which the state uses to determine the estimate." QCM, § 3420, at IV-6. (Emphasis added). South Carolina's PSP, as set forth in its State Plan, incorporates this requirement. ACF Ex. 3, State Plan Attachment 2.3-J at 1. Therefore, under the standard set forth in the QCM and in South Carolina's State Plan, the accuracy of an estimate is judged on basis of "all facts that occurred (whether known or unknown to the state)." A fact that occurred during the time frame the local agency used to determine the estimate was the client's employment.
South Carolina relies on the fact that, under its PSP, a client has 10 days after the receipt of her first paycheck to report her new employment. However, under the QCM definition of an accurate best estimate, such reporting periods are irrelevant as to facts which occur during the time frame used to calculate the estimate. During this time frame, the QCM imposes on states constructive knowledge of all facts irrespective of reporting periods. South Carolina did not offer any authority to support its position that its client reporting standards supersede the QCM or its State Plan requirements for information that must be used in formulating an estimate and in evaluating the accuracy of an estimate. Nor did South Carolina argue that the QCM standard was inconsistent with the Social Security Act, 45 C.F.R. § 233.31(b)(1), or other implementing regulations.
Therefore, under the QCM, we conclude that the client's employment was information about which the local agency was deemed to have knowledge and was required to use in formulating its estimate. Under the QCM and South Carolina's own State Plan, the local agency's failure to use the employment information, of which it is deemed to have knowledge, means that its estimate was inaccurate.
Moreover, the fact that advance notice requirements would have made it difficult or practically impossible to adjust the February grant does not make this a correct payment or a PAL error. The overpayment in this case was caused by an inaccurate estimate rather than by advance notice constraints.
Finally, South Carolina argued that--
The QC review encompasses all facts, known or unknown, to the agency at the time the best estimate is established to determine the accuracy of the review month's payment. Emphasis added. (This includes making sure the case is calculated correctly and making sure there are no changes). The review month's payment was accurate because the earnings error was a PAL discrepancy. Even if the State submits to the fact that the change occurred on January 19 when the client began working rather than January 28 when the client received her first paycheck, both events occurred in the PAL period. This client began working and received her first paycheck in January 1994. The QC review date was February 1994. This is clearly a PAL discrepancy.
In this portion of its argument, South Carolina is confusing the process for determining whether there is an error with the process for classifying the error. As we said in the decision, the classification process and the error determination process are two different QC processes. First, a QC reviewer determines if there has been an error and then the QC reviewer classifies the error. Here the estimate was inaccurate because it did not take into consideration the client's employment. The QCM expressly addresses the case in which the estimate did not consider "all income/income-related circumstances that have occurred or exist at the time the estimate is established." QCM, § 3420 B. at IV-11. It provides that where such information was not considered the estimate is inaccurate and "all income/income-related discrepancies linked to or associated with the inaccurate estimate are classified as regular errors." QCM, § 3420 A. at IV-8; § 3420 B. at IV-11.
Under the QCM, errors resulting from inaccurate estimates are always classified as regular whether or not the changes at issue occurred during the PAL period. "The PAL concept was established to take into account the fact that advance notice requirements or system limitations may prevent the agency from making timely adjustments to the review month's payment when changes in circumstance occur." QCM, § 3300, at III-2. However, the overpayment in this case was caused not by advance notice requirements but by an inaccurate estimate. A state should not be able to avoid the consequences of an inaccurate estimate simply because there has been a change in the PAL period. See Texas Dept. of Human Resources, QC89, at 5-6 (1995).
In summary we conclude that (1) under the QCM, the fact of the client's employment was information which had to be used in formulating the estimate even though the local agency did not have actual knowledge of that employment; (2) the local agency's failure to use that information meant that the estimate was inaccurate; (3) a payment discrepancy resulting from an inaccurate estimate is a regular error even if occurs as a result of changes in the PAL period.
2. Whether the decision in this case is inconsistent with prior decisions
South Carolina also requested reconsideration of the decision on the grounds that it conflicted with Missouri Dept. of Social Services, QC30 (1992).
In Missouri, the Panel concluded that an estimate was accurate even though the client had changed jobs prior to the certification of the estimate and information from the new job had not been used in making the new estimate. In concluding that the estimate was accurate, the Panel relied on the previously quoted portion of section 3300 (on which South Carolina has relied) which provides that a change of circumstances occurs when a client's income first differs from the income used to make the estimate.
Under the Panel's construction of section 3300 in Missouri, South Carolina may have prevailed in this case. However, as the Panel noted in a reconsideration of that decision, Missouri Dept. of Social Services, QC46-R (1993), QC30 was based on a version of the QCM in effect prior to August 1991. QC46-R at 5, n. 1. Under the pre- August 1991 version of the QCM, only information which "could have been known" was required to be used to determine the accuracy of the estimate. In the August 1991 amendments, ACF adopted a stricter standard by providing that all facts "known or unknown" which occurred during the estimating time frame must be used in determining whether the estimate was correct. The Panel expressly noted that the result in QC30 was limited to cases decided under the pre-August 1991 version of the QCM and implied that, under "the more stringent standard" of the August 1991 QCM, there could be a different result. QC46-R at 5.
Further, amendments to the QCM after August 1991 add additional support to our conclusion that the portion of section 3300 on which South Carolina relied is relevant only to determining whether an error is PAL or regular and not to the process of evaluating whether an estimate is accurate. For example, effective October 1992, ACF added the following section to QCM section 3300:
Essentially, payment error classification begins after the review process is completed, i.e., eligibility has been determined and a grant calculation has been made (following appropriate budgeting procedures - QCM 3400).
ACF Action Transmittal 92-22 amending QCM, § 3300, at III-2.
That amendment also provided--
For cases budgeted prospectively, wherein payment is based on the "best estimate" of the AU's income and income-related circumstance, the agency's best estimate must be considered correct. If the agency's best estimate of the AU's income and income-related circumstances is not considered correct because requisite information was not used or used incorrectly, then all income/income-related discrepancies linked to or associated with the inaccurate estimate are classified as regular errors (see QCM 3420 for further discussion).
Id. at III-8. (Emphasis added).
Similarly, ACF amended section 3400 in October 1993 to provide that--
Because the agency's best estimate forms the basis for future payment, including the RM's payment, that estimate must have been determined and calculated correctly. The estimate must consider all income/income-related circumstances that have occurred or existed at the time the estimate is established. If the estimate is incorrect, then all payment errors linked to or associated with the inaccurate estimate are classified as regular discrepancies . . . .
ACF Action Transmittal 93-11 amending QCM, § 3400, at IV- 11. (Emphasis added).
Based on these amendments, we conclude that ACF has clarified that the language in section 3300 concerning receipt of wages is relevant to classification of the error and not determination of whether there is an error.
Conclusion
For the preceding reasons, we affirm our prior decision upholding ACF's determination that the AU in this case was overpaid $131 in February 1994.
_____________________________
Sara B. Anderson
_____________________________
Thomas D. Horvath
_____________________________
Andrea M. Selzer
* * * Footnotes * * *
1. Since the Panel understood South Carolina to be arguing that the employment "be it known or unknown" (South Carolina Appeal at 3) should not have been used in calculating the estimate, it did not reach the issue of whether the employment must be considered to be "known" by South Carolina even though it was, in fact, unknown.
2. In concluding that South Carolina's construction of its state policy would result in a local agency not having to take into account a client's employment prior to the client's receipt of wages when making estimates we relied on the following sentence. "When the client went to work on January 19, 1994 (be it known or unknown) the agency had until March 1, 1994 to reflect that change." Appeal at 3. (Emphasis added). Since the client's employment started during the time period used to formulate the estimate, we concluded that South Carolina was saying that the local agency did not have to take the employment into account in formulating the estimate. However, as South Carolina points out, this reading of the sentence conflicts with South Carolina's prior statement to the Regional Administrator in which it said--
If the client had reported her employment prior to January 21, 1994 (although not required) the Eligibility Worker would have been required to act on this information. Had that been the situation, State QC would be in agreement with the inaccurate estimate. Since the client did not report her employment until January 25, 1994 (after completion of the redetermination) and did not receive her first pay check until January 28, 1994, which was also after the completion of the redetermination, State QC finds the estimate on January 21, 1994 was accurate with a change occurring subsequent to the estimate.
Request for Reconsideration by Regional Administrator at 2. (Emphasis added).