Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
DATE: July 31, 1995
Docket Nos. A-95-95
A-95-142
Decision No. 1525
DECISION
The New York State Department of Social Services (New
York) appealed two determinations by the Administration
for Children and Families (ACF) disallowing a total of
$37,952 in federal financial participation (FFP) claimed
by New York under title IV-E of the Social Security Act
(Act). New York had sought reimbursement for
administrative costs associated with three City of New
York employees who advised New York about the feasibility
of developing an automatic data processing (ADP) system.
ACF found New York's claims unallowable because New York
had not sought prior federal approval, as required by 45
C.F.R. 95.611, before incurring expenditures relating
to the acquisition of ADP equipment or services.
The main issue in these appeals is whether the
expenditures for which New York claimed FFP are the type
of activities that require prior approval from ACF. For
the reasons discussed below, we find that the
expenditures were of that type and that New York
consequently was required to obtain prior approval from
ACF before incurring the expenditures at issue.
Accordingly, we uphold the disallowances.
Regulatory Authority
Department regulations at Subpart F of 45 C.F.R. Part 95
describe the conditions under which the Department will
approve FFP at the applicable rates for the costs of ADP
equipment and services under an approved state plan under
titles I, IV-A, IV-B, IV-D, IV-E, X, XIV, XVI, and XIX of
the Act. 45 C.F.R. 95.601.
The regulations define "automatic data processing
services" as:
(b) Services provided by . . . State and local
organizations other than the State agency to perform
such tasks as feasibility studies, system studies,
system design efforts, development of system
specifications, system analysis, programming and
system implementation . . . .
45 C.F.R. 95.605 (1992). The definitions of
"feasibility studies" and "systems studies" are quoted
and discussed in our analysis below.
The provision in Subpart F concerning the conditions for
prior approval states in relevant part:
Specific Conditions for FFP.
(a) General acquisition requirement. (1) A State
shall obtain prior written approval from the
Department, as specified in paragraph (b) of this
section, when the State plans to acquire ADP
equipment or services with proposed FFP at the
regular matching rate that it anticipates will have
total acquisition costs of $500,000 or more in
Federal and State funds.
45 C.F.R. 95.611(a).
Section 95.611 continues:
(b) Specific prior approval requirements. The State
agency shall obtain written approval of the
Department prior to the initiation of project
activity.
(1) For regular FFP requests.
(i) For the Planning [Advance Planning Document]
subject to the dollar thresholds specified in
paragraph(a) of this section.
A "Planning APD" is defined as:
a written plan of action which requests FFP to
determine the need for, feasibility, and cost
factors of an APD equipment or services acquisition
. . . .
45 C.F.R. 95.605.
Factual Background
New York claimed, at the regular 50% matching rate, a
total of $37,952 in FFP for activities performed by three
New York City Human Resources Administration employees
during the period October 1, 1993 through March 31, 1994.
1/ According to New York, the three employees possessed
unique expertise concerning New York City's computer
operations which could not be duplicated by state
employees. New York asserted, and ACF did not dispute,
that the three employees were needed to document New York
City's existing data processing system, determine their
respective office's need for additional payment/claiming
processes, and provide advice concerning New York City
policies and procedures. New York Brief at 7-8. The
three employees provided New York with advice related to
developing a preliminary analysis concerning the
feasibility, desirability and need for a Statewide
Services Payment System (SSPS). SSPS is an automated
system used in the eligibility determination process, the
payment for foster care services, and the claiming of
federal funding under title IV-E. SSPS integrates three
of New York's automated data processing systems, the
Welfare Management Systems/Services, the Child Care
Review Service, and the Benefit Issuance and Control
System/Services.
On August 15, 1994, New York submitted an Implementation
Advance Planning Document (IAPD) to obtain federal
approval for the development and implementation of a
Statewide Automated Child Welfare Information System
(SACWIS). 2/ New York Ex. 2. In the IAPD, New York
requested federal approval of $20,495,319 for fiscal
years 1994-97 (at a 75% enhanced rate during fiscal years
1994-96 and a 50% rate for fiscal year 1997) to cover
three "building block" initiatives, one of which was the
SSPS. New York put the costs for the SSPS segment of the
SACWIS at $10,677,638. New York Ex. 2, at 33. On
October 13, 1994, ACF responded that it was unable to
approve enhanced funding for these initiatives "because
New York had not completed its planning phase and
determined all relevant activities and costs associated
to the SACWIS." New York Ex. 3. Additionally, ACF
informed New York, "Costs incurred prior to August 15
will not be reimbursed since work began prior to Federal
approval." Id. at 2. ACF subsequently disallowed New
York's claim for administrative costs related to the
three New York City employees.
Discussion
New York asserted that the central issue in these appeals
is the identification of that point in time when a title
IV-E grantee must obtain prior federal approval for the
acquisition of ADP equipment or services. New York
contended that ACF erred in its determination that the
prior approval requirements of 45 C.F.R. 95.611 were
applicable to the facts of these cases because the
questioned expenditures were not, in fact, incurred in
the acquisition of ADP equipment or services.
New York explained that the three New York City employees
only provided New York with expert advice that was used
to develop a preliminary analysis concerning the
feasibility, desirability, and need for the SSPS. New
York termed the work of these employees as "pre-
decisional or preliminary." New York Brief at 8. New
York described what it termed a "continuum of
administrative activities." Id. New York declared that
the employees' services were performed at the earliest
part of this continuum at a time when there was no need
to seek prior federal approval because New York had not
made a decision to acquire ADP equipment and/or services.
At that time, according to New York, it had no way of
knowing whether it would acquire ADP equipment or
services and whether any acquisition would involve
expenditures in excess of $500,000 or enhanced federal
funding so as to require prior federal approval.
New York noted that "acquisition" has been defined in
Subpart F as meaning "acquiring ADP equipment or services
from commercial sources or from State or local government
sources." 45 C.F.R. 95.605. New York contended that
the plain language of this regulatory definition requires
a grantee to have made a decision to acquire ADP
equipment and/or services before the prior approval
requirement of section 95.611 comes into play. New York
argued that this interpretation has been adopted by the
Board in a number of decisions. New York specifically
referred to the Board's statement in Florida Dept. of
Health and Rehabilitative Services, DAB No. 1303 (1992),
"[t]he critical trigger for prior approval requirements
is the point at which a grantee incurs the obligation to
pay the costs of an acquisition. At 6 (citing South
Carolina Dept. of Social Services, DAB No. 303 (1982)).
New York repeatedly emphasized that there was no plan of
acquisition when the expenditures were incurred. New
York argued that it is only further down the continuum of
administrative decision making, when a grantee determines
that ADP equipment and/or services are necessary and must
be acquired, that the prior approval provisions of
section 95.611 apply. New York further described the
three employees' services as being "limited to data
collection necessary for conducting a preliminary
analysis to determine if there was a need for ADP
equipment and services." Second Affidavit of Henry
Stone, New York Ex. 5, 5.
New York also argued that the prior approval requirements
of section 95.611 were not applicable here because the
amount involved was not even remotely close to the
threshold dollar amount, $500,000, of that regulation.
We do not find New York's arguments persuasive. First,
New York's argument that section 95.611 was not
applicable when the expenditures for the three employees
were incurred because a decision had not been made then
to acquire ADP equipment or services is refuted by the
specific language of Subpart F. Included in the
regulatory definition of ADP services are such activities
as feasibility studies and systems studies. The
regulations define a feasibility study as --
a preliminary study to determine whether it is
sufficiently probable that effective and efficient
use of ADP equipment or systems can be made to
warrant a substantial investment of staff, time and
money being requested and whether the plan is
capable of being accomplished successfully.
45 C.F.R. 95.605. A systems study is defined as --
the examination of existing information flow and
operational procedures within an organization. The
study essentially consists of three basic phases:
Data gathering investigation of the present system
and new information requirements; analysis of the
data gathered in the investigation; and synthesis,
or refitting of the parts and relationships
uncovered through the analysis into an efficient
system.
Id.
The activities the three employees performed clearly fell
within these categories. The fact that a formal decision
may not have been made by New York to actually undertake
implementation of an SSPS when the employees' services
were rendered is not relevant under the regulations. A
feasibility study by its nature is "pre-decisional or
preliminary." The purpose of a feasibility study is to
determine whether a particular course of action should be
undertaken. A feasibility study does not necessarily
result in a decision being made to do something; it could
just as well lead to a decision that the particular
action being studied is not worthwhile, efficient, or
practical. New York's admission, furthermore, that the
three employees' mission was the collection of data to
determine the need for ADP equipment and services would
clearly fall under the definition of a system study in
the regulations.
The difficulty with New York's description of a continuum
of the administrative decision making process is that a
state could arguably avoid the prior approval
requirements of section 95.611 by merely asserting that
activities undertaken related to the acquisition of ADP
equipment or services were "pre-decisional" in nature or
so preliminary that federal approval was not required.
This reading is inconsistent with the regulations as a
whole, which contemplate submission of a Planning APD
when an ADP project is merely at the planning stage,
before any feasibility study is performed. See
95.611(b)(1)(i); 95.605 (definition of Planning ADP).
If, as New York asserted, the questioned expenditures
were related to a "pre-decisional" administrative
undertaking that it believed did not require prior
approval, New York had the option of not claiming FFP for
those expenditures. But if it was New York's intention
to claim FFP for those expenditures, New York should have
first requested prior approval for a Planning APD which
necessarily would have encompassed ADP services such as
feasibility studies and systems studies.
Thus, New York's reliance on the cited language in the
Board's Florida decision is misplaced. That language
actually supports ACF's position here since the
expenditures for the three employees' services can
reasonably be considered costs of the acquisition of ADP
equipment or services.
As to New York's argument that prior federal approval was
not required because the expenditures in question here,
$37,952, fell far short of the $500,000 threshold figure
in section 95.611(a), we note that the regulation's
dollar limit refers to the total acquisition costs of ADP
equipment or services associated with an APD project a
grantee anticipates it will incur, and not to the cost of
any one component or aspect of an ADP system. When New
York decided to commission feasibility and system
studies, it did so in the context of a much broader
anticipated acquisition of ADP equipment and services
than the studies themselves. Given that New York
projected in the IAPD a cost of some $10.6 million for
the SSPS segment of the SACWIS, we find it reasonable to
assume that when New York incurred the expenditures of
$37,952 for the three employees' services, New York was
anticipating spending more than $500,000 for the SSPS. 3/
Consequently, we conclude that section 95.611(a) was
applicable here and that New York was required to obtain
federal approval before incurring the expenditures for
the three employees' services.
Conclusion
For the reasons discussed above, we sustain the
disallowance of $37,952.
_________________________
Judith A. Ballard
_________________________
Cecilia Sparks Ford
_________________________
Donald F. Garrett
Presiding Board Member
1. In Docket No. A-95-95 New York appealed the
disallowance of $28,422 for expenditures incurred during
the quarter ending December 31, 1992. In Docket No. A-
95-142 New York appealed the disallowance of $9,530 for
expenditures incurred during the quarter ending March 31,
1993.
2. The Omnibus Budget Reconciliation Act (OBRA) of
1993, Public Law No. 103-66, authorized the provision of
enhanced federal funding to a state which developed a
SACWIS.
3. New York argued that the SSPS work performed by
the employees occurred prior to OBRA 1993 and the
promulgation of the SACWIS regulations and that it was
"merely coincidental that the SSPS could be used to
satisfy some of the SACWIS requirements." New York Brief
at 9. New York contended that the SSPS expenditures at
issue would have been incurred even without the SACWIS
legislation. New York therefore reasoned that there was
no basis to deny FFP at the 50% rate for the employees'
services because of the prior approval requirements
applicable to the development of the SACWIS. We
question, however, how New York could not have reasonably
anticipated a $500,000 cost for the SSPS, if the SSPS was
conceived for functions independent of the SACWIS, given
that New York projected a cost for the SSPS some 20 times
greater in the IAPD.