SUBJECT: New York State Office of Children
and Family Services

DECISION

The New York State Office of Children and Family Services (New York) appealed a series of five determinations by the Administration for Children and Families (ACF) disallowing a total of $428,601 in federal financial participation (FFP) in administrative costs claimed for foster care and adoption assistance under Title IV-E of the Social Security Act (Act) for the quarters ending December 31, 1996 through December 31, 1997. New York claimed the disallowed funds for personnel and other costs of the New York City Administration for Children's Services (NYC, ACS) in administering a project designed to expedite adoptive placements for children in the foster care system in NYC, with particular attention given to a core population of 5,000 children determined to have special needs. The project, called the Families for Kids Campaign (FFKC), was funded by a grant from the Kellogg Foundation. ACF disallowed the claims primarily on the ground that costs funded with private donations did not qualify as state expenditures for which FFP is available. ACF based the disallowance on a 1984 policy that limited the circumstances under which donated private funds could be used as the state share of costs in claiming FFP.⁽¹⁾

During the appeal, NYC was granted unopposed leave to intervene as a real party in interest and submit the main brief and appeal file. The grounds for the intervention were that the claims were for services rendered by NYC personnel and the funds in question would, if allowed, accrue to NYC.

As explained below, we find that the disallowance was contrary to longstanding ACF policy on donations, and that the Kellogg funds could properly be used as the state share to the extent that were spent on allowable IV-E administrative costs. We also find that the record is not sufficiently developed to permit the Board to render judgment on whether costs paid for with the donated funds were allowable IV-E administrative costs, and we remand the disallowance for further development of these claims. We also find that the claims were not inconsistent with NYC's cost allocation plan (CAP).⁽²⁾

Applicable statutes, regulations, and policy

Title IV-E of the Act, enacted as part of the Adoption Assistance and Child Welfare Act of 1980 (Pub. L. No. 96-272, 94 Stat. 500 (1980), 42 U.S.C. �� 670-79b), provides for maintenance payments for children in foster care and adoption assistance for children with special needs. Section 470 of the Act. Title IV-E funds are available for states with approved state IV-E plans meeting federal requirements. Section 471 of the Act. FFP is available, under an approved state plan, for foster care maintenance payments or adoption assistance for children who meet specified eligibility requirements. Sections 471-74 of the Act. In addition, states may receive 50% FFP for "such expenditures" as found necessary by the Secretary of this Department "for the proper and efficient administration" of the state's IV-E plan. Section 474(a)(3) of the Act.

Prior to the enactment of Public Law No. 96-272 and Title IV-E, the foster care program was for many years located at Title IV-A of the Act, as part of the former Aid to Families with Dependent Children (AFDC) program. Like current Title IV-E, the AFDC foster care program provided for 50% FFP for expenditures necessary for the proper and efficient administration of the state's IV-A plan. Former Act � 403, amended by Pub. L. No. 104-193, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, � 103(a), 110 Stat. 2105 (1996).

The 50% FFP is available under the IV-E regulations--

for administrative expenditures necessary for the proper and efficient administration of the title IV-E State plan. The State's cost allocation plan shall identify which costs are allocated and claimed under this program.

45 C.F.R. � 1356.60(c) (1999).

As for allowable administrative costs, 45 C.F.R. � 1356.60(c) (1999) provides:

(2) The following are examples of allowable administrative costs necessary for the administration of the foster care program:
(i) Referral to services;
(ii) Preparation for and participation in judicial determinations;
(iii) Placement of the child;
(iv) Development of the case plan;
(v) Case reviews;
(vi) Case management and supervision;
(vii) Recruitment and licensing of foster homes and institutions;
(viii) Rate setting; and
(ix) A proportionate share of related agency overhead.
(x) Costs related to data collection and reporting.

Additionally, 45 C.F.R. � 1356.60(c)(1) (1999) provides:

The determination and redetermination of eligibility, fair hearings and appeals, rate setting and other costs directly related only to the administration of the foster care program under this part are deemed allowable administrative costs and may not be claimed under any other federal program. Allowable administrative costs do not include the costs of social services provided to the child, the child's family or foster family which provide counseling or treatment to ameliorate or remedy personal problems, behaviors or home conditions.

There are no regulations addressing what funds a state may use to pay allowable IV-E costs in order to be deemed to have incurred an "expenditure" eligible for FFP. ACF's policy on the use of donated funds is contained in Policy Interpretation Question (PIQ) 84-6, issued October 22, 1984 in response to an inquiry from New York concerning the allowability of using third-party in-kind contributions and donated funds as the state share for matching purposes under the IV-E program. In relevant part, the PIQ provides as follows:

STATEMENT OF REPLY: Third-party in-kind contributions are not allowable for replacing the State's share for federal matching purposes under the title IV-E Foster Care and Adoption Assistance Program. Donated funds may not be used for similar purposes if they revert to the donor or have restrictions on their use.. . .

BACKGROUND: . . . Under the provisions of Attachment F, OMB A-122 . . . Federal grantor agencies may accept the value of third party in-kind contributions and donated funds for meeting Federal matching requirements.

QUESTION: Can third-party in-kind services and donated funds be used as the State's share for matching purposes under title IV-E?

ANSWER: No. Longstanding Federal policy has been to consistently exclude third party in-kind contributions from qualifying as the State share under Federal matching requirements for the title IV-A-Foster Care Program. This policy continues under the title IV-E Foster Care and Adoption Assistance Program with the approval of the Office of Management and Budget.

Similarly, we are continuing to exclude donated funds for matching purposes to the extent that these funds are donated on a restricted basis as to the type of activity for which the funds may be used or if they revert to the organization providing the service.

NYC Exhibit (Ex.) 17. The PIQ cited section 474 of the Act and 45 C.F.R. � 1356.60 as authority.

Background

In February 1996, the W.K. Kellogg Foundation awarded NYC a $4,000,000 grant for a four-year project "to pursue expedited permanency for children, effective family support, efficient child welfare services, and reductions in the need for child protective services." NYC Ex. 4. Kellogg awarded the grant in response to NYC's proposal, submitted in September 1995, to establish the FFKC project as part of Kellogg's national Families for Kids initiative. NYC Ex. 3. The proposal's goals were systemic improvements in communications and information flow intended to support expedited adoption and other permanency alternatives, and achieving expedited permanency for a targeted group of a minimum of 5,000 children deemed to have special needs, out of some 18,000 children served by ACS's predecessor, the Child Welfare Administration (CWA), who had a permanency planning goal of adoption. NYC proposed to accomplish these goals partly through the hiring of staff, including 15 adoption "expeditors," located within a contract agency or CWA. The expeditors were to deal with cases individually to uncover areas where system improvements could be made to reduce obstacles to expedited adoption, improve the coordination needed to move cases toward adoption, and coordinate with other personnel in the child welfare system. The expeditors were expected to achieve an increasing number of adoption finalizations for each year of the FFKC project, and worked under the direction of the FFKC Project Director, who was charged with acting as a liaison with CWA, reporting to Kellogg, and overseeing program evaluation. Id.

The award document contained several conditions, including:

• Funds were to be used exclusively for charitable, scientific, literary or educational purposes (as defined in the Internal Revenue Code) and not be used to influence legislation, elections, or fund voter registration drives.
  
• Funds were to be accounted for separately and used only for the purposes specified in the budget unless the grantee receied advance approval in writing from Kellogg.
  
• Unexpended funds remaining at the end of the project were to be returned to Kellogg.
  
• No funds could be paid to any Kellogg trustee, officer, or employee.
  
• FFKC records were to be available to Kellogg for audit.
  
• NYC was to provide Kellogg with progress reports and financial statements at the end of each project period.
• NYC was to have developed a list of target population children by April 22, 1996, and have the project fully staffed and staff trained by August 31, 1996.

NYC Ex. 4.

FFKC project expenditures that NYC, through the state, claimed as IV-E administrative costs consisted of personnel costs including salaries and fringe benefits of some ten to 16 staff members assigned to the FFKC project, and non-personnel costs, described by NYC as a variety of miscellaneous expenses. NYC Ex. 10.

In August 1997 New York wrote to the regional office of ACF asking whether the Kellogg funds provided for the FFKC project could be used as the state share to claim FFP under Title IV-E. Noting that the PIQ provided no explanation of its reference to funds donated on a "restricted basis," New York averred that the FFKC project would be eligible for Title IV-E FFP if funded by the state. NYC Ex. 6. In a letter dated October 10, 1997, the regional ACF Youth and Family Services Division Program Manager stated that IV-E policy required that the state match be sourced from non-federal public monies. The letter explained that the reference to donated funds in the PIQ was meant to clarify that donated funds that must be used for a specified purpose would not qualify as the state match. With regard to the Kellogg funds and the FFKC project, the letter stated:

It is conceivable that a party might donate funds to a state or locality which neither have restrictions on their use nor revert to the donor. This, however, is a highly unlikely scenario. The foundation funds discussed in your letter could only meet these requirements if provided to New York State or City in accordance with statutory authority for acceptance of donations and they are donated for unrestricted use in meeting any governmental need the legally constituted budget making authority deems appropriate.

NYC Ex. 7.

ACF's arguments

While ACF presented several arguments in support of the disallowance, the central issue in this appeal (and the focus of the parties' attention) was whether the Kellogg funds that New York, through NYC, spent on the FFKC project qualified as the state share in claiming FFP under the IV-E program. ACF Br. at 1. ACF argued that the Kellogg funds were ineligible for FFP under the PIQ because the grant award imposed restrictions as to their use, including the requirement that unspent funds be returned to Kellogg, in violation of the PIQ's requirement that funds not revert to the donor.

ACF also cited other Kellogg grant requirements as being disqualifying restrictions on the use of the donated funds. ACF noted that the grant required that funds be accounted for separately, be used only for purposes specified in the FFKC budget, not be paid to any Kellogg officer or employee, and that FFKC records be made available for Kellogg audit. ACF also argued that the Kellogg funds would not have qualified under the regulations addressing the use of donated funds that were applicable to the former Title IV-A foster care program, which NYC cited in its brief, because the funds were never under the administrative control of New York or NYC. ACF characterized the Kellogg funds as a grant to administer a particular project proposed by NYC and not as donated by Kellogg to support any of the activities in the IV-E program.

Apart from the donated funds/state share issue, ACF also argued that the FFKC activities for which New York claimed FFP were not reasonable and necessary IV-E administrative costs. Even if the Board were to conclude that some of the activities should be regarded as allowable administrative costs of the IV-E program, ACF argued, NYC has made no attempt to segregate out the unallowable costs included in the disallowed claims. ACF also argued that NYC failed to claim the FFKC project costs in accordance with its proposed CAP or to allocate properly the FFKC costs to the IV-E program.

Conclusion

We conclude that New York was not barred from receiving FFP in otherwise allowable IV-E expenses that were paid for with Kellogg funds donated under the FFKC program. We remand the disallowance to ACF to determine whether the actual claimed costs were allowable IV-E administrative expenses. If New York is dissatisfied with ACF's final determination, it may seek Board review within 30 days after receiving it. We sustain the disallowance of $2,819 in Docket No. A-2000-18 that ACF disallowed as not timely claimed.

We find that longstanding agency policy permitted federal matching in funds donated to support particular activities, that the purpose of the PIQ was to continue this policy, and that ACF's 1997 pronouncement to NYC regarding use of donated funds did not accurately reflect agency policy as expressed in the PIQ and did not bar New York's claims here. We further find that the various conditions in the grant do not disqualify the Kellogg funds from serving as the state share of NYC's IV-E administrative costs. We also find that the record does not permit a determination as to whether the claims were for allowable IV-E administrative costs, and we remand that issue for further development. Finally, we find that ACF's arguments regarding NYC's CAP do not support the disallowance of New York's claims.

1. The PIQ continued prior agency policy permitting funds donated to support particular activities to serve as the state share.

ACF's argument that the conditions in the Kellogg grant award document disqualified the Kellogg funds was premised on its interpretation of the PIQ as barring FFP in costs paid with funds donated with restrictions as to their use. As discussed below, we find that the PIQ is reasonably interpreted as continuing longstanding agency policy permitting donations to support particular activities under which the Kellogg funds could have been eligible for FFP (assuming the allowability of the particular costs claimed). We further find that advice given to NYC in 1997 was not an accurate statement of that longstanding ACF policy.

Although the PIQ first stated "no" in response to the question of whether third-party in-kind services and donated funds may be used for matching purposes, it further stated that the PIQ was "continuing to exclude" donated funds as the state share to the extent that these funds are donated on a restricted basis as to the type of activity for which the funds may be used. Thus, ACF, with respect to donated funds (as opposed to third-party in-kind services) clearly qualified its "no" by recognizing that there was a prior policy on funds donated with restrictions and by indicating that it was continuing that policy. In the absence from the PIQ of any explication of the "restrictions as to use" clause, we must examine prior policy to determine the meaning of the policy that the PIQ was continuing.

NYC asserted, and ACF did not dispute, that the prior policy referenced in the PIQ was a regulation applicable to the former title IV-A foster care program, at 45 C.F.R. � 220.64 (1979), "Provisions common to title IV-A and B." This regulation provided that donated private funds could be considered as state funds in claiming federal reimbursement where such funds were--

Donated on an unrestricted basis (except that funds donated to support a particular kind of activity, e.g., day care, or to support a particular kind of activity in a named community, are acceptable provided the donating organization is not the sponsor or operator of the activity being funded).

45 C.F.R. � 220.64(b)(ii) (1979), 34 Fed. Reg. 1354 (January 28, 1969).⁽³⁾

As noted above, the PIQ was presented as a continuation of prior agency policy regarding the use of funds donated with restrictions; this policy, at 45 C.F.R. Part 220, permitted funds donated with restrictions including specification of the activities to be supported.

In 1980, Part 220 was relocated to 45 C.F.R. Part 1392, "Service Programs for Families and Children: Title IV Parts A and B of the Social Security Act." The regulation cited above, 45 C.F.R. � 220.64 (1979), "Provisions common to title IV-A and B," was redesignated as 45 C.F.R. � 1392.64 (1980). 45 Fed. Reg. 56,682-83 (1980). For the rule governing restrictions on the state share in claiming FFP, section 1392.64 referred to the regulations governing social services programs under Title XX of the Act, at section 1396.53. Because the foster care regulations incorporated the state share provisions of the social services regulations, it is appropriate to look at the history of the social services regulations for guidance. That history demonstrates that use of private donations was permitted as longstanding agency policy.

The social services regulations required that funds from private sources be donated without restrictions as to use, except that the donor could specify--

(A) The services, administration, or training for which the funds are to be used, if the donor is not a sponsor or operator of a program to provide such services, administration, or training.

(B) The geographic area in which the services are to be provided.

45 C.F.R. � 1396.53(a)(2)(ii) (1980).

Part 1396 was previously found at Part 228, and was relocated at the same time that Part 220 was relocated to Part 1392. 45 Fed. Reg. 56,682-83 (1980). Part 228 permitted private donated funds to be used as the state share when donated without restrictions as to use--

other than restrictions as to the services, administration or training with respect to which the funds are to be used imposed by a donor who is not a sponsor or operator of a program to provide those services, or the geographic area in which the services with respect to which the contribution is used are to be provided . . .

45 C.F.R. � 228.54 (a)(2) (1979).

Similar language appeared in the Act's social services provisions at former Title XX (the authority for section 228.54), which barred payments to states with respect to expenditures made from donated private funds unless such funds were donated without restrictions as to use--

other than restrictions as to the services with respect to which the funds are to be used imposed by a donor who is not a sponsor or operator of a program to provide those services, or the geographic area in which the services with respect to which the contribution is used are to be provided . . .

Former Act � 2002(a)(7), amended by Pub. L. No. 97-35, � 2352(a), 95 Stat 357 (1981).

When the final version of Part 228 was published in January 1977, the preamble to the regulation noted:

Two changes have been made in this Subpart in response to comments. Sections 228.53 and 228.54 are clarified to show that public or private agencies or organizations may make funds available to the title XX agency for training as well as for services and other administrative functions. Since this has always been the case, the purpose of the change is to make this provision explicit. It was suggested that in-kind donations be allowed from private donors. This suggestion could not be accepted since such a change would require legislative activity.

42 Fed. Reg. 5842, 5845 (1977) (emphasis added).

In light of ACF's statements in the PIQ that it was continuing its old policy, the phrase "restrictions as to use" must be interpreted consistent with the restrictions on the use of donated funds that existed for many years in applicable regulations. These regulations provided that the state share could comprise funds donated to support a particular kind of activity (and to support activities in a particular geographic area). We thus find that the PIQ is reasonably interpreted as imposing the same restrictions on the use of funds donated to support particular activities as prior ACF regulations applicable to Title IV-A foster care and other programs, which permitted such donated funds to qualify as the state share. Accordingly, the fact that the Kellogg funds were donated to support the FFKC project does not by itself render them ineligible to serve as New York's share of allowable IV-E administrative costs. To the extent that they were used to incur allowable IV-E expenditures, the Kellogg funds qualified as the state share of IV-E administrative costs.

Based on this analysis, we also find that the October 1997 letter to NYC was not an accurate statement of agency policy on donations. By declaring that a state's receipt of qualifying private donations was a "highly unlikely scenario," the letter suggested that the agency could envision no realistic circumstances under which private donations would be eligible for matching funds and thus effectively attempted to bar private donations in contravention of longstanding agency policy. Given that as far back as 1977 the agency stated that it "has always been the case" that the state share could comprise funds donated to support particular activities, and that this policy was continued by the PIQ, there was no basis to interpret the PIQ in 1997 as effectively banning donations from qualifying as the state share.⁽⁴⁾

2. The Kellogg funds were potentially acceptable as the state share in claiming Title IV-E administrative costs.

ACF argued that aside from the Kellogg grant's specification of the type of activities to be supported, other conditions contained in the grant award document were also restrictions that disqualified the funds from serving as New York's share of foster care administrative costs. Most prominent among these restrictions was the grant's requirement that unspent funds be returned to Kellogg, which ACF said violated the PIQ's bar on FFP in funds which revert to the donor. As explained below, we find that these arguments are not grounds for denying FFP in allowable expenditures paid for with Kellogg grant funds. Giving full effect to the longstanding policy permitting donors to specify the activities to be supported with their donations also compels the finding that other restrictions consistent with and reasonably expected to accompany donations should not disqualify the donated funds from serving as the state share. We find that the other conditions listed in the Kellogg grant award were consistent with the permissible donation of funds to support a particular activity and thus do not render the Kellogg grant funds ineligible to serve as New York's share of IV-E administrative costs.

a. The Kellogg grant did not require that funds impermissibly revert to the donor.

ACF argued that the grant condition that unspent funds be returned to Kellogg disqualified them as the state share under the PIQ policy excluding donated funds for matching purposes "if they revert to the organization providing the service." However, if the funds were returned to the donor unspent, they would never be a basis for a claim for FFP. Thus, it would be illogical to interpret the PIQ as disqualifying donated funds as the state share simply because the unspent funds were required to be returned to the donor.

Instead, we read the PIQ's bar on reversion as a continuation of longstanding prior policy that addressed whether a state could use donated funds to purchase program services from the donor itself. The former IV-A foster care regulations said that the state share could not include donated funds that reverted to the donor's "facility or use," but could include funds donated to support a particular activity in a named community provided the donating organization was not the "sponsor or operator" of the activity being funded. 45 C.F.R. � 220.64 (1979). The reference to a donor's "facility" rather than simply the donor indicates that the prohibition was aimed at a donor who operates a facility providing the sort of services that a state might be expected to purchase with federal program funds.

Similar language is found in other donated funds provisions. The former social services regulations (which were cited by the former foster care regulations) permitted the donor to specify the "services, administration, or training" for which the funds were to be used, if the donor is not a "sponsor or operator of a program to provide such services, administration, or training," but the funds could "not be used to purchase services from the donor unless the donor is a nonprofit organization and it is an independent decision of the State agency to purchase services from the donor." 45 C.F.R. � 1396.53 (1980). The predecessor to those regulations, as well as the former Title XX of the Act, permitted eligible services to be purchased with funds donated with "restrictions as to the services, administration or training with respect to which the funds are to be used imposed by a donor who is not a sponsor or operator of a program to provide those services" and barred the use of donated funds used to purchase services from the donor unless the donor was a nonprofit organization and it was an independent decision of the state agency to purchase services from the donor. 45 C.F.R. � 228.54 (1979); see former Act � 2002(a)(7). Finally, looking to other programs, Medicaid regulations in effect from 1985 through 1991 permitted donated funds to be used as the state share if they "do not revert to the donor's facility or use unless the donor is a nonprofit organization, and the Medicaid agency, of its own volition, decides to use the donor's facility."⁽⁵⁾ 42 C.F.R. � 433.45 (1991).

All of these provisions address the donor's maintenance of a facility from which the state might purchase with the donated funds the very services for which FFP is then claimed. These provisions support our reading of the PIQ's bar on reversion as meaning only that donated funds may not be used to purchase services, for which FFP is claimed, from the donor organization. We thus take the bar on reversion as continuing the policy in the former IV-A regulations that donating organizations could not be sponsors or operators of the activity being funded. 45 C.F.R. � 220.64(b)(ii) (1979).

ACF also argued, however, that the Kellogg funds would have been unacceptable as New York's share of expenditures under former IV-A foster care policy because they were awarded to fund and support a particular activity sponsored by Kellogg. ACF Br. at 12. However, ACF did not explicitly assert that NYC spent any of the Kellogg funds on facilities maintained by Kellogg, or on employees of Kellogg. In fact, the grant terms specifically barred payment to Kellogg employees. Given the clear aim of the regulations that addressed this area to prohibit grantees from using donated funds to purchase program services from the donor, the mere fact that the Kellogg Foundation may have generally supported activities geared towards improving the lot of children in foster care would not disqualify the FFKC grant funds as the state share where NYC did not actually spend funds on Kellogg or its facilities. We thus find that the PIQ's bar on funds which revert to the donor did not disqualify as the state share funds provided by Kellogg that NYC spent on allowable program expenses.

b. Other conditions do not disqualify the Kellogg funds.

We find that none of the other conditions contained in the grant award render the Kellogg funds ineligible for use as the state share. ACF's position that any condition renders a donation ineligible as the state share is not a reasonable interpretation of agency policy in the PIQ because it would have the effect of eliminating donations as a practical matter. It is unlikely that individuals or organizations would devote significant amounts of money for public purposes if they could not be assured of some basic accountability on the part of the donees for how those funds are used. For instance, requirements that funds be accounted for separately, that records be made available to Kellogg, and that the project be fully staffed and staff trained by a date certain are reasonable methods of providing the donor some assurance that the funds will be used for the purposes for which they were awarded. The requirement that funds be used in accordance with purposes outlined in the Internal Revenue Code could be necessary to preserve a donor's status as a tax-exempt organization; such organizations would have little incentive to make donations that could have the effect of threatening their tax-exempt status.

Another condition cited by ACF as disqualifying the Kellogg funds was the proviso that grant funds not be paid to any Kellogg trustee, officer, or employee. This condition, however, merely reflects the PIQ's own requirement that funds not revert to the donor. That the inclusion in a donation of the very terms that the PIQ imposes as a condition for the use of the donated funds would itself disqualify the funds defies common sense. We do not believe that such an illogical result is consistent with longstanding agency policy permitting the state share to include funds donated to support particular activities.⁽⁶⁾

If ACF had intended to exclude donated funds as a state's share, it could have promulgated a regulation or issued a policy clearly reflecting that intent. Instead, ACF issued a policy purporting to continue prior agency policy regarding funds donated with restrictions as to use of the funds which permitted donors to specify the activities to be supported by their donations. Had ACF wished to eliminate or narrow the exception to the general prohibition on funds donated with restrictions as to their use, it could have clearly stated so. It did not. Having issued a policy anticipating claims for donated funds, ACF cannot now interpret that policy in such a way as to effectively bar the use of donated funds as the state share by making receipt of qualifying donations a practical impossibility. As the Board noted in Connecticut Dept. of Human Resources, DAB No. 406 (1983), where the agency rejected the state's use of funds donated by nonprofit educational institutions participating in the Title XX training program as the state's required 25 percent matching share, the agency's position ignores the practical reality of many voluntary contributions, and a purely spontaneous donation may be more the exception than the rule.⁽⁷⁾ Thus, the other conditions of the Kellogg grant do not preclude New York from using the grant funds as its state share.

3. The record does not permit a determination as to the allowability of the claimed costs.

Although we have determined that the Kellogg funds in principle could qualify as New York's state share, New York would still not be entitled to receive FFP in its claims unless the Kellogg funds were expended for allowable IV-E administrative costs.

Both NYC and ACF cited different aspects of the FFKC grant proposal and description of the expeditors' responsibilities in disputing whether FFKC activities were allowable. NYC argued that the FFKC goals of improvements in communications and information flow that will support expedited adoption and other permanency alternatives, and achieving expedited permanency for a specific target population, were consistent with congressional intent that the foster care program lessen the emphasis on foster care placement and encourage greater efforts to find permanent homes for children. S. Rep. No. 336, 96^th  Cong., 1^st  Sess. 1979, 1980 U.S.C.C.A.N. 1448.  NYC further argued that the expeditors' job responsibilities, as outlined in an affidavit from the FFKC project director, were consistent with specific provisions from New York's standards and practices for adoption services, at 18 NYCRR Part 421, incorporated into New York's approved state IV-E plan. NYC Exs. 5, 18. For example, NYC argued that the expeditors' provision of adoption information and referral services to foster parents who were prospective adoptive parents was consistent with state requirements for provision of information to foster parents regarding adoptions. 18 NYCRR � 421.19.

ACF, conversely, cited language from the FFKC proposal discussing concepts like the receipt of feedback through town hall meetings and other communications methods intended to reach out to the general public and improve communications within the system, as well as language discussing the formation of partnerships with other segments of the community, such as business, education, philanthropy, or religion. NYC Ex. 3. ACF also pointed to language to the effect that the adoption expeditors would have minimal interaction with foster care children and would serve as administrative ombudsmen in difficult cases. ACF argued that this language showed that the FFKC program was providing services apart from the IV-E program that were not allowable administrative activities.

ACF's and NYC's selective citations of the language in the FFKC proposal and the description of the expeditors' responsibilities fail to substantiate their respective positions that the claimed expenses were in their entirety either unallowable or allowable. However, ACF's argument that none of the FFKC costs were allowable begs the question of whether ACF would have disallowed a claim for the same activities had they been developed, implemented, and funded wholly by the state or city IV-E agency on its own without any assistance from Kellogg. Since the record before us does not permit a definitive determination of how much, if any, of the expenditures for which New York claimed FFP may have been for allowable IV-E activities, we remand this portion of the disallowance to ACF for further development of this issue. New York and NYC should be given a reasonable opportunity to submit appropriate documentation in support of their claims.

In resolving this issue, the burden clearly rests with New York to document the allowability of its charges to federal grant funds. See, e.g., New York State Dept. of Health, DAB No. 1636 (1997). We note that Office of Management and Budget (OMB) Circular A-87 provides specific standards for the support of salaries and wages charged to federal awards, which must be based on payrolls documented in accordance with the generally accepted practice of the governmental unit and approved by responsible governmental officials. Att. B, � 11.h. States must provide periodic certifications that the employees expected to work solely on a single federal award or cost objective worked solely on that program for the period covered by the certification. The distribution of the salaries of employees working on multiple activities or cost objectives must be supported by personnel activity reports or equivalent documentation meeting other standards set forth in the circular. Id. Moreover, grantees are required to maintain accounting records which "identify adequately the source and application of funds for HHS-sponsored activities" and that are supported by source documentation. 45 C.F.R. � 74.21(b). Applying these standards, the Board has upheld a disallowance in the absence of source documentation substantiating the extent to which an employee's activities benefitted the grant. Michigan Dept. of Mental Health, DAB No. 1291 (1992). A crucial step in a state's documentation of how it allocated costs is "tangible evidence in the form of records indicating a distribution of time among different program responsibilities." Wisconsin Dept. of Health and Social Services, DAB No. 534 (1984).

Further, as ACF noted, the Board has recognized limits on the types of activities that may be claimed as IV-E administrative costs. In sustaining the disallowance of a claim by New York for IV-E administrative costs for nurses working at NYC CWA field offices and congregate care facilities, the Board noted that--

since 45 C.F.R. � 1356.60(c)(2) lists examples of allowable administrative cost activities, a state could not reasonably conclude an activity to be one which had been "found necessary by the Secretary . . . for the proper and efficient administration" of title IV-E, as required under section 474(a)(3)(C) of the Act, unless the activity is one of the nine activities specifically listed in the regulations or is closely related to one of the listed activities.

New York State Dept. of Social Services, DAB No. 1588, at 10 (1996), and cases cited therein.⁽⁸⁾

4. The provisions of NYC's proposed CAP do not provide a basis for disallowing NYC's claims.

States participating in the public assistance programs under the Act, including the title IV-E program, are required to determine the amount of commonly incurred expenditures that are allocable to each program the state administers pursuant to an approved CAP. 45 C.F.R. � 95.507(a). A CAP is defined as "a narrative description of the procedures that the State agency will use in identifying, measuring, and allocating all State agency costs incurred in support of all programs administered by the State agency." 45 C.F.R. � 95.505. The CAP shall identify which costs are claimed, and costs not claimed in accordance with a CAP are subject to disallowance. 45 C.F.R. � 1356.60(c), 45 C.F.R. � 95.519. ACF argued that the FFKC costs were unallowable because NYC's proposed CAP does not address or identify activities funded by private foundations and does not describe the method of allocating the costs at issue here. However, ACF pointed to no requirement that CAPs identify the source of funds that a state uses for program expenditures or separately identify those expenses that are paid with donated funds. The fact that the FFKC program itself was not described in the proposed CAP does not render FFKC costs unallowable if the staff working on the FFKC project were performing functions described in the CAP. Thus, the question of whether the claimed costs were within NYC's proposed CAP depends on whether those costs were for IV-E administrative activities eligible for funding under the applicable regulations and described in the CAP. Above, we found that New York (through NYC) was not barred from claiming FFP in FFKC expenses solely on the basis that the state share comprised donated funds, but remanded the disallowance for ACF to determine whether any of the claimed costs were for activities that are allowable IV-E administrative activities under the regulations. In making its determination, ACF may also examine whether activities for which FFP is claimed were covered by NYC's proposed CAP.⁽⁹⁾

ACF also argued that NYC, in its claims, classified costs related to FFKC program in a category which, by the terms of its proposed CAP, contains costs that are not claimed for federal or state reimbursement, and thus failed to claim costs in accordance with its proposed CAP. ACF's argument was based on the affidavit of the NYC ACS Deputy Director of Child Welfare Claims describing how the FFKC claims were determined. NYC Ex. 10. The affidavit states that the FFKC staff had been placed in the "F30" category, a category not claimed for federal or state reimbursement under the proposed CAP, because their salaries were paid from funds donated to NYC ACS in the Kellogg grant. NYC Ex. 10, � 12. The proposed CAP breaks down costs into nine different functions, including the "F30 Non-Administrative/Local Programs" function. NYC Ex. 16.

During a telephone conference call convened after the parties had submitted their briefs, NYC cited other documents in its appeal file indicating that NYC's claims show the FFKC costs reclassified to the "F2" "general services" function category. Tape recording of June 30, 2000 telephone conference. NYC's proposed CAP states that the F2 function includes administrative costs related to providing foster care to individuals who are eligible under Title IV-E, and adoption services to children determined to have special needs. NYC Ex. 16, at 7-9. ACF did not dispute NYC's explanations of its claims forms and its assertion that the FFKC costs were claimed in the F2 category. Tape recording of June 30, 2000 telephone conference. We thus find that the materials submitted by NYC demonstrate that it did not claim the FFKC costs contrary to the terms of its proposed CAP, despite the fact that NYC may have initially, in its own records, recorded the costs in a category that is not claimed for federal or state reimbursement.

Donald F. Garrett

M. Terry Johnson

Marc R. Hillson
Presiding Board Member

1. ACF also disallowed the costs as unallowable IV-E administrative expenses not properly allocated to the IV-E program. However, ACF acknowledged that the question of whether the donated funds could serve as the state share was the central issue before the Board, and it was on this issue that the parties focused the bulk of their attention. ACF Brief (Br.) at 1. We address the other issues below.

2. In Docket No. A-2000-18, out of a total disallowance of $88,057 that New York appealed as relating to the Kellogg grant, ACF also disallowed $2,819 ($2,728 in foster care and $91 in adoption assistance) claimed for the quarter ending March 31, 1997 on the ground that the claims were not timely filed. While New York stated in its notice of appeal that it appealed that portion of the disallowance as an exception to the time limit for filing claims at 45 C.F.R. � 95.19(a), NYC did not address the untimely claims issue before the Board. Accordingly, we sustain this portion of the disallowance.

3. This provision and the others cited below also barred federal matching of private donations that reverted to the donor's use, with certain exceptions. We address this aspect of the policy on private donations in a subsequent section of this decision.

4. The letter stated that the donated funds could be used as the state share only if they were donated in accordance with statutory authority for acceptance of donations and for unrestricted use in meeting any governmental need the legally constituted budget making authority deems appropriate. Neither of these conditions are found in the PIQ or in the previous regulations. ACF has not premised the disallowance on failure to meet these conditions, and so we do not address their applicability as a basis for the disallowance.

5. We look to the Medicaid regulations not as applicable to the IV-E program and its regulations, but as a guide in interpreting common provisions.

6. ACF also argued that the Kellogg funds would not have qualified as the state share under the former IV-A regulations because they were never under the administrative control of New York or NYC. 45 C.F.R. � 220.64(b)(i) (1979). However, the PIQ, ACF's current policy on donated funds, does not reference or adopt the administrative control standard. The Board has rejected a state's argument that the regulations of the former IV-A program continued to apply to the IV-E program. Pennsylvania Dept. of Public Welfare, DAB No. 1508, at 6 (1995). ACF moreover has not shown that the funds would not have been deemed to be under the state's administrative control under Board decisions interpreting that standard. In West Virginia Dept. of Human Services, DAB No. 956 (1988), reversed sub nom. Lipscomb v. Bowen, 750 F.Supp. 197 (S.D. W. Va. 1989), the agency did not contest that the funds from public providers were under the administrative control of the state Medicaid agency where they had been transferred to the Medicaid agency. In Tennessee Dept. of Health and the Environment, DAB No. 1047 (1989), the Board rejected the agency's argument that funds donated by hospitals to pay the state share of certain Medicaid costs were not under the administrative control of the state because an agreement between the state and the hospitals contemplated how the transferred funds were to be used.

7. The agency cited different grounds for disallowing the donations than in this appeal, that they were not voluntary because they were required of institutions that elected to participate in the training program.

8. ACF also argued that the fact that some of the FFKC activities may have been allowable IV-E activities and benefitted foster care children (which ACF did not concede) did not establish them as necessary costs of the IV-E program, because such otherwise allowable administrative activities could conceivably be funded under Titles IV-B and XX, and thus not be considered costs of the IV-E program. Section 1356.60(c)(3) of 45 C.F.R. excludes the costs of social services from allowable foster care administrative costs. That basis for disallowing the claimed costs has not been briefed before the Board. In determining on remand whether any of the claimed expenses are allowable costs of the IV-E program eligible for FFP, ACF is of course free to apply all applicable standards of allowability.

9. NYC noted that it submitted the proposed CAP to ACF in March 1997, that ACF has not approved or disapproved the CAP, and that the regulations permit a state to claim FFP in accordance with a proposed CAP, subject to amendment based on the terms of the CAP as eventually approved. 45 C.F.R. � 95.517(a).