Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Wisconsin Department of Health and Social Services
DATE: September 1, 1994
Docket No. A-94-101
Decision No. 1493
DECISION
The Wisconsin Department of Health and Social Services (Wisconsin)
appealed a determination of the Administration for Children and Families
(ACF) disallowing $3,074,547 in federal financial participation (FFP)
for the period April 1, 1988 through June 17, 1992. The amount
disallowed represented the difference between FFP at the regular
administrative rate of 50% and FFP at an enhanced rate of 75% permitted
for the costs of certain optional fraud control programs under the Aid
to Families with Dependent Children (AFDC) program, title IV-A of the
Social Security Act (Act). ACF determined that Wisconsin's fraud
control program did not qualify for the enhanced rate because Wisconsin
had not implemented disqualification penalties against persons
committing fraud. Wisconsin contended that its State plan amendment
notified ACF that implementation of the penalties would require State
legislation and therefore could not occur until such legislation was
enacted. Wisconsin argued, since ACF approved its State plan amendment
and since Wisconsin contended that its AFDC program was operated in
accord with the amendment, no disallowance could be imposed.
Furthermore, Wisconsin argued that federal officials assured Wisconsin
staff in verbal communications that states were permitted to claim
enhanced funding for their fraud control programs while awaiting state
legislation to implement disqualification penalties.
The parties agreed to bifurcate the issues in this case, briefing legal
issues first and reserving factual issues for a hearing, if necessary.
See Wisconsin Br. at 2. Therefore, this decision addresses only whether
the disputed fraud control costs were properly claimed at the enhanced
rate, assuming arguendo that ACF officials made the representations
alleged by Wisconsin, and, if not, whether ACF may take this
disallowance or must use other sanctions.
We conclude that the statute unambiguously required the state to
implement disqualification penalties as a condition of eligibility for
enhanced funding. We further conclude that ACF's approval of
Wisconsin's State plan amendment did not constitute a guarantee of
enhanced funding absent such implementation. In addition, we conclude
that, even if oral representations were made as alleged by Wisconsin,
they conflicted with the statute itself and with a written policy
interpretation issued by ACF before the first oral representation was
allegedly made. Therefore, Wisconsin could not have relied on the oral
representations to permit Wisconsin to claim enhanced funding for its
fraud control costs. We reject arguments that ACF should be estopped
from enforcing the fraud control program requirements or limited to a
prospective compliance sanction. Consequently, we conclude that ACF is
entitled to disallow the difference between the FFP at the enhanced rate
and the FFP at the regular rate. In light of our conclusion here, no
hearing or further proceedings in this case are necessary.
Legal Background
Effective April 1, 1988, Congress provided that states which choose to
operate optional fraud control programs could receive an enhanced rate
of FFP at 75% for the costs of those programs. Section 9102 of the
Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203 (OBRA
1987), creating section 416(a) and amending section 403(a)(3) of the
Social Security Act (Act). The costs eligible for enhanced FFP are
those expended in "carrying out a fraud control program under section
416, including costs related to the investigation, prosecution, and
administrative hearing of fraudulent cases and the making of any
resultant collections." Section 403(a)(3)(C) of the Act. The new
section 416 of the Act further set forth the substantive provisions
governing optional fraud control programs. These provisions required as
follows, in relevant part:
(b) Under any such program, if an individual who is a member of a
family applying for or receiving aid under the State plan approved
under section 402 is found by a Federal or State court or pursuant
to an administrative hearing meeting requirements determined in
regulations of the Secretary . . . [to have committed intentional
program fraud, as described in the omitted portion], then the needs
of such individual shall not be taken into account in . . .
[determining the assistance level to that family for periods set
forth in the omitted portion].
(c) The State agency involved shall proceed against any individual
alleged to have committed an offense described in subsection (b)
either by way of administrative hearing or by referring the matter
to the appropriate authorities for civil or criminal action in a
court of law. . . .
(d) Any period for which sanctions are imposed under subsection (b)
shall remain in effect, without possibility of administrative stay,
unless and until the finding upon which the sanctions were imposed
is subsequently reversed . . . .
(e) The sanctions provided under subsection (b) shall be in
addition to, and not in substitution for, any other sanctions which
may be provided by law with respect to the offenses involved.
On May 31, 1988, ACF sent an action transmittal to the states to
implement the optional fraud control program. Action Transmittal
FSA-AT-88-12. (Wisconsin did not deny that it received this
transmittal.) The transmittal stated that the optional fraud control
program "exceeds current requirements by: (1) prescribing sanctions for
individuals . . .; and (2) authorizing funding at a 75 percent Federal
reimbursement rate for costs incurred to carry out a fraud control
program pursuant to section 416 of the Act (including prosecution
activities)." Id. at 1. The transmittal also provided that "Section
416(b) requires a State agency that elects to operate a fraud control
program to impose the appropriate disqualification penalty against an
individual who" is found to have committed intentional program fraud.
Id. Furthermore, the transmittal stated that the "disqualification
penalty requires the State agency to remove the needs" of any such
individual from the assistance award for the prescribed period.
However, since the statute permits administrative hearings to be used
for that purpose only as determined in federal regulations, the
transmittal limited State agencies to court findings as a basis for
disqualification penalties until the regulations had been promulgated.
The transmittal further provided for mandatory notice of the fraud
penalties to applicants and recipients and specified the categories of
costs for which enhanced funding is allowable. The transmittal included
pre-printed forms to be used by state agencies to amend their state
plans if they elected to operate an optional fraud control program.
State plans are comprehensive statements submitted by each state to
describe its program and assure its compliance with federal
requirements. 42 U.S.C. 602(a); 45 C.F.R. 201.2. Federal funding
is based on the state plan, with any approvable amendments. 42 U.S.C.
603(a); 45 C.F.R. 201.2, 201.3(g).
Factual Background
Wisconsin submitted a State plan amendment on June 8, 1988 stating its
intention to operate an optional fraud control program. Wisconsin Ex.
B. The amendment was approved by ACF with an effective date retroactive
to April 1, 1988. Id. at 1. The plan amendment stated that the fraud
control program "will be implemented" by an amendment to a State/county
fraud plan, and that language has been developed for a State statute to
implement the disqualification penalties.
It is undisputed that no State statute implementing the disqualification
provisions of section 416 was in fact enacted in Wisconsin until June
1992, despite repeated efforts during prior years. Wisconsin Ex. F, at
2; Wisconsin Br. at 3-4; ACF Br. at 4, n.6. Nor were disqualification
penalties implemented in Wisconsin by any other means. Id.
Nevertheless, Wisconsin began claiming enhanced rates of FFP for the
costs of other fraud control activities that it undertook without having
implemented the disqualification penalties required under section 416 of
the Act, beginning with the quarter beginning April 1, 1988. 1/
However, Wisconsin asserted that it received repeated oral advice from
ACF official which led it to claim enhanced funding prior to the
enactment of the State statute implementing the penalties. (ACF does not
concede that the statements described below were made, but for purposes
of this bifurcated proceeding, we assume arguendo the accuracy of
allegations made in the affidavits submitted by Wisconsin about the
statements by ACF officials.)
o In June 1988, at a national meeting on fraud control, an ACF policy
director "encouraged states to develop fraud control programs" and,
in response to participants' discussions, "advised that it was
acceptable to claim enhanced funding while pursuing the legislative
authority [to impose disqualification penalties] . . . until the
optional fraud control federal regulations were in place."
Wisconsin Br. at 4. No distinction was made between penalties
based on court findings and those based on administrative hearings.
See Wisconsin Ex. F at 2-3.
o In March 1990, at a similar meeting, an ACF regional staff person
who was in attendance "mentioned" that 17 states had approved state
plan amendments for optional fraud control programs, including some
states still seeking disqualification penalty legislation. The
staff person "confirmed that states could continue claiming
enhanced funding while seeking necessary legislation and until the
final federal regulations were promulgated." Wisconsin Br. at 5;
Wisconsin Ex. F at 3.
o In September 1990, at another similar meeting, a third ACF employee
who was in attendance "explained that the federal regulations were
still being developed and told the group that states would have 90
days to respond [with state plan amendments] . . . before the
enhanced funding would end." Wisconsin Br. at 5; Wisconsin Ex. F at
3-4.
o In addition, Wisconsin alleged general ongoing conversations with
regional staff members of ACF concerning the status of Wisconsinþs
implementation of the fraud control program. Wisconsin Ex. G at
1-2. ACF staff allegedly failed to warn Wisconsin that its claims
for enhanced funding might be in jeopardy during these contacts.
Analysis
Wisconsin's argument centered on its claim that the enhanced funding
provided by OBRA 1987 was not necessarily tied to the requirement for
disqualification penalties, i.e., that no "stated absolute link" existed
between the higher funding and the new sanctions. Therefore, Wisconsin
argued that the statute was ambiguous about whether disqualification
penalties were a prerequisite to enhanced funding. Consequently,
Wisconsin contended that it is unreasonable to impose a disallowance
based on the present interpretation of the statute by ACF when that
interpretation allegedly conflicts with the oral advice which Wisconsin
received from ACF over the years. Wisconsin Br. at 9-12.
We find Wisconsin's position untenable. First, we find that the statute
is not ambiguous, and cannot reasonably be interpreted in the way
Wisconsin suggested to permit enhanced funding for a fraud control
program that does not implement disqualification penalties. Nor do we
find any support for Wisconsin's theory that such enhanced funding was
permitted until federal regulations on administrative hearings were
published. Further, even assuming that the representations were made by
ACF officials as alleged, it would be unreasonable for Wisconsin to rely
on informal oral advice by ACF officials of the kind described by
Wisconsin, when ACF had previously issued a formal policy statement
reiterating that enhanced funding was only available to states that
elected to implement disqualification penalties. We further find that
equitable estoppel does not lie to preclude ACF from imposing this
disallowance. Finally, we conclude that ACF is not limited to imposing
prospective compliance sanctions but may properly disallow the costs at
issue.
1. Statutory Requirement to Implement Disqualification Penalties
Was Not Ambiguous.
OBRA 1987 both created the optional fraud control program consisting of
disqualification penalties to be imposed against individuals found to
have committed program fraud and provided for enhanced funding for the
costs of "carrying out" such a program. The mandatory language used
throughout section 416, under which section alone the enhanced rate is
made available by section 403(a)(3), makes clear that the imposition of
disqualification penalties is required for a state to claim the enhanced
rate. Thus, section 416 provides that "under any such program," the
needs of an individual found to have committed fraud "shall not" be
taken into account for the specified periods; the state "shall proceed
against any individual" alleged to have committed fraud; the sanctions
provided in the section 416 program "shall be in addition to, and not in
substitution for" any other available legal sanctions. The plain
meaning of this language is that the enhanced rate is provided only for
a program under which these new sanctions are imposed in any case of
fraud.
The Board has already resolved the question of whether OBRA 1987 was
intended to increase funding for existing state fraud control programs
or to create an incentive as a quid pro quo for states to adopt the
disqualification penalties. Colorado Dept. of Social Services, DAB No.
1277, at 12-14 (1991). In Colorado the Board concluded that --
Congress clearly expressed its intent that a greater effort was
needed to combat AFDC fraud and, accordingly, offered the 75
percent rate as an incentive. To receive the enhanced rate a state
must carry out those "optional" fraud control activities mandated
by Congress. Here Colorado, although claiming the 75 percent rate,
did nothing more than it had done in the past.
DAB No. 1277, at 12. In other words, a state must do something more
than merely continue its preexisting fraud control efforts; it must
impose the prescribed disqualification penalties. Thus, the element
that is optional in a section 416 optional fraud control program is each
state's choice about whether to undertake such a program, and the
enhanced rate is offered as incentive for states to make that choice.
However, once a state elects to operate the program and claim the
enhanced funding, implementing a program meeting the statutory
requirements, including implementing disqualification penalties and
providing notice of them, is not optional but is a prerequisite to
receiving the enhanced rate. The Board's decision was upheld in
Colorado Dept. of Social Services v. Department of Health and Human
Services, Civ. Action No. 92-F-653 (Order issued July 17, 1992).
Wisconsin acknowledged that there were "similarities between its
circumstances" and Colorado's, but suggested that "significant
distinctions" could be discerned. Wisconsin Reply Br. at 1. The
distinction which Wisconsin urged is that its State plan amendment
disclosed that statutory authority to impose disqualification penalties
was being sought but was not yet in place, and yet the amendment was
approved unconditionally. By contrast, hearing testimony from an ACF
official in DAB No. 1277 indicated that Colorado had made a "gentlemen's
agreement" not to claim enhanced rates until its program was fully
implemented. DAB No. 1277, at 14, n.10.
This distinction is not significant. The Board mentioned this
"gentlemen's agreement" only as further evidence that Colorado was
aware
that it had to implement the full section 416 program before claiming
enhanced rates. However, the Board reached the conclusion that such
implementation was a prerequisite based on its review of the statutory
language and the congressional purpose in adopting section 416 and
concluded that Colorado could not reasonably have believed that less
would suffice:
What Colorado failed to acknowledge here is that fraud control
activities qualify for enhanced reimbursement only when the
optional program consisting of notice and disqualification
penalties has been implemented. Colorado could not properly elect
to establish and operate an optional program, reclassify its
pre-existing fraud control activities for the enhanced rate, and
never relate those activities to the specific object in the statute
-- the disqualification sanction for program related fraud.
Colorado could not reasonably have believed based on the language
of section 416 and the explicit instructions in FSA-AT-88-12 that
its [fraud control] . . . program qualified for enhanced
reimbursement.
DAB No. 1277, at 14 (emphasis added).
Thus, while the "gentlemen's agreement" may have shown that Colorado
did
not in fact believe that its program qualified for enhanced funding as
it existed, the Board's conclusion that Colorado could not reasonably
have believed that a program not implementing notice and
disqualification penalties would qualify for enhanced funding did not
depend on that agreement. This conclusion applies equally to Wisconsin.
2/
Wisconsin admitted that the enhanced rate language adopted by OBRA 1987
and codified at section 403(a)(3)(C) of the Act expressly refers to
funding for a section 416 program and that section 416 contains the
requirement for disqualification penalties. Wisconsin Br. at 10.
Nevertheless, Wisconsin argued that language in the House Report on the
bill that became OBRA 1987 "makes it far from clear that there is a
necessary linkage." Id. The House Report noted that pre-existing law
provided a 50% rate of FFP for any fraud control activities and then
explained the new provision as follows:
Authorize Federal funding of 75 percent for the costs of a fraud
control program. States electing to use these funds could apply
them to the costs of investigation, prosecution, enforcement, or
administrative hearing . . . . Recipients found to have committed
an intentional program violation would be ineligible to participate
[for the specified periods as described in the omitted portion]. .
.
H. Rep. No. 391(II), 100th Cong., 1st Sess. at 895-96, reprinted in 1987
U.S.C.C.A.N. 2313-512 to 2313-513. We fail to see any support in this
quotation for Wisconsin's conclusion that the report did not link
enhanced funding and disqualification penalties. Rather, the report
describes the disqualification penalty scheme in considerable detail as
an element of the program, as well as pointing out that implementing a
fraud control program qualifying for enhanced funding would be a matter
of election by the states. Had Congress simply chosen to raise the
funding level for fraud control activities generally, no need for
election would arise.
Wisconsin also argued that state courts could impose disqualification
penalties on their own authority, so the disqualification penalty
provisions of OBRA 1987 were not "necessary," whereas OBRA 1987 was
needed to enhance the FFP rate. Wisconsin Br. at 11. Therefore,
Wisconsin reasoned, the enhanced funding provision can be interpreted as
"having a stand- alone purpose." Id. This reasoning is specious. The
purpose of OBRA 1987 was not to empower state courts to impose penalties
for program fraud, but to offer states an incentive rate for their fraud
control costs if they imposed the specified penalties. Furthermore, the
mandatory notice of disqualification penalties to all applicants
required by OBRA 1987 (extended by the action transmittal to existing
recipients) would make little sense if states had the option of whether
to implement disqualification penalties or not while still claiming
enhanced funding "pursuant to" section 416.
Wisconsin further argued that the elimination of the enhanced funding by
statute in 1993, 3/ without repealing the substantive requirements of
section 416, demonstrated that "funding and sanctions are not
intertwined." Wisconsin Br. at 11. On the contrary, Congress' decision
to terminate incentive funding for fraud control programs simply
indicates that Congress decided to withdraw the "carrot" of enhanced
funding. Congress was always free to impose a requirement for
disqualification penalties in fraud control programs receiving federal
funds. That Congress initially used an incentive to motivate states to
participate does not mean that the incentive was meant to be available
to states without any implementation of the substantive requirements.
2. ACF's Approval of Wisconsin's State Plan Did Not Guarantee
Enhanced Funding Without Implementation of Disqualification
Penalties.
Wisconsin argued that the approval of its State plan amendment by ACF
meant that its fraud control program met all requirements to receive
enhanced funding; if not, it should have been disapproved. Wisconsin
Br. at 13. Section 402(a) of the Act requires that states electing to
operate optional fraud control programs submit "a description of and
budget for such program" and "operate such program in full compliance
with" section 416. Submission of a state plan amendment was thus a
condition precedent to, but not sufficient as a guarantee of eligibility
for enhanced funding. The state must also operate a complying program.
In Wisconsin's case, the proposed State plan amendment disclosed that
the fraud program was not yet operational in several respects, since not
only the disqualification penalties enactment but agreements with the
counties would have to be amended and other described steps taken. The
terms of the amendment were prospective, setting forth what Wisconsin
intends to do to establish a section 416 program for which it will claim
enhanced funding. But Wisconsin did not point to anywhere in the
amendment where it disclosed that it intended to begin claiming the
enhanced funding before the program was implemented as described. Thus,
ACF's approval was of the intended program as described but not of
enhanced funding on the intention alone without the implementation of
the program. 4/
3. The Issuance of Federal Regulations on Administrative Hearings
Had No Bearing on Wisconsin's Failure to Implement Disqualification
Penalties or Qualify for Enhanced Funding.
Wisconsin suggested that State officials somehow thought that its
eligibility for enhanced funding prior to its implementation of
disqualification penalties was tied to ACF's promulgation of federal
regulations specifying the requirements for states to extend penalties
to administrative as well as court findings. Thus, Wisconsin wrote to
ACF in May 1991 that it had "met all requirements of the program, with
one exception," i.e., that it had not obtained "state legislative
authority in order to implement disqualification penalties required by
the federal law." Noting that the federal regulations were expected in
June 1991, Wisconsin then inquired whether it would "be allowed to claim
enhanced funding for [its] . . . fraud control program if [it did] . . .
not have the necessary state legislation to implement the
disqualification penalties by that date?" Id.
The ACF Program Specialist responded as follows:
The disqualification penalties are provided for in the statute. A
State's plan that does not include disqualification penalties does
not comport with the statute authorizing the optional fraud
program. Thereby, not allowing the State to claim enhanced funding
for their fraud program. [sic]
Wisconsin Ex. D. Despite the receipt of this letter, Wisconsin
continued to claim enhanced funding. 5/ Furthermore, this letter was
followed by a letter (also dated in May 1991) from the ACF Program
Manager, which was largely a repetition of the initial ACF response with
a a number of changes, mostly fairly minor. Wisconsin, however, drew
attention to the second letter's alteration of the paragraph quoted from
the first letter, so that it read as follows:
The disqualification penalties are provided for in the statute.
The only part of the statute requiring the Secretary's regulations
was regarding administrative hearings. A State's plan that does
not include disqualification penalties in accordance with court
determinations does not comport with the statute authorizing the
optional fraud program, thereby not allowing the State to claim
enhanced funding for their fraud program.
Wisconsin Ex. E. Wisconsin asserted that this paragraph was "the first
time in all the direct contacts" Wisconsin had with ACF since April 1988
that there was "a hint that this distinction would be made between court
determinations of fraud and determinations made at administrative
hearings." Wisconsin Br. at 7-8. On this basis, Wisconsin claimed to
have been led to believe until then that states could claim enhanced
funding without implementing the disqualification penalties until ACF
promulgated regulations permitting sanctions to be imposed by
administrative bodies as well as courts.
The assertion that the second letter is the first time Wisconsin was
informed of a distinction between administrative and court hearings is
flatly contradicted by the action transmittal, which stated that FFP is
not available for administrative fraud hearings --
until implementing Federal regulations are promulgated.
Accordingly, a State agency may only refer cases to the appropriate
authorities for civil or criminal action in a court of law and only
impose the appropriate program disqualification penalty against an
individual who is found by a Federal or State court to have
intentionally committed a program violation involving fraud.
Action transmittal at 2. Thus, the action transmittal explained the
distinction, derived from the statute itself, that administrative
hearings would qualify for enhanced funding only when there were federal
regulations spelling out the requirements for them to meet, and until
such regulations were promulgated, only court actions imposing the
penalties would be acceptable. We see no logical basis for Wisconsin's
apparent theory that the absence of federal regulations on
administrative fraud hearings justified claiming enhanced funding
without implementing disqualification penalties.
Wisconsin admitted that letters from ACF in December 1991 made clear
that its prior claims for enhanced funding might be in jeopardy.
Wisconsin Br. at 8. At that time, the federal regulations had been
published with an effective date of December 9, 1991. Yet Wisconsin
continued to claim enhanced funding, casting doubt on its assertion that
it believed its earlier claims to have been justified by the absence of
federal regulations. In fact, the ACF Regional Administrator wrote to
Wisconsin in December 1991 that questions about Wisconsin's
implementation of its optional fraud control program had been raised by
recent correspondence from the State legislature. The Regional
Administrator's letter reiterated that the new federal regulations would
only have the effect of permitting states to impose penalties in
administrative as well as court hearings. Furthermore, the letter
repeated that although "the fraud control program itself is optional,
section 416(b) . . . requires any State electing to operate the program
to impose the appropriate disqualification penalty upon every finding of
fraud." ACF Ex. 1, at 1. The letter stated that ACF "understands now"
that Wisconsin had not actually enacted the required penalties even
though it had already begun claiming enhanced funding, and asked for
clarification of whether the penalties were implemented by "statute or
some other means" and their effective date. ACF Ex. 1, at 2. Thus,
this letter not only gave Wisconsin notice once again that it was
required to impose disqualification penalties, whether pursuant to state
statute or by other means in order to be eligible for enhanced funding,
but also contradicts Wisconsin's unsupported assertion that ACF was
"fully aware" throughout that Wisconsin did not have the required
disqualification penalties while it was already receiving enhanced
funding. Cf. Wisconsin Br. at 8.
We conclude that the timing of federal regulations on administrative
hearings is irrelevant to Wisconsin's eligibility for enhanced funding.
4. Wisconsin's Claim of Equitable Estoppel Is Unsupported
Wisconsin further claimed that equitable estoppel should lie against ACF
because of ACF's "affirmative approval" of Wisconsin's State plan
amendment and the "extensive confirmations, both publicly and privately"
that Wisconsin could claim enhanced funding. Wisconsin Br. at 15-16.
The traditional elements which must be proven to establish a claim of
equitable estoppel are that the party to be estopped knows the facts,
that party acted in a way or made representations that the other party
reasonably relied on, that the party relying was unaware of the true
facts, and that the party relying acted to its own detriment. See,
e.g., Montana Dept. of Social and Rehabilitation Services, DAB No. 171,
at 5 (1981); California Dept. of Health Services, DAB No. 1472, at 7
(1994). Thus, Wisconsin considered both the approval of its state plan
and the oral representations discussed above to constitute actions and
representations of ACF on which Wisconsin reasonably relied to its
detriment. We do not agree with Wisconsin that even the traditional
test for estoppel has been met.
First, as discussed above, the approval of Wisconsin's State plan
amendment was not erroneous. Wisconsin did not implement the fraud
control plan in the manner which it described in its amendment because
it failed to enact statutory authority which it asserted was necessary
in order to operate a section 416 program in the State. The very fact
that Wisconsin's amendment set forth its intention to seek such
statutory authority is evidence that Wisconsin knew that implementation
of the disqualification penalties was a necessary step. The state plan
amendment approval did not mean that Wisconsin could claim the enhanced
funding without implementing the disqualification penalties under
section 416.
Second, Wisconsin could not reasonably rely on oral advice in the face
of the plain language of the statute and the contrary written policy
guidance from ACF. Nor were the erroneous representations allegedly
received from ACF "continuous and consistent messages," as claimed
by
Wisconsin, since they conflicted with ACF's formal action transmittal
and with later written correspondence. Cf. Wisconsin Br. at 17. Any
reliance on these oral representations as ACF's alleged interpretation
of the statute would have been unreasonable in light of the clear
written guidance in the action transmittal issued to all the states in
May 1988, before the first alleged oral statement, and before Wisconsin
filed its first claim for enhanced funding. The transmittal makes
clear, in accordance with the plain meaning of the statute, that the
program for which enhanced funding is available must exceed "current
requirements" and that such funding is only for the costs of a program
"pursuant to section 416." Id. at 1. The transmittal expressly states
that section 416 "requires a State agency that elects to operate a fraud
control program to impose the appropriate disqualification penalty."
Id.
By contrast with the formal status of this official policy issuance, the
three specific oral statements alleged to have been made by ACF
officials all are described as occurring during informal discussions at
national meetings, not even as formal presentations or as direct
agreements relating to Wisconsin's particular circumstances. The
content of these representations as reported by Wisconsin's affiants
seems in direct conflict with the statute and the action transmittal.
Nevertheless, Wisconsin claimed that it believed these statements
because, while Wisconsin admitted that the action transmittal "does
indicate that disqualification penalties are a requirement of a section
416 program," it does not "clearly and unconditionally state that
the
penalties must be in full force before enhanced funding could be
claimed." Wisconsin Reply Br. at 2. Wisconsin cannot simply assert
that it was not satisfied with the clarity of either the statute or the
action transmittal and hence chose to rely on unrecorded oral
representations that better suited its interests. At least, Wisconsin
could have been expected to seek written clarification of the oral
advice it claimed it received and an explanation of its apparent
conflict with the statute and action transmittal. No evdience of any
such effort was presented, except in 1991 in relation to the
promulgation of federal regulations on administrative hearings discussed
above.
Third, Wisconsin was not in ignorance of the true facts, since both the
statute and the action transmittal provided notice that enhanced funding
was available only for programs under section 416 which required
imposition of disqualification penalties.
Fourth, it is not clear that Wisconsin could prove detrimental reliance.
If Wisconsin had correctly followed the statutory provisions, it would
simply have claimed only the regular rate of FFP, so there was no
additional loss to it from the reduction of its claims to that rate by
this disallowance. Wisconsin asserted that it made every possible
effort to obtain disqualification penalty authority at the earliest
date, so there is no evidence that Wisconsin could have become eligible
for enhanced funding any sooner if it understood that such authority was
a prerequisite for enhanced funding. However, Wisconsin also asserted
that more counties within Wisconsin participated in the fraud control
activities after the enhanced rate became available than previously
operated fraud control programs. Wisconsin Br. at 17-18; Wisconsin
Exs. F at 5, G at 3 and I at 1-2. Nevertheless, the expansion of the
county programs involved no increased level of effort in the sense
required by section 416. While some greater costs may have been incurred
as a result of the counties' greater general fraud control activities,
it is unclear how big a role the enhanced funding played in the
expansion decisions, and, in any event, the costs are still eligible for
federal participation at the regular rate.
Even had Wisconsin met the traditional tests for estoppel, it is not
clear that equitable estoppel will ever lie against the federal
government, especially in cases involving claims for federal funds based
on misrepresentations of federal officials. OPM v. Richmond, 496 U.S.
414, 423-34 (1989). Undoubtedly, such a claim, at a minimum, requires
more than proof of the traditional elements defined above. The Supreme
Court has rejected estoppel claims against the government absent a
showing of "affirmative misconduct" on the part of the government
officials. Schweiker v. Hansen, 450 U.S. 785, 788 (1981). While the
representations allegedly made by ACF officials were erroneous,
Wisconsin made no allegations of intentional misconduct or egregious
wrongdoing by government agents. Error in oral advice by a government
agent has been held insufficient to estop the government. Heckler v.
Community Health Services of Crawford County, Inc., 467 U.S. 51, 64
(1990). Government agents cannot "by their unauthorized oral or written
statements" be held to "obligate the Treasury for payment of funds,"
without the anomalous effect of giving their erroneous advice "the
practical force of law" overriding Congressional intent. OPM v.
Richmond, 496 U.S. 414, 428 (1989). That would be precisely the effect
of permitting Wisconsinþs claim of equitable estoppel here.
Wisconsin suggested that, despite the acknowledged "reliance the Board
places on" OPM v. Richmond, we could nevertheless relieve it from this
disallowance because there is "ample reason" for us to "decide
that
flexibility is authorized." Wisconsin Br. at 19. Wisconsin turned for
such authority to a "grace period" granted in AFDC quality control
regulations for the review of sample cases against state plan amendments
which were approved in error or which were pending but later
disapproved. See 45 C.F.R. 205.42(b)(1). In addition, Wisconsin
cited to statutory and regulatory authority granted to the Secretary of
the Department of Health and Human Services to compromise claims. 31
U.S.C. 3711(a)(2) and (3); 45 C.F.R. Part 30. These examples are
inapposite. In both instances, the government agency has either
statutory or regulatory authority to treat funds as properly expended
which would not otherwise be so considered. 6/ Here, however, the costs
were clearly unallowable under the statute, and the issue is simply
whether the government is estopped from acting in compliance with law
because of the actions or representations of its agents.
We thus conclude that Wisconsin did not make the necessary showing to
support a claim of equitable estoppel.
5. ACF Was Not Required to Pursue a Compliance Action As Opposed To
Disallowance
Wisconsin argued that, rather than bringing a disallowance action to
recover the funds claimed in past periods, ACF should have acted to
prevent non-compliance, either by disapproving its State plan amendment
or by pursuing a compliance action. Wisconsin Br. at 12-15.
We have discussed above the significance of ACF's approval of the State
plan amendment. Moreover, as discussed above, there is evidence from
its correspondence that ACF may not have become aware until late in 1991
that Wisconsin had submitted claims for enhanced funding without in fact
implementing the fraud control program described prospectively in the
State plan amendment. We do not see a basis to determine in hindsight
that ACF was obligated to disapprove the State plan amendment until
Wisconsin represented that it had all elements of its fraud control
program in place rather than approving the amendment which described
Wisconsin's plan to implement all the required elements through
agreements and enactments. As ACF pointed out, Wisconsin's approach
would mean that whenever a State plan amendment was approved without a
representation that disqualification penalties have been implemented,
that state would be excused from the requirements of section 416. ACF
Br. at 7. There is no legal authority for such a result.
As far as the alternative of a compliance action, the Board rejected the
same argument in Colorado. Disallowance and compliance actions serve
different purposes and the question of whether a state met federal
requirements may arise in either context. DAB No. 1277, at 9-11; see
also New York State Dept. of Social Services DAB No. 1246, at 5-6 (1991)
and California Dept. of Health Services, DAB No. 1490, at 6-7 (1994),
and cases cited therein.
Without repeating the thorough analyses in the referenced cases, a
disallowance is a retrospective action taken to recover specific amounts
which have been previously expended by a state but which the state was
not entitled to claim in accordance with program requirements. Sections
403(b)(2) and 1116(d) of the Act; see also 45 C.F.R. 201.5(c). A
compliance action under section 404(a) of the Act is a prospective
action to withhold all or part of a state's future federal funding. See
also 45 C.F.R. 201.5. The purpose of a compliance action is to compel
a state which has been found to be in substantial noncompliance with
program requirements to bring its program into compliance.
Wisconsin offered no basis for restricting ACF to a prospective
compliance action, when we permitted ACF to impose a disallowance under
similar circumstances (as described above) in Colorado. As the Board
noted there, it is not clear whether ACF would consider the failure to
implement the fraud control provisions sufficient to constitute
substantial noncompliance and to trigger a compiance action. In any
event, the decision about whether to institute a compliance proceeding
in no way precludes ACF from disallowing funds spent contrary to program
requirements. Therefore, we reject this argument without further
discussion.
Conclusion
For the reasons explained above, we conclude that Wisconsin was not
entitled to claim enhanced funding for fraud control activities without
complying with the requirements of section 416, in particular for the
imposition of disqualification penalties. Therefore, the disallowance
is sustained.
___________________________ Donald F.
Garrett
___________________________ Norval D.
(John) Settle
___________________________ M. Terry
Johnson Presiding Board Member
1. Wisconsin's claim for the quarter ending March 31, 1989 included
adjusted claims for the three preceding quarters reflecting the enhanced
rate after the retroactive approval of Wisconsin's State plan amendment
mentioned above.
2. We note that here, as in Colorado, the disallowance represents only
the difference between the standard and enhanced FFP rates, not a
complete disallowance of the costs involved. As the Board noted in
Colorado, an enhanced FFP rate "is an exception to the generally
available reimbursement rates, and a state must accordingly meet a
higher standard of proof to justify a claim at an enhanced rate." DAB
No. 1277, at 14; see also New York State Dept. of Social Services, DAB
No. 1008, at 3 (1989).
3. The enhanced rate for optional fraud control programs was
eliminated prospectively effective April 1, 1994. Section 13,741, Pub.
L. No. 103-66 (1993). The legislation eliminated funding above the 50%
level for any state administrative costs. The conference report's
description of the pre-existing law again reiterates that enhanced
funding was for state fraud control programs operated "in accordance
with certain statutory guidelines" and that "under the program,"
specific penalties apply in fraud cases. H. Conf. Report 213, 103rd
Cong., 1st Sess. 876-77, reprinted in 1993 U.S.C.C.A.N. 1565-66.
4. No hearing was held in this case and the record does not address
whether any understanding or agreement actually existed between ACF and
Wisconsin concerning when enhanced funding would begin (as in the case
of Colorado). Since the issue is not necessary to our decision, we do
not resolve it here.
5. While admitting that "it is not clear from the face of the letter,"
Wisconsin asserted that this letter was written with the "intention"
of
expressing that enhanced funding "would be in jeopardy if
disqualification penalties were not in place . . . after publication of
the final regulations." Wisconsin Br. at 7. This assertion was based on
an affidavit from the then-director of Wisconsin's fraud control
program, who declared that the ACF letter was in response to a
conversation he had with the ACF Program Specialist in which he said
that the state legislature required "confirmation that enhanced funding
would not continue indefinitely without imposition of disqualification
penalties." Wisconsin Ex. F, at 4. We do not find it necessary to
speculate on the "intention" of the ACF Program Specialist, since
the
letter on its face responds to the written inquiry from Wisconsin,
whatever other conversations may have triggered it. ACF plainly stated
that enhanced funding could not be claimed without enactment of
disqualification penalties.
6. The Supreme Court recognized in OPM v. Richmond that Congress has,
and has exercised in various contexts, the power to provide relief by
law for those who rely on mistaken advice. 496 U.S. at 428-29. Such
legal relief does not by any means constitute equitable