GAB Decision 453
Docket No. 83-37
July 29, 1983
Ohio Department of Public Welfare;
Settle, Norval; Teitz, Alexander Ford, Cecilia
The Ohio Department of Public Welfare (State, appellant) appealed a
decision by the Office of Human Development Services (OHDS, Agency)
disallowing claims for federal financial participation (FFP) under Title
XX of the Social Security Act for the period of October 1, 1975 through
June 30, 1978. The amount in dispute before the Board is $472,698 in
FFP charged to Title XX training: (1) $134,670 for general overhead
costs and (2) $338,028 for costs of the Office of Staff Development.
For the reasons discussed below, we sustain the disallowance.
I. General Overhead Costs
a. Background
The auditors found that the State's claim for administrative costs
for Title XX training included $203,529 in general overhead costs. The
audit report stated that these costs were allocated from an indirect
cost pool of $1.18 million which included costs from the Director's
Office, Administrative Support Division, Food Stamp Operations, District
Offices, State Central Service Costs, and other activities which were
not directly related to Title XX training. By charging these costs to
Title XX training the State claimed FFP outside the statutory allotment
for reimbursement under Title XX.
The activities and costs matchable as training expenditures are
specified in 45 CFR 228.84. The auditors cited 45 CFR 228.84(c)(2)
(1977) which provides that FFP is available:
(2) For State agency training activities directly related to the
Title XX program: cost of use of space, postage, teaching supplies, and
purchase or development of teaching materials and equipment - for
example, books and audio-visual aids.
(2) The auditors relied on an OHDS counsel interpretation of section
228.84 which stated:
. . . The better reading . . . is that only those items of cost that
are specifically enumerated within the regulation itself are matchable.
This means that if training overhead is claimed by a State Agency as a
training expenditure under Section 228.84, then all components of that
overhead must be discretely identified and fall within one of the
enumerated items or categories in Section 228.84 in order for federal
participation to be available. . . .
The auditors concluded that, out of all the general overhead costs
charged to Title XX training outside the State's allotment, only the
cost of space used by the training activity might be allocable to Title
XX training and therefore eligible for FFP outside the State's allotment
under the provisions of 45 CFR 228.84. The auditors, based on
allocation factors used by the State, estimated the space costs at
$23,969, subtracted this amount from the State's claim, and recommended
$179,560 for financial adjustment. /1/
The Agency sustained the auditors' recommendation and disallowed
$134,670 in FFP. The Agency stated that it agreed with the auditors'
determination that these costs are not allowable under 45 CFR 228.84
unless they can be supported as directly related to Title XX training.
The State argued that the administrative costs had been allocated to
Title XX training in accordance with an approved cost allocation plan,
and, in any event, the regulations pertaining to Title XX do not limit
the costs which are claimable as Title XX training expenditures and do
not specifically exclude these costs from reimbursement.
b. Analysis
Section 2002(a)(1) of the Social Security Act provides that the
Secretary shall pay to each State for each quarter an amount equal to 75
percent of the total expenditures during (3) that quarter for the
provision of certain social services, including expenditures for
administration and personnel training and retraining directly related to
the provision of those services. Although this section provides for 75
percent FFP in "total expenditures," that section is modified by section
2002(a)(2)(A), which sets a ceiling (based on a State's population) on
the total amount that may be paid to any State in any fiscal year for
all Title XX expenditures "other than expenditures for personnel
training or retraining directly related to the provision of services . .
. ." (Emphasis added) Whereas section 2002(a)(1) of the Act provides
that 75 percent FFP is available for the State's expenditures for social
services, administration, and training, section 2002(a)(2)(A) allows
only costs of personnel training or retraining directly related to the
provision of services to be claimed outside the state's allotment for
Title XX expenditures. Therefore, costs of administration must be
claimed within the State's allotment, unless specifically related to
Title XX training.
The regulations on training and retraining at 45 CFR 228.80 through
228.86 specifically delineate what constitutes training activities and
costs. The regulations, at 45 CFR 228.80 (1975), /2/ provide the
conditions for FFP, and state:
FFP is available only in accordance with the requirements of this
subpart for personnel training (including retraining) directly related
to the provision of services under the program . . . . Funds for such
training may be claimed inside or outside the State's allotment for
services and are available at the 75% rate.
(4) The subsections of 45 CFR 228.84 (1975) enumerate those
activities and costs which are matchable as training expenses. This
section provides that:
Costs matchable as training expenditures include:
(e) Payment of salaries for State agency staff development personnel,
including clerical and other staff, travel, per diem, rent, postage,
equipment, teaching materials (including purchase of developing teaching
materials), and teaching aides. (Costs for training personnel spending
less than full time on Title XX training must be allocated.)
(g) Costs of rental of space attributable to training activities as
defined in this Part . . . .
Section 228.84 distinguishes several categories of training
activities and states for each which costs are matchable as training
expenditures. For example, the costs of salaries of State agency
employees engaged in full time training programs of eight consecutive
weeks or longer are matchable as training expenditures whereas salaries
of State agency employees engaged in training of less than eight
consecutive weeks are not listed among those costs matchable. See, 45
CFR 228.84(a) and (c). Similarly, section 228.84(e) specifies certain
costs, such as postage, which when attributable to the State's Title XX
training effort may be matched as training expenditures. Therefore, the
provisions of section 228.84 make specific distinctions between
different types of training activities and their allowable costs.
Although section 228.84 states that matchable costs "include", to
read section 228.84 as providing for reimbursement for overhead costs in
general would render meaningless the distinctions made in the regulation
between the different types of training activities and their allowable
costs. Thus, the word "include", in the context of this regulation,
cannot be reasonably read as a term of enlargement but rather as
equivalent to "are limited to." Therefore, we agree with the Agency
that
only those (5) administrative costs specifically enumerated within
section 228.84 are matchable as training expenditures and claimable
outside the State's allotment.
The State has not demonstrated that any of the general overhead costs
disallowed represented costs specifically identified in section 228.84
as training expenditures. The appellant argued that although the
auditors factored out the space costs, they failed to factor out other
items of cost specifically mentioned in section 228.84, such as postage,
teaching supplies, and purchase or development of teaching materials and
equipment. While the appellant attempted to place the burden on the
Agency to demonstrate that some of the costs disallowed are among those
specifically enumerated in section 228.84, it is not the Agency's but
the appellant's obligation to factor out these reimbursable costs, thus
showing that the general overhead costs actually included cost items
properly chargeable to Title XX training.
The State also argued that the Agency overlooked that the costs
disallowed are not explicitly excluded from reimbursement by 45 CFR
228.85 and therefore are allowable Title XX training expenditures.
Section 228.85 identifies specific expenditures, such as the salary
costs for new employees while they are in orientation, which are not
available for FFP outside the State's allotment for social services but
which may be matched as administrative costs, not training expenses,
within the State's allotment. The Agency, by promulgating this
regulation, has stated specifically that these particular costs are not
included in the category of training expenditures claimable for FFP
outside the state's allotment. There is no indication that this
provision was intended to be an exhaustive list. A reading of the
section indicates that it was intended to state some particular costs or
activities over which there might be confusion. Therefore, while the
costs in question here are not covered by 228.85, that fact does not
render the costs allowable.
We also do not agree with the State's argument that since the costs
here are not the type enumerated by 45 CFR 228.91, they cannot be
disallowed. This section, which is applicable to all Title XX
expenditures, specifies certain expenditures for which FFP is not
available. The Agency has stated that the costs questioned here are
claimable as (6) administrative costs within the State's Title XX
allotment but are not costs specifically enumerated as training
expenditures under 45 CFR 228.84 and claimable outside the State's
allotment. Since there is no dispute that the questioned costs are
claimable as administrative support costs within the State's allotment
under the provisions of 45 CFR 228.90, the fact that these costs are not
among the costs specifically excluded from reimbursement by 45 CFR
228.91 is not pertinent here.
Furthermore, the State has argued that these general administrative
costs were charged to Title XX training based on an approved cost
allocation plan. As discussed earlier, the auditors found that these
charges were from a $1.18 million cost pool which, but for space costs
(some of which might be allocable to Title XX training), were not
directly related to Title XX training. There is no dispute, however,
that FFP is available for general administrative expenses such as these
within the State's allotment for Title XX. Although the State has
alleged that these costs were charged to Title XX training in accordance
with an approved cost allocation plan, it did not base this argument on
specific provisions of its cost allocation plan, nor did the State
provide any evidence to show that the costs it allocated to Title XX
training were among those specifically enumerated in section 228.84. In
addition, as discussed earlier, the State made no effort to actually
demonstrate how the costs in section 228.84 could be factored out of the
amount disallowed. Consequently, there is no information in the record
upon which we can conclude that these costs are properly charged to
Title XX training.
The provisions of 45 CFR 228.84 specifically enumerate a limited
category of costs which are matchable as training expenditures and
claimable outside the State's allotment. The appellant has failed to
demonstrate that any of the costs disallowed are included in this
limited category of costs; accordingly, we agree with the Agency that
these costs are not allowable as training expenditures under 45 CFR
228.84.
II. Office of Staff Development Costs
a. Background
The State charged to Title XX training: (1) $426,735 of the $690,177
in direct costs incurred for the Office of Staff Development and (2) the
$23,969 in allocated indirect space (7) costs discussed in Section I.
The auditors determined that the State had not implemented proper
procedures to allocate these costs to the various benefitting
activities, and, thus, were unable to express an opinion on the $450,704
($338,028 in FFP) which was claimed. The auditors indicated that the
direct costs of training activities were allocated quarterly to Title XX
training at various rates ranging from 53 to 100 percent; the average
for the audit period was 59 percent. The auditors noted that the
workload that could be identified with Title XX training did not appear
to support an allocation of 59 percent of direct costs. The Agency,
based on the auditors' finding that the administrative records were
inadequate to support with auditable documentation how these costs were
allocated to Title XX training and other benefitting programs,
determined that none of the costs claimed were allowable until such
costs were verified by adequate documentation to support program
benefit.
The State argued, in essence, that even though the Agency recognized
that the Office of Staff Development was engaged in some Title XX
training activities, the Agency incorrectly disallowed all the costs
claimed for that office despite the fact the auditors did not recommend
this. The State contended further that the Title XX regulations do not
require a particular type of record to document program activity and
offered affidavits as justification for the allocation of 59 percent.
b. Analysis
The issues here are whether the State must have documentation to
support the allocation of the Office of Staff Development costs to Title
XX training and if so, whether the documentation provided is sufficient
to support that allocation.
Under the regulations for Title XX training, costs of salaries of
State agency staff development personnel as well as costs of travel, per
diem, rent, postage, equipment, teaching materials, and rental of space
for training activities are matchable as training expenditures. See, 45
CFR 228.84(e) and (g) (1975). 45 CFR 228.84(e) specifically states that
costs for training personnel spending less than full time on Title XX
training must be allocated. The Title XX regulations also provide in
the general provisions (8) at 45 CFR 228.90 that federal financial
participation is available only for expenditures which are identified
and allocated in accordance with 45 CFR Part 74.
We have held in prior cases that a state has the initial burden to
document its costs and show that its claim for reimbursement was proper.
See, New York Department of Social Services, Decision No. 407, April 14,
1983; Neighborhood Services Department, Decision No. 110, July 15,
1980. The cost principles at 45 CFR Part 74, Appendix C, Part 1,
Section C (1975) provide that in order to claim costs under a grant
program, the grantee must show that the costs are necessary and
reasonable for the administration of the grant program, are allocable to
the program, and are incurred for the benefit of the program. Grantees
are required to meet standards for financial management of the grant.
These standards, 45 CFR 74.61(b), (f), and (g), require that the grantee
make and retain records of expenditures and support these records with
source documentation. The Board has found that "(these) provisions
clearly place the burden of establishing allowability of costs on the
grantee." Neighborhood Services Department, supra. Furthermore, in
administering Title XX, a state is required by 45 CFR 228.17 to maintain
records including records of administrative cost and other records
necessary for reporting and accountability in accordance with 45 CFR
Part 201 and Part 205 and to retain such records for such periods as
prescribed by the Secretary. The Board also has found the requirement
to document costs to be a fundamental principle of grant management.
Head Start of New Hanover County, Inc., Decision No. 65, September 16,
1979.
In this case, costs of Office of Staff Development training personnel
must be allocated if the training personnel are spending less than full
time on Title XX training. A cost is allocable, according to 45 CFR
Part 74, Appendix C, I.C.2.a., to a particular cost objective to the
extent of benefits received by that objective. In order to allocate
costs to the extent of benefits received, a reasonable method, based in
fact, must be used. The method required in the cost principles is that
salaries and wages of employees chargeable to more than one grant
program or other cost objective be supported by appropriate time
distribution records and that the method used should produce an
equitable distribution of time and effort. See, 45 CFR Part 74, (9)
Appendix C, II.B.10.b. In other words, source documentation of
employees' effort on a project or particular objective must be used to
substantiate an allocation of cost to a particular cost objective or
program. Similarly, under the provisions of Part 74, Appendix C, I.C.
2.a., cost of space is allocable to Title XX training only to the extent
of the benefits received by Title XX training. Consequently, source
documentation is also needed to substantiate the allocation of space
costs to Title XX training to the extent of the benefits received. A
grantee cannot arbitrarily allocate costs to a particular cost objective
without substantiation for such allocation.
The auditors here tried to determine if there were records supporting
the State's allocation of staff development costs to Title XX training,
and finding no records, could not express an opinion whether the
allocation of costs was supportable. The Agency, when it disallowed the
costs in question, indicated to the State that the costs were not
allowable until the costs were verified by adequate documentation to
support Title XX program benefit. In this instance the Agency was
inviting the State to come forward with documentation to support its
allocation. It did not do so.
While the State has offered affidavits from four employees as support
for the allocation made and stated that its allocation of 59 percent is
adequately justified by these affidavits, we disagree. For example, the
affidavit of one employee indicates that during the audit period his
responsibilities included the presentation of training seminars and that
he conducted approximately 40 such seminars. The affidavit, while
indicating that he may have spent time on Title XX training, does not
indicate how much time was spent on Title XX training activities in
relation to his other job responsibilities. The other affidavits also
fail to establish a reasonable method of determining what portion of the
employee's time was spent on Title XX training in relation to other job
responsibilities. Therefore, we agree with the Agency that the
affidavits submitted by the State are not sufficient to justify how or
why the State allocated 59 percent of these costs to Title XX training
activities. The State also has not offered any evidence to support that
all of the $23,969 for space costs was allocable to Title XX training.
The State has had ample opportunity to come forward with
documentation to support its allocation of costs and to explain, based
upon adequate documentation, how it (10) determined these costs were
properly allocable to Title XX training. As the Board indicated in
California State Department of Health, Decision No. 55, May 14, 1979,
"(it) is the State's responsibility to keep the records and supply them
upon request. If it fails to do so or chooses not to do so, some
inference that the results if proved would be likely to be adverse seems
permissible." We conclude that here the burden was on the State to
document its allocation, and that the State has not done so. Therefore,
we sustain the Agency's disallowance. /3/
Conclusion
For the reasons stated above, we sustain the Agency's disallowance
here subject to any adjustment appropriate under footnote 3. /1/ The
$23,969 indirect space cost item is considered along with the
direct costs of the Office of Staff Development in section II. /2/ For
purposes of consistency in our decision, we have cited to the
1975 regulations in our discussion because they were the regulations
initially applicable. While 45 CFR Part 228 was revised on January 31,
1977, there were no substantive revisions affecting the result here,
although certain sections may have been rearranged, therefore explaining
the differences which appear in some instances between the citations to
the 1975 and 1977 regulations. /3/ We note that the Audit Report
does not give the date on which the audit in this case began. The audit
period involved here was October 1, 1975 through June 30, 1978. It
appears from our own review that under the three year record retention
rule, the grantee's obligation to retain its records for the quarter
beginning October 1, 1975 through December 31, 1975 may have ended prior
to start of the audit here. See, 45 CFR 74.20(a) (1975). If so, this
may have an effect on the disallowance which the Agency should consider.
See, Missouri Department of Social Services, Decision No. 395, February
28, 1983.
NOVEMBER 14, 1984