Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
DATE: September 30, 1992
Docket No. 91-14
Audit Control No. A-02-87-02016 (A-02-90-02019)
Decision No. 1358
DECISION
The New York State Department of Social Services (State) appealed
a
determination by the Administration for Children and Families (ACF).
ACF
disallowed $92,115,289 in federal financial participation (FFP)
claimed by
the State under Title IV-E of the Social Security Act (Act).
The disallowance was based on an audit of State claims for FFP in
foster
care maintenance payments made by the New York City Department of
Social
Services (City) during the period October 1, 1983 through September
30,
1985. The audit was performed by this Department's Office of
Inspector
General using statistical sampling methods. After considering
the
State's response to the audit, ACF found that the City had made
errors
in determining Title IV-E eligibility, or had failed to
document
eligibility, in 186 of 257 sample cases. ACF determined the
amount of
maintenance payments associated with each finding and then
projected the
sample results to calculate a disallowance amount of
$64,123,732 in FFP
in maintenance payments. ACF also disallowed
$27,991,567 in FFP which
ACF found was claimed for administrative costs
associated with
unallowable maintenance payments.
The State requested that we address the threshold legal issues in
the
case, before addressing ACF's findings for individual sample cases,
and
we granted that request. Thus, we address in this decision
general
arguments raised by the State challenging ACF's authority to
disallow
maintenance payments for children who were ineligible under Title
IV-E
(or not documented as eligible); ACF's authority to base a
disallowance
on statistical sampling methods; and the method ACF used to
calculate
the disallowance of administrative costs.
In support of these challenges, the State raised numerous complicated
and
sophisticated arguments. We conclude that there is some merit to
the
State's arguments on the administrative costs. On the other hand,
the
State's arguments on the maintenance payments issues appear
designed
primarily to obfuscate, through convoluted reasoning and mistated
or
incomplete quotations, what is at bottom a fundamental proposition.
In
a grant program such as Title IV-E, the State's entitlement to funds
is
limited to payments authorized by statute, which meet the
conditions
established by the statute and implementing regulations. If
the State
has claimed FFP in excess of the amount to which the State is
entitled,
it must repay the funds. In determining the amount a state
has been
overpaid, ACF is reasonable in using any audit technique,
consistent
with its own policies, which produces reliable evidence of
the
overpayment amount, including valid statistical sampling.
Below, we first summarize our conclusions on the major issues raised
by
the State. We then provide a detailed analysis of the
State's
arguments.
Summary of our decision
We uphold the disallowance of foster care maintenance payments, subject
to
downward adjustment based on our further review of ACF's findings
in
individual sample cases, for the following reasons.
o Section 474(a)(1) of the Act authorizes
federal funding for
foster care maintenance payments only if those payments
meet certain
conditions specified in the Act. ACF regulations make
clear that FFP is
available only if those conditions and ACF regulatory
requirements are
met. FFP paid to the State for maintenance payments
which do not meet
statutory and regulatory conditions constitutes an
overpayment to the
State to be adjusted under section 474(d) of the
Act. ACF's authority
to disallow is thus derived from the Act.
Furthermore, the implementing
regulations contemplate that this enforcement
mechanism will be used.
o Section 471(b) (which authorizes the
Secretary to prospectively
withhold part or all Title IV-E funding based on a
finding of
substantial failure to comply with a state plan) is not the
only
mechanism Congress established to enable the Secretary to enforce
Title
IV-E requirements. Funding limitations are another
enforcement
mechanism available to the Secretary under Title IV-E, as the
Supreme
Court has recognized.
o The State's position that it is
entitled to FFP in any foster
care payment it makes, so long as it is
substantially complying with its
approved Title IV-E state plan, is contrary
to the plain language of the
Act and well-established grants law.
Having an approved plan makes a
state eligible for payments, but a state's
entitlement to payments is
limited under section 474(a) of the Act.
Adopting the State's position
would frustrate congressional intent in Title
IV-E. Congress placed
restrictions on Title IV-E funding for
maintenance payments as part of a
scheme to prevent foster care "drift" and
to ensure quality care for
foster children.
o Limits on payments established by the
Act and regulations must
be met by the State as a condition for FFP, even if
they can be
characterized as "technical" as the State alleged. In any
event, the
requirements for the most part are directly related to
accomplishing the
Act's purposes. The State's allegations here indicate
that the auditors
may have applied a few of the requirements in a manner
inconsistent with
ACF policy. We know of no basis, however, for
excusing a state's
failure to meet clear requirements, properly applied.
o Statistical sampling performed in
accordance with scientifically
accepted rules and conventions produces
reliable evidence of the amount
of unallowable costs claimed by a
state. Use of statistical sampling as
a basis for disallowing costs has
been consistently upheld by this Board
and the courts as appropriate where,
as here, a case-by-case review
would be impracticable.
o The State had timely and adequate
notice that ACF might disallow
Title IV-E costs based on statistical
sampling. ACF was not required to
use notice and comment rulemaking to
promulgate its policy on
statistical sampling. The policy does not
affect the State's
entitlement to funding, nor its obligation to meet
applicable
requirements. It simply relates to an audit technique used
to generate
evidence on the amount of unallowable costs claimed by a
state. The
State has had ample opportunity to challenge the statistical
methods
used and will have a further opportunity to contest the findings
in
individual sample cases.
o ACF presented evidence to show that its
sampling was performed
in accordance with scientifically accepted rules and
conventions, and
that it could say with 95% confidence that the true value of
unallowable
maintenance payments was at least the disallowed amount.
The State
presented no expert testimony or other evidence to show that the
methods
were invalid, but challenged instead whether the methods were
consistent
with ACF and OIG sampling policies -- in particular, those
relating to
sample size. The State, however, misinterpreted the scope
and effect of
those policies. Moreover, ACF bore the burden of any
increase in
potential sampling error from use of a smaller sample size.
o ACF was not required to permit a
tolerance for unallowable
payments in Title IV-E, simply because such a
tolerance is permitted
under a system applicable to Title IV-A of the Act
which involves
ongoing sampling of a state's entire IV-A caseload. Even
if ACF had the
authority to establish such a tolerance by regulation, it
would not be
appropriate for us to do so by adjudication. Nor do
contract principles
apply here to prevent ACF from disallowing the full
amount of
unallowable claims. ACF properly disallowed the full amount
since the
State had clear notice that FFP was available only in payments
which met
applicable requirements.
We reverse the disallowance of administrative costs for the
following
reasons.
o The method ACF used to calculate the
disallowance of
administrative costs is flawed. It incorrectly assumes
a proportionate
relationship between the allowability of maintenance payments
and the
allowability of administrative costs.
o ACF's method superimposes a further
allocation of administrative
costs on top of the allocation method approved
for the State (at least
with respect to part of its costs). ACF did not
show that compelling
circumstances exist which would warrant retroactively
changing the
approved allocation method.
ACF is not precluded from further examining the allocation method in
fact
used by the State for administrative costs and devising a
reasonable method
of calculating the extent to which the State's
overstatement of its
maintenance payments claims also resulted in an
overstatement of
administrative cost claims.
Analysis
I. ACF has authority to disallow payments which
did not meet
federal requirements.
ACF found, after examining individual sample cases, that the State
had
claimed FFP for foster care payments for 186 children
determined
ineligible for 285 separate reasons. Specifically, ACF
found:
o 76 children were not removed from the
home of a specified
relative as a result of a judicial determination or were
no longer under
the jurisdiction of the court or did not have a timely
judicial
determination, in violation of Section 472(a)(1) and (a)(2) of the
[Act]
and regulations at 45 CFR 1356.2(a) and (b).
o 65 children had judicial determinations
which did not contain
evidence that the court had reached a decision to the
effect that
continuation in the home would be contrary to the welfare of the
child,
or that reasonable efforts were made to prevent removal or made
it
possible for the child to return home, in violation of Section
472(a)(1)
of the Act and regulations at 45 CFR 1356.21(a) and (b).
o 58 children were not eligible for AFDC
either initially or
during their placement in foster care, in violation of
Section 472 of
the Act and regulations at 1356.21(a).
o 22 children had neither a Social
Security number nor
applications for a number prior to April 1, 1985, in
violation of
Section 402(a)(25) of the Act.
o 5 case folders were not found, in
violation of regulations at 45
CFR 74.21.
o 6 case folders were inadequately
documented to support a
determination, in violation of regulations at 45 CFR
74.21.
o 15 children were ineligible because
responsibility for care and
placement was either not imposed on NYC or was
transferred to a private
agency, in violation of Section 472(a)(2) of the Act
and regulations at
1356.21(a).
o 15 children were not removed from the
home of a specified
relative or were not physically removed from the home, in
violation of
Section 472(a) of the Act and regulations at 45 CFR
1356.21(a).
o 16 children were no longer in foster
care yet payments
continued, in violation of Section 472(a) of the Act and
regulations at
45 CFR 1356.21a and 1356.60(a)(i).
o 4 children were voluntarily placed into
care without a signed
voluntary agreement in violation of Section 472(a)(3)
of the Act and
regulations at 45 CFR 1356.30(a).
o 3 children were ineligible because they
were not United States
citizens or legal aliens in violation of Section
402(a)(33)(B) of the
Act.
Disallowance letter at 3-4, State Exhibit (Ex.) 1.
These findings were based on requirements set out in section 472 of
the
Act, or on requirements for Title IV-A eligibility, incorporated
by
reference into section 472. The payments were made in fiscal year
(FY)
1984 or FY 1985.
The State argued that Title IV-E does not expressly authorize
a
retroactive disallowance of FFP based on a failure to meet
the
requirements of section 472. Rather, the State maintained,
ACF's
authority was limited to withholding FFP as an adjustment of
quarterly
advances of federal money under a national allocation formula, or
to
withholding future payments to a state after finding that a state
had
substantially failed to comply with provisions of the state plan or
that
the state plan no longer complied with the Act. State Brief (Br.)
at
34-35.
The State noted that ACF had not questioned the State's compliance
with
its State plan in general or with any particular plan
provisions.
Consequently, the State argued, it was entitled, under section
474(a) of
the Act, to its share of Title IV-E funding. The State argued
that
Title IV-E was different from the programs under Titles IV-A and
XIX
since Congress had provided mechanisms in these programs which
allowed
recovery from beneficiaries or from providers of services.
According to
the State, no such parallel recovery system is available under
Title
IV-E. Thus, the State reasoned, since Congress did not intend
that
states could recoup misspent federal funds from foster care children,
it
consequently could not have authorized this disallowance. State Br.
at
35-37.
For reasons explained in this section, we conclude that these
arguments
have no merit. These arguments incorrectly assume that,
absent specific
reference to a "disallowance authority" in Title IV-E, the
State may
claim FFP in any foster care payments (up to the amount allocated
to the
State), so long as it has an approved State plan and is
not
substantially failing to comply with that plan. In establishing a
grant
program like Title IV-E, however, Congress is exercising its
spending
authority under Article 1, section 8, of the United States
Constitution.
Congress appropriates funds only for authorized purposes.
A grantee's
entitlement to federal funds does not extend beyond FFP
authorized in
the grant statute. Essentially, a federal agency's
disallowance of
costs is based on a determination that the grantee has
claimed funds to
which it is not entitled under the grant statute,
implementing
regulations, and other applicable grant conditions. If the
grantee has
already received the funds in excess of the amount to which it
is
entitled, a disallowance is necessarily retroactive.
Thus, the key question to ask is whether the State may retain FFP even
if
it did not meet section 472 requirements. We conclude that
Congress
clearly intended section 472 to act as a limit on the
State's
entitlement to FFP. We further conclude that the Act gives ACF
the
authority to determine the amount of FFP paid to the State in excess
of
the State's entitlement and to reduce the grant award by the amount
of
such overpayment. Below, we first discuss the history,
statutory
scheme, and language of Title IV-E. We then address
ACF's regulations.
A. Title IV-E of the Act establishes a
grant program with
specific purposes.
The Adoption Assistance and Child Welfare Act of 1980, Public Law
96-272,
was enacted on June 17, 1980, as part of a comprehensive
restructuring of
certain Social Security Act programs. This
restructuring was based on
the belief that the public child welfare
system responsible for serving
dependent and neglected children had
become a holding system for children
living away from their parents.
Congress intended "to lessen the emphasis on
foster care placement and
to encourage greater efforts to find permanent
homes for children either
by making it possible for them to return to their
own families or by
placing them in adoptive homes." S. Rep. No. 336,
96th Cong., 1st Sess.
1 (1979).
Among other changes, this legislation established a new federal
program,
Title IV-E, Federal Payments for Foster Care and Adoption
Assistance.
42 U.S.C . 670 et seq. The foster care component of the Aid
to Families
with Dependent Children (AFDC) program, under Title IV-A of the
Act, was
replaced by Title IV-E, effective no later than October 1, 1982.
Title IV-E authorizes appropriations to enable a state "to provide,
in
appropriate cases, foster care and adoption assistance for children
who
otherwise would be eligible for assistance" under the state's Title
IV-A
program or, in the case of adoption assistance, would be eligible
for
benefits under the Supplemental Security Income program found at
Title
XVI of the Act. The appropriations made available for Title IV-E
are
sums "necessary to carry out the provisions of" Part E, and are to
be
used to make payments to any state with an approved state plan.
Section
470 of the Act.
Section 471(a) of the Act sets out state plan requirements.
Section
471(b) provides for approval of any complying plan, but authorizes
the
Secretary to withhold or reduce further payments to a state if
the
Secretary finds that a state plan no longer complies, or that in
the
administration of the plan there is a substantial failure to comply
with
the plan.
Section 472 of the Act describes the foster care maintenance
program,
including the children on whose behalf such payments must be
made.
Basically, they must be children for whom the state has
the
responsibility for care and placement, who would otherwise be
eligible
for Title IV-A, and who are removed from the home of a
specified
relative as a result of a judicial determination, meeting
specified
requirements, or a voluntary placement agreement. Coverage of
children
removed pursuant to a voluntary placement agreement is subject
to
additional conditions set out in subsections (d), (e), and (f).
Section
473 describes the adoption assistance program.
Section 474(a) of the Act establishes states' entitlement to
federal
funding for three separate categories of Title IV-E
expenditures:
foster care maintenance payments "under section 472" of the Act
for
children in foster family homes or child care institutions;
adoption
assistance payments under section 473 of the Act; and expenditures
found
necessary by the Secretary for the proper and efficient
administration
of the state plan. Total payments in a fiscal year may
not exceed the
amount allotted to a state under section 474(b) for that year
(except in
certain specified circumstances).
Section 475 contains definitions relevant to Title IV-E, including
a
definition of "foster care maintenance payments."
The State's arguments on the statutory language focus on the state
plan
requirements in section 471. Having an approved state plan,
however,
only makes a state "eligible" for payments. Section
471(a). The amount
of funding to which a state is "entitled" is
established by section
474(a). Section 474(a)(1) provides that a state
with an approved plan
is entitled to payment each quarter, at a specified
rate, for "the total
amount expended during such quarter as foster care
maintenance payments
under section 472 for children in foster family homes or
child-care
institutions." (Emphasis added.) The State is not
entitled to funding
for payments which are not "under 472" (nor for payments
which do not
meet the definition of "foster care maintenance payments" in
section 475
or which are not for children in foster family homes or
child-care
institutions).
Thus, contrary to what the State argued, the plain wording of the
statute
conditions FFP on the expenditures meeting the requirements set
out in
section 472. Reading the statute to authorize funding in
payments not
meeting these requirements would be contrary to the intent
of the Adoption
Assistance and Child Welfare Act of 1980. In order to
achieve the
purposes of preventing unnecessary placements and protecting
children placed
in foster care, Congress narrowly circumscribed the
types of payments in
which it would participate. Moreover, Congress
tied eligibility for
Title IV-E to Title IV-A, by incorporating the
eligibility conditions of IV-A
into section 472. To permit a state to
ignore those limits would
frustrate Congressional intent and expand the
program beyond the purposes
stated in section 470.
Section 474(a) implicitly gives ACF the authority to disallow.
A
disallowance is essentially a determination that a grantee is
claiming
or has claimed federal funds to which it is not entitled under
the
statute, or other program requirements. ACF could not
properly
administer the program in accordance with the statute if ACF could
not
act to ensure that federal funds are spent only for authorized
purposes.
B. The Act provides for "retroactive"
adjustments for
overpayments to a state.
Section 474(d)(2) of the Act provides additional support for
ACF's
assertion that it has authority to disallow funds claimed in excess
of
the amount to which the State is entitled under Title IV-E.
Section
474(d) establishes a scheme of quarterly grant awards to states,
based
on estimates adjusted by the Secretary. Subsection (d)(2)
provides --
The Secretary shall . . . pay to the State, in
such
installments as he may determine, the amounts so
estimated,
reduced or increased to the extent of any
overpayment or
underpayment which the Secretary determines
was made under
this section to such State for any prior
quarter and with
respect to which adjustment has not
already been made under
this subsection.
The State argued that this section supported its contention that,
under
Title IV-E, ACF is limited to prospective remedies against the
states.
This view is contrary to the plain language of the section, which
refers
to overpayments for "any prior quarter." While any adjustment
under
section 474(d)(2) would be prospective in the sense that it would
be
made to an award for a future quarter, any such adjustment would also
be
retrospective in the sense that it would relate to a prior quarter.
The plain language of section 474(d)(2) is also a basis for rejecting
the
State's contention that adjustments are authorized only if a state
exceeds
its total allotment (or allocation) of funds. Funds are
allotted under
section 474(b) for a fiscal year. If section 474(d)(2)
was limited to
only one particular type of overpayment, it would not
refer to "any
overpayment . . . for any prior quarter." Interpreting
this authority
as narrowly as the State did would also preclude the
Secretary from making
adjustments if the estimated award to the State
for a quarter was greater
than the State's actual expenditures during
the relevant quarter.
Clearly, Congress could not have intended such a
result.
Moreover, as ACF noted, judicial interpretations of similar language
in
other federal grant programs leads to a conclusion that ACF has
the
authority to disallow retroactively for payments which do not
meet
federal requirements. In Maryland Dept. of Human Resources v.
Dept. of
Health and Human Services, 763 F. 2d 1441 (D.C. Cir. 1985), the
court
found that virtually identical language in Title XX (at section
2002(b)
of the Act) evidenced the government's "statutory right of
recovery"
and the state's corresponding indebtedness to the government for
misused
funds. 763 F. 2d at 1444, 1457. Similarly, in Georgia
Dept. of Human
Resources v. Califano, 446 F. Supp. 404 (N.D. Ga. 1977),
the district
court construed identical language contained at section
1903(d)(2) of
the Act as authorizing the Secretary to question a state's
claims and to
reimburse a state only for proper expenses. 446 F. Supp.
at 412.
In Bell v. New Jersey, 461 U.S. 773 (1983), the Supreme Court
interpreted
a similar provision from the Elementary and Secondary
Education Act of 1965
as evidence of the government's statutory right to
recover misspent federal
grant funds. 1/ The Court rejected the same
argument which New York
presented here, i.e., that the federal
government was limited to prospective
relief. Rather, the Supreme Court
noted that the statute's plain
language recognized the federal
government's right to recover funds not
meeting program requirements.
461 U.S. at 780-783.
The judicial analyses of statutory language analogous, if not
identical,
to section 474(d)(2) of the Act support a conclusion that ACF
has
authority to disallow retroactively where it finds an
improper
expenditure of Title IV-E funds. The basic scheme set out in
Title IV-E
is typical of state plan grant programs (sometimes referred to
as
"entitlement" or "formula grant" programs), and is parallel to
the
language of similar grant programs under the Act such as Titles IV-A
and
XIX. While there are some differences in the structure of Title
IV-E,
this can be explained by the fact that Title IV-E sets up two
programs
-- one for foster care maintenance payments and one for
adoption
assistance.
We find no merit in the State's argument that Title IV-E
is
distinguishable from Titles XIX and IV-A on the ground that the
State
cannot recover improper maintenance payments from foster care
children,
whereas it can recover erroneous Medicaid payments from providers
and
erroneous AFDC payments from recipients. We see no reason why
this
factor, even if true, should permit the State to retain FFP in excess
of
what is authorized under the statute. 2/ Indeed, the State said
here
that children in foster care not eligible for Title IV-E (or
for
emergency assistance payments) would be automatically covered by
the
State's own foster care program. Thus, the State is no worse off
from a
retroactive adjustment of FFP than it would have been if it had
covered
the maintenance payments for ineligible children with State
funds
initially (as it should have).
We also reject the State's argument that Title IV-E is
distinguishable
because it establishes a block grant program. A block
grant program is
one in which a state has broad discretion to shift funds
between related
categories. The State pointed to nothing in the wording
or history of
Title IV-E to support its view that Title IV-E establishes a
block grant
program. Title IV-E is not listed as a block grant program
under
Department regulations at 45 C.F.R. Part 96 governing such
programs.
Even if Title IV-E were a block grant, however, this would not
broaden
the State's entitlement beyond funding authorized in the
statute. Block
grant programs are subject to audit, and a state must
repay amounts
found to have been expended improperly. 45 C.F.R. .
96.32.
Finally, the State pointed out that section 1116(d) of the Act does
not
specifically provide that the Secretary shall reconsider
disallowances
under Title IV-E, although it does specifically mention Title
IV-A and
other Titles of the Act. This omission does not support the
State's
position here, however. First, section 1116(d) addresses
states' right
to a reconsideration process when a disallowance is taken.
3/ Absence
of specific mention of a right to reconsideration of a
disallowance does
not automatically imply a lack of authority to
disallow. Second, ACF
has treated as an oversight Congress' failure to
amend section 1116 to
add Title IV-E, and has in its regulations provided to
the states the
same right of reconsideration of a disallowance as states have
under
other state plan grant titles of the Act, that is, the right to appeal
a
disallowance to this Board. See 45 C.F.R. . 1355.30(a); 45 C.F.R.
Part
16, Appendix A, B.
C. ACF regulations treat the provisions
of section 472 as
conditions for FFP.
Title IV-E regulations at 45 C.F.R. subchapter G, clearly treat
section
472 of the Act as establishing conditions for FFP.
Section
1356.60(a)(1) provides that FFP --
is available to States under an approved title
IV-E
State plan for allowable costs in expenditures for:
(i) Foster care maintenance payments . . .
made
in accordance with 45 CFR 1356.20
through
1356.30 of this part, section 472 of the Act
and
section 102(d) of Pub. L. 96-272, the
Adoption
Assistance and Child Welfare Act of 1980 . . .
.
This section was enacted as part of the "fiscal requirements" for
Title
IV-E, described as the "fundamental requirements for receipt
and
expenditure of Federal financial participation" under the program.
47
Fed. Reg. 30922 (July 15, 1982). No provision of these
regulations
makes FFP available in expenditures for payments for foster
care
services not made in accordance with section 472 of the Act.
Section 1355.30, enacted at the same time, makes applicable to Title
IV-E
"regulations . . . which are generally applicable to all grants and
are
particularly relevant to programs with FFP in State expenditures."
47 Fed.
Reg. 30923. These regulations include the Board procedures used
for
reconsideration of Social Security Act disallowances.
In sum, the statute and regulations authorize FFP only in payments made
in
accordance with section 472 of the Act and implementing regulations,
and
permit retroactive adjustments to grant awards for FFP paid in
excess of the
authorized amount. A determination that a state has been
overpaid FFP
is a disallowance, subject to reconsideration by the Board.
II. ACF's authority to disallow is separate from
its authority to
take action based on substantial failure to comply.
As mentioned above, the State argued that ACF could enforce the Act
only
by invoking section 471(b). The State also argued that, by using
a
disallowance mechanism here rather than finding a substantial failure
to
comply, ACF was depriving the State of its right to a
non-compliance
hearing. In its reply brief, the State argued that its
position was
supported by a recent Supreme Court decision.
For reasons explained in this section, we conclude that these
arguments
have no merit.
A. ACF did not find a substantial failure
to comply, nor
was it required to.
Section 471(b) of the Act provides that --
in any case in which the Secretary finds, after
reasonable
notice and opportunity for a hearing that . . . in
the
administration of the plan there is a substantial failure
to
comply with the provisions of the plan, the Secretary
shall
notify the State that further payments will not be made to
the
State under this part, or that such payments will be made to
the
State but reduced by an amount which the Secretary
determines
appropriate, until the Secretary is satisfied that there is
no
longer any such failure to comply, and until he is so
satisfied
he shall make no further payments to the State, or shall
reduce
such payments by the amount specified in his notification to
the
State.
This section thus permits the Secretary (through ACF) to withhold all
or
part of the amount that would otherwise be paid to a state under
the
system of quarterly payments set out in section 474. Thus, it
affects
funding to the state for future quarters. The purpose of such
action is
to bring a state into compliance.
Similar provisions appear in other Titles of the Act establishing
state
plan grant programs. Yet, we know of no administrative or
court
interpretation that such a provision must be viewed as an
exclusive
enforcement mechanism absent a specific reference to
disallowance
authority. Indeed, the Georgia court rejected such an
interpretation.
While the court's decision was based in part on section
1116(d) of the
Act, the court also found that the Secretary's right to
disallow was
implied from the overpayment provision in section 1903(d) and
from the
common law right to recover federal funds improperly or
illegally
disbursed. Georgia, 446 F. Supp. at 412, citing Mount Sinai
Hospital of
Greater Miami v. Weinberger, 517 F.2d 329 (5th Cir. 1975).
The State did not argue that ACF had made any finding that the State
was
substantially failing to comply with its State plan. In fact, the
State
argued that its failures related to "minor" or "technical"
requirements.
While we do not agree with the State's characterization of
section 472
requirements as "minor" or "technical," we nonetheless consider
it
within ACF's discretion not to invoke the substantial compliance
remedy.
Providing for foster care maintenance payments in accordance
with
section 472 is only one of many state plan provisions required
by
section 471(a). Moreover, ACF made no finding that the claiming
errors
found for sample payments made in FYs 1984 and 1985 in New York
City
arose from any noncompliance with the State plan which was continuing
to
the present so that prospective cessation of part or all of the
State's
Title IV-E funding is necessary to force the State to comply.
This
draconian enforcement mechanism has only rarely been used by
this
Department in any program.
Past Board decisions have recognized the traditional distinction made
in
the Act between disallowances and compliance actions. See New
Jersey
Dept. of Human Services, DAB No. 259, at 6-20 (1982);
Massachusetts
Dept. of Public Welfare, DAB No. 438, at 22-27 (1983); Colorado
Dept. of
Social Services v. Dept. of Health and Human Services, Civil
No.
92-F-653 (D Co., filed July 17, 1992), affirming Colorado Dept.
of
Social Services, DAB No. 1277 (1991). We will not repeat those
lengthy
analyses here. However, we note that in Colorado the courts
upheld the
Board's view that a disallowance action was appropriate for
recovering
expenditures made in the past, even if the basis for disallowance
was
failure to meet state plan requirements, so long as the federal
agency
did not find that there was a continuing and substantial failure
to
comply.
Moreover, in New Jersey v. Dept. of Health and Human Services, 670
F.2d
1284 (3rd Cir. 1981), the court found that the procedures relevant
to
compliance actions should have been invoked by the Secretary rather
than
disallowance procedures, but found that this was harmless since
"nothing
. . . precludes our treating the [DAB] action . . . as . . .
rendered
after an `opportunity for hearing' sufficient to satisfy
the
requirements" of section 1116 of the Act for compliance actions.
At
note 13.
In New York State Dept. of Social Services, DAB No. 1246 (1991), the
Board
stated --
the Secretary's compliance remedies and disallowance
remedies
are not mutually exclusive and serve different purposes. . .
.
The compliance remedy grants the Secretary sweeping powers
when
a state is in substantial noncompliance with program
standards.
In a compliance action the Secretary is authorized to
terminate
all funding to the state in order to give it
compelling
incentive to bring its program back into compliance.
In keeping
with the coercive nature of the remedy, the amount of money
the
Secretary may withhold is not necessarily related to the
actual
costs of the noncompliance at issue. In contrast,
a
disallowance action provides a specific and focused
remedy
pursuant to which the federal government may disallow
precisely
identified amounts which were not spent in accordance
with
program requirements.
DAB No. 1246 at 5.
While the amount disallowed here is very large, that does not change
the
essential nature of the federal action as one to recover FFP
erroneously
paid in past expenditures not made in accordance with
program
requirements.
We also note that the main reason states have argued that
compliance
procedures should be used is that, under section 1116(a)(3) of the
Act,
final determinations in compliance proceedings under listed sections
of
the Act may be appealed directly to the courts of appeals.
Section
1116(a)(3) of the Act, like the provision in section 1116(d), was
not
amended to refer to Title IV-E. ACF regulations treat this as
an
oversight and adopt procedures at 45 C.F.R. Part 213 for
compliance
actions in Title IV-E, as for other titles. We think that is
the
correct interpretation. The State's arguments are
inconsistent,
however, since they would distinguish Title IV-E from other
state plan
grant titles for purposes of disallowances, but would treat the
titles
the same for purposes of compliance actions.
C. The Supreme Court decision on which
the State relied
supports ACF rather than the State.
In its reply brief, the State argued that the ACF position that the
Act
authorized both disallowances and substantial compliance actions
was
rejected by the Supreme Court in Suter v. Artist
M., U.S. , 112
S. Ct. 1360
(1992). The State argued in effect that the analysis in
Suter supported
the State's view that having an approved plan entitled
the State to any
federal funding the State claimed and that the only
mechanism for enforcing
the Title IV-E requirements (other than the
provisions of section 472(e)) is
through a compliance action.
The State's arguments in our view seriously misrepresent both the scope
of
the Suter decision and what the Supreme Court said.
The issue in Suter was whether the Child Welfare and Adoption
Assistance
Act of 1980 conferred upon the child beneficiaries of the Act a
right to
enforce the requirement that the State make "reasonable efforts"
to
prevent a child from being removed from his home, and once removed
to
reunify the child with his family. The petitioner children in
Suter
argued that section 471(a)(15) of the Act conferred a private right
of
action. The Supreme Court rejected this argument based primarily on
its
analysis of section 471(a) as merely requiring the State to have a
plan
approved by the Secretary containing the listed features, including
a
provision that the State would make reasonable efforts in each case.
The
Supreme Court did not directly address the issue of whether ACF had
the
authority to disallow payments not made in accordance with section
472.
Contrary to what the State argued, nothing in Suter implies that having
a
complying plan is sufficient to entitle the State to any foster care
payments
the State claims. Nor does Suter stand for the proposition
that the
compliance mechanism in section 471(b) is the only enforcement
mechanism
available to the Secretary. The Suter decision specifically
mentions
two enforcement mechanisms for the reasonable efforts
requirement.
After referring to the substantial compliance provision in
section 471(b) as
one of the other sections of the Act providing
enforcement mechanisms, the
decision then states:
The Act also requires that in order to secure
federal reimbursement
for foster care payments made
with respect to a child involuntarily
removed from
his home the removal must be "the result of a
judicial
determination to the effect that
continuation [in the child's home]
would be contrary
to the welfare of such child and (effective
October
1, 1983) that reasonable efforts of the type described
in
[section 471(a)(15)] of this title have been
made." . [472(a)(1)].
112 S. Ct. at 1368.
Thus, the Supreme Court recognized that section 472 of the Act
established
conditions for federal funding. This section could
reasonably be
considered as creating an "enforcement mechanism" only if
the Secretary has
the authority to deny funding for foster care payments
not meeting the
section's requirements.
The State nonetheless argued:
The reasonable efforts requirements of . 471(a)(15)
are expressly
incorporated in . 472(a)(1).
Because . 471(a)(15) is not a precise
requirement
providing notice to states that the provision
created
enforceable rights not expressly stated, it
follows that .
472(a)(1) is similarly not a precise
requirement creating
enforcement rights not
expressly stated.
State Reply at 30.
We disagree. First, we note that the issue here is not whether
section
472(a)(1) creates rights enforceable by children; the issue is
whether
the State is entitled to FFP in payments not meeting section
472
requirements. In any event, it does not logically follow that a
result
based on wording in one section of the Act applies to a second
section
of the Act simply because the second section incorporates the
first.
As discussed above, section 471(a) of the Act contains state
plan
requirements. On the other hand, section 474(a) sets out a
state's
entitlement to payment and limits payment to "foster care
maintenance
payments under section 472." Thus, there is an express
statement in the
Act limiting FFP to payments made under section 472.
4/ Since the
condition for funding is clear, the Supreme Court's
decision in
Pennhurst State School and Hospital v. Halderman, 451 U.S. 1
(1981), is
inapposite here. 5/
The State similarly reads too much into the analysis in Suter
rejecting
the petitioner children's analogy between the reasonable
efforts
provision in section 471(a)(15) and the reasonable rate requirement
in
section 1902(a)(13) of the Act, considered in Wilder v.
Virginia
Hospital Assn., 496 U.S. 498 (1990). 6/ The Supreme Court said
that
"each statute must be interpreted by its own terms." 112 S. Ct.
at
1367, n.8. The State argued, based on this statement, that it is
"clear
from the Supreme Court's interpretation that the Secretary's ability
to
recoup payment under Title XIX does not mean that a similar ability
is
afforded under Title IV-E." State Reply at 32.
We agree as a general proposition that each statute must be interpreted
on
its own terms. On the other hand, parallel provisions in
different
titles of the same Act would generally be assumed to have the
same
meaning, absent evidence to the contrary. Haig v. Agee, 453 U.S.
280
(1981); Northcross v. Bd. of Educ. of Memphis City Schools, 412 U.S.
427
(1973); Forman v. United States, 767 F.2d 875 (Fed. Cir. 1985);
see
generally Sutherland Stat. Const., sections 51.01-51.03 (4th
ed.).
Unlike the provisions of sections 471(a)(15) and
1902(a)(13)
distinguished in Suter, the provisions in sections 474(d) and
1903(d)
regarding adjustments for overpayments contain parallel
language. The
State pointed to nothing in the context, legislative
history, or
administrative interpretation of these overpayment sections which
would
indicate any difference in intent.
Finally, we reject the State's argument that the Supreme Court's
finding
in Suter that compliance with the reasonable efforts requirement
in
section 471(a)(15) of the Act will vary with the circumstances of
each
individual child somehow precludes the use of sampling by the OIG.
The
Supreme Court found that allowing private actions would interfere
with
the states' discretion to decide what reasonable efforts to provide
in
each individual case. The audit here does not interfere with
that
discretion. The audit findings related to reasonable efforts were
not
based on section 471(a)(15), but on section 472(a), which requires
a
judicial determination, by a state court, that reasonable efforts
have
been made. The auditors found for some children either that no
such
determination had been made, or that the State had not documented
that
determination. This is far different from a decision which
would
dictate to a state what services it must provide to a particular
child
in the first instance.
In sum, withholding future funds based on a finding of substantial
failure
to comply is not the only mechanism Congress established, and
which ACF may
use, to enforce the Act's requirements.
III.
ACF is not precluded from disallowing the full amount of
any overpayment to
the State.
The State argued that the appropriate "penalty" for certain
alleged
eligibility violations is not total loss of FFP. The State
argued that
ACF found children ineligible, regardless of the significance of
the
particular criteria ACF found were not met, and disallowed the
total
amount of FFP claimed for the children during the audit
period.
According to the State, the disallowance is "based in large part on
the
State's failure to comply with certain eligibility criteria that
are
most properly classified as technical requirements." State Br. at
49.
The State argued that, by exacting a penalty as severe as total loss
of
FFP for children who fail to meet even the most minor of the
eligibility
criteria, ACF defeats Congress goal of aiding and improving the
states'
foster care programs. State Br. at 50.
The State argued that exacting the maximum penalty for every
violation,
without regard to the significance of the transgression, is an
approach
disfavored in our system of law. State Br. at 51. The
State analyzed
contract law principles, concluding that, since "there are no
provisions
in Title IV-E that explicitly mandates forfeiture of federal
funding for
failure to meet minor eligibility provisions, the Agency ought
not to be
allowed to apply the statute so as to work a forfeiture where
the
State's error is not of the kind that would warrant full withholding
of
FFP." State Br. at 57.
Like other arguments raised by the State, these arguments depend on
State
terminology -- such as "penalty" or "forfeiture" -- used
inappropriately
here. The State is entitled to FFP only as authorized
by Congress;
thus, requiring the State to repay funds it claimed
improperly cannot fairly
be characterized as either a "penalty" or a
"forfeiture" (especially for
payments which it otherwise would have
covered entirely with its own funds
from the beginning). See Bennett v.
Kentucky Dept. of Education, 470
U.S. 656, 662-663 (1984); Bell v. New
Jersey, 461 U.S. 773, 782 (1983).
As discussed in this section, we also
conclude that the State's arguments
have no merit because they are based
on contract principles which do not
apply in the grant context, and
because ACF reasonably determined that all
requirements specified in the
Act should be enforced.
A. The contract principles relied
on by the State
do not apply here.
The State relied here on the "venerable principle of contract law
that
failure to satisfy a minor provision in a contract does
not
automatically entitle the other party to terminate the contract
and
withhold all consideration." State Br. at 51. The State said
that this
doctrine of substantial performance was adopted by courts "for the
very
purpose of mitigating the harsh effects of requiring a party to
forfeit
all rights under a contract for the slightest breach." State
Br. at 51.
The State asserted that this doctrine provided a suitable analogy
since
the Supreme Court had stated in Pennhurst that funding legislation
"is
much in the nature of a contract: in return for federal funds,
the
States agree to comply with federally imposed conditions." 451 U.S.
at
17. The State argued:
In determining whether the State has "materially breached"
the
Title IV-E "contract" and thus relieved the Agency of
its
obligation to provide federal funds in particular cases,
the
Agency cannot simply look to whether the State has failed
to
comply with one of many eligibility provisions, however
minor,
or has failed to document eligibility precisely in the
manner
required by the Agency. This would be tantamount to one
party
withholding his entire consideration for a minor violation
or
deviation by the other, the approach clearly disfavored
under
contract law. Rather, the Agency must determine whether
the
State has substantially performed its obligations under the
IV-E
"contract," thereby entitling the State to its
promised
consideration (FFP) with or without some offset, if
appropriate,
to account for the minor failure.
State Br. at 52-53.
Finally, the State argued that ACF's "choice of remedy . . . must
be
rejected because it bears no relation to the injury sustained by
the
Agency as a result of the State's failure to comply with
eligibility
criteria." State Br. at 55.
These arguments are all premised on reading the analogy of grants
to
contracts in Pennhurst as meaning that principles of contract law
should
be applied wholesale to grants. The State cited nothing in case
law or
elsewhere that supports this proposition, however, and we know of
no
court that has gone that far. Congress itself has
specifically
distinguished in the Federal Grant and Cooperative Agreement Act
of
1977, Public Law 95-224, between federal assistance, including
grants,
and federal procurement contracts. Surely, there are some ways
in which
a grant is like a contract, but there has been considerable debate
about
the extent to which the analogy can be applied. Even those who
advocate
seeing a grant as a contract, however, recognize that a
fundamental
difference is that a grant is governed by statute, whereas a
contract is
not. See R. Cappalli, Federal Grants and Cooperative
Agreements (1982);
P. Dembling and M. Mason, Essentials of Grant Law Practice
(1991).
ACF does not have an "obligation" to provide funds for expenditures
not
meeting the statute's requirements. Indeed, ACF is not authorized
to
provide such funds, and, where ACF determines that the State has
been
overpaid (and that determination is upheld after reconsideration),
ACF
must adjust the grant award by the amount of the overpayment,
under
section 474(d).
The State's arguments also mischaracterize ACF's actions here, in
the
following ways:
o The State implied that ACF is
terminating the grant or
withholding all funding under the grant. This
is simply not true. ACF
is simply disallowing the amount of FFP
overpaid to the State for
certain expenditures made by the City for
ineligible children during a
particular period.
o The State implied that the disallowance
bears no relationship to
"the injury" caused to ACF by the State's
failures. To the contrary,
the "injury" here is properly measured by
the amount of FFP the State
claimed in excess of the amount to which it was
entitled, and ACF's
disallowance is a conservative estimate of that
amount.
o The State ignored the fact that ACF
found that the State had
failed to meet fundamental program requirements,
such as the requirement
that there be a judicial determination.
Moreover, ACF found that, in
many of the sample cases, the State had failed
to meet more than one
requirement.
Finally, as discussed next, we also reject the State's premise that
the
requirements at issue here are "minor or technical" requirements
that
should not affect the availability of FFP.
B. The State's
characterization of
particular prerequisites for federal
funding as
"minor or technical requirements" which
should
not affect the availability of FFP has no merit.
The State asserted that ACF's disallowance of more than $64 million in
FFP
claimed for foster care maintenance payments was based "in large
part on the
State's failure to comply with certain eligibility criteria
that are most
properly classified as technical requirements." State Br.
at 49.
The State asserted that "[a] loss of federal funding of such
magnitude will
severely impede the State's and [City's] ability to
provide necessary foster
care services to needy children." State Br. at
50. The State
asserted that many Title IV-E eligibility requirements
"do not go to the
essence of the purposes of the [Act]" so that a
failure to meet any of these
requirements does not take a child out of
the group that Congress intended to
protect. State Br. at 54. The
State asserted that to deny FFP for
such technical violations "infringes
on the underlying purpose of the [Act]
-- to provide funds to states for
foster care services." State Br. at
54 (emphasis in original). The
State described this disallowance as a
harsh penalty for "minor or
technical violations" of certain Title IV-E
eligibility requirements.
State Br. at 69.
The State presented general arguments for why ACF could not disallow
all
FFP claimed for foster care maintenance payments for cases where (1)
the
State had failed obtain or apply for a social security number; (2)
the
judicial determination did not include certain "magic words"; (3)
the
State had transferred the responsibility for care and placement of
a
child to a private agency; (4) a child had resided with a
relative
before the relative was certified as the foster care provider; and
(5)
the State failed to obtain a judicial determination within 180 days of
a
voluntary placement.
We conclude that the State's arguments misstated the underlying
purposes
of the Act. The object of Title IV-E was not just to provide
funds to
the states for foster care. The State would have us conclude
that Title
IV-E is a form of revenue sharing and that so long as expenditures
are
for foster care determined necessary by the states,
federal
participation is available. In fact, Title IV-E reflects
Congress' very
specific concerns with foster care drift and adequate
safeguards and
controls to assure that federally funded foster care payments
meet
certain requirements, such as the ones at issue here. While the
State
can certainly fund under its own program foster care payments which
do
not meet Title IV-E requirements (and some funds are available
under
section IV-B of the Act for foster care), the State cannot
justify
improperly shifting to Title IV-E payments not meeting the
conditions
established by Congress simply by labeling those conditions as
"minor or
technical."
While some Title IV-E eligibility requirements are fairly characterized
as
more technical than others, Congress chose to make FFP available only
where
section 472 requirements were met. Moreover, the State is obliged
to
maintain documentation for its foster care cases adequate to show
that
federal requirements were met and that the State was not overpaid
under Title
IV-E. See West Virginia Dept. of Health and Human
Resources, DAB No.
1257, at 10 (1991). Therefore, the State had no
reasonable expectation
that FFP would be available in payments for
foster care services which it did
not document as meeting all statutory
conditions for federal
participation. As we explained above, ACF is not
imposing a penalty on
the State when it recovers FFP claimed for
expenditures which are
unallowable, i.e., those payments which do not
meet federal requirements.
As explained below, however, we find that some issues raised by the
State
concerning particular eligibility requirements go to whether the
auditors'
determinations in individual cases were correct and are,
therefore, more
appropriately considered during later proceedings in
this case when we
examine ACF's findings in individual sample cases. As
explained below,
without evaluating case specific information, we were
able to form only a
preliminary conclusion that it appears that in some
instances the auditors
may have misapplied certain ACF policies.
Our reasons why we reject the State's general arguments on
certain
requirements the State considered "minor" or "technical" are as
follows.
1. Social security number -- ACF determined that 22 children for
whom
maintenance payments were claimed had neither a social security
number
nor applications for a number prior to April 1, 1985. The
State
asserted that the requirement that a child in foster care either have
or
have applied for a social security number was a technical
requirement
not material to congressional intent underlying Title IV-E.
The Board
has held that sections 402(a)(25) and 472(a)(4) of the Act required
a
social security number as a condition of eligibility for Title
IV-E
until April 1, 1985 when this requirement was eliminated. See
Maryland
Dept. of Human Resources, DAB No. 1225, at 9-10 (1991);
Pennsylvania
Dept. of Public Welfare, DAB No. 1278, at 25-26 (1991).
While the State
asserted that there should be a lesser "penalty" for such a
technical
violation of eligibility requirements, the State had explicit
notice by
statute and an ACF policy issuance that this was a condition
of
eligibility. See ACF PIQ-83-2, May 19, 1983. We do not repeat
here the
more comprehensive discussions in DAB Nos. 1225 and 1278. We
note,
however, that Congress did not make retroactive the elimination of
this
requirement from section 402(a)(25) of the Act for Title IV-E when
it
enacted a more comprehensive wage tracking system for Title IV-A
and
certain other programs in 1985. See section 1137 of the Act.
Moreover,
the mere fact that Congress did not mandate a wage tracking system
for
Title IV-E does not mean that social security numbers served no
purpose
in that program. Accordingly, as we concluded in DAB Nos. 1225
and
1278, maintenance payments can properly be determined unallowable
for
failure to meet this requirement.
2. Judicial orders lacking requisite findings -- ACF found
that
judicial determinations for 65 children did not meet
statutory
requirements. Section 472 (a)(1) requires that --
the removal from the home . . . [be] the result of
a
judicial determination to the effect that
continuation
therein would be contrary to the welfare of such
child
and (effective October 1, 1983) that reasonable
efforts
of the type described in section 471(a)(15) have
been
made.
Section 471(a)(15) requires states to provide in their state plans
that
they will make reasonable efforts prior to placing a child in
foster
care to prevent the need for placement or to make it possible for
the
child to return home.
Of the cases sampled, the auditors found that for 52 children placed
in
foster care after October 1, 1983, the judicial determination did
not
find that reasonable efforts were made to prevent removal or make
it
possible for the child to return home. They also found that for
13
cases where the child was placed in foster care prior to October
1,
1983, the judicial determination did not contain any language to
the
effect that placement was in the best interests of the child or
that
continuation in the home was contrary to the child's welfare.
The State asserted that ACF required that the court orders
"explicitly
state that removal from the home was in the best interests of the
child
and that reasonable efforts had been made" without requiring that
there
be any documentation in the case records to support these findings.
7/
State Br. at 60. The State argued that ACF deemed a case eligible
"[a]s
long as the `magic words' appear on the court order", but found a
case
ipso facto ineligible without these words. Consequently, reasoned
the
State, ACF had reduced the judicial determination requirement from
"one
of substance to one of form only." State Br. at 60-61. The
State
asserted that ACF's mechanical application was inconsistent
with
Congress' broad purposes in enacting Title IV-E. State Reply at
63.
The State asserted that virtually all the sample cases in this
category
contained court orders removing the child from the home and that
in
virtually all of those cases the case records would support
the
requisite findings. State Br. at 61. The State asserted that,
in light
of the confusion concerning the reasonable efforts requirement
during
the mid-eighties and the actual language required in court orders,
it
would be reasonable for the Board to examine the case records
to
determine whether "findings of `best interests' and
`reasonable
efforts,' and thus the court's order of removal or placement,
were
supportable." State's Br. at 63. However, the State modified
this
proposal in its reply brief when it agreed with ACF that the
requirement
for a judicial determination was intended by Congress as a
substantive
protection for children in foster care. The State then
argued that the
Board should determine whether the court orders together with
the
material in the case records would support the requisite
findings.
State Reply at 64-65. The State asserted that the absence of
"magic
words" in the court order should not necessarily result in
permanent
loss of FFP.
As ACF noted, we have upheld its disallowance of FFP where a state
has
failed to establish that the requisite judicial determinations
were
made. See Nebraska Dept. of Social Services, DAB No. 1250 (1991);
DAB
No. 1257 (1991); New Hampshire Dept. of Health and Human Services,
DAB
No. 1296 (1992). Moreover, as discussed in DAB No. 1257,
Congress
regarded the requirement for a judicial determination as "an
important
safeguard against inappropriate [state] agency action." DAB
No. 1257,
at 3. ACF explained that --
After October 1, 1983, in order to continue to meet
the
requirements of this section, the judicial
determination
must include a finding to the effect
that continuation in
the home would be contrary to
the welfare of the child, and
also to the effect
that reasonable efforts were made to
prevent or
eliminate the need for removal and to make it
possible for the child to return to his home.
The court, after hearing the evidence, must be
satisfied
that reasonable efforts . . . have been
made. Review and
approval of the [state]
agency's report and recommendation
alone are not
sufficient . . . the court must make a
determination
. . . .
ACYF-PA-84-1 (January 13, 1984), ACF Ex. 7.
This policy announcement also stated that the states could extend
the
documentation used to meet the judicial determination concerning
the
child's welfare to meet the "new" reasonable efforts requirement.
While
the State is correct that there was at some point confusion
concerning
the reasonable efforts requirement, the confusion concerned
the
documentation necessary to evidence the required judicial
determination.
The language of the statute coupled with the clarity of the
policy
announcement leaves no question that there must be a
judicial
determination.
ACF denied that the auditors had applied a "magic words" approach
when
auditing the City's sample cases. While there is a clear
and
unequivocal statutory requirement that there be certain
judicial
determinations in Title IV-E cases, the question presented is
whether
the documentation in any specific case is adequate evidence that
the
required judicial determinations were made.
Here, we note that ACF more explicitly informed the states
in
ACYF-PIQ-86-02 (May 8, 1986) about the use of the state
agency's
petition coupled with a court order to meet the requirements.
State Ex.
17. While ACF is right that there was no basis to permit the
states to
delay implementing the reasonable efforts requirement, its own
explicit
policies permitted more reliance on the state petition as evidence
of
the requisite determination prior to October 1986. See State Exs.
18,
and 19; ACF Ex. 9. Therefore, we conclude that ACF cannot during
the
years audited here require that the State have in every instance
the
documentation stated to be adequate in the 1986 policy.
Nevertheless,
the proposal by the State in its reply brief that the Board
examine the
case records in light of the judicial determinations would
still
substitute the Board's determination for a judicial one. The issue
is
not whether the requisite determinations were supportable but
whether
the documentation relied on by the State is adequate (in light of
the
documentation policies then in effect) to establish that the
judicial
determinations were made. The State's arguments do raise
the
possibility that the auditors were overly strict with regard to
the
documentation which they found acceptable. To the extent the
State
contests particular sample cases, we will consider during
later
proceedings whether the requisite determinations were made. We
conclude
here, however, that no FFP is available if the requisite
judicial
determinations were not made.
3. Children whose care and placement were not the City's
responsibility
-- The auditors found that 15 of the sample cases were
ineligible
because the City did not have responsibility for the child's care
and
placement. The State asserted that three of these cases were
children
whose custody had been transferred by the City to a private
placement
agency in order to facilitate adoption. The State asserted
that the
City had "retained responsibility for case management and
case
supervision." 8/ State Br. at 66. The State conceded that
these
children were ineligible under Title IV-E because of the transfer,
but
asserted that "the appropriate remedy should not be loss of FFP."
State
Br. at 66, n.32. The State asserted that these children received
the
substantive protections mandated by section 472(a)(2) and that while
ACF
could deem the transfer of custody to be a "technical" violation,
this
is not a basis to find that the State failed to comply
substantially
with the IV-E criteria.
The transfer form used by the City specified that the City
transferred
"exclusive control and custody . . . conferring . . . all [the
City's]
rights of custody and control." ACF Ex. 10. The State
conceded that it
did not have responsibility for the care and placement of
these children
within the meaning of section 472(a)(2) when it conceded for
our
purposes here that the transfer meant that this eligibility
condition
was no longer met. This is a basic, not technical,
requirement which
ensures that placement decisions, including adoptive
placements, are
made by the State in accordance with applicable program
requirements.
Certain protections under the Act apply only to children for
whom the
State has legal responsibility. Moreover, it is the State's
legal
responsibility for the child's care which is the explicit
statutory
condition. While the City may have under its own procedures
continued
to exercise case management and case supervision, there would be
no
assurance of this, or of provision of the protections to the
child,
absent the legal responsibility. See State Affidavit of Veronica
Lynch.
As we stated in Maryland Dept. of Human Resources, DAB No. 1225 (1991)
on
page 7 --
even if the State agency was responsible for
providing
services to support the child's placement,
this did not
constitute responsibility for the
child's care. . . . if
Congress had intended to make
title IV-E funds available for
any case in which the
State agency took an interest, it
would not have
required specifically that the State agency
have
responsibility for the child's placement and care.
The State will have an opportunity during later proceedings in this
case
to address why ACF's interpretation of the effect of the City's
transfer
of custody is not sound. However, we conclude here that no FFP
was
available for expenditures for foster care services for children
for
whom the State did not have the requisite responsibility.
4. Children not physically removed from the home -- The auditors
found
11 children ineligible because they had resided with a relative for
more
than six months and were not physically removed from the home of
that
relative and placed in foster care, but continued to live in the
same
home once it was designated a kinship foster care home. 9/ For
its
arguments here, the State did not contest the auditors' finding
that
these children were ineligible because they were not removed from
home
prior to entering foster care. The State asserted that "[a]lthough
the
children may not have been physically removed from a relative's home
at
the time they entered foster care, they were constructively removed
from
their parents' homes and placed in the kinship foster care home."
State
Br. at 69. The State asserted that the appropriate penalty should
not
be permanent loss of FFP. For purposes of this stage, we state only
a
general conclusion that FFP is not available in payments for any
child
who is ineligible, despite the desirability of relative
placements
generally. We reserve for the later proceedings in this
matter any
further analysis of whether particular sample cases were in
fact
eligible. Although the State proceeded to address ACF's
arguments
concerning the necessity for physical removal from the home, we
will
address any issues concerning physical or constructive removal
as
satisfying the Act's requirement that a child be removed from the
home
of a specified relative later as well.
We decline to address these issues here because we have
insufficient
information regarding the facts of specific cases.
Moreover, we have
determined that the basis for the finding of ineligibility
needs
clarifying. The discussion in the audit report raised the
possibility
that the auditors misapplied the applicable requirements.
The audit
report stated that --
Because each child had been living with the relative
more
that six months prior to that relative's
certification as a
foster parent, the children could
not fulfill the
eligibility requirements of Section
472 that: (1) they were
removed from the home
of a specified relative and placed in
foster care,
or (2) removal was the result of a judicial
determination that to remain in the home of the
specified
relative would be contrary to their
welfare.
Audit Report at 13, State Ex. 2.
The six-month time period at issue in determining whether the Title
IV-E
eligibility requirements are met is six months prior to the time
the
voluntary agreement was entered into or court proceedings
were
initiated, not six months prior to the date on which the home in
which
the child is placed is certified as a foster family home. 10/ We
agree
with the State that it is not clear what the auditors meant by
the
finding that these children had resided with the relative foster
parents
for more that six months "prior to becoming foster children."
Audit
Report at 13. (The State said that in some cases the children
had
entered foster care before going to live in the kinship foster
home.)
Also, we do not find the facts set forth in the audit report adequate
to
show that these children were not removed from the home of a
specified
relative or did not receive or were not eligible to receive
payments
under Title IV-A within six months of the voluntary agreement
or
initiation of court proceedings.
Thus, while we do not consider either the requirement for removal from
the
home of a specified relative or the six month requirement for
AFDC
eligibility to be merely technical, we will need more information
to
determine whether these requirements were properly applied by
the
auditors.
5. No judicial determination within 180 days of voluntary placement
--
The auditors found that FFP in payments made for 46 children
voluntarily
placed in foster care were unallowable (for periods after 180
days
passed) because the State did not obtain a judicial determination
within
180 days of placement. Section 472(e) provides --
No Federal payment may be made . . . in the case of
any
child who was removed from . . . home pursuant to
a
voluntary agreement . . . and has remained in
voluntary
placement for a period in excess of 180 days,
unless
there has been a judicial determination (within
the
first 180 days of such placement) to the effect
that
such placement is in the best interests of the child.
The State asserted that the statute imposes two requirements,
a
substantive one for a judicial determination and a technical
one
requiring such a determination within 180 days of placement. State
Br.
at 64; State Reply at 70-71. The State asserted that for
voluntary
placements where the State does not obtain the requisite
judicial
determination within 180 days but ultimately does obtain such
a
determination, FFP should be withheld only for the period (after
day
180) prior to the judicial determination. State Br. at 65. We
conclude
that there is no merit to the State's assertion.
The statutory provision is clear that "[n]o payment" is available
unless
the requisite judicial determination has been obtained within the
first
180 days of placement. Moreover, 45 C.F.R. 1356.30 explicitly
provides
that --
(a) As a condition of receipt of . . . (FFP) in
foster
care maintenance payments for a dependent child
removed
from his home under a voluntary agreement the State
must
meet the requirements of: (1) Section 472 of the Act .
.
. .
(b) [FFP] is available only for voluntary foster
care
maintenance expenditures made within the first 180
days
after the date of the original foster care
placement
unless there has been a judicial determination . .
.
within the first 180 days of the date of that
original
placement to the effect that the continued
voluntary
placement is in the best interests of the child.
To accept the State's position here would be to substantially undercut
a
protection specifically set by Congress for children voluntarily
placed
in foster care. If anything, the amount of time afforded the
State to
obtain a judicial determination is generous. To conclude that
this is a
technical requirement causing only temporary cessation of FFP
would
remove the force of the 180-day time limit as an incentive to states
to
act in a timely manner.
In sum, most of the requirements at issue here, properly applied,
are
essential to fulfilling the purposes of Title IV-E. Even the
more
"technical" requirements are nonetheless eligibility criteria of
which
the State had notice. The State had no reasonable expectation of
FFP in
payments for children not meeting the criteria.
IV. ACF has authority to disallow based on valid
statistical
sampling methodologies.
ACF determined the disallowed amounts here by projection
(extrapolation)
from a statistical sample. In this section, we address
issues raised by
the State concerning ACF's general use of statistical
sampling as a
basis for Title IV-E disallowances. In section V. below,
we address
questions raised by the State concerning the particular
statistical
methods used.
The State acknowledged that "the Board and the courts have
traditionally
upheld the use of statistical sampling as an audit tool to
establish
rebuttable facts where there is a clear expression of
statutory
authority, such as in the AFDC quality control program, or as
a
reasonable interpretation of the Secretary's authority to
determine
`overpayments.'" State Br. at 38 (emphasis in original),
citing
Georgia, 446 F. Supp. 404; Pennsylvania, DAB No. 1278 (1991).
The State
argued, however, that prior Board decisions need not be controlling
and
that, in this instance, use of sampling was unlawful because
it
represented a change in ACF policy which was not promulgated
using
notice and comment procedures or, alternatively, because the State
did
not have adequate and timely notice. The State also argued that,
if
sampling was permissible at all, the State should be given the
benefit
of a "tolerance" for errors, such as that which applies in the
AFDC
quality control program.
For reasons explained below, we conclude that none of these arguments
has
merit.
A. Valid statistical sampling provides
reliable evidence
concerning the amount of unallowable payments for
which a
grantee claimed FFP.
This Board has consistently held that valid statistical sampling
provides
reliable evidence of the amount of unallowable costs a grantee
has
claimed. See, e.g., New York State Dept. of Social Services, DAB
No.
1079, at 5 (1989); California Dept. of Social Services, DAB No. 816,
at 4-5
(1988), and cases cited therein. These decisions were based in
part on
the rationale in Georgia, which upheld use of sampling methods
to determine
the amount of unallowable state Medicaid payments for
physician claims.
The Georgia court reasoned that sampling had been
recognized as a valid audit
technique and that statistical results had
been recognized by courts as
reliable and acceptable evidence in
establishing adjudicative facts.
446 F. Supp. at 409; see also Rosado
v. Wyman, 322 F. Supp. 1173 (E.D. N.Y.
1970), aff'd, 402 U.S. 991
(1971). The court noted: "Audit on an
individual claim-by-claim basis
of the many thousands of claims submitted
each month . . . would be a
practical impossibility as well as
unnecessary." Georgia, 446 F. Supp.
at 410. As this Board has
noted, sampling (and extrapolation from a
sample) done in accordance with
scientifically accepted rules and
conventions has a high degree of
probability of being close to the
finding which would have resulted from
individual consideration of
numerous cost items and, indeed, may be even more
accurate, since
clerical and other errors can reduce the accuracy of a 100%
review. See
DAB No. 1079, at 5.
The State cited several court cases for the proposition that prior
Board
decisions need not be controlling in determining issues currently
before
the Board. While we agree with the State that prior Board
decisions
need not be controlling, the State provided no reasonable basis for
us
either to change our prior rationale or to find it inapplicable here.
The auditors here needed to audit a foster care caseload
containing
numerous cases. It would not be practical to perform a 100%
review, nor
would such a review have been likely to result in a more
accurate
determination of unallowable costs than a sample review.
Assuming that
the statistical sampling method chosen was valid and was
properly
applied (which we find below it was), the results are reliable
evidence
of the amount of unallowable foster care maintenance payments made
by
the State and charged to federal funds. 11/
The fact that Georgia addressed use of sampling as a basis for
a
disallowance under Title XIX, which gives the Secretary authority
to
determine "overpayments" of FFP in Medicaid, does not distinguish
that
case. As discussed above, section 474(d) of the Act
specifically
authorizes the Secretary to adjust a state's claims for IV-E
funds to
the extent any overpayment was made in a prior quarter. The
wording of
this section parallels the comparable Medicaid provision in
section
1903(d) of the Act. As discussed above, if ACF has paid a claim
for FFP
under Title IV-E for costs which do not meet applicable
requirements,
that constitutes an overpayment to the State to be
adjusted.
Numerous courts have held that specific authority to use
statistical
sampling as an audit tool to produce evidence on the factual
issue of
the amount of unallowable claims for federal funds is not
necessary.
See, e.g., Chaves County Home Health Service, Inc. v. Sullivan,
931 F.
2d 914 (D.C. Cir. 1991), cert. denied,
U.S. , 112 S. Ct. 1160
(1992); Michigan Dept. of Education
v. U.S. Dept. of Education, 875 F.
2d 1196 (6th Cir. 1989); Mile High Therapy
Centers, Inc. v. Bowen, 735
F. Supp. 984 (D. Colo. 1988). The State
pointed to nothing in the
language or history of Title IV-E indicating any
intent to preclude use
of sampling for determining overpayments of FFP.
Congress can be
presumed to have intended that reasonable audit tools be
used, so long
as they provide reliable evidence. Moreover, the State
has been given
ample opportunity, in response to the audit and in Board
proceedings, to
rebut the evidence developed through the sample (and will be
given a
further opportunity to contest ACF's findings in individual
sample
cases).
B. Use of sampling here is not unlawful
on the ground that
it represents a change in agency policy subject to
notice and
comment rulemaking.
The State argued that ACF "policy prior to the inception of Title IV-E
was
not to use statistical sampling as a basis for disallowing foster
care
funds." State Br. at 37, citing Louisiana Dept. of Health and
Human
Services, DAB No. 580 (1984). The State argued that ACF's "change
in
policy to use statistical sampling as a basis for disallowing IV-E
funds and
to no longer limit recoupment to individual errors seriously
affects the
State's interest in the amount of FFP it receives" and,
therefore,
constitutes "a substantive interpretation that must be
promulgated according
to the [notice and comment] procedures required by
the Administrative
Procedure Act, 5 U.S.C. 553." State Br. at 37. The
State relied
on the case of Batterton v. Marshall, 648 F. 2d 694 (D.C.
Cir. 1980) in
support of its position that notice and comment procedures
were required.
Use of sampling here does not represent a policy change, nor does
it
affect any substantive right of the State. Thus, notice and
comment
rulemaking was not required.
In Louisiana, this Board discussed the history of agency policy on use
of
statistical sampling in the AFDC program to identify errors within
the scope
of the AFDC quality control program (involving required
ongoing sampling of
each state's AFDC eligibility determinations). In
light of that
history, the Board found that the agency could not fairly
apply retroactively
to AFDC foster care payment errors a change in
policy from disallowing only
individually identified errors to
disallowing errors determined through
statistical samples. The change
in policy had been promulgated in an
action transmittal issued to states
on December 13, 1982, Action Transmittal
(AT) 82-33.
The Board has previously held that the rationale in Louisiana was
limited
to eligibility determination errors within the scope of the AFDC
quality
control program and did not apply to "payments made under the
completely
separate IV-E program." Pennsylvania Dept. of Public
Welfare, DAB No.
1278, at 7 (1991). The State presented no reason here
why we should
reconsider this holding and find that a policy developed
for one program,
applicable to an element of that program with a
particular history of how and
when sampling would be used, should apply
to another program. While the
IV-E program replaced the AFDC foster
care program, neither Congress nor ACF
expressed any intent to adopt the
AFDC quality control system or related
disallowance policies for the new
IV-E program. Thus, the State had no
reasonable expectation for Title
IV-E that ACF would disallow only
individually identified errors.
Since we do not agree that use of sampling for Title IV-E represented
a
policy change, we conclude that the State's reliance on cases
discussing
Administrative Procedure Act (APA) requirements for rules or
policies
which constitute a change in existing law, policy, or practice
is
misplaced. See State Br. at 37.
In any event, even if use of sampling represented a change, it is not
the
type of change requiring notice and comment rulemaking. Notice
and
comment rulemaking is required under the APA only for
legislative-type
rules; it is not required for interpretative rules, general
statements
of policy, or rules of agency procedure or practice. 5
U.S.C. .
553(b)(3)(A). In Ohio Dept. of Human Services, DAB No. 1202
(1990), we
rejected an argument that an agency's policy on statistical
sampling
methods was a legislative-type rule. We found that it was a
general
statement of policy or rule of agency procedure, since it represented
a
means for gathering evidence on a state's compliance with
statutory
requirements, rather than an inflexible standard that must be
applied.
This decision was upheld in district court. State of Ohio,
Dept. of
Human Services v. Sullivan, 789 F. Supp. 1395 (S.D. Ohio 1992),
appeal
docketed, No. 92-3560, 6th Cir., June 11, 1992. The district
court
agreed that the sampling methods were "simply a means of gathering
and
analyzing evidence." 789 F. Supp. at 1405.
Like the methodology considered in Ohio, the methodology used by
the
auditors here is simply a means of gathering evidence; it does
not
substantively change what the State is required to do in order to
be
entitled to FFP. Moreover, the particular audit methodology used
here
does not conclusively establish the amount disallowed. The State
has
had ample opportunity to show that the method did not generate
reliable
evidence.
Thus, the State's reliance on Batterton is misplaced. That
case
involved a sampling methodology developed by a federal agency
to
calculate unemployment statistics, which were then used as a basis
for
determining allocation of grant funds among states, with no
provision
for adjustment of the allocation through adjudication or any
other
method. The methodology in Batterton thus affected substantive
rights
since it established the amount of funds available to grantees
for
authorized purposes. See also Maryland Dept. of Human Resources
v.
Sullivan, 738 F. Supp. 555, 561 (D.D.C. 1990) (program
instruction
describing both the sampling methodology and pass rates to be
used in
determining eligibility for section 427 funds is a interpretative
rule,
exempt from notice and comment procedures).
C. The State had adequate and timely
notice of the ACF
policy to use sampling.
Under the APA, policy statements and agency procedures generally have
to
be published in the Federal Register, but timely and actual notice
can
substitute for publication. 5 U.S.C. . 552(a)(1). The State
had such
notice here.
Action Transmittal 82-33, issued December 13, 1982, explained
that
Department policy had always been that payments excluded from the
AFDC
quality control universe were subject to any recognized audit
technique
to determine the amount disallowed, including statistical
sampling
methods. Louisiana, DAB No. 580, at 7. Policy
Announcement (PA) 83-02,
issued May 4, 1983, reiterated that "for title IV-A
- Foster Care . . .
it is the policy of the Department to use sampling as the
basis for
determining expenditures ineligible for Federal matching."
State Ex. 4,
at 2 (emphasis in original). Finally, in order to ensure
that there was
no misunderstanding about the use of statistical sampling in
Title IV-E,
ACF issued Policy Announcement 84-2 on March 7, 1984,
stating:
It is now and has always been the policy of the Department
to
use valid statistical sampling methods, including
extrapolation
from a sample to a universe, to determine the amount
of
expenditures eligible for Federal financial participation . .
.
.
State Ex. 5.
The State did not deny receiving these issuances, but argued that
the
Board had "implicitly rejected" the policy set forth in PA-83-02
and
PA-84-02 in the Louisiana decision. The State argued that the
"stated
policy and contradictory Board ruling further served to deprive
the
State of clear notice of the change in policy in advance of
incurring
expenditures under Title IV-E," and that the "policy issuances were
also
untimely since they were not issued prior to the State's filing of
its
state plan under Title IV-E, which was effective April 1, 1982."
State
Br. at 40.
Contrary to what the State argued, the Board's decision in Louisiana
did
not, explicitly or implicitly, reject the policy stated in
these
issuances. What the Board rejected in Louisiana was the attempt
in
AT-82-33 to describe prior issuances as consistent with the
policy
stated in AT-82-33. The Board said that AT-82-33 was a change
in
disallowance policy for Title IV-A which could not fairly be
applied
retroactively to erroneous payments within the scope of the AFDC
quality
control program since states may have made decisions concerning where
to
devote resources for correcting errors, based on the prior policy
of
disallowing AFDC-foster care erroneous payments only if
individually
identified. Here, payments under Title IV-E have never
been within the
scope of the AFDC quality control program, nor could a state
reasonably
have thought at any time that only individually identified Title
IV-E
errors would be disallowed. Thus, the potential adverse effect
from
retroactive application of AT-82-33 present in Louisiana simply is
not
present here.
In any event, the general policy stated in AT-82-33 -- to
use
extrapolation from statistical samples as a basis for disallowance --
is
being applied prospectively in this case. AT-82-33 was issued
December
31, 1982, and the expenditures at issue here were incurred during
the
period October 1, 1983 to September 30, 1985. The State's attempt
to
characterize the Board's decision in Louisiana as somehow
introducing
confusion is unavailing. The Board specifically limited its
decision in
Louisiana to the period and type of error in question there,
emphasizing
that it found "nothing wrong with the Department's general policy
of
using extrapolations from statistical samples to produce
disallowances."
DAB No. 580, at 2. 12/
The State cited no authority for its position that the relevant event
was
the filing of its Title IV-E plan, and we know of none. Under
grant
programs such as Title IV-E, a state's entitlement to FFP arises when
it
incurs allowable expenditures. Notice given prior to the time
those
expenditures are incurred is generally adequate and, in our view,
the
State definitely had adequate notice here. Indeed, since the
State
could never have determined reasonably that there would be Title
IV-E
disallowances only for individually identified errors, use
of
statistical sampling in Title IV-E could reasonably be viewed solely
as
an audit technique. The State itself does not have to take any steps
to
implement the technique, and its only interest is in ensuring that
the
sample findings are accurate and that the sampling method used
is
reliable. Thus, notice prior to the use of the technique (which
the
State clearly had) is adequate here.
We further conclude that Bowen v. Georgetown University Hospital, 488
U.S.
204 (1988) is inapposite here. That case involved
unauthorized
retroactive application of a legislative-type regulation
establishing
reimbursement rates for Medicare hospitals. As explained
above, the
policy here is being applied prospectively and is not a
legislative-type
rule.
D. ACF was not required to apply a
tolerance level to the
sample results.
The State argued that a tolerance level, such as that applied in the
AFDC
program to AFDC eligibility determination errors identified through
the
quality control system, should also be applied here.
The Board has previously addressed the question of whether
tolerance
levels should be applied to errors not within the scope of a
quality
control program. The Board held that, while establishing such
a
tolerance for errors was within the Secretary's authority under
section
1102 of the Act, such a tolerance was neither required nor
appropriate
for Board adjudication on a case-by-case basis. California
Dept. of
Health Services, DAB No. 170 (1981), aff'd, California v. Settle,
708
F.2d 1380 (9th Cir. 1983).
The mere fact that the Secretary (and later Congress) determined that
a
tolerance was appropriate for AFDC eligibility determination
errors
identified through the quality control system does not necessarily
mean
that one is appropriate for the Title IV-E errors at issue here.
The
quality control system involves ongoing sampling by the states
(with
further subsample review by ACF), rather than sampling in the context
of
a federal audit. The rationale for allowing a tolerance in AFDC was
the
complexity of the eligibility determination process (with
its
presumption in favor of eligibility), which makes it impossible for
a
state to totally avoid errors. Under Title IV-E, a state must make
IV-A
eligibility determinations for some children, but for, others, can
rely
in part on eligibility determinations already made. Many of the
errors
here arose from applying requirements which are unique to IV-E, such
as
the requirement for a judicial determination, and which are much
easier
to apply than the income and resource provisions of Title IV-A.
The State submitted parts of audit reports of other states' Title
IV-E
programs and alleged that the "fact that other states have also
incurred
large disallowances under Title IV-E demonstrates that a zero
tolerance
level, i.e., requiring 100 percent compliance, is not
reasonably
achievable." State Br. at 41. According to the State,
this "also
demonstrates that the fault lies not with the states, but rather
with an
overly complex law that is entirely too difficult to administer,
given
the exactitude expected by the OIG and the Agency and the
limited
resources granted the states." State Br. at 41.
The amounts proposed for disallowance in audit reports are not
necessarily
equivalent to amounts actually disallowed, however. Audits
simply
recommend disallowances, and the ultimate disallowance will be a
lesser
amount if ACF or the Board disagrees with the auditors or if a
state submits
new documentation. In any event, the submitted audit
reports do not
support the State's assertion that the audit findings
demonstrate that the
errors were attributable to an overly complex law.
Indeed, most of the errors
identified in the audit reports appear to be
attributable to states' failures
to obtain or document the judicial
determinations required by section 472 of
the Act. This is a basic,
straightforward program requirement, which
ACF has implemented by
accepting statements in court orders "to the effect
that" the required
determinations were made, a standard which can hardly be
considered
"exactitude." Moreover, some of the other audit findings for
other
states also contradict the State's assertion, for example, findings
that
a state had a regulation in conflict with the federal requirements,
or
had failed to implement required procedures, or had identified
the
children as ineligible but had failed to exclude related payments
from
FFP claims because of a computer problem. State Exs. 9-12.
We also
note that our experience with Title IV-E disallowances suggests
that
states have in some instances knowingly shifted other foster care
cases
to Title IV-E since otherwise the states would have to cover
the
payments entirely with their own funds, or have failed to take
simple
administrative steps such as providing courts with model orders
meeting
Title IV-E requirements.
The State referred to the use of a zero tolerance as a change in
agency
policy, arguing that since "the State did not voluntarily and
knowingly
agree to the federal rules, it is not bound by the rules."
State Br. at
43, citing Perales v. United States, 598 F. Supp. 19 (D.C. N.Y.
1984),
aff'd, 751 F. 2d 95 (2nd Cir. 1984); Pennhurst, 451 U.S. 1
(1981). As
explained above, however, the statute and regulations are
clear in
conditioning FFP under Title IV-E on a state's meeting
certain
requirements. The State had no reasonable basis for believing
it would
be granted any tolerance for errors in meeting these
requirements.
Moreover, ACF's decision not to apply a tolerance here is
not
unreasonable. The requirements at issue here implemented
statutory
changes which were intended to narrowly circumscribe federal
funding for
foster care in order to reduce foster care drift and promote
permanency
planning for children. Holding states to a higher standard
for
preventing errors under Title IV-E than under Title IV-A
could
reasonably be viewed as consistent with this intent.
In sum, we conclude that ACF's use of sampling here was both
authorized
and consistent with ACF policy. We also conclude that ACF
was neither
required to apply a tolerance level here, nor unreasonable in
refusing
to do so.
V. The particular statistical methods used
here produced reliable
evidence and were not inconsistent with ACF
policy.
In this section, we first describe the statistical sampling methods
used
as a basis for the disallowance of maintenance payments. We
then
address the State's challenges to these methods.
The State did not challenge the methods here by producing any
expert
testimony or other evidence disputing the statistical validity of
the
particular methods used. Rather, the State argued generally that
the
statistical sample used here was defective because it did not
comply
with ACF policy and because it projected errors occurring under the
AFDC
program to expenditures incurred under Title IV-E. In its reply
brief,
the State also argued that the OIG sampling plan contravened OIG
policy.
For the reasons stated below, we conclude that these arguments have
no
merit.
A. The sampling methods used here were valid.
ACF provided evidence concerning the methods used. ACF Affidavit
of
Margaret Wallace. The State did not dispute that evidence, so we
have
used it as a basis for our description here.
The sample universe consisted of children in New York City for whom
foster
care payments had been made by New York City during the audit
period, which
payments New York State then claimed for FFP. Sample
universe listings
were provided to the auditors by the State and were
generated by the State's
computerized Welfare Management System (WMS).
These listings included 20,446
children for FY 1984 and 23,638 children
for FY 1985.
Before reviewing the cases, the auditors conducted a validation study
to
determine whether the listings generated by the State
accurately
represented the sample universe. The validation study
disclosed that
the lists were inaccurate, so the State produced a second set
of
listings. On the basis of a second validation study, the
auditors
determined that the new universe listings were reasonably
accurate.
The auditors then drew a scientific sample from the listings provided
by
the State, that is, a sample in which each item in the universe had
an
equal chance of being selected. The sample was selected by a
computer
using random number generator software. The selected sample
consisted
of 300 cases (150 cases from each fiscal year). The auditors
used a
stratified sampling technique, in which each stratum
represented
children on whose behalf payments had been made and FFP claimed
for at
least one day in the relevant fiscal year. 13/
The auditors then held an entrance conference with City and
State
representatives to discuss the objectives of the audit, the
intended
audit approach, and any procedural matters that might arise
in
conducting the audit. The auditors also requested that the City
produce
the case files for the children selected in the sample and
provide
access to payment records which would enable the auditors to
determine
the amount of maintenance payments made on behalf of these
children.
The auditors reviewed the payment records to determine the amount
of
payments made on behalf of the sample children for the applicable
fiscal
year from which they were selected. The auditors also
determined
whether such payments had been claimed for FFP and whether
any
adjustments or retroactive claims had been made by the City.
The auditors also reviewed the case files for the sample children,
using
an audit questionnaire which had been developed after consultation
with
ACF and the State. Each completed audit questionnaire was reviewed
by
the auditor in charge of this phase of the audit, and a copy of
each
questionnaire was given to the City, which had the opportunity to
submit
more documentation regarding matters questioned by the auditors.
An
exit conference was held with City and State officials, who
then
furnished additional information.
To project the results of the sample, the auditors first compiled
the
amount audited for each sample child and determined the
amount
ineligible for FFP. The auditors used this compilation to create
a
computer data file and then used a variables sample appraisal
program
for stratified samples on the computer. This appraisal program
(which
has been validated using National Bureau of Standards
methodology)
projected the sample results to the universe from which the
sample was
drawn. The sample projection disclosed that, at the 90%
confidence
level, between $141,385,044 and $182,665,197 in unallowable
maintenance
payments had been made and claimed for FFP. The single most
likely
estimate of the amount of unallowable payments was
$162,025,120.
Consistent with OIG audit policy, however, the auditors
recommended
disallowance at the lower limit of the confidence interval, that
is, at
$141,385,044. Using the lower limit allowed the auditors to
estimate
with a 95% probability that the true amount of unallowable
payments
equalled or exceeded the recommended disallowance.
As a result of a supplemental review of the audit findings for
sample
cases by ACF, the auditors adjusted the findings and determined
the
lower limit of the confidence interval for the adjusted
findings,
$64,123,732 in FFP.
B. The sampling methodology did not
violate ACF or OIG
policy.
As noted above, the State did not challenge the statistical validity
of
the sampling methods used. Instead, the State contended that
the
statistical sample was "defective" because it did not comply with
ACF
policy, as set forth in ACYF-IM-85-4. The State said that that
policy
required a minimum random selection of 200 sampling units and
"clearly
envisioned that the selection would be drawn from a universe of
cases
within a two to four quarter time frame." State Br. at 45.
ACYF-IM-85-4 discusses regular reviews of foster care claims which
ACF
intended to conduct as part of its implementation and oversight of
Title
IV-E. The issuance specifically notes:
These reviews are in addition to reviews that will be
conducted
from time to time based on such criteria as claims
whose
allowability is questioned and audits.
State Ex. 6, at 1. The issuance also notes that other reviews "may
be
conducted using valid and reliable sampling." State Ex. 6, at
3. Thus,
contrary to the State's assertion, the sampling here does not
violate
ACYF-IM-85-4, since that policy is limited to a particular type
of
review to be conducted by ACF. The policy by its own terms does
not
apply to the OIG audit at issue here. 14/
Even if ACYF-IM-85-4 did establish a policy for OIG audits (which it
does
not), we would not find the sampling methodology used here to be
"defective"
on that basis. The State provided no evidence to show that
the sample
size used here (300 children) was insufficient in light of
the size of the
sample universe. The State's objection was based on the
sample size for
each fiscal year (150 children) and on the reference in
ACYF-IM-85-4 to a
"sample of at least 200 payment units." The reference
to payment units,
however, indicates that the sample would be a sample
of payment units, rather
than a sample of children; the universe of
payment units is larger than the
universe of children since usually more
than one payment is made on behalf of
any child. Moreover, we find no
support in ACYF-IM-85-4 for the State's
assertion that ACF contemplated
that a sample of 200 payment units would be
drawn within two or four
quarters. While the policy refers to review of
regular, current quarter
claims (as opposed to retroactive claims for
expenditures incurred in
prior periods), the policy also indicates that the
contemplated reviews
would be made "at least every three years . . . ."
Thus, we do not read
the policy as binding ACF to use a larger sample size
for a fiscal year
than that used here.
We also conclude that the OIG sampling plan did not violate OIG
policy.
The State focused on wording in the auditors' sampling plan which
said
that the sample size was "arbitrarily selected." ACF Ex. 1, at
4. The
State said that this violated OIG policy which indicates
that
determining sample size is a "key element" of any sampling plan
and
which indicates that a sample performed for "error analysis"
should
contain 20 items for each characteristic being reviewed. State
Reply at
45-47, citing State Ex. 22. 15/
First, we note that the OIG document cited by the State contains
both
policies and procedures. The statements relied on by the State are
not
in the section labeled "POLICY" but appear in a section
labeled
"SAMPLING PLAN." This section describes the sampling plan
as
summarizing "the audit team's ideas concerning a sample" which are
then
reviewed by a statistical sampling expert who may modify the plan.
Read
carefully, the section cannot be read as binding OIG to use of
any
particular sample size. It merely describes how the auditors
"should"
determine sample size and seek approval for it.
Moreover, the reference in the OIG document to "error analysis"
requiring
20 units for each characteristic audited appears to apply only
to
"attributes" sampling "used to estimate the rate or proportion of
a
characteristic or group of characteristics in an universe." State
Ex.
22, at 4. The auditors here chose "variables" sampling, which is
"used
to estimate quantitative characteristics, usually dollar amounts, in
an
universe." Id. The OIG statistical expert approved this
approach, as
well as the sample size chosen, and the State presented no
evidence from
a statistical expert challenging either the approach or the
sample size.
Finally, we note that the State did not allege that it was
somehow
prejudiced by use of the particular sample size chosen. This is
not
surprising since sample size affects the precision of sample results
in
estimating the most likely true value, and a smaller sample
size
generates a wider confidence interval. Since ACF disallowed only
the
amount established by the lower limit of the confidence interval,
the
State potentially benefited from the use of a sample size totaling
300
units, rather than a larger sample size.
C. The sampling method does not
improperly project Title
IV-A errors to Title IV-E.
The State argued that another "defect in the sample was the projection
of
errors that occurred under the Title IV-A program to a universe
of
expenditures incurred under the Title IV-E programs." State Br. at
45.
The State gave as an example of this type of error a sample unit
where
ACF found that the child's record lacked sufficient
information
establishing that the child was from a family that met AFDC
eligibility
requirements when the child was placed in foster care in
1972. The
State argued that the sample failed to meet the Board's
requirement that
the sampling methodology be sound because the sample "uses a
1972 error
to disallow 1984-85 expenditures." State Br. at 46.
The State
asserted: "The time period in which the error occurred must
be the same
period, or at least proximate to the period, of expenditures to
which
the error is projected." State Br. at 46. The State argued
that OIG
used an error that occurred at a time when ACF did not have a
policy
that permitted extrapolation and when "there was no quality
control
program for AFDC using a valid statistical sampling methodology
to
establish on an extrapolated basis the allocation of
1984-85
expenditures." State Br. at 46.
The State also argued that the OIG, in finding the State responsible
to
"maintain sufficient documentation 16 years later . . . holds the
State
to a record retention requirement far in excess of the three-year
record
requirement set by regulations." State Br. at 46-47.
According to the
State, the reason the records were missing was that ACF had
advised the
State that it did not have to keep financial information
concerning the
AFDC eligibility of the family placing the child with future
records
related to the child. The State said further that it was
unreasonable
of the OIG to expect the State to produce records from
1972. The State
asserted that "the OIG must judge the allocability of
expenditures for
Title IV-E by reviewing only the records of children
entering the
program under the title IV-E criterion, effective April
1982." State
Br. at 48.
These arguments confuse the question of the validity of the
sampling
methodology -- or its soundness -- with issues regarding the
correctness
of an audit finding that a payment was unallowable. Even if
an auditor
was incorrect in finding that a child was ineligible for Title
IV-E
payments or in concluding that the State had failed to document
properly
the child's eligibility, that would not render invalid or unsound
the
statistical sampling method used.
The State also confused questions related to allocability of costs
with
questions concerning the substantive allowability of the costs.
The
issue here is not whether maintenance payments -- or errors --
were
properly allocated to Title IV-E rather than to Title IV-A.
The
payments disallowed here were all claimed under Title IV-E. Title
IV-A
becomes relevant only because section 472 of the Act makes
eligibility
for Title IV-E maintenance payments contingent on the child's
Title IV-A
eligibility. Section 472 requires this eligibility generally
within six
months of the month the child is voluntarily placed or court
proceedings
are initiated. Thus, under the statute, AFDC eligibility in
1972 for a
child placed in 1972 may have also been a condition for the
child's
eligibility under IV-E, both when the child was first claimed
under
Title IV-E in 1982 and when payments were claimed in 1984 and
1985. The
State is required to document the Title IV-E eligibility of
any child
for the period for which the expenditure is claimed. The
record
retention requirement for expenditures claimed for each federal
fiscal
year is three years from the time the expenditure report is
submitted
for the last quarter of the federal fiscal year, or longer if an
audit
is initiated within that time period (as it was here). 45 C.F.R.
Part
74, Subpart D. Thus, the State must retain any documentation
necessary
to establish the allowability of Title IV-E payments made in 1984
and
1985 until this audit is fully resolved.
The question of what documentation the State was required to retain
in
order to establish the allowability of payments made in 1984 or 1985
for
children who entered the foster care system in an earlier year is
best
addressed in the context of our review of individual sample cases.
If
in the course of that review, we conclude that the auditors applied
a
standard inconsistent with ACF policy, we would overturn any
findings
based on the incorrect standard, and require a corresponding
reduction
in the projected disallowance.
Finally, the question of whether an AFDC disallowance could have
been
based on statistical sampling for an error in determining
AFDC
eligibility in 1972 is irrelevant here. The disallowance here
relates
to Title IV-E payments made in 1984 or 1985, and, as discussed
above,
the applicable policy was to permit disallowances for this period
based
on statistical sampling techniques. 16/
In sum, we conclude that the sampling methodology used here was a
valid
one, which (assuming the findings in individual sample cases
are
correct) produced reliable evidence of the amount of unallowable
foster
care maintenance payments the State claimed under Title IV-E.
We
further conclude that the sampling methodology was not inconsistent
with
ACF or OIG policy.
VI. The pro rata method ACF used to determine
unallowable
administrative costs is inconsistent with the State's approved
cost
allocation plan and is otherwise unreasonable.
In this section, we discuss the State's arguments concerning ACF's
method
of calculating unallowable administrative costs which ACF
determined were
associated with the disallowed maintenance payments.
ACF disallowed
$27,991,567 in Title IV-E administrative costs based on a
"pro rata" method
of calculation. The State's major arguments were that
the pro rata
method conflicted with the State's approved cost allocation
plan (CAP) and
that ACF had failed to establish that the method was
valid and
reasonable.
For reasons explained in this section, we conclude:
o ACF was reasonable in inferring from
the audit findings (which
showed that the State had made numerous errors in
claiming maintenance
payments under Title IV-E) that the State had likely
also overstated its
Title IV-E administrative claims.
o ACF was also generally reasonable in
using an estimation
technique to determine an amount by which administrative
cost claims
were overstated as a result of the errors identified in the
audit.
o ACF did not show that the particular
estimation technique used
here -- the pro rata method -- was
reasonable. To reliably estimate the
amount of administrative costs
improperly claimed as Title IV-E costs,
the estimation technique must be
based on a rational relationship
between the types of administrative costs
actually claimed by the State
and the types of errors found in the audit
sample. The pro rata method
used here is flawed because: (1) it
incorrectly assumes that the
activities covered by the State's claims are
Title IV-E activities only
if performed for children who are accurately
determined and documented
as eligible for Title IV-E maintenance payments;
(2) it incorrectly
assumes that Title IV-E administrative costs will
increase
proportionately to the amount of maintenance payments made; and (3)
it
in effect amends the approved CAP without meeting the standards
for
retroactively changing an allocation method.
Below, we first discuss generally why we consider it reasonable for ACF
to
determine that some disallowance is warranted and that the
disallowance could
be based on an estimation technique. We next explain
what a CAP is and
generally how the State's CAP worked. We then
describe the pro rata
method used to calculate the administrative cost
disallowance and explain why
we find that the pro rata method conflicts
with the approved CAP and is
otherwise unreasonable. We also discuss
why ACF's reliance on prior
Board decisions is misplaced. Finally, we
explain why our decision does
not preclude ACF from further examining
the State's allocation of
administrative costs to determine whether that
allocation can reasonably be
adjusted to account for the sample case
findings, consistent with the
CAP.
A. ACF was reasonable in determining that
the State had
overstated administrative costs and in estimating the
amount of
the overstatement.
At the outset, we note that our decision here is limited to
overturning
the particular method ACF used in calculating a disallowance
of
administrative costs. If the State was operating its program in such
a
way that it was significantly overstating which maintenance
payments
were for Title IV-E eligible children, the State most likely was
also
overstating which costs were necessary for the proper and
efficient
administration of its Title IV-E program.
We also conclude that ACF was reasonable in using a method which
involved
estimating the amount by which the State's claims for
administrative costs
had been overstated. The State's claims for
administrative costs are
necessarily based (at least in part) on
allocation methods which are
essentially estimation techniques. It is
impracticable for a state to
identify with particularity each of the
costs incurred for a specific
objective; moreover, some costs benefit
more than one program. Thus,
estimation techniques are acceptable in
allocating costs, so long as they
have a rational basis which results in
an equitable distribution of
costs. See Oklahoma Dept. of Human
Services, DAB No. 963, at 4-6
(1988).
The State did not argue that ACF could not use an estimation
technique,
but did argue that, under past Board decisions, ACF had the burden
of
showing that its method of calculating the disallowance was
reasonable.
The Board decisions relied on by the State hold that an agency
using a
statistical sampling method generally has the burden of coming
forward
to show that the sampling methods were valid. The State relied
on
University of California -- General Purpose Equipment, DAB No. 118, at
5
(1980), and Ohio Dept. of Public Welfare, DAB No. 226, at 3
(1981).
However, what an agency must show to meet its burden may be affected
by
the overarching burden on the grantee to document in the first
instance
that its claims meet applicable federal requirements. See DAB
No. 226,
at 2-3.
Here, ACF did not actually sample the State's administrative
costs.
Instead, ACF used the results of a sample of maintenance payments
to
estimate the amount by which the State's administrative costs
were
overstated. Use of such an estimation technique is, however,
comparable
to sampling in that ACF is relying on it as evidence to establish
a
particular disallowance amount. Thus, as the proponent of the
method,
ACF has the burden of showing that it is reasonable under the
particular
circumstances here and produces reliable evidence to support the
amount
of the disallowance. Moreover, as discussed below, since
superimposing
the pro rata method on top of the approved CAP method results
in a
retroactive change to the CAP, ACF has the further burden of
showing
that circumstances exist which are sufficiently compelling to
warrant
changing the CAP retroactively.
B. The State was required to claim
administrative costs in
accordance with an approved CAP.
Section 474(a)(3)(C) authorizes FFP at a 50% rate for costs
found
necessary by the Secretary of HHS for the proper and
efficient
administration of the state plan under Title IV-E. 17/ ACF
regulations
describe costs of certain administrative activities which must,
may, or
may not be claimed under Title IV-E. These regulations
specifically
require that a state's "cost allocation plan shall identify
which costs
are allocated and claimed under this program." 45 C.F.R. .
1356.60(c).
Procedures for submittal and approval of CAPs for public
assistance
programs are set out in Department regulations at 45 C.F.R. Part
95,
Subpart E, made applicable to Title IV-E by 45 C.F.R. . 1355.30.
See
also 45 C.F.R. . 205.150. The State was required to submit to
the
Department's Division of Cost Allocation (DCA) a CAP describing
the
procedures used to identify, measure, and allocate costs to each of
the
programs administered by the State and containing certain
specified
information. 45 C.F.R. . 95.507. The State must amend
its CAP if
certain specified events occur. 45 C.F.R. . 95.509.
The Director, DCA,
is responsible for approving or disapproving CAPs and
amendments, after
consulting with the affected operating divisions of HHS
such as ACF. 45
C.F.R. . 95.511.
An approved CAP is not a rigid unalterable "contract" binding the
parties,
and approval of a CAP cannot make a cost allowable or allocable
contrary to
statute or regulation. Nor does approval of a CAP
constitute approval
of specific costs claimed. See Oklahoma Dept. of
Human Services, DAB
No. 963 (1988); California Dept. of Social Services,
DAB No. 855 (1987);
State Affidavit of Roger Nelligan, Attachment (Att.)
(CAP approval
letter).
Based on its analysis of CAP approval requirements, the Board
has
concluded that it would not uphold an allocation method which
was
clearly inequitable, which had been approved based on
incorrect,
inconsistent, or incomplete data submitted to DCA, or which
was
prohibited by statute or regulation. The Board has also
concluded,
however, that approval of a CAP by DCA gives rise to a presumption
that
the approved allocation methods are valid. The Board thus defers
to
DCA's expertise, absent a compelling basis for concluding that
the
approved plan was improper. Oklahoma, DAB No. 963, at 6-7. 18/
One method of allocating costs among Title IV-E and other
benefitting
programs is to use a caseload count of eligible individuals to
develop
percentages which are then applied to determine each program's share
of
administrative costs. Other methods are based on the percentages
of
employees' time spent on various activities.
The State asserted that the allocation method the State used during
the
audit period was a random moment study (RMS) method. 19/ According
to
the State, this methodology had been revised in 1983 and approved by
DCA
with an effective date of October 1, 1983.
The State described the RMS system as follows:
The RMS estimates the percentage of time the staff of the
New
York City Department of Social Services ("NYCDSS") spend
on
various social services programs. To arrive at the
estimates,
the State generates a random sample of NYCDSS employees
and
corresponding "moments." At the date and time of the
random
moment, the selected employee is interrupted and questioned by
a
NYCDSS sample taker about the activity on which the employee
is
working.
The employee's response is recorded on an RMS form.
The
responses for all employees sampled during a given
fiscal
quarter are collected and allocated by the State to
the
appropriate State or federal program. The State then
generates
a list of the percentage of responses allocated to each
program.
These percentages are applied to a cost pool comprised
primarily
of the salaries, benefits, and overhead costs associated
with
the NYCDSS employees, and the resulting products are charged
to
various State and federal programs as administrative costs.
State Br. at 13-14 (footnote omitted); see also State Affidavit of
Roger
Nelligan..
The State asserted and ACF did not deny that its administrative
claims
were made in accordance with the approved CAP.
C. The method ACF used to calculate the
administrative cost
disallowance was not correlated with the RMS.
After reviewing information on sample cases submitted by the State
in
response to the audit report, ACF determined that it could say with
a
95% confidence that at least 52.96% of the maintenance payments
claimed
by the State in FYs 1984 and 1985 were unallowable. ACF
determined,
"[c]onsistent with the approach taken in the original audit
report,"
that this meant that "52.96% of administrative costs are
also
unallowable." State Ex. 1, at 4. The parties here referred
to the
auditors' approach as a "pro rata" method since it assumes that
the
percentage of total State administrative costs which are unallowable
is
the same as the percentage of total maintenance payments
found
unallowable.
The State argued that application of this pro rata method, on top of
the
allocation of administrative costs already made by the State using
RMS
results, was inconsistent with the State's approved CAP. The State
said
that ACF failed to show any correlation between the percentage
of
unallowable maintenance payments and the RMS results.
ACF did not deny that it did not correlate the method of calculating
the
administrative cost disallowance with the RMS method. The
auditors
explained this as follows:
The audit staff did not question the random moment study
method;
however, based on the high error rate in the sample,
the
auditors did question whether the information in the RMS
was
being collected properly. However, it would not have
been
feasible or accurate to attempt to correlate the cases in
the
sample with the cases represented in the RMS studies. If
the
administrative costs were calculated based solely on the
number
of cases in the sample, 76.6% of the administrative costs
would
be unallowable. If we also included the 22 cases for which
no
case folder could be located, 78.6% of the administrative
costs
would have been unallowable.
Since no two cases can be expected to consume the
identical
amount of administrative costs, we decided to use the
RMS
results as a base to which we applied the percentage of
errors
disclosed by the audit to determine the amount of
unallowable
administrative costs. The amount of maintenance
payments in
each case was an estimate of the amount of administrative
costs
associated with that case over the period covered by the
audit.
ACF Affidavit of Margaret Wallace at 7 (paragraph numbers omitted).
We share the auditors' concern that a high error rate in
determining
eligibility may have affected the accuracy of the State's
administrative
claims. As noted above, the record does not clearly
establish that all
of the administrative costs were allocated using RMS
percentages, rather
than caseload count. See n.19. Moreover, the
State admitted that the
RMS involved questioning City employees on the
activity they were
performing and the program to which the activity
related. State
Affidavit of Roger Nelligan at 2. If a City social
worker identified
the program as Title IV-E based on an erroneous
eligibility
determination, this could have resulted in what would essentially
be an
erroneous response to the RMS. 20/
As discussed more in detail below, the problem with the auditors'
approach
is that the erroneous payments found in the audit sample do not
necessarily
indicate a proportionate rate of errors in allocating
administrative costs to
Title IV-E. Even if the auditors could not
feasibly correlate
individual sample cases with the cases represented in
the RMS studies, this
does not excuse a failure to use an estimation
method which reasonably
relates the errors found in the audit with the
administrative costs in fact
claimed by the State.
We find unpersuasive ACF's defense of the pro rata method, in spite of
the
lack of correlation with the RMS, on the basis that this is a
question of
allowability of costs, rather than a question of
allocability (which is the
only question addressed by a CAP).
Allocability is one aspect of
allowability. To be allowable under Title
IV-E as administrative costs,
the costs must be for the type of activity
listed in 45 C.F.R. . 1356.60(c),
they must be the type of costs which
are generally allowable under applicable
cost principles (for example,
only certain types of compensation are
allowable); and they must be of
benefit to the Title IV-E program.
Here, ACF did not question whether
the type of activity claimed was within
those listed in . 1356.60(c) as
necessary for the proper and efficient
administration of Title IV-E.
Nor did ACF question whether the type of cost
(such as salaries of the
City employees) was allowable under the applicable
cost principles.
Essentially, ACF's disallowance is premised on the idea
that
administrative costs did not benefit the Title IV-E program if they
were
incurred in relationship to an ineligible child. This is a
question of
allocability.
The method of determining allocability to Title IV-E is established in
the
State's CAP. An RMS system focuses on activities, and not directly
on
numbers of eligible children or eligible payments. Neither party
here
provided complete information on what activities are covered by the
RMS or
how particular activities are allocated. From past cases,
however, we
can say that if activities identified in the RMS are
performed only to meet
requirements of Title IV-E, and do not benefit
any other program, the State's
allocation of the entire costs of these
activities to Title IV-E would not be
called into question based solely
on ACF's findings here. 21/ Moreover,
the State presented evidence
that, with respect to certain preplacement
activities (such as preparing
for judicial determinations), the RMS allocated
these activities to
Title IV-E if they were performed for children who had a
plan of foster
care that potentially would qualify as Title IV-E eligible
within a
reasonable time after placement. State Affidavit of John
Reilly at 2.
Some of these children may have never been placed in foster
care. What
this means is that there is not a proportionate relationship
between the
costs claimed by the State under the RMS and the allowability
of
maintenance payments claimed by the State.
We do not find here that there is absolutely no relationship between
the
RMS and identification of children as Title IV-E eligible.
If
activities identified in the RMS may be allocated to Title IV-E
under
the RMS only if performed for a child who meets Title IV-E
requirements,
ACF could reasonably infer that the social workers responding
to the RMS
incorrectly identified children as Title IV-E eligible at the same
rate
as children in the sample were erroneously determined eligible by
the
State. Making adjustments to the RMS results to account for
inaccurate
responses would be consistent with the approved CAP (assuming the
CAP
can reasonably be read as permitting adjustment where responses
are
based on inaccurate information). See n.20.
We conclude, however, that ACF's method here was flawed because ACF
did
not establish any rational relationship between the pro rata method
and
the CAP method in fact used to generate the State's claims
for
administrative costs.
D. Use of the pro rata method alters the
approved CAP
methodology in an unauthorized way.
As explained above, retroactive changes to CAPs are permitted only in
very
limited circumstances. Here, ACF in effect superimposed an
allocation
method on top of the approved RMS method, thus altering the
allocation (at
least with respect to Title IV-E).
We cannot uphold a disallowance based on this retroactive change since
ACF
did not show that the approved CAP methodology resulted in a
substantial
inequity to the federal government, nor that the information
the State
submitted with its proposed CAP was incomplete or inaccurate,
nor that it
violated federal law.
Implicit in ACF's position here is ACF's view that the State
overclaimed
administrative costs under Title IV-E by a substantial
amount. That
position, however, is based on the pro rata method of
calculating the
overstatement and therefore contingent on the reasonableness
of the pro
rata method.
ACF attempted to justify its further allocation by stating that
the
information provided by the State was inaccurate. The information
ACF
referred to, however, was information provided by social
workers
responding to the RMS. ACF did not allege any inaccuracy in
the
information the State submitted with its CAP proposal regarding
State
organization and other matters relevant to approving the
CAP
methodology.
We also note that a CAP methodology should not be evaluated only in
light
of one aspect of one program, but must be considered from the
standpoint of
the affected programs as a whole. See DAB No. 963, at
20-21.
Also, as we have noted before, the CAP has particular importance
in Title
IV-E in allocating costs which may be of the type which ACF
regulations
recognize as activities that could be allocable in their
entirety to more
than one program.
In sum, ACF's imposition of the pro rata methodology on top of
the
approved CAP methodology amounted to a retroactive change to the
CAP,
which ACF did not show was warranted.
E. The pro rata method is otherwise unreasonable.
The pro rata method is an unreasonable method of calculating
unallowable
administrative costs under the particular circumstances here.
The pro rata method is based on the assumption that the State
overclaimed
administrative costs proportionately to the amount of its
unallowable
maintenance claims. This assumption is not reasonable.
As the State pointed out, the State could, under applicable
requirements
and its RMS, allocate to Title IV-E costs of some
administrative
activities which are not directly linked to the Title IV-E
eligibility
of particular children. For example, the RMS would identify
as costs of
Title IV-E certain preplacement activities performed on behalf
of
children who were candidates for Title IV-E foster care, but for
whom
placement in foster care was ultimately avoided, so that no
maintenance
payments were made. State Reply at 12-17; State Affidavit
of John
Reilly. 22/ ACF disagreed with parts of the State's analysis
of
particular Title IV-E administrative activities. 23/ But ACF did
not
assert that all of the administrative activities for which the
State
claimed costs were allocable to Title IV-E only if performed on
behalf
of Title IV-E eligible children.
Also, the auditors' choice of a pro rata method based on amount
of
unallowable maintenance payments (rather than numbers of
children
erroneously determined eligible) incorrectly assumes that if
higher
payments were made, this meant that the child was in foster care for
a
longer period, and that the administrative expenditures associated
with
that child would be proportionately greater than the costs of a
child
for whom the maintenance payments were less. The State pointed
out that
this is not a reasonable assumption, for two reasons. First,
most of
the administrative costs are incurred in actually placing a child
into
foster care. (The State said that ACF's own estimate was that 25
to 40
percent of administrative costs were associated with foster
care
candidates. State Br. at 24.) Second, some children's
payments are
higher solely because they have special needs or because of the
type of
placement. (The State said that in 1984 the basic rate for a
child in a
group home was $1,645.50 to $1,980 per month depending on special
needs,
while the rate for a child under five in a foster home was $242
per
month. State Reply at 20.)
ACF did not directly dispute this (and, indeed, acknowledged that most
of
the administrative costs would be associated with placement); ACF
asserted,
however, that more administrative costs would likely be
incurred for children
who were in care longer. This may be true
generally, but does not
establish that administrative costs are higher
in direct proportion to the
amount of maintenance payments. 24/
Contrary to what ACF argued, past Board decisions do not
support
retroactive use of a pro rata method under the circumstances
here. ACF
relied on Office of Management and Budget (OMB) Circular
A-87,
Attachment A, Section C.1(a) and "basic grant law" for the
proposition
that "[a]dministrative activities that are not directly linked to
any
individual child cannot be allocated solely to Title IV-E." ACF Br.
at
57. ACF read the Board's decision in Florida Dept. of Health
and
Rehabilitative Services, DAB No. 821 (1987), as ruling that, under
OMB
Circular A-87, "a grantee's entitlement to FFP for administrative
costs
is linked to the allowability of the underlying direct program
costs,
and that a proportional disallowance of the former is reasonable
when
the latter are unallowable" ACF Br. at 58. This reading
improperly
derives a general principle from a Board analysis dependent on
the
specific facts of the case.
In Florida, the administrative costs at issue were overhead-type
costs
allocated using a method called an indirect cost rate. By
definition,
an indirect cost rate is a ratio of indirect costs (those that
cannot be
readily identified with a specific cost objective) to a direct
cost
base. The point in Florida was that the indirect cost rate had to
be
applied to allowable direct costs of the project to determine
the
allowable indirect costs of that project. Thus, a disallowance
of
direct costs would automatically justify a proportionate disallowance
of
indirect costs.
Similarly, in Pennsylvania Dept. of Public Welfare, DAB No. 563
(1984),
Pennsylvania admitted that its claim for administrative expenditures
had
been based on a calculation of a pro rata percentage of its
expenditures
for foster care maintenance payments (under Title IV-A).
Pennsylvania
did not dispute the agency's pro rata calculation of an
administrative
cost disallowance.
ACF also misconstrued Board decisions specifically addressing
allocation
of costs to Title IV-E. ACF failed to distinguish between
cases which
addressed prospective amendments to CAPs and those which
addressed
retroactive imposition of new allocation methods. The
importance of
this distinction is illustrated in the Board's decision in
Oklahoma, DAB
No. 963. In that decision, the Board reversed a
disallowance of costs
incurred prior to October 1, 1984 for recruiting and
approving foster
family homes and allocated to Title IV-E pursuant to an
approved CAP.
The Board found that it was within DCA's discretion to approve
a CAP
methodology allocating to Title IV-E all costs of recruiting
and
approving homes. Oklahoma had provided evidence that the entire
pool of
recruited and approved homes served to fulfill Title IV-E
requirements
and that virtually every home was used by a IV-E child at some
time.
Thus, the total costs could be considered as providing a benefit
to
Title IV-E, and the nature of the costs did not make it inequitable
to
charge Title IV-E.
On the other hand, the Board upheld a disallowance of costs incurred
after
October 1, 1984, since ACF provided notice to Oklahoma as of that
date that
it was required to allocate recruitment and approval costs
among Title IV-E
and other benefiting programs using a pro rata method,
and Oklahoma had
agreed to amend its plan accordingly.
In sum, a pro rata method of allocation is not always required, nor is
it
always reasonable. ACF here improperly superimposed a pro
rata
allocation on top of the approved allocation method, based on
incorrect
assumptions about the relationship between the allowability of
the
State's maintenance payments and its administrative claims.
F. Our decision does not preclude ACF
from further
examining whether the State overstated its administrative
costs.
Our decision does not preclude ACF from further examining the
State's
administrative cost claims, the method of allocation, and
its
relationship to the accuracy of eligibility determinations.
Our
decision here is a narrow one, limited to the particular pro rata
method
ACF applied on top of the RMS allocation method for social worker
costs,
because --
o It is likely the State's numerous errors in determining
eligibility
(which we assume for purposes of this decision) also affected
its
identification of Title IV-E administrative costs.
o The information in the record on the
State's approved CAP is
very general. The DCA approval letter indicates
that some costs may
have been allocated using a method different from the
RMS. Also, since
we do not have the instruction forms or other detailed
information
concerning the RMS, we do not know the extent to which RMS
responses
regarding certain activities may have included information
about
children's eligibility.
o The State provided no support for its
assertion that the parties
agreed not to adjust RMS data to account for
subsequent determinations
about eligibility. Absent any specific
agreement not to make such
adjustments, it is reasonable to assume that such
adjustments should be
made to ensure the accuracy of the RMS percentages and
equitable
distribution of costs.
Thus, while we reverse the disallowance calculated using the pro
rata
method superimposed on the RMS results, our decision does not
preclude
ACF from taking a further disallowance based on a reasonable
method,
consistent with the approved CAP. Since we still need to
address ACF's
findings in individual sample cases, and this may affect the
numbers and
kind of errors upon which any further determination is based, we
suggest
that anything other than a preliminary analysis by ACF may be
premature
at this point. If, after our decision on individual sample
cases, ACF
takes a further disallowance of administrative costs, the State
would
have an opportunity to appeal that determination to the Board.
Of course, the parties may at any time engage in negotiations to
resolve
issues concerning either or both types of cost.
Conclusion
We uphold the disallowance of $64,123,732 FFP in foster care
maintenance
payments, subject to downward adjustment based on our further
review of
ACF's findings in individual sample cases. We reverse the
disallowance
of $27,991,567 FFP in administrative costs calculating using the
pro
rata method, but do not preclude ACF from recalculating
an
administrative cost disallowance using a reasonable method,
consistent
with the approved CAP.
_______________________________ Judith A. Ballard
_______________________________ Donald F. Garrett
_______________________________ Cecilia Sparks Ford
Presiding
Board Member
1. The State asserted that ACF's reference in its brief to
"misspent"
funds was intended "to create the erroneous impression that
federal
funds were spent by the State on concerns far removed from
child
welfare." State Reply at 42-43, n.16. ACF used this term
when
discussing Bell. The Supreme Court has used the term "misused"
funds to
refer to State expenditures which did not meet statutory or
regulatory
conditions for federal funding. Addressing Bell in a later
case, the
Supreme Court noted that "funds were misused if the State did
not
fulfill its assurances that it would abide by the conditions [of
the
program at issue]." Bennett v. Kentucky Dept. of Education, 470
U.S.
657, 664-665 (1983).
2. The Board has in the past interpreted the overpayment provision
in
section 1903(d) of the Act as permitting adjustments of FFP claimed
in
excess of a state's entitlement, even where the state could not
recover
from Medicaid providers who had been overpaid by the state.
Board
decisions on this issue have been upheld by three courts of
appeals.
Massachusetts v. Secretary, 749 F.2d 89 (1st Cir. 1984), cert.
denied,
472 U.S. 1017 (1985); Perales v. Heckler, 762 F.2d 226 (2d Cir.
1985);
and Missouri v. Bowen, 804 F.2d 1035 (8th Cir. 1986).
Congress
ultimately amended Title XIX to authorize states to retain FFP where
a
state had overpaid a provider but could not recover from the
provider
because the provider was bankrupt or the payments were
uncollectible.
See section 1903(d)(2)(D) of the Act. No parallel
provision permits a
state to retain FFP in foster care maintenance payments
made on behalf
of ineligible children.
3. Section 1116(d) provides --
Whenever the Secretary determines that any item or class
of
items on account of which Federal financial participation
is
claimed under title I, X, XIV, XVI, or XIX, or part A of
title
IV, shall be disallowed for such participation, the State
shall
be entitled to and upon request shall receive a
reconsideration
of the disallowance.
In 1968, section 1116 of the Act was amended to delete "IV" which
followed
"I" in the sequential list of titles and to add "or part A of
subchapter
[title] IV" following "XIX of this title." See Pub. L. No.
90-248
(1968). As noted earlier Title IV-E was enacted in 1980 to be
effective
no later than October 1, 1982.
4. In footnote 12 in Suter, the Supreme Court contrasted the wording
of
the state plan requirement in section 471(a)(15) with the wording
of
section 472(e) (providing that "[n]o federal payment may be made
under
this part" for a child voluntarily placed in foster care for more
than
180 days unless within that period there is a judicial
determination
that placement is in the best interest of the child). The
Court said
that this showed that Congress knew how to impose precise
requirements
aside from the submission of an approvable state plan. The
State
asserted that this meant that the requirement in section 472(e) was
the
only provision which could be enforced independently from
compliance
procedures. Suter does not support this proposition,
however, since
footnote 12 referred to 472(e) merely as an example of one of
the
sections imposing precise requirements. The footnote does not say
that
472(e) is the only such requirement. A careful analysis of
the
statutory scheme and the legislative history of the Child Welfare
and
Adoption Assistance Act shows that section 472(e) establishes
an
additional condition which must be met if a state opts to cover
children
under voluntary placement agreements, beyond those conditions which
must
be met for children under court orders.
5. In Pennhurst, the Supreme Court rejected the argument
that
acceptance of federal grants under the Developmentally
Disabled
Assistance and Bill of Rights Act required states to provide
mentally
handicapped persons with appropriate treatment in the least
restricted
environment. The Court observed that such a requirement
would have
imposed a massive and largely indeterminate financial obligation
on the
states, and stated: "Congress must express clearly its intent to
impose
conditions on the grant of federal funds . . . ." Here, the
intent was
clear that section 472 requirements were conditions for
funding.
Moreover, the Supreme Court has clarified that "Pennhurst does
not
suggest that the Federal Government may recover misused federal
funds
only if every improper expenditure has been specifically identified
and
proscribed in advance." Bennett v. Kentucky Dept. of Education,
470
U.S. 656, 666 (1984).
6. In Wilder, the Supreme Court concluded that section
1902(a)(13)
created rights enforceable by hospitals in a private action.
7. As ACF noted, the State's brief is misleading. ACF did not
require
that the case record fully support the court order since it
recognized
that testimony or other material available to the court but not in
the
case record might have been the basis for the court's determination.
8. The State maintained that in these cases the transfer was
of
"physical custody" only, not "legal responsibility" so that Title
IV-E
status was unaffected. The State indicated that it would make
this
argument during the later proceedings, but that for purposes of
its
arguments here would concede that this transfer rendered the
children
ineligible.
9. The State conceded that these children were ineligible for
purposes
of its arguments here, reserving until later proceedings its
argument
that the auditors improperly found that these facts rendered
the
children ineligible. State Br. at 68.
10. Under section 472(a)(4) a child removed from the home of
a
specified relative and placed in foster care (foster family home
or
child care institution) as the result of a voluntary placement
or
judicial determination is eligible for foster care maintenance
payments
if --
such child-- (A) received aid under . . . [Title IV-A
(AFDC)]in
or for the month in which such agreement was entered into
or
court proceedings leading to removal . . . were initiated, or
(B)(i) would have received such aid in or for such month
if
application had been made . . . or (ii) had been living with
a
relative specified in section 406(a) within six months prior
to
the month in which such agreement was entered into or
such
proceedings were initiated, and would have received such aid
in
or for such month if in such month he had been living with
such
a relative and application therefor had been made.
11. As ACF pointed out, the State's position here is
diametrically
opposed to the position which the State took in Mercy Hosp. of
Watertown
v. New York State Dept. of Social Services, 79 N.Y. 2d 197
(1992). See
ACF Ex. 3.
12. We also note that part of the audit period here had passed
before
Louisiana was issued, in October 1984. The State provided no
evidence
of when it received the Louisiana decision, nor of how it
interpreted
Louisiana at the time.
13. In its reply brief, the State argued that the sample did not
meet
the standard for having each item in the universe have an equal
chance
of selection since "children in care during both 1984 and 1985 were
not
removed from the universe for 1985." State Reply at 44-45.
The State
provided no scientific opinion to support its view that this
created a
defect in the sample. Moreover, the State's argument is
logically sound
only if you assume that the relevant universe is children for
whom a
payment was made in either 1984 or 1985. This is in our view not
a
correct assumption. The universe was constructed as each child for
whom
a payment was made in 1984 plus each child for whom a payment was
made
in 1985. The fact that a child for whom a payment was made in 1984
may
have also been a child for whom a payment was made in 1985
is
irrelevant. Treating the child as one item in 1984 and as another
item
in 1985 is consistent with the stratified sampling method used.
ACF
submitted an affidavit by an OIG statistical sampling expert
which
indicates that the projected disallowance was calculated based on
"the
amount of payments made on behalf of the children in our sample for
the
applicable fiscal year from which they were selected" and for which
the
State claimed FFP. Thus, even if the same child were selected for
both
fiscal years, the associated payments would be different. We also
note
that, after the original listings provided by the State could not
be
validated, the State assured the auditors that its new listings would
be
complete and that the new listings "assure that all cases have an
equal
chance of being selected for review." ACF Ex. 1 (June 2, 1989
Memo for
Record).
14. This Department has traditionally distinguished between
reviews
(generally conducted by the program agency) and audits (now conducted
by
OIG). See 45 C.F.R. Part 201, Subpart B (1970 - present). The
State
argued in its reply brief that the standards for a formal audit were
not
met because there was no reconciliation of expenditures to claims
for
FFP since OIG did not audit the financial records supporting the
claims.
State Reply Br. at 49, n.17. However, contrary to the
State's
assertion, the record shows that the auditors did review
financial
records, both to determine the amount of payments made on behalf
of
children in the sample during the applicable fiscal year, and
to
determine whether such payments had been claimed for FFP. We know of
no
reason why these steps should not qualify as the kind of
reconciliation
referred to in audit standards.
15. The State objected to ACF's reliance on, and inclusion in
the
record of, ACF Ex. 2, OIG Chapter 6-20, Sampling and
Estimation
Techniques in Auditing, because this policy is dated December 31,
1990.
We see no reason to delete the 1990 policy from ACF's appeal file,
but
we do not rely on it. We address the State's arguments with
reference
to the 1986 policy cited by the State.
16. The State argued that because Congress has barred HHS from
taking
AFDC disallowances based on quality control results for FYs
1981-1990,
"any eligibility errors attributable to an AFDC child in foster
care
have been forgiven." State Reply at 52. The State pointed to
nothing
in the referenced legislation which would indicate that
Congress
intended to "forgive errors" or to preclude disallowances under
Title
IV-E simply because they may have been based on the same errors as
were
encompassed in Title IV-A disallowances. In any event, we
have
insufficient information on the specific errors found here to
determine
whether the alleged errors were in fact made in determining
eligibility
as part of the IV-A program. The errors may have been made
by the State
in determining or documenting whether the foster child had
been
receiving assistance under Title IV-A, or in applying Title
IV-A
eligibility requirements as part of the process of
determining
eligibility for Title IV-E. Neither of the latter types of
errors are
encompassed in AFDC quality control samples.
17. Section 474(a)(3) also authorizes FFP at a 75% rate for
certain
training costs found necessary for the proper and
efficient
administration of the state plan. ACF apparently applied the
pro rata
method to the State's claims for training expenditures. Audit
Report at
32 (State Ex. 2). The record does not clearly indicate how
the State
allocated training costs to Title IV-E. If the State used a
caseload
count of eligible Title IV-E children, nothing in our decision
here
would preclude a disallowance of training expenditures calculated
by
substituting a more accurate caseload count, adjusted based on
a
statistically sound projection from our ultimate findings on
individual
sample children.
18. This standard of deference is supported by the
regulations
establishing the process for amending a CAP. Under the
regulations, an
approved CAP amendment may have retroactive effect only if
"needed to
avoid a significant inequity to either the State or the
Federal
Government," or if the information provided by the State is later
found
to be materially incomplete or inaccurate, or if the previously
approved
CAP violates federal law. 45 C.F.R. . 95.515.
19. While ACF did not directly challenge this assertion, the
State's
own evidence raises a question concerning the accuracy of the
assertion.
DCA's approval letter conditions approval of the CAP on the
State's
submitting "revised RMS and SSRR forms and instructions" to DCA
and
furnishing the "results of the RMS and SSRR" on a quarterly
basis.
State Affidavit of Roger Nelligan, Att. This indicates that the
State
had another system -- SSRR -- for claiming at least part of the
IV-E
administrative costs. Moreover, the State's own description of the
RMS
appears to limit it to allocation of one particular cost pool,
related
to social services. It is not clear whether this cost pool
would
include all of the costs allocated to Title IV-E. As discussed
below,
this is one reason why our decision does not preclude ACF from
further
examining specifically what the CAP provided, how it was
implemented,
what the results were, and whether those results may
appropriately be
correlated with the results of the case sample.
20. The State asserted in its reply brief that ACF and the
State
"agreed that administrative costs would be allocated based on a
child's
eligibility determination at the time the costs were to be divided
among
the various programs." State Reply at 25. The State also
said that
under the agreed methodology the State was not required to
make
adjustments based on a subsequent finding of ineligibility, nor
could
the State retroactively increase its claims if it
subsequently
determined that a child was eligible. State Reply at
25. The State
provided absolutely no support for these assertions,
however, and ACF
was not given an opportunity to respond. If the State
provided
satisfactory evidence that both parties had agreed that responses to
the
RMS be based on eligibility determinations at the time the response
was
given and that no subsequent adjustments for errors would be made,
this
might preclude a disallowance which was in effect an adjustment
for
eligibility determination errors. Absent such evidence, however, it
is
more reasonable to assume that the RMS methodology would not
preclude
such adjustments where they are otherwise reasonable.
21. For example, the State may have a rate-setting system
established
solely to set rates for Title IV-E maintenance payments to child
care
institutions, and the RMS may allocate the entire costs of
rate-setting
to Title IV-E. The audit findings alone do not provide a
basis for
disallowing any of these costs.
22. We express no opinion here on whether this State practice
was
consistent with the approved CAP. Indeed, our analysis on the whole
was
hampered by the fact that neither party provided the relevant
CAP
documents.
23. For example, the State asserted that costs of
determining
eligibility for Title IV-E were properly considered Title IV-E
costs,
even where the child is found to be ineligible (that is, where there
is
a negative eligibility determination), but ACF disputed this.
The
parties' arguments relating to the costs of "negative
eligibility
determinations" misstate the issue somewhat. Here, ACF
found that the
State either erroneously claimed the children as eligible or,
in some
cases, failed to maintain documentation of eligibility. The
State is
correct that it does not automatically follow from these findings
that
the State improperly claimed during the audit period costs
of
determining eligibility for the children at issue. Indeed, some of
the
eligibility determinations may have been made in prior years.
Moreover,
if the State's CAP provided for allocating all of the costs
of
determining eligibility to Title IV-E, regardless of the results of
the
determination, ACF cannot reasonably superimpose a further
allocation
based solely on the audit findings.
24. We recognize that the auditors were in a sense being
conservative
in using the percentage of payments found in error, rather than
the
percentage of children for whom those payments had been made.
The
auditors said that 76.6% of the children (compared with 52.6% of
the
payments) were in error. Thus, choice of a ratio of
unallowable
payments to total payments claimed (rather than children
erroneously
determined eligible to the total number of children for whom
payments
were claimed) appears to have benefited the State. The choice
was
nonetheless based on an assumption which ACF has not supported as
a
reasonable