GAB Decision 235
January 7, 1982 California Department of Social Services; Docket No.
80-65-CA-SS Garrett, Donald; Teitz, Alexander Settle, Norval
The California Department of Benefit Payments (now Department of
Social Services, appellant) appealed a decision by the Commissioner of
Social Security (respondent) to affirm a disallowance of $32,021 in
Federal financial participation (FFP) for payments claimed under Title
IV-A of the Social Security Act (Aid to Families with Dependent
Children/AFDC). Federal auditors determined that San Diego County had
overpaid AFDC recipients due to administrative errors but did not adjust
its AFDC assistance claims.
The issues in this appeal are whether the respondent should apply
tolerance levels to the identified errors, and thus allow the appellant
to receive FFP for a certain percentage of the overpayments, and whether
the so-called "due diligence" standard of Section 5514 of the Handbook
of Public Assistance Administration applied to these errors. We sustain
the disallowance because there is no legal basis for applying tolerance
levels to the errors involved in this disallowance and because the
appellant has not shown that these overpayments fell within the limited
circumstances to which the "due diligence" standard applied.
This decision is based on the appellant's request for
reconsideration, the record of the Commissioner's decision, the
respondent's arguments and reply to the Board's request for and Agency
response, and the appellant's response to the Board's Invitation to
Brief. We have determined that there are no material facts in dispute.
Background
Federal auditors reviewed the procedures of the San Diego Department
of Public Welfare for reporting, collecting, and abatement of
overpayments under the AFDC program for the period July 1, 1974 through
June 30, 1976. The auditors found that county procedures did not
require that overpayments resulting from administrative errors be
credited to the AFDC program and that FFP claimed for May 1 through
September 30, 1974 was overstated as a result (Audit Report, December
14, 1976, page 3). The county procedures provided only for reporting
overpayments resulting from recipient's failure to meet their reporting
responsibilities. Overpayments due to administrative errors were
credited to AFDC claims only when the county made a collection (2) or
grant adjustment in a subsequent month. The auditors discovered the
administrative errors leading to this disallowance by reviewing error
notices prepared by the county. These error notices apparently
indicated that overpayments were made due to administrative error. The
errors identified by the auditors were for the period May 1 through
September 30, 1974; copies of error notices for subsequent periods were
unavailable to the auditors except in individual case files. The notice
of disallowance stated that Section 403(a) of the Social Security Act
and 45 C.F.R. 233.20(b)(1) were the bases for the disallowance.
Discussion
I. Application of Tolerance Levels to the Individually Identified
Errors in this Disallowance
In 1973 the respondent proposed changes in the quality control system
used for certain programs under the Social Security Act. Included in
these proposed changes were provisions which allowed a small percentage
of erroneous payments (3% and 5%) to be included in the amount for which
FFP would be paid. The respondent provided that these tolerance levels
for error rates in connection with the quality control system would
become effective, on July 1, 1975. Both parties agree that these
tolerance levels (see 45 C.F.R. 205.41) did not apply to the errors here
because the effective date for the tolerance levels was not until 1975,
and because the tolerance levels set for the quality control system did
not apply to individually identified errors. Furthermore, it is clear
that the 4% tolerance level established by Congress in the Michel
Amendment in 1980 does not apply to this disallowance. However, the
appellant argued that it was unreasonable for the respondent to impose a
zero tolerance level in this disallowance because the respondent had
stated, in its quality control regulations and in the record before the
Court in Maryland v. Mathews, 415 F. Supp. 1206 (D.D.C. 1976), that the
elimination of all erroneous payments is unrealistic. Furthermore, the
appellant argued that concepts of cooperative Federalism and partnership
require that the Federal government participate in overpayments,
regardless of the reason for the error.
The respondent maintained that payments not made under the State
plan, e.g., erroneous payments, cannot qualify for FFP. The respondent
pointed to Sections 403(a)(1) and 403(b)(2)(B) as the statutory bases
for this. The court in Maryland v. Mathews reached the same conclusion.
415 F. Supp. at 1212. In addition, the applicable regulations, found at
45 C.F.R. 233.10(b)(1) and 233.20(b)(1), support this interpretation.
(3) Maryland v. Mathews recognized that the Secretary has the power
under Section 1102 of the Social Security Act to promulgate regulations
which allow for FFP in errors within prescribed tolerance levels, 415 F.
Supp. at 1212. In the absence of effective regulations establishing
tolerance levels, however, the Secretary is not required under the
Social Security Act to provide FFP in erroneous payments, and no court
has required that such action be taken. See DGAB Decision No. 170,
California Department of Health Services, April 30, 1981, page 9. Even
though the respondent has recognized the reasonableness of using
tolerance levels for certain errors discovered through the quality
control system, this recognition does not ineluctably lead to
application of tolerance levels to all other types of errors. Under
such circumstances, we cannot require an administrator to apply the
tolerance levels retroactively to the errors here. Nor is there any
evidence that the respondent has acted in an unreasonable or arbitrary
manner in imposing this disallowance without using a tolerance level.
/1/
II. Application to the Disallowance of the "Due Diligence" Standard
of Section 5514 in the Handbook of Public Assistance Administration
Section 5423.2(b) of the Handbook of Public Assistance Administration
states, in part!
Federal financial participation will not be available if overpayments
are contrary to policies on correction of errors or redetermination as
specified in IV-5514, item 2.
Section 5514 refers to FFP in assistance payments made to recipients
determined by a State agency to be eligible. It states that FFP will be
available for overpayments if the State made reinvestigations of
eligibility every six months, or took prompt action to investigate and
redetermine eligibility where it had information suggesting a change in
eligibility, and if, after determining that eligibility had changed, the
State discontinued or reduced the payment within a certain time.
Section 5512, Interpretation, states that the standards of Section 5514
apply where the State's previous determination of eligibility was
incorrect, or the recipient failed to report changed circumstances.
(4) The appellant has admitted that the overpayments leading to this
disallowance were made because of administrative error (Record for
reconsideration, Letter to Commissioner of Social Security from Deputy
Director, Department of Social Services, dated May 14, 1979).
The appellant argued, however, that the audit report provides no
indication about whether the auditors took into account the due
diligence standard, and that the audit report does not state whether the
appellant took prompt action to correct the administrative errors.
The respondent stated that Section 5514 was in effect during the
period of this disallowance, but that the standard did not apply to
overpayments made because of administrative error. The respondent
argued that Section 5514 only applied where the appellant overpaid a
recipient because the recipient failed to report changed circumstances.
In that situation, if the appellant made a prompt redetermination of
eligibility every six months, followed up promptly on any reports of
possible ineligibility, and acted promptly on the basis of the
information acquired as a result of its diligence, the State could still
receive FFP in those overpayments for a certain period of time.
The appellant argued that, since Section 5514 does not refer
specifically to administrative error, either to address or specifically
exclude such errors, the due diligence standard must apply to the errors
in this disallowance, and therefore, that the auditors should have
indicated that they considered whether the appellant met the standard.
The audit report stated that the auditors relied on the county's
error notices, which stated that the overpayments were caused by
administrative error. The State's definition of administrative error
was that the recipient met her reporting responsibility but the agency
failed to take appropriate action (AFDC Program Guide, 44-300-31, Rev.
5/6/74, Section 44-333, Overpayments, 3.A.; Agency Response, Attachment
C). Section 5514, read together with its interpretation in Section
5512, does not apply to the situation described in the State's
definition of administrative error. Therefore, Section 5514 would not
have applied to errors identified as administrative, such as those in
this disallowance. /2/
(5) Even if the due diligence standard did apply to these errors,
however, the auditors found that no adjustments were ever made to AFDC
claims for these overpayments. Since the appellant made such
adjustments only where it collected the overpayment from the recipient
or adjusted the subsequent monthly grants (see Background), the logical
conclusion was that the appellant did not promptly correct the errors.
Prompt correction is a prerequisite for meeting the due diligence
standard, where it applies.
The appellant did not even allege that such corrections occurred, nor
did it offer any evidence that the due diligence standard was, in fact,
met for any of the overpayments. /3/ In the absence of an allegation and
evidence that the appellant acted promptly to correct its errors, it is
reasonable to conclude that the errors were not promptly corrected, and
that the due diligence standard would not have been met, even if it
applied.
Therefore, the Board concludes that Section 5514 did not apply to
administrative errors, under the State's definition of administrative
error, and therefore, did not apply to the overpayments identified in
this disallowance. Furthermore, the Board concludes, that even if the
due diligence standard were applicable to these errors, the appellant
has not shown any evidence that it met the standard.
III. Whether Concepts of Cooperative Federalism and Partnership
Require that the Federal Government Share in the Costs of Errors
The appellant argued generally that the concepts of cooperative
Federalism and business partnership require that the Federal government
share the burden of administrative errors. The appellant pointed to a
California Court of Appeals case, which held that the (6) State could
not ask the counties to bear the full cost of errors, (County of Marin
v. Martin, (1974) 43 Cal. App. 3d 1, 117 Cal. Rptr. 364), and argued
that the same rationale should be applied to the Federal government.
Although equitable considerations may point to the reasonableness of
such sharing, there is no legal basis for requiring the respondent to
allow FFP in this instance. (See 45 C.F.R. Sec. 16.4, as published at
46 FR 43816, August 31, 1981.)
(6) Conclusion
We conclude that the disallowance should be sustained because there
is no legal basis for application of the quality control tolerance
levels to this disallowance nor any legal basis for requiring that the
respondent share in the costs of administrative errors. Furthermore, we
conclude that the due diligence standard of Section 5514 of the Handbook
of Public Assistance Administration did not apply to the errors
identified in this disallowance. This conclusion does not preclude the
respondent from modifying the amount of the disallowance if the
appellant provides documentation that part of the disallowed amount has
already been recouped by the respondent because of adjustments in
subsequent claims made by the appellant. /1/ The respondent stated that
it is unaware of any disallowances taken during 1973 to 1975,
based on 45 C.F.R. 233.10 (Response, July 15, 1980, page 11). This
alone, however, does not indicate that the respondent was arbitrary in
taking this disallowance. /2/ The respondent pointed out that the
appellant understood that administrative errors did not receive
the benefit of the due diligence standard, as evidenced by the
California Department of Benefit Payments Manual, Section 25-510, State
and Federal Participation in Aid Payments, which stated that FFP was not
available where county error operates to authorize payment to ineligible
persons, where payment is made through county error to a person who has
become ineligible, or payment is made through county error for some
portion of the aid. The appellant stated in its response that these
policy statements were "a reiteration of the federal interpretation of
the operative federal laws and regulations," and that they were to
encourage the counties "to maintain high administrative standards in the
AFDC program because the federal government may take a hard line on
administrative errors." (Appellant Brief, October 3, 1980, page 8.) /3/
The appellant stated in its application for review that it was
prepared to demonstrate the reasonableness of its administrative
process. The reasonableness of the process, however, is not at issue
here.
OCTOBER 22, 1983