GAB Decision 406
Docket No. 82-167
April 28, 1983
Connecticut Department of Human Resources;
Ford, Cecilia; Teitz, Alexander Garrett, Donald
The Office of Human Development Services (the "Agency") disallowed
federal financial participation ("FFP") in the amount of $2,206,451
for
donated private funds used as part of Connecticut's matching share in
Title XX training costs and FFP of $174,521 for consultant fees paid to
the Connecticut Center for Personal and Organizational Development
("CCPOD") for expert services under the Title XX training program.
These training and staff development costs were claimed by the
Connecticut Departments of Social Services and Human Resources under
Title XX ("Social Services") of the Social Security Act during the
period October 1, 1975 through September 30, 1979.
The State of Connecticut here challenged the entire disallowance of
FFP relating to donated funds, $2,206,451. The State also challenged in
part the disallowance of FFP relating to the CCPOD contract. As to this
item, the State contested a proposed adjustment of $124,570 for
allegedly "nonallowable expenses" included under the salary and
consultant costs item, which would reflect a disallowance of FFP in the
amount of $93,427.
We discuss each of the disallowed items separately below. For
reasons set forth in our analysis, we reverse the disallowance of FFP
relating to donated funds and uphold the disallowance relating to the
CCPOD contract.
This decision is based on the parties' written submissions.
I. Donated Funds
A. Background
Section 2002(a)(7)(D) of the Social Security Act and implementing
regulations authorize the use of donated private funds as a state's 25
percent matching share of costs in its social services program. During
the period of the disallowance the State attempted to make maximum
permissible use of donated funds to finance its Title XX training
program. The State adopted a policy of using funds donated by nonprofit
educational institutions that were participating in (2) the Title XX
training program as the State's 25 percent matching share. This
financing approach was first embodied in a formal policy statement
issued by the State in January 1976.
For private agencies, which must be nonprofit organizations, payment
by the State Department of Social Services will be 100% of properly
certified expenditures, provided that there is available to the
Department sufficient donated funds to cover at least 25% of the
expenditures by private agencies. The donated funds must be donated to
the State Department of Social Services in accordance with (45 CFR)
section 228.54, that is, without any restrictions as to use. State
Brief, p. 5.
The State's donated funds policy also appeared in subsequent policy
statements and in several public documents regarding procedures for
requesting reimbursement for personnel training expenses and
instructions for entering into agreements with providers of training
programs.
According to the State, several decisions were made by the State in
developing its policy for the use of donated funds under the Title XX
training program. First, the State alleged that it made in independent
decision to participate in the Title XX training program, and an
independent decision to purchase services from those accredited
educational institutions in the State which were interested in providing
training courses. Second, the State sought to establish an accounting
procedure that would permit participation while complying with the
requirements of the federal donated funds regulation. This procedure
was made known to every educational institution that had the
qualifications for and interest in participating in the Title XX
training program.
Under the State's procedure, when a participating private nonprofit
educational institution submitted an invoice for payment for Title XX
training services, it would also submit a check payable to the State in
a net amount equal to 25 percent of the invoice total. This amount was
transferred to the State's Title XX training program account. Once the
25 percent check was deposited, no identifiable sum of money was
earmarked for "return" to the donor institution. All participating
educational institutions were advised that there could not be any
restrictions on the use of the money they submitted to the State.
Finally, before paying on an invoice, the State reviewed the invoice to
ascertain that all reported expenditures were reasonable and allowable
pursuant to the published State criteria governing eligible training
expenses and financial reporting.
(3) It is undisputed that the federal program officials were kept
informed of the State's policies and procedures governing Title XX
training from the inception of the program, and that these officials
never challenged the State's 25 percent matching share for training
programs. For example, the State filed its 1976 policy statement and
all training plans with the Agency's Region I office. In addition,
meetings were held between State and federal program officials to
discuss various aspects of the Title XX program, including the
application of the donated funds provision to training programs (see
State Affidavit of Martin Lane and State Exhibits EE through GG). Prior
to the 1980 draft audit report that led to this disallowance, neither
the Regional Office nor the Agency Central Office ever notified the
State that its policy regarding the use of funds donated by
participating educational institutions was improper (see State Exhibit
D).
B. The basis for the disallowance of donated funds
The Agency in its submissions before this Board stated that the
donations from participating educational institutions at issue here may
not be used as the State's share in claiming FFP under section 2002(a)(
7)(D) of the Social Security Act and implementing regulations, 45 CFR
228.54(a). Since the regulation for the most part repeats the statutory
language and in at least one respect interprets it, we will focus on the
regulatory language. Section 228.54(a) (as in effect during he period
in question) provides:
(a) Funds available for matching. Funds donated from private sources
for services or administrative functions may be considered as State
funds in claiming FFP only where such funds are:
(1) Transferred to the State or local agency and under its
administrative control;
(2) Donated to the State, 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; and
(3) Not 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.
(4) The Agency focused on two aspects of this regulation which it
believed precluded reimbursement of FFP for any of the contributions
provided by the educational institutions. The Agency questioned whether
the contributions could qualify as "donations" within the meaning
of
that term as provided in the regulations, and the Agency questioned
whether the State here had actually made an "independent" decision
to
purchase training services from the educational institutions.
C. The parties' arguments and the Board's analysis
1. Were the funds donated?
The Agency's primary basis for the disallowance was that the funds
were not "donated" since the universities were required to contribute
25
percent of the costs of providing the training. The Agency emphasized
that the term "donation" connotes a voluntary contribution, one made
without consideration. It cited as its authority the definition of
"donation" from Black's Law Dictionary:
"Donation" (is) a transfer of the title to property to one who
received it without paying for it. The act by which the owner of a
thing voluntarily transfers the title and possession of the same from
himself to another. (Emphasis supplied by Agency).
The Agency pointed to the draft audit report which indicated that
seven of the participating educational institutions made their
contribution only because State policy required them to. The Agency
concluded that as a result, the contributions of these and other
institutions could not be "voluntary" donations.
The Agency also argued that its interpretation of "donation" was
consistent with the "Guide to Federal Financial Participation under
Title XX of the Social Security Act," issued on July 10, 1980. This
Guide provided that where a State agency contracts with a private donor
for provision of a service designated in a donor program, FFP would be
available only for expenditures in excess of the amount of the donation.
The Agency stated that this "interpretive policy guideline" along
with
an example of an impermissible restriction cited by the Guide precludes
payment of FFP for the "required" donations at issue here.
While the Agency may have had the discretion during the period in
question to interpret the term "donation" in the manner suggested
in its
brief, the Agency never issued any timely interpretive guidelines
concerning the meaning of the word. The Program Guide referred to by
the Agency was issued in 1980, whereas the audit period here covered
October 1, 1975 through September 30, 1979. As (5) a consequence, the
1980 policy interpretation of the regulations would not be binding on
the State. Indeed, in New Mexico Human Services Department, Board
Decision No. 382, January 31, 1983, we refused to apply retroactively
the very same Policy Guide in a similar factual context. In New Mexico,
the Board held that the State's practice, through training contracts
with institutions, to require an institution to provide periodic cash
donations in amounts equal to 25 percent of the training expenditures,
was permissible under the donated funds regulations.
Further, in the same prior Board case involving essentially the same
type of arrangements between a private non-profit university and a state
agency, the Agency conceded that contributions of funds by the
universities were "donations." This strongly undercuts the Agency's
position here. If the meaning of "donation" places the contributions
here outside the scope of the regulations, the Agency should at least
have applied the term consistently in prior cases.
Finally, even if we agreed with the Agency that "voluntariness"
is an
inherent characteristic of "donation," and consequently is an implied
requirement of the regulations, we would agree with the State that these
donations could be considered "voluntary" because of the voluntary
nature of the universities' election to participate in the arrangement.
It is undisputed that each educational institution voluntarily elected
to participate in the training program, even thoughitjmay have been
induced by the State to make its 25 percent donation. The State argued,
and we agree, that the Agency's position ignores the practical reality
of many "voluntary contributions," where charities offer inducements
or
premiums for donations or set requirements such as a fixed fee per
person for admission to charitable events. A purely spontaneous
donation may be ore the exception than the rule.
Accordingly, we cannot agree with the Agency that the State here
failed to meet any implied "voluntary" requirements of the regulations
concerning "donations" even if the State had to be held to such
requirements.
2. Did the State meet additional restrictions, including the
"independent decision" requirement?
The Agency argued that even if the Board were to find that
contributions by the universities were "donations" within the meaning
of
the regulations, then the practical effect of the arrangement here is
that the State agency had used the donated funds to purchase services
from the universities, and that certain additional conditions would
apply to the transaction under the regulation. The regulations provide
that funds donated from private sources must be given (with limited
exceptions not (6) relevant here) "without restrictions as to use."
They
further provide that n order for a state to use privately donated money
to purchase services from a donor, the state agency must make an
"independent decision" to do so.
The Agency conceded that the arrangement here did not directly
involve donor-imposed restrictions on donations. We agree. If
anything, the universities were responding to conditions imposed by the
State rather than imposing their own. Further, as we stated in the New
Mexico decision, section 228.54(a)(3) specifically allows the State to
use funds donated by nonprofit institutions to purchase services from
those institutions. Here, rather than imposing restrictions, the
institutions were merely requesting assurance from the State that if
they made a donation of funds, an equivalent amount of services would be
purchased from them.
With respect to the requirement that the State make an "independet
decision," the Agency argued that the State had no choice but to
purchase services from educational institutions that could afford to
absorb 25 percent of their operating costs. "Such a limit on the
State's discretion seems to negate the independent decision required by
the regulations." Agency Brief, p. 11.
While we agree that the State's discretion might have been
circumscribed to some degree by the conditions it set, we nevertheless
believe that the State's decision on raining could still be considered
to be "independent" as required by the regulations. As the State
argued, the State agency retained the option to purchase less or even no
services from the private educational institutions, and to rely instead
on public educational institutions to provide training services.
Alternatively, if the State's donation rogram had not worked
effectively, such that only non-qualified educational institutions
volunteered to participate in the training program, the State agency
could have declined their offers of participation and could have made
its training selection without requesting an unrestricted donation.
And, in fact, the Agency here never questioned the qualifications and
suitability of the private educational institutions that chose to
participate in the Title XX training program. Also, the Board, when
faced with an equivalent set of facts raising a question as to the
independence of the State decision in New Mexico, concluded that the
evidence did not demonstrate the absence of an "independent decision."
Aside from the specific language of the regulatory conditions
themselves, the Agency argued that its interpretation in general
furthered the legislative purpose behind the statutory provision on
donations. The Agency suggested that its more restrictive
interpretation of the regulation would prevent the use of donations for
unauthorized gain. In point of fact, however, any qualifying "donation"
which a state received would accrue to the state's (7) gain since it
would serve as a substitute for the state's share in funding the
program. The arrangement here questioned merely provided an inducement
to increase what Congress had authorized as permissible, and therefore
is not clearly contrary to congressional purposes. For this reason,
also, the donations here do not contravene the requirement that there be
financial participation by the State in section 2003(d)(1)(I) of the
Social Security Act.
The Agency also argued that as a policy matter, eliminating the
practice of using donated funds for state share in Title XX programs
would have the beneficial effect of maximizing the State's interest in
overseeing training expenditures. Regardless of how the regulations on
"donations" are interpreted, the Agency always could have assessed
these
claims from the perspective of whether they were adequately documented
and whether they were reasonable and allocable. Further, the State,
without substantial rebuttal from the Agency, demonstrated in detail
through its appeal brief and exhibits that it carefully monitored all
expenditures under the title XX training program to assure compliance
with applicable law and regulations.
Although both sides pointed to legislative history as support for
their positions, we can find nothing conclusive in the history. While
it is true that subsequent legislation in 1980 liberalized the
conditions concerning training donations, it is unclear that the
amendments specifically responded to arrangements such as those in
Connecticut. Thus, the reference in the history of the 1980 legislation
to an "expansion of existing authority" does not necessarily support
the
position that authority did not exist for the Connecticut arrangement in
prior law. See Agency Brief, p. 13. Further, while the Connecticut
arrangement could conceivably have led to less monitoring and oversight,
which, according to the Agency, was a primary purpose of the statutory
restrictions on donation, it also served to encourage donations from
private non-profit organizations, which also seemed to have been a goal
of Congress.
As we indicated previously, we believe that the statute and the
regulations could possibly have been interpreted by the Agency to bar
this type of arrangement. The Agency, however, never issued any such
interpretation. On the other hand, the State's interpretation of the
donated funds regulation wa well known to Regional program officials
throughout the audit period. It is undisputed that Regional officials
discussed this particular issue with the State several times during the
period covered by the disallowance, and never suggested that the State
had to alter its donated funds policy.
Indeed, the State submitted to the Board internal Regional memoranda
which stated that a policy decision would be needed on the (8) issue
from Central Office officals and which stated that there were
"countervailing considerations" in favor of the State's position.
State
Exhibits B, C, and D. The memoranda recommended against disallowance
for any period during which the State had not received actual notice of
a policy. The Central Office, however, never notified the State during
the time at issue that the State's policy was contrary to applicable
authorities. Component agencies of the Department have agreed under
circumstances similar to the situation here not to apply clarifying
interpretations until the State had actual notice. See Montana
Department of Social and Rehabilitation Services, Decision No. 119,
September 29, 1980 and New York Department of Social Services, Decision
No. 101, May 23, 1980.
On the basis of the foregoing analysis, we reverse the disallowance
for the donated funds.
II. Consultant fees paid to the Connecticut Center for Personal and
Organizational Development for expert services
The State contracted with the Connecticut Center for Personal and
Organizational Development ("CCPOD") for expert services in needs
assessment and training under the Title XX training program. CCPOD was
organized in June 1977 as a non-profit educational training, consulting,
and counseling center. The CCPOD contract provided that the State would
reimburse CCPOD at a fixed rate of $250 for each "unit" of service,
defined in the contract as six hours of work by a staff person. This
rate represented $41.67 per hour.
The Agency disallowed $124,570 of the $365,750 paid to CCPOD under
the contract (or 34 percent of the costs claimed under the salary and
consultant cost item) because that amount was ultimately disbursed by
CCPOD for operating cost items that are not reimbursable under 45 CFR
228.84(c)(1) and (g)(1). These regulations limit matchable costs for
experts outside the State agency to: "salary, fringe benefits, travel
and per diem." It is undisputed that CCPOD expended the contract
proceeds for overhead items that do not fit within the matchable
categories.
The State argued nevertheless that an inquiry into cost components of
the services provided would be inappropriate where the training was
procured pursuant to a fixed-rate contract. The State noted that
section 228.70(a)(5) authorized states to enter into a fixedrate
contract for the purchase of services, rather than a cost-type contract
for services. Section 228.70 generally makes FFP available in the costs
of purchased services if a written contract meets the requirements of 45
CFR 228.70 and 228.71 and 45 CFR Part 74. The State argued that by
their terms sections 228.70 and 228.71 authorize states to enter into
contracts for a specific rate (9) per unit of service, without typing
that rate to specific cost components.
The State quoted from section 228.70(a)(5), which provides that a
written contract shall:
Provide for a stated number of units of service at a specific dollar
rate, or for a specific dollar amount, or for costs to be determined in
accordance with acceptable cost allocation methods: ... (emphasis
added).
The State also cited section 228.71(a), which provides:
Where services are purchased from private agencies, rates may be
established on the basis of negotiation, utilizing any reasonable
methods for establishing competitive rates....
The State alleged that $41.67 per hour was a reasonable hourly rate
for expert services and provided a "survey" of expert consulting fees
by
an official of the State Department of human Resources which indicated
that at least three other organizations that provide training and
consultative in the same general areas as those involved here would
charge between $250 and $300 per day for the instructor plus
instructional materials.
The State concluded that if it had entered into a cost-type contract
with CCPOD, arguably the provision of section 228.84 would apply to
govern which costs would be matchable as training expenditures. The
State added, however, that because the State elected to enter into a
fixed-rate contract rather than a cost-type contract for the services of
CCPOD, "any inquiry into 'reimbursable costs' under section 228.84( c)
is inappropriate." State Brief, pp. 37-38.
Analysis
The question of whether Subpart G of 45 CFR Part 228 (sections 228.70
through.73) applies to the purchase of training is not directly
presented here. The Agency in its Final Audit Report (p. 29) seemed to
suggest that provisions for fixed-rate contracts in Subpart G do not
apply to contracts for services under the Title XX training program.
The Agency, however, in its disallowance and briefs did not expressly
take this position and, in any event, we find for the Agency on other
grounds. Nevertheless, from the context of this subpart, we conclude
that it is likely that it applies only to the purchase of Title XX
services from public and private provider agencies, not to the purchase
by contract of training services.
(10) Regardless of whether a fixed price contract is permitted for
the purchase of training services by experts outside the state agency,
however, such contracts cannot be a vehicle for reimbursing costs which
are outside the scope of the program, i.e., not matchable as required by
program regulations such as section 228.84(c)(1) and (g)(1). The State
argued that section 228.70 does not expressly make section 228.84
applicable to fixed-rate contracts, and therefore, it is not. Quite the
contrary, even assuming that the State is correct that section 228.70
applies, it specifically provides that the contracts executed by the
State agency must be "in accordance with requirements under (Part 228)."
Furthermore, spection 228.84 is a program-wide regulation, and it is
automatically applicable to training costs unless otherwise expressly
stated. Finally, under 45 CFR Part 75, Appendix C, Part I.C. l.c., a
cost must be "allocable" to the particular grant program under which
it
is claimed and must conform to:
... limitations... set forth in... Federal laws, or other governing
limitations as to types or amounts of cost items.
The fact that the State chooses, albeit indirectly by contract, to
participate in a broader range of costs than those provided for by
regulation, does not obligate the Agency to do so.
Accordingly, we upheld the disallowance of the $93,427 paid by the
State under the contract which exceeded the salary and fringe benefit
costs incurred by CCPOD.
Conclusion
We reverse the disallowance of $2,206,451 for donated funds and
uphold the disallowance of $93,427 for CCPOD costs.
JULY 07, 1984