Title of Regulation: 22VAC40-325. Fraud Reduction/Elimination Effort (amending 22VAC40-325-20).

Statutory Authority: §§ 63.2-217 and 63.2-526 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: November 18, 2016.

Agency Contact: Toni Blue Washington, Department of Social Services, 801 East Main Street, Richmond, VA 23219, telephone (804) 726-7662, FAX (804) 726-7669, or email toni.washington@dss.virginia.gov.

Basis: Section 63.2-217 of the Code of Virginia gives the State Board of Social Services authority to promulgate regulations necessary to carry out Title 63.2 of the Code of Virginia. Section 63.2-526 sets forth the provisions for a statewide fraud control program and requires the State Board of Social Services to adopt regulations to implement the provisions of the section.

Purpose: The regulation relates to the administration of the fraud program by the state and local departments of social services. The proposed revisions will more accurately define the local administrative allocation and reimbursement practices related to local fraud activities. Local fraud prevention and detection activities are paramount to ensuring public assistance programs serve only those actually in need of assistance. By ensuring that limited funding is available only to those in need, the health, safety, and welfare of Virginia's citizens are protected.

Substance: The proposed amendments revise the provisions pertaining to local allocations and reimbursement of fraud control activities to reflect current practices. Beginning in state fiscal year 2014, the Department of Social Services (DSS) moved to a single random moment sampling (RMS) funding pool for all local administrative activities, rather than two funding pools, one for benefit programs and one for family services. As a result, reimbursement is made to local departments from the appropriation for financial assistance for local social services staff and operations based on the DSS federally approved cost allocation plan. RMS allows local departments to accurately document staff activities relating to reimbursable federal programs. RMS sampling is a recognized and accepted alternative to burdensome 100% time reporting. Language in the current regulation does not accurately reflect the change in local funding allocations and reimbursements.

The proposed amendments incorporate the specific methodology for the funding allocation. Each local department's allocation will be determined as follows: 40% on the local department's Temporary Assistance for Needy Families, food stamp, energy assistance, and child care caseload; 20% on the number of completed investigations; 20% on the number of established claims; and 20% on the actual collections from established claims.

Issues: The proposed amendments clarify the current regulation to state the specific funding methodology used to allocate funds to local agencies. Additionally, the proposed amendments correct the statement that reimbursements to local agencies are based on the formula. In 2014, DSS changed its funding methodology for local social services staff to a single pool. As a result, reimbursement is made to local agencies based on the DSS federally approved cost allocation plan from funds appropriated for local social services staff and operations as set forth in the Virginia appropriations act. The primary advantage of the action to the public and local departments is having a clear regulatory base for the methodology that is consistent with practice. There are no disadvantages.

Small Business Impact Review Report of Findings: This proposed regulatory action serves as the report of the findings of the regulatory review pursuant to § 2.2-4007.1 of the Code of Virginia.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. As a result of a periodic review, the State Board of Social Services (Board) proposes to amend its fraud reduction/elimination effort regulation to delineate the methodology used to reimburse local Departments of Social Services for conducting fraud prevention, detection and investigation activities.

Result of Analysis. Benefits likely outweigh costs for these proposed changes.

Estimated Economic Impact. Current regulation allows reimbursement to local Departments of Social Services (LDSS) and states that such reimbursement will be made according to a methodology "as developed by the work group convened by the commissioner, consisting of local department representatives and senior department managers." Board staff reports that, in 2014, the source of reimbursements for such fraud reduction/elimination efforts was changed to a single pool of money. As a consequence, reimbursements were no longer made according to the methodology in the current regulation. Instead, reimbursements are made to LDSSs based on the State Department of Social Services' federally approved cost allocation plan from funds appropriated, and operations set forth, in Virginia's Appropriation Act.

In response to these changes, the Board now proposes to eliminate obsolete language that no longer reflects how reimbursements are made to LDSSs and add language that delineates the current formula for reimbursement. Specifically, 40% of LDSS reimbursement is based on Temporary Aid to Needy Families (TANF), food stamp, energy assistance and child care caseloads. Additionally, 20% is based on the number of investigations completed each year, 20% is based on the number of established claims of fraud and 20% is based the actual collections from established claims. The Board proposes to add this new formula, which has been in use since 2014, to the regulation. No entity is likely to incur costs on account of this proposed regulatory change. To the extent that this proposal removes obsolete language and adds currently relevant information to this regulation, interested parties are likely to benefit.

Businesses and Entities Affected. Board staff reports that this proposed regulation will affect all 120 LDSSs.

Localities Particularly Affected. No locality will be particularly affected by this regulatory change.

Projected Impact on Employment. This proposed regulatory change is unlikely to have any impact on employment in the Commonwealth.

Effects on the Use and Value of Private Property. This proposed regulation is unlikely to have any impact on the use or value of private property.

Real Estate Development Costs. This proposed regulation is unlikely to affect real estate development costs.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. No small businesses in the Commonwealth are likely to incur costs on account of this proposed regulation.

Alternative Method that Minimizes Adverse Impact. No small businesses in the Commonwealth are likely to incur costs on account of this proposed regulation.

Adverse Impacts:

Businesses. No businesses in the Commonwealth are likely to incur costs on account of this proposed regulation.

Localities. Localities in the Commonwealth are unlikely to see any adverse impacts on account of this proposed regulatory change.

Other Entities. No other entities are likely to suffer any adverse impact on account of this proposed regulation.

Agency's Response to Economic Impact Analysis: The Department of Social Services concurs with the June 2, 2016, economic impact analysis prepared by the Department of Planning and Budget.

Summary:

The proposed amendments update the regulation and incorporate the specific funding methodology used to allocate funds to local departments of social services for fraud prevention, detection, and investigation activities.

22VAC40-325-20. The Fraud Reduction/Elimination Effort.

A. In compliance with § 63.2-526 of the Code of Virginia, the department shall establish a statewide fraud prevention, detection, and investigation program to be named the Fraud Reduction/Elimination Effort (FREE).

1. The department shall develop and implement policies and procedures for the FREE program.

2. The department shall provide a detailed local reimbursement procedure, on an annual basis, to assist in the formulation of the local department's FREE program operation plan. The department's procedure shall project the available funding and the number of local fraud investigators for each local department that the FREE program will support. The number of investigators shall be based on an evaluation of the available funding and appropriate criteria from one or more of the following: a local department's average TANF and Food Stamp caseload size, average number of monthly applications for food stamps and TANF, number of local department workers, geographic location, number of fraud investigations, program compliance, collections, and performance expectations.

3. The department shall develop, implement, and monitor local FREE units performance expectations.

B. Each local department shall aggressively pursue fraud prevention, detection, and investigations.

1. Each local department shall conduct fraud prevention, detection, and investigation activities consistent with the requirements of federal regulations, the Code of Virginia, the regulations contained herein this chapter, and the department's FREE program policy.

2. Each local department shall submit to the department, for annual approval, a program operation plan, formatted by the department, which shall include a description of the local department's prevention, detection, and investigative process,; an agreement with the Commonwealth's attorney,; identification of staff charged with oversight or supervisory responsibility of the FREE program,; a performance expectation monitoring process,; a signed commitment to adhere to specified responsibilities identified in the Statement of Assurance section of the program operation plan,; and, if requested, a proposed annual budget to include the identification of the FREE program investigators, their salary, fringe benefit amounts, supporting operating costs, hours worked per week, and time dedicated to the FREE program.

3. Upon request, each local department shall provide the department with an accounting of FREE program expenditures.

C. Funding for the FREE program shall be comprised of balances in the Fraud Recovery Special Fund, general funds appropriated for this activity, and any federal funds available for this purpose.

1. In order to receive reimbursement of direct costs and supporting costs of operation, a local department must:

a. Comply with all pertinent law, regulation, and policy;

b. In accordance with the law, each local department shall establish and maintain a FREE prevention, detection, and investigation unit; and

c. Recover fraud-related and nonfraud-related overpayments of designated federal assistance programs. Reimbursement An allocation to localities shall be made in accordance with the following methodology for the allocation of funds to localities as developed by the work group convened by the commissioner, consisting of local department representatives and senior department managers: 40% based on each agency's Temporary Assistance for Needy Families, food stamp, energy assistance, and child care caseload; 20% based on the number of investigations completed; 20% based on the number of established claims; and 20% based on the actual collections from established claims. Each local department's level of reimbursement of direct and support operation costs is paid from available federal funds, general funds and state retained portion of collections department is reimbursed for fraud-related expenses through funds appropriated for local social services staff and operations.

2. Local departments may contract with other local departments to share a fraud prevention, detection, and investigation unit and may contract with private entities to perform fraud investigations. Any private entity performing fraud investigations shall comply with the requirements of § 30-138 of the Code of Virginia and the restrictions of § 63.2-526 of the Code of Virginia.