DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: New York State Department of
Social Services
Docket No. 86-101
Decision No. 818
DATE: December 12, 1986
DECISION
The New York State Department of Social Services (State) appealed
a
decision of the Office of Family Assistance, Family
Support
Administration (Agency), disallowing $1,785,481 claimed under title
IV-A
(AFDC) of the Social Security Act (Act). The disallowance was
taken by
the Agency on the ground that the State's claims were not filed
within
the applicable time limits imposed by section 1132 of the Act and
the
implementing regulations. The State appealed $650,605 of the
total
disallowed. At the State's request, we issued a summary
decision
upholding the disallowance with respect to $601,925 of the
amount
appealed. (New York State Department of Social Services,
Decision No.
784, September 2, 1986) Here we consider the State's
argument that the
remaining $48,680 was allowable. Specifically, the State
asserted that
$47,799 represented not a claim for federal financial
participation
(FFP) but rather a bookkeeping adjustment to correct a
credit
inadvertently included on a prior quarterly expenditure report
(QER)
filed by the State. The State reasoned that the time limits did
not
apply since there was no claim for FFP. The State also asserted
that
the remaining $881 fell within the exception to the time limits
for
adjustments to prior year costs. For the reasons discussed below,
we
uphold the disallowance of the $47,799 and reverse the disallowance
of
the $881.
Applicable Law
Section 1132 of the Act requires claims by states for expenditures
in
calendar quarters beginning on or after October 1, 1979 under
the
various public assistance programs, including AFDC, to be filed
"within
the two year period which begins on the first day of the
calendar
quarter immediately following such calendar quarter," or payment
will
not be made. Subsection (a) states in part that this provision is
not
to be applied so as to deny payment with respect to any
expenditure
involving, among other things, "adjustments to prior year
costs." The
statutory provisions were implemented by 45 CFR Part
95,
Subpart A (1981). The regulatory provisions on time limits in
general
track the statutory requirements, with the statement of the
two-year
time limit at section 95.7 and the list of types of claims to which
the
time limits in section 95.7 do not apply at section 95.19. However,
the
regulation also defines "adjustment to prior year costs" as:
. . . an adjustment in the amount of a
particular cost item that
was previously claimed under an interim rate
concept and for which it is
later
determined that the cost is greater or less than
that
originally claimed.
45 CFR 95.4.
The $47,799 Dispute
The $47,799 in question was included in the State's QER for the
quarter
ended September 30, 1983 (7-9/83 QER) on line 5.L., which is
labelled
"Federal share of adjustments--increasing claims from prior
quarters,"
under the column headed "State and Local Training."
Attachments to the
QER further described these costs as originating under the
Central
Office Cost Allocation Plan and attributable to "Prior Period
Training
Contracts." (State's appeal file, Ex. 3)
The Agency deferred payment of this amount pending receipt of
additional
information. In response to the notice of deferral, the
State advised
the Agency that the $47,799 was derived from a contract between
the
State and the Research Foundation of State University of New York
for
and on behalf of Empire State College. 1/ According to the
State,
payments totaling $47,798.98 were made under this contract in
June,
1981, 2/ more than two years prior to the submission of the QER
on
December 7, 1983. The State explained the delay in submitting the
claim
for these payments:
. . . as a result of clerical
error. . . . [J]ournal
transfer
errors were made so that the
charges were not made to your
department
as is routine. These errors were
subsequently
discovered and corrected on
the 7-9/83 quarterly report.
(Agency's appeal file, Ex. A) The Agency subsequently disallowed
the
$47,799 as untimely.
On appeal to the Board, the State denied that the $47,799 represented
a
claim for payments made under the Empire State College contract.
The
State asserted that these payments were not included in its
Central
Office Cost Allocation Plan for the AFDC program and were therefore
not
eligible for FFP.
The State took the position, however, that the $47,799 should
nevertheless
be paid because it represented a debt owed by the Agency to
the State.
According to the State, this debt originated in June of
1981, when the State
used AFDC training funds to make payments totaling
$47,799 under the Empire
State College contract, although the payments
were not eligible for FFP and
no claim for FFP had been made. The State
contended that, realizing
that it had improperly used AFDC funds for
this purpose, it then repaid
$47,799 to the AFDC fund by check dated
August 19, 1981. (State's
appeal file, Ex. 1) In addition, however,
the State deducted $47,799
from the amount that it would otherwise have
claimed on its QER for the
quarter ended September 30, 1981 (7-9/81
QER), allegedly for the purpose of
repaying the Agency for the same
misused AFDC funds. (State's appeal
file, Ex. 6) This is not apparent
on the face of the QER but is
supported by worksheets used by the State
to prepare the QER. (State's appeal
file, Ex. 6) According to the
State, upon discovering this in 1983, it
included $47,799 as an
increasing adjustment on its 7-9/83 QER (the one in
question here) to
offset what it considered to be a double payment. The
State argued that
the $47,799 was thus a correction of an erroneous credit,
not a claim
for FFP subject to the time limits.
The Agency argued that since the $47,799 claim on
the 7-9/83 QER
was a claim which the State had
refrained from making on its 7-9/81 QER,
it was subject to the two-year
filing deadline regardless of the reasons
for the State's failure to include
the claim on its 7-9/81 QER.
Assuming that the State's later explanation of
what happened is correct,
the basis for the State's claim is that the State
had $47,799 in
allowable costs which it would have claimed on the 7- 9/81 QER
but for
its error in subtracting that amount because of its improper
diversion
of funds from AFDC. It necessarily follows that these costs
were
incurred prior to September 30, 1981. Thus, absent any evidence
that
the costs fell within one of the statutory exceptions to the
two-year
filing deadline, the claim for the costs should have been filed at
least
by September 30, 1983. While the costs were claimed on the
State's
7-9/83 QER, the QER for that quarter was not filed until December
7,
1983. 3/
This case is readily distinguishable from Maryland Department of
Human
Resources, Decision No. 438, November 30,
1983, which was cited by
the State. There the Board found that the
credit disallowed by the
Agency as an untimely claim was for costs which were
included in
earlier, timely claims. The Board's holding in that case
that payment
of the credit was not barred by the applicable filing deadline
does not
govern here since the State did not claim FFP for the costs in
question
prior to the filing of the 7-9/83 QER. That the State may have
been
entitled to make a claim for the costs when it submitted the 7-9/81
QER
is irrelevant.
The $881 Dispute
The $881 in question was claimed as administrative costs on the
State's
4-6/84 QER dated September 7, 1984. This amount represented
costs
incurred by two local social services districts (St. Lawrence County
and
Tompkins County) from January through June 1982 for maintenance
of
publicly owned buildings used by the districts. These costs
are
commonly referred to as maintenance in lieu of rent costs (MLR
costs).
The State's Local District Cost Allocation Plan, approved by the
federal
government in 1974, provides with respect to MLR costs:
This cost shall be computed and the
reimbursement claimed
initially on the
basis of an annual square-foot rate which is
a
reasonable approximation of actual
costs unless the actual costs
can be
determined and thus claimed on a current
basis.
Subsequent to the close of the
district's fiscal year, the
estimated
costs previously claimed for the year shall be
adjusted
on the basis of actual cost
figures.
(State's appeal file, Ex. 5) The State asserted on appeal that
the
claims, which the Agency disallowed as untimely, were revisions based
on
actual costs of earlier claims for MLR costs made based on
estimated
costs. The State argued that the claims were therefore
covered by the
exception to the filing deadline for adjustments to prior year
costs.
The Agency argued initially that the State had failed to establish
that
the claims constituted adjustments to costs already claimed on a
timely
basis rather than the State's initial claims for these particular
costs.
In response, the State provided documentation which, it
contended,
showed that MLR costs for the two districts covering the period
January
through June 1982 were originally claimed on its 1-3/82 and 4-6/82
QERs.
The Agency did not dispute that this documentation responded to
its
concern that earlier claims for the MLR costs might not have been
filed.
However, the Agency subsequently raised a new objection to the
claims,
contending that the exception for adjustments to prior year
costs
applies only to claims for services or medical assistance, whereas
the
costs in question here were administrative costs. 4/ The Agency
cited
in support of its position the preamble to the regulation
implementing
the statutory time limits, which states in pertinent part:
An "adjustment to prior year's costs" is limited to
claims for
services or medical assistance based on
interim rates that
subsequently are determined to be
higher or lower than originally
claimed. It
has been our experience that in these areas
subsequent
adjustments are unforeseen and
unavoidable. Consequently, we
believe they should
not be subject to the time limits. We believe
that a broader exception would render the statutory provision
a
nullity. However, we would welcome comments
based upon the actual
experience of the commenters
as to the desirability of expanding
this
exception.
46 Fed. Reg. 3528 (January 15, 1981). The Agency did not allege
that
the State had actual notice of the preamble in the same sense as if
the
language had appeared in an action transmittal or other system of
Agency
guidance.
The State responded that there was no basis in the statute or
regulation
for the limitation on the exception articulated in the
preamble. The
State contended that the overall structure of the
regulation
affirmatively indicated that the exception applied to any types of
costs
claimed as adjustments to prior year costs, noting that the
complete
list of public assistance programs to which the two-year limit
is
applicable--at 45 CFR 95.1--is referred to in section 95.7, which
sets
out the general rule and states that "[s]ection 95.19 lists
the
exceptions to this rule."
We agree with the State that there is nothing on the face of the
statute
or regulation that limits the exception in question to claims
for
services or medical assistance. Indeed, as the State pointed out,
a
reasonable person could conclude from the structure of the
regulation
that the exception applies to any costs which are claimed in a
prior
year at an interim rate. The Agency did not offer any reason
for
limiting the exception to services or medical assistance other than
to
point to the preamble of the regulation. The preamble indicates
that
the limitation was imposed as a matter of Agency discretion and was
not
required by statute. This is apparent from the fact that the
preamble
justifies the limitation based on the Agency's "experience that in
these
areas subsequent adjustments are unforeseen and unavoidable," and
from
the Agency's offer to consider, "based upon the actual experience of
the
commenters, . . . the desirability of expanding this exception."
Thus, the question becomes whether the preamble is binding on the
State
where it imposes a limitation not apparent on the face of the
regulation
and not required by statute. We conclude that, on the facts of
this
case, the State should not be bound.
A preamble, unlike a regulation, does not appear in the Code of
Federal
Regulations (CFR). The CFR is the permanent library of
active
regulations, updated yearly; the preamble appears only in the
Federal
Register, the daily report containing the regulations which then
appear
in the next issue of the CFR.
The requirement for a preamble was promulgated by the
Administrative
Committee of the Federal Register effective January 1972 and
revised
effective April 1977. Section 18.12 of 1 CFR requires that:
Each agency submitting a proposed or final rule
document for
publication shall prepare a preamble
which will inform the reader,
who is not an expert
in the subject area, of the basis and purpose
for
the rule or proposal.
It further requires that the preamble contain a "Summary" consisting of:
Brief statements, in simple language, of: (i)
the action being
taken; (ii) the circumstances
which created the need for the
action; and (iii) the
intended effect of the action.
Thus, the purpose of a preamble is to give some background for
the
regulation and to summarize it in simple terms. A preamble commonly
is
used also as an interpretational guide for aid in implementing
the
provisions in the regulation, and sometimes as a means of
establishing
peripheral guidance on matters such as phasing in the
regulation. (See,
e.g., Illinois Department of Public Aid, Decision No.
667, July 2, 1985)
The question whether the preamble was a reasonable interpretation of
the
regulation does not arise here, however. Here, the Agency never
argued
that the preamble was linked to the regulatory language, but
instead
treated the preamble as a separate limitation which was
independently
binding. As the discussion above indicates, however, the
preamble is
not an appropriate vehicle for the imposition of a
substantive
requirement which easily could have been stated in the regulation
but
was not. 5/ Thus, we conclude that the State was justified in relying
on
the regulation alone which provides that adjustments to prior year
costs
claimed under any of the public assistance titles are not subject to
the
two-year time limit so long as particular items of cost were claimed
at
an interim rate in a timely manner. Accordingly, the disallowance
of
the MLR costs in question here on the ground that they were not
claimed
in a timely fashion was improper.
Conclusion
For the foregoing reasons, we uphold the disallowance in the amount
of
$47,799 and reverse the disallowance in the amount of $881.
_________________________ Judith A. Ballard
_________________________ Norval D.
(John)
Settle
_________________________ Alexander
G.
Teitz Presiding Board Member
1. The total claimed on line 5.L. as "State and
Local Training" was
$84,176. Of this amount, $79,685 was attributable
to the "Prior Period
Training Contracts." Although the Agency deferred
$79,685, only the
$47,799 related to the Empire State College contract was
disallowed.
2. It is unclear why the full $47,799 paid under this
contract would
have been claimed since the State indicated that the
applicable rate of
FFP was 75%.
3. The State's use of the 7-9/81 QER to correct for
its earlier
diversion of AFDC funds was based on the assumption that the
State was
entitled to claim $47,799 more than it actually claimed on that
QER.
However, the State has disavowed its original description of the
$47,799
as payments under the Empire State College contract, contending
that
those payments were not eligible for FFP. There is no explanation
in
the record of what allowable expenditures the $47,799 claim
represented,
if it was not related to the Empire State College contract.
Thus, even
if the claim for the $47,799 had been timely, the State would have
had
to document that it represented allowable expenditures.
4. The Agency did not dispute that an adjustment in
prior year costs
was involved here, merely arguing that "[t]he State's
attempt to expand
the narrow statutory exception so as to encompass any
adjustments of
rates from estimated to actual amounts . . . must be
rejected."
(Agency's Response to Petitioner's Reply Brief, dated October 24,
1986,
p. 4)
5. We do not reach the question here whether there
was a reasonable
basis for the Agency's would-be