Department of Health and Human Services
Departmental Appeals Board
QUALITY CONTROL REVIEW PANEL
SUBJECT: Arkansas Department
of Human Services
Docket No. A-95-176
Decision No. QC88
DATE: October 18, 1995
DECISION
The Arkansas Department of Human Services (Arkansas)
appealed a June 12,
1995 quality control (QC)
determination by the Assistant Regional
Administrator of
the Administration for Children and Families (ACF) in
State QC number 110993 (Federal QC number 263). The
Assistant
Regional Administrator sustained the federal QC
review finding that, during
the review month (RM) of
September 1994, the assistance unit (AU) was
overpaid
$235 in Aid to Families with Dependent Children (AFDC)
and that
the error was a regular error rather than a
Payment Adjustment Lag (PAL)
error.
For the reasons discussed below, we find that the payment
discrepancy in
this case was a regular error and we
sustain ACF's determination.
Facts
The AU in this case consisted of the client and her three
children.
An AFDC payment of $247 was paid to the client
during the review month of
September 1994. This amount
represented the payment standard in
Arkansas for four
people with no countable income.
The case was prospectively budgeted based on a best
estimate which the
local agency made on May 10, 1994.
That estimate was based on zero
income because the AU had
no earned or unearned income. Both Arkansas
and ACF
agree that the May 1994 best estimate was accurate at the
time
it was made.
In the course of the quality control review it was
learned that the
client began working (Job 1) in late May
and received her first paycheck on
June 1, 1994. The
client quit Job 1 in July 1994 and received her last
paycheck of $62.79 from Job 1 on August 3, 1994. The
client was
then unemployed until September 21, 1994 when
she began working at Job
2. She received her first
paycheck of $324.57 from Job 2 on September
30, 1994.
Relevant Authority
Title IV, Part A of the Social Security Act (Act)
establishes the AFDC
program to provide assistance to
certain needy children and their
caretakers. Under
section 408(a) of the Act, the Secretary of the
Department of Health and Human Services must establish a
quality control
system to determine the amount of
erroneous AFDC payments made by each
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. 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 Manual (QCM) 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 local
AFDC agency computes the amount of assistance for
future
months based on the agency's best estimate of income and
circumstances which will exist in those months. 45
C.F.R. �
233.31(b)(1); QCM � 3420 at IV-6. 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 is recalculated.
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). Examples of
income-related
changes in circumstances are changes in employment status
such as the beginning or ending of a job or going from
part-time to
full-time employment. QCM � 3300 at III-1.
When a change in
circumstances occurs, the best estimate
must be recalculated. QCM �
3420 B. at IV-9.
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. (The purpose of the PAL concept is to
account for
"advance notice requirements or system
limitations" which may prevent timely
corrections to
payment amounts when changes in circumstances occur.
QCM
� 3300 at III-2.) A PAL discrepancy is an error caused
by a
change in circumstance which occurred in the review
month or the month
immediately preceding the review
month. 45 C.F.R. � 205.42(d)(1); QCM
� 3300 at III-1. A
regular payment discrepancy occurs when the change
in
circumstance occurred before the month immediately
preceding the
review month. Id.
Arkansas's Position
Arkansas contended that the discrepancy resulting from
the client's wages
from her second job should be
considered a PAL discrepancy and, therefore,
should not
be included in a determination of Arkansas's error rate.
Arkansas Notice of Appeal at 4.
Arkansas based its argument on a portion of section 3300
of the QCM in
effect prior to July 1994 which provided:
In ongoing cases involving income, the change in
circumstance is
the date income first differs from
the income amount which the local agency
used to
compute the review month's payment. This assumes
that the
local agency budgeted incorrect income and
continued to budget the incorrect
income through the
review month. If the agency budgeted the correct
income at any point prior to the review month, the
reviewer determines
if a change occurred from that
point forward to determine if any discrepancy
is PAL
or regular.
QCM � 3300 at III-5 (October 1992).
Arkansas also cited the language in the QCM in section
3300 at page III-4
which provides that, where there are
multiple changes in circumstances, it
is the date of the
first change that determines whether the error is PAL or
regular because ". . . any additional deviation(s) in the
same
eligibility/payment factor do not negate the
fundamental issue - that . . .
the factor . . . has been
consistently in error since the date of initial
onset."
Arkansas disputed that the earned income payment factor
in
this case had been "consistently in error." Arkansas
pointed out that
the AU's budget for August had zero
income to include because the $62.79 the
client earned
was "zeroed out" by the $90 disregard. 1/
Therefore,
Arkansas asserted that its payment to the client in
August
was correct. Since the August payment was
correct, Arkansas contended
that the September employment
must be considered an independent change in
circumstances
which occurred in the PAL period and which is not linked
to the May change in circumstances involving Job 1.
Arkansas objected to ACF's conclusion that "beginning
with June, 1994 the
client had been earning income
continuously." Arkansas argued that the
client earned
income from May until late July when she stopped working
and that the receipt of the last paycheck for Job 1 in
August was "not
relevant to whether or not she was
earning income." Arkansas Notice of
Appeal at 2.
Analysis
For the following reasons, we sustain the Assistant
Regional
Administrator's determination.
When a prospectively budgeted case is pulled for QC
review, the reviewer
must determine whether the local
agency's best estimate was accurate at the
time it was
made. QCM � 3420 at IV-7; � 3420 A. at IV-8. The
reviewer must also determine whether there have been any
changes in
circumstances since the best estimate was made
but which were not acted upon
by the local agency. QCM �
3420 B. at IV-8 - IV-14. If there was
a change in
circumstance, the reviewer must use actual review month
income to determine the amount of any error. QCM � 3420
B. at
IV-9, IV-11; � 3420 C. at IV-16, IV-19.
In this case the May 1994 best estimate was accurate at
the time it was
made but there were multiple changes in
circumstances subsequent to the best
estimate.
Therefore, the error determination is based on the
client's actual earned income of $324.57 during the
review month of
September 1994. This amount of earned
income resulted in an
overpayment error of $235.
In the QC review process, after the amount of an error is
determined, the
error must be classified as regular or
PAL. Where the original
estimate was accurate but there
have been multiple changes in circumstances
in the same
payment factor, the general rule is that the timing of
the
initial change will determine whether that error is
classified as PAL or
regular. QCM � 3300 at III-4. This
is because the subsequent
changes in the payment factor
"do not negate the fundamental issue - that
particular
eligibility/payment factor applicable to the individual
has
been consistently in error since the date of initial
onset." Id.
Under this general rule, the error in this
case would be regular because the
initial change occurred
in May when the client first became employed, three
months prior to the PAL period.
While this is the general rule for classifying change in
circumstance
errors occurring after an accurate best
estimate, the QCM provides an
exception for cases in
which the payment factor at issue has not been
consistently in error throughout the multiple changes in
circumstances. 2/ That exception is described as
follows:
If at any point prior to the RM, the income
circumstances become
the same as those the agency
used to determine the RM's payment, determine
if a
change occurred from that point forward to determine
if any
discrepancy is PAL or regular.
Under this exception, the link between the initial change
in
circumstances and a subsequent change in circumstances
can be broken if the
payment factor at issue has not been
consistently in error because the
"income circumstances
[became] the same as those the agency used to
determine
the RM's payment," i.e., in this case, the same as the
May
1994 best estimate. QCM � 3300 at III-4.
The QCM offers examples to illustrate the scope of this
exception.
Example 4 is relevant to this case:
o In example 4, the local agency prospectively
budgeted no
income pursuant to a best estimate
made in June. In fact, the client
had been
working since June at Job 1. She quit Job 1 and
received
her last check in August. She did not
work or receive earnings in
September. She
started Job 2 in October and worked through the
review month, November. The error is PAL.
o The text of the example goes on to explain that,
had Job 1
ended in September and had the mother
received the last check in September,
the income
error would have been regular because the mother
"has been
employed and receiving unreported wages
continuously since June, whether
those wages came
form Job 1 or Job 2." Consequently, the agency's
estimate of income had been in error due to
earnings since the last
redetermination.
QCM � 3300 at III-6 - III-7.
Therefore, in this case, we must determine whether the
fact that, during
August, the client was unemployed and
received a $62.79 paycheck means that
her "income
circumstances" became the same as those used by the local
agency in its May 1994 best estimate (no earned income).
If the
client's income circumstances in August matched
the best estimate
circumstances, then the general rule
that the date of the first change
determines the PAL/
regular classification does not apply in this case.
As background to considering this question, we note that
the PAL error
tolerance was established by ACF in the
regulations promulgated at 45 C.F.R.
� 205.42(d)(1)
rather than by section 408 of the Act. Its purpose is
to
prevent states from incurring change in circumstance
errors which
might not have been preventable because of
"advance notice requirements or
system limitations." QCM
� 3300 at III-2. However, the PAL
exception operates
regardless of whether or not a state knew of the change
in circumstances which caused the error. It therefore
assumes
knowledge of a change even when there was none
and affords states protection
in cases in which they were
actually unaware of a change until the QC
process was
complete. Given that the PAL error tolerance was created
by ACF rather than the Act and protects states from
errors even in cases
in which their routine payments
systems had not detected changes in income
circumstances,
we conclude it is appropriate to classify errors as PAL
only if they clearly meet the standards set forth in the
regulations and
QCM.
Based on the language in QCM � 3300 which allows some
errors to be
classified as PAL even though the initial
change occurred prior to the PAL
period, we conclude that
ACF properly determined that this case involves a
regular
error. In this case, the "income circumstances" of this
client did not become "the same as those the agency used
to determine
the RM's payment." Arkansas used a best
estimate of zero earned income
while the client had
earned income during every month since the best
estimate
was calculated. While Arkansas asserted that the
client's
last paycheck from Job 1 in August was "not
relevant to whether or not she
was earning income," we do
not understand why it was not. The critical
factor in
budgeting earned income is normally when the income is
received. QCM � 3551 at V-109. Therefore, the fact that
the
client received a paycheck in August means that she
had earned income in
August.
Arkansas argued that the earnings the client had in
August were "zeroed
out" by the $90 earned-income
disregard. While this is true, it does
not result in
Arkansas's conclusion that the client's "income
circumstances [became] the same as those the agency used
to determine
the RM's payment." As example 4
demonstrates, the critical element is
whether the client
had earned income, not the particular amount of the
income.
Requiring the "income circumstances" to actually
correspond with those
used as the basis of the estimate
does not unfairly impose errors on
states. For example,
in this case, Arkansas made payments to the
client for
June, July, August and September based on an estimate of
zero
income. Although Arkansas protests that the client
was unemployed for
over eight weeks, the fact is that the
client had sufficient income to be
overpaid in three out
of the four months since the best estimate.
Equating
earnings consumed by disregards to "zero earned income"
would
expand the exception created by section 3300 of the
QCM to include a range
of cases in which states had
consistently failed to ascertain, over several
months,
clients' unreported unearned income and had consistently
overpaid them.
Conclusion
For the reasons discussed above, we sustain ACF's
determination that the
assistance unit was overpaid $235
in the review month and that this payment
discrepancy is
a regular error.
_____________________________
Thomas D. Horvath
_____________________________
Andrea M. Selzer
_____________________________
Sara Anderson
* * * Footnotes * * *
1. In AFDC, earned
income is subject to certain
disregards. See 45 C.F.R. �
233.20(a)(11). These
disregards are subtracted from earned income in
determining an AU's eligibility and in calculating its
assistance
payment.
2. Arkansas
clearly tried to apply this
exception to the facts of this case.
However, Arkansas
cited a version of section 3300 which was in effect prior
to the July 15, 1994 amendments to the QCM. In this
decision, we
use the text of section 3300 and 3400 of the
QCM issued in the July 15, 1994
action transmittal. This
is the version of the QCM which was effect in
September
1994, the review month.
(..continued)