District of Columbia Department of Human Services, DAB No. 1005 (1988)

DEPARTMENTAL APPEALS BOARD

Department of Health and Human Services

SUBJECT: District of Columbia DATE: December 13, 1988 Department of
Human Services Docket No. 88-47 Decision No. 1005

DECISION

The District of Columbia Department of Human Services (District)
appealed a disallowance by the Family Support Administration (FSA) of
$202,458 in federal financial participation (FFP) claimed under Title
IV-A (Aid to Families with Dependent Children or AFDC) of the Social
Security Act (Act) for the period October 1, 1984 through September 30,
1986. FSA disallowed three basic categories of costs: 1) direct and
indirect costs related to a section of the uniform application for
public assistance which FSA found should properly have been charged to
the Food Stamp program; 2) costs (in cost pools distributed in part to
AFDC) which the District failed to document with vouchers which
established that the costs were actually incurred and allowable; 3)
costs (in cost pools distributed in part to AFDC) which the District
documented with vouchers, but which FSA found were not allowable under
AFDC.

The Board issued a draft decision setting forth a proposed analysis and
disposition of the appeal. The Board provided an opportunity to comment
on its reasoning for the Division of Cost Allocation, in addition to the
parties, because this dispute involved a cost allocation plan affecting
more than one Operating Division or Federal Department under 45 C.F.R.
95.519(b)(1). For the reasons we discuss below, based on the record
developed throughout the appeal including the comments submitted
regarding the draft decision, we reach the following result:

o We uphold in principle the disallowance of $84,297 in costs related
to a section of the uniform application for public assistance related
primarily to Food Stamp eligibility, but remand the issue of whether the
disallowance was properly calculated so that the parties can exchange
information on the methodology for this calculation in accordance with
the specific procedures set out on page 9 below.

o With respect to the disallowance of $72,870 based on the District's
failure to document costs with vouchers, we uphold the part of the
disallowance representing costs for which the District failed to provide
vouchers, and we reverse the disallowance to the extent the District
provided vouchers during the course of the appeal process.

o With respect to the assorted pooled costs for which the District
had initially provided vouchers, during the course of this appeal the
respondent withdrew its disallowance of $570 in this category. Of the
amount remaining, we uphold the disallowance of $10,799 for the cost of
a management study which had not received prior approval and the
disallowance of $2 for the cost of doughnuts. We reverse $711 relating
to certain costs in cost pools, $33,035 related to a contract we find
did not require prior approval and $174 for which the respondent did not
explain the basis of the disallowance.

Discussion

1. Disputed costs of the public assistance application section
associated with the Food Stamp program.

FSA disallowed $64,349 in FFP which it identified as the cost of
eligibility worker time spent assisting applicants in completing section
21 of the District's uniform application for public assistance.
Appellant's Exhibit (Ex.) A. FSA explained as background information
that, prior to the passage of the Food Stamp Act of 1977, Pub. L.
95-113, eligibility for AFDC automatically qualified a family for Food
Stamps and the federal cost of eligibility determinations was paid
entirely by Title IV-A under an inter-agency agreement. In subsequent
years, separate eligibility standards were developed for Food Stamps
which required states to collect separate budget information for Food
Stamp eligibility determinations. In 1983, FSA issued Action
Transmittal SSA-AT-83-14 which stated that, as of October 1, 1983, the
Food Stamp program under the United States Department of Agriculture
(USDA) "will begin paying for those Food Stamp eligibility costs
previously paid by the AFDC program" and that "AFDC funds . . . will not
be available for funding the Federal share of those costs which are
unique to food stamp eligibility determination." Appellant's Ex. E, p.
2-3.

FSA based this part of the disallowance on the identification of section
21 of the District's uniform application for public assistance as a
section which elicited information which was not required by statute or
regulation to determine eligibility for AFDC, but was necessary for
budget calculations used to determine Food Stamp eligibility.
Respondent's Brief, p. 12. From this finding, FSA concluded that the
cost of this section should have been allocated to the Food Stamp
program under SSA-AT-83-14.

While the District conceded that the information was required for Food
Stamp eligibility determinations, the District argued that the cost of
obtaining this information was nevertheless a necessary and reasonable
cost for the proper and efficient administration of the AFDC program.
Since the disputed costs also provided information used for the AFDC
program, the District argued, the costs were not "unique" to the Food
Stamp eligibility determination and, thus, the action transmittal did
not affect the allowability of these costs under AFDC.

The District alleged, and the respondent did not deny, that the
information sought in section 21 of the uniform application (concerning
rental, mortgage and utility costs) was used by the AFDC program to aid
in reducing eligibility determination errors and to identify candidates
for the AFDC Rental Vendor Payment Program pursuant to 45 C.F.R. 234.60.
In particular, the District asserted that the information was used to
assess the "past, present and future budget management" of the AFDC
family and to help track down undisclosed sources of income and identify
error-prone cases. Appellant's Brief, pp. 4-5.

FSA responded that the intent of SSA-AT-83-14 was that, all of the costs
of determining eligibility for Food Stamps should be allocated to the
Food Stamp program when there was no parallel eligibility requirement in
AFDC, regardless of whether the information gathered was also used for
other purposes. FSA argued that the District erred in focusing on the
phrase "unique to the Food Stamp eligibility determination" and stated
that the action transmittal, taken as a whole, indicated that costs
primarily associated with Food Stamp eligibility should be claimed under
the Food Stamp program and not under AFDC.

As we discuss below, we uphold this part of the disallowance in
principle because we find that SSA-AT-83-14 clearly requires that the
costs of section 21 should have been allocated to the Food Stamp
program, and that the District's approved cost allocation plan was
consistent with this requirement. With respect to the issue of
calculation only, we remand this part of the disallowance for further
consideration of the methodology used.

a. Should the cost of section 21 have been charged to the Food
Stamp program?

In analyzing the arguments presented by the parties, we note initially
that the dispute involves two distinct levels of analysis: whether the
costs are allowable to AFDC, and whether the costs were properly
allocated to that program under applicable regulations and the
District's approved cost allocation plan (CAP).

Under the guidelines in Office of Management and Budget (OMB) Circular
A-87, made applicable to grants to states by 45 C.F.R. 74.171, to be
allowable, a cost must be "necessary and reasonable for proper and
efficient administration" and must be allocable to the grant program.
OMB Cir. A-87, Att. A, para. C.1.a. A cost is allocable to a grant
program "to the extent of the benefits received" by that program, and
costs which benefit more than one program may be claimed only in
accordance with a CAP. Id., paras. C.2 and J. FSA argued that the
costs were not allowable to AFDC primarily on the basis that the costs
were not allocable to AFDC under the action transmittal, SSA-AT-83-14.
FSA did not assert that the costs could not be considered necessary and
reasonable to properly administer the AFDC program because of the use of
the information obtained for AFDC purposes such as verification of AFDC
eligibility and the AFDC Rental Vendor Payment Program. The action
transmittal, by its own terms, did not make the costs unnecessary or
unreasonable; it was directed at instructing states of the need to
allocate some uniform public assistance application costs to the Food
Stamp program. The action transmittal required that each state amend
its CAP in accordance with the guidelines set forth. Thus, the true
issue is whether the costs were properly allocated to the AFDC program;
the record indicates that the costs were otherwise allowable.

As the historical summary in the action transmittal relates, the
transmittal was issued to notify grantees that, because Food Stamp
eligibility requirements were now different in some respects from AFDC
requirements, the Food Stamp program would assume the cost of those
requirements which differed from AFDC requirements. The action
transmittal refers to the "incremental cost" of determining Food Stamp
eligibility as the standard to be used in determining charges to the
Food Stamp program. This incremental cost is what the action
transmittal means when it refers to costs "unique" to Food Stamp
eligibility determination. In particular, the action transmittal
specifically contemplates that the Food Stamp program would bear the
cost of separate requirements such as preparing a separate budget for
Food Stamp eligibility, for which this application section collected
information. Appellant's Ex. E, p. 2.

We find that the action transmittal, taken as a whole, communicates
clearly that costs of activities which are expressly required by statute
and regulation for eligibility determinations under the Food Stamp
program, but are not expressly required for eligibility determinations
under the AFDC program, should be allocated to the Food Stamp program.
While the action transmittal does not disturb allocation of truly joint
costs of both programs to the AFDC program in full, the transmittal
clearly indicates that the Food Stamp program should bear the burden of
costs which result from eligibility activities whose primary purpose is
to meet those Food Stamp program requirements which differ from AFDC
program requirements.

The fact that information obtained through these separate Food Stamp
eligibility requirements may be useful to the AFDC program does not
change the appropriate allocation of the costs. The District did not
deny FSA's allegation that the application section primarily serves to
collect information to conduct Food Stamp eligibility determinations.
The costs were not required for the AFDC program eligibility
determination, and to permit them to be allocated to AFDC would render
the action transmittal meaningless, since practically all information
concerning an applicant for both AFDC and Food Stamps could be
considered useful in some sense to the AFDC program and, once obtained,
should be used to ensure accurate AFDC determinations to the extent
practicable. But use of the information by the AFDC program does not
change the fact that the primary reason for requesting the information
is an explicit Food Stamp program eligibility requirement.

The District's cost allocation plan was consistent with this result, in
light of the action transmittal requirements. The CAP states that the
costs of the Income Maintenance Administration Office of Program
Operations, whose employees determine public assistance eligibility, are
allocated between programs based on a quarterly time study. Appellant's
Ex. F, pp. 24-25. The time study instructions, which the District
stated had previously been provided to FSA (Appellant's Brief, p. 10),
state that employees should attribute to the Food Stamp program "that
portion of a P.A. [public assistance] Food Stamp case dealing
specifically with the Food Stamp program in the eligibility
determination, redetermination of eligibility or case maintenance
functions." Appellant's Ex. G, p. 3-5. This provision did not limit
the amount attributable to the Food Stamp program to the amount which
did not have any benefit to AFDC, as the District asserted SSA-AT-83-14
should be read. Thus, the CAP appears to reflect the same range of Food
Stamp eligibility requirements which we found the action transmittal
stated should be charged to the Food Stamp program, whether or not the
information may also be useful to the AFDC program.

Furthermore, there is no provision in the CAP which would unambiguously
establish that these costs could also be allocated to AFDC. The
functions allegedly served by the information in section 21 are not
specifically mentioned in the time study instructions, although the
District asserted that the functions fall generally into the category of
"case maintenance" which the time study instructions allocate to AFDC.
Appellant's Ex. G, p. 4. And since the functions of the disputed
section are specifically mentioned in the Food Stamp provision quoted
above, we find that it would not be reasonable to allocate the disputed
section to AFDC under the terms of the time study instructions and in
view of SSA-AT-83-14.

Even if there were some confusion regarding the proper interpretation of
the action transmittal, the clarification of which costs are to be
allocated to the Food Stamp program is precisely the type of issue which
the District could have resolved in the approval process for its CAP
amendment. In the absence of any specific authorization in the CAP, we
find that the District may not pick and choose which costs should be
allocated to each program, but must be bound by a reasonable
interpretation of its CAP and the requirements which form a context for
the CAP.

The District asserted that this could lead to an inequitable result
should the USDA adopt a different interpretation of the action
transmittal and CAP provisions and refuse to participate in the costs
under the Food Stamp program. This is not, however, an issue before the
Board. While the District cited a Food Stamp program regulation which
might be read to preclude such claims, this regulation was issued prior
to the agreement reflected in the action transmittal and, in the
preamble to this regulation, USDA specifically mentioned that the
regulation was subject to change due to ongoing negotiations between
USDA and this Department. 45 Fed. Reg. 85701 (December 30, 1980).
Furthermore, this Department is the "cognizant federal agency" in
negotiating cost allocation plans with the District, 51 Fed. Reg. 552,
554 (January 6, 1986), and the Division of Cost Allocation, which has a
primary role in interpreting cost allocation plans for this Department
under 45 C.F.R. Part 95, did not object to this disallowance.

Since we find that the action transmittal and the District's own CAP
provisions require that the disputed section should be allocated to the
Food Stamp program, we uphold this part of the disallowance in
principle.

b. Did FSA calculate the disallowed costs accurately?

The District alleged that the methodology used by FSA to calculate the
disallowance was flawed. The District alleged that the costs of any
employee time attributable to other programs, such as the Food Stamp
program presumably, would have been charged to those programs under its
CAP methodology (and thus no disallowance was warranted). Appellant's
Brief, pp. 9-13. Moreover, the District alleged that FSA never
explained how the disallowance had been calculated, and the District
pointed out that the review report on which the audit was based did not
appear to use a sound methodology for examining the District's time
study. Id., pp 11-12.

The record does not establish the basis for the reviewers' calculation
of the disallowance. Neither the review report, nor FSA's response to
the District's request for information, describe the reviewers' methods
of sample selection and the questions the reviewers asked to reach the
conclusion that a disallowance was warranted in the amounts listed.
Only the conclusion, that a specific amount had been improperly charged
to AFDC, was reported. In FSA's comments on the Board's draft decision
(in which the Board expressed these same concerns), FSA stated simply
that the reviewers "utilized standard sampling techniques" involving
employees "randomly selected from payroll lists." In light of the fact
that sampling methodologies vary in accuracy according to many different
factors, and in light of the fact that this response does not address
some of the specific concerns raised by the District, we find that FSA
should provide to the District more detailed information on its
methodology so that the District can properly address calculation
issues. In a circumstance in which review of this information is
necessary in order for the grantee to make an informed response on the
calculation issues, such as we have here, this disclosure is essential.

On the other hand, we note that while the District has pointed to what
may be flaws in the reviewers' methods, such as the reliance on a sample
of employees who had never been trained in how to complete a time study,
the District did not provide any effective alternative to FSA's
methodology short of leaving undisturbed the District's original claims.
The District stated that it might not be able to propose any alternate
methodology because it had "no reason in the past to attempt to identify
and separate from the rest of its claim the amount of worker time spent
on this particular item." District's Comments on the Draft Decision, p.
10. In light of our finding that the District was required to allocate
those costs to the Food Stamp program in the first instance, we find
that the District must bear responsibility for its failure to interpret
its CAP consistently with the requirements of SSA-AT-83-14.

Since we find that the record is not sufficiently developed to resolve
the calculation issue, we remand the issue to provide the parties with a
limited opportunity to exchange information and to attempt to resolve
this matter without further Board involvement. As soon as reasonably
possible, FSA should provide the District with all available information
regarding FSA's calculation of the disallowance, such as the survey form
used, information on the identity and positions of employees in the
sample, survey responses, analysis of the survey responses and sampling
error calculations. The District should submit to FSA, within 30 days
after receipt of FSA's submission, any response and, if appropriate,
should propose any alternative methodology which it wishes FSA to
consider. FSA should then determine whether it will modify the
reviewers' calculation of the disallowed amount. If the District
disputes FSA's determination, it may return to the Board within 30 days
of receipt of that determination. The Board encourages the parties,
within this framework, to seek to resolve this matter on their own.

c. Indirect costs of the application section discussed above.

FSA disallowed $19,948 which it alleged were indirect costs of the
application section discussed above. For the reasons discussed above,
we uphold this disallowance in principle, but remand it for
recalculation consistent with any recalculation of the direct costs of
the application section.

2. Disputed costs unsupported by documentation of the underlying
expenditure or of allowability under AFDC.

FSA disallowed $72,870 in FFP because of the District's failure to
provide reviewers with 32 vouchers to support the underlying
expenditures. The District submitted four vouchers with a request for
review prior to its appeal to the Board, and a further 8 vouchers with
its initial brief in this appeal. FSA found that two of these vouchers
were not the correct vouchers requested, but did not dispute that the
other 10 vouchers were those requested. Instead, FSA argued that the
vouchers did not demonstrate that the expenditures were allowable under
AFDC and did not provide sufficient explanation of how the voucher
amounts were calculated.

a. Costs for which no vouchers were provided.

With respect to the costs for which no vouchers were provided, we uphold
the disallowance based on the District's failure to meet even the basic
requirement of documenting that the cost was actually incurred. As the
Board has recognized in the past, "it is a basic principle of grants law
that the grantee has the burden of documenting expenditures and their
allowability," New Jersey Dept. of Human Services, DAB No. 899 (1987).
Moreover, the regulations require that grantees retain such
documentation for at least 3 years after the grantee submits its
expenditure report for the last quarter of the federal fiscal year. See
45 C.F.R. 74.21 and 74.60(f).

While the District complained that the failure to provide vouchers was
caused by inaccuracies in FSA's requests for the vouchers, the record
shows that the information identifying vouchers in the request was based
on the District's own records. Compare District's Notice of Appeal, p.
3, with FSA's Letter, dated April 26, 1988, p. 2. If the information
was not accurate, the District itself was responsible; and, thus, this
is not a basis for reversal of the disallowance. The District made no
other objections to the disallowance of amounts for which it had failed
to supply vouchers, so we find no reason to reverse this amount.

b. Costs for which vouchers were provided.

With respect to the costs for which vouchers were provided, we reverse
the disallowance because we find no basis to conclude that the AFDC
program was improperly charged with unallowable costs. We reach this
result because the District provided documentation which verified that
the costs were actually incurred and indicated that the costs were
charged to various programs, in accordance with its approved cost
allocation plan, through a cost pool accounting system. FSA did not
allege either that the costs were improperly included in those cost
pools, or that the cost pool system operated to charge the AFDC program
with an inequitable share of the accumulated costs.

As we discuss in more detail below, cost pools are a simplified method
of charging costs and documenting allowability which is permitted when
the time and expense of identifying the precise benefit of each cost to
a program would be disproportionate to the additional accuracy
achievable. Costs are grouped together and allocated to various
programs based on the overall proportion of costs in the pool which are
allowable and benefit the particular programs. Not every cost in the
cost pool must be allowable to a particular program to which a
proportion of the pool is allocated, as long as the program is equitably
charged only with that proportion of overall costs which represents the
amount of costs in the pool which are allowable and allocable to that
program. Thus, to document allowability of a cost contained in a cost
pool, only three elements are necessary: the grantee must document that
a) the cost was actually incurred, b) the cost was properly included in
the cost pool, and c) the cost pool was equitably allocated to
benefitting programs in accordance with the approved cost allocation
plan and all other applicable requirements. See, e.g., Minnesota Dept.
of Public Welfare, DAB No. 466 (1983).

Since the District provided vouchers which showed that these costs were
actually incurred, and since FSA did not contest either that the costs
were properly included in the cost pools or that the cost pools were
equitably allocated among the benefitting programs, we have no basis to
conclude that the District improperly charged the AFDC program for these
particular costs.

In sum, we uphold the disallowance of the federal share of costs for
which the District could not provide vouchers documenting actual
expenditures. We reverse the disallowance of costs for which vouchers
were provided because FSA did not dispute that the costs were incurred,
that the costs were properly included in cost pools, and that the cost
pools were equitably allocated to AFDC.

3. Disputed costs allocated to AFDC from various cost pools.

FSA disallowed a total of $45,291 in FFP on the basis that the
underlying expenditures were not necessary and reasonable for the proper
administration of AFDC. The disallowance was based on a review of
vouchers which had been accumulated in cost pools and allocated to AFDC.
The disallowed expenditures included credit report, printing, training,
and entertainment costs and the cost of two contracts for services.

During the course of this proceeding, FSA withdrew its objection to the
allowability of $570 ($387 for reports and record searches from a
central credit bureau, $10 for local travel for conferences and
meetings, $161 for printing costs, and $12 for training costs).
Furthermore, in its brief FSA shifted its argument with respect to the
major disputed costs in this category (totalling $43,834) and did not
argue that contracts with the ICF Corporation and the Information Center
for Handicapped Individuals were not necessary and reasonable costs.
FSA instead relied on the lack of prior approval for these contracts,
which it alleged were management studies.

As we discuss below, we reverse the disallowance of $713 in FFP
questioned solely on the basis of whether they were necessary and
reasonable, with the exception of the $2 cost of doughnuts, since FSA
did not allege any errors in the overall method of allocating the cost
pools at issue. With respect to the two disputed contracts, we find
that the contract with the ICF Corporation was for a management study
and, thus, prior approval was necessary. We therefore uphold the
disallowance attributable to this contract, subject to consideration of
a pending request for retroactive approval. We find that the other
contract was not for a management study and did not require prior
approval under the authority FSA cited. Thus we reverse the
disallowance of the amount attributable to that contract. We also
reverse the disallowance of $174 which was not identified by FSA.

In its comments on the Board's draft decision, FSA had no objection to
the Board's result on this category as a whole, and stated that FSA
would have reversed this portion of the disallowance if the District had
provided at an earlier stage the information in the Board's record.

a. Was $713 from cost pools properly disallowed as not reasonable
or necessary to AFDC?

The District contended that $713, which FSA disallowed as not necessary
or reasonable, had been properly accumulated in cost pools and properly
allocated to AFDC. The District argued that, since a cost pool is
allocated among several programs, not every cost in that pool must be
allowable to a particular program, as long as the allocation method
ensures that the program is not charged for more than its equitable
share of the overall cost pool. The District relied primarily on the
Board's Decision in Minnesota Dept. of Public Welfare, DAB No. 466
(1983).

As the Board discussed in that decision and summarized above in
discussing documentation requirements, a cost pool is an accumulation of
costs that benefit more than one program. The costs are grouped
together because the time and expense of identifying the precise benefit
of each cost to each program would be disproportionate to the additional
accuracy achievable. Each benefitting program is then charged a portion
of the pool with the intent that the method of allocation will
distribute the costs to the various programs in amounts that as
accurately as possible reflect the relative benefit received by each
program (the actual accuracy depends on whether the allocation method is
sound and is properly used). OMB Circular A-87, Att. A, para. F.1.

This is not to say that substantively unallowable costs are rendered
allowable by an approved allocation process; rather the point is that
the allocation process should operate to distribute to each program only
the proportion of costs in the overall pool which is allowable and which
benefits that program. The cost pool may contain costs which do not
benefit every program to which the pool is distributed, or are not
allowable to every program, as long as the allocation process assures
that no program is distributed more than an equitable share of the
allowable costs from which it benefitted. See Minnesota, pp. 5-6; see
also American Electric Inc., ASBCA 16635, 76-2 BCA 12,151 (1976).

In light of this discussion, we now examine the particular costs at
issue. FSA questioned a total of $711 of FFP which it alleged
represented contract costs related to other programs, including social
service programs, with no obvious relationship to the AFDC program (the
contracts were with the Andromeda Hispanic Mental Health Center, the
Lutheran Social Services organization, and the Howard University School
of Social Work). But FSA provided no evidence which would indicate
that the allocation method was inequitable in such a manner that AFDC
was, in fact, charged with costs in excess of the overall relative share
of allowable costs from which the program benefitted. Although most of
the individual costs in the pool may have been unallowable to AFDC, only
a small percentage of the overall costs were apparently distributed to
AFDC. The CAP states that the cost pools involved, the FSCF and the
FSSS cost pools, were primarily distributed to programs other than AFDC,
on the basis of a time study of employees. The time study indicates
that these employees spent some of their time working on AFDC issues and
incurred costs attributable to AFDC. Undoubtedly, in cost pools
primarily related to family and child welfare services, many of the
individual costs would be unallowable to AFDC because they were social
services, but a state may nonetheless allocate to AFDC whatever
proportion is equitable in relation to allowable AFDC expenditures in
the overall pool. The amount disputed here might represent the small
share of the overall cost pool which was attributable and allowable to
AFDC, not any particular costs in the pool which were unallowable to
AFDC. Thus, we reverse the disallowance of FFP in the costs of these
contracts.

FSA also disputed $2 of FFP which it alleged represent the cost of
doughnuts. Under the cost principles at OMB Circ. A-87, Attachment B,
Paragraph D.4, applicable to all federal-state programs, the "[c]osts of
amusements, social activities, and incidental costs relating thereto,
such as meals, beverages, lodgings, rentals, transportation and
gratuities are unallowable". The CAP indicates that the cost pool was
also allocated to a state-only program (General Public Assistance).
Appellant's Ex. F, p. 12. Even assuming that the state-only program
might pay for a cost of this type, we find no evidence that the cost was
incurred at a function which would be properly charged to the state-only
program. Furthermore, the allocation method (a time study) does not
appear to contain any provision to ensure that only the state program is
charged with costs of a type which would not be allowable to any federal
program. Thus, in the absence of clear evidence that the disputed cost
was actually allowable to even one program to which the cost pool was
distributed, or that the overall allocation method was designed to
ensure that charges to AFDC did not reflect this type of unallowable
cost, we uphold the disallowance of this $2.

b. Was prior approval necessary for the disputed contracts?

FSA asserted that two contracts, with ICF Corporation and with the
Information Center for Handicapped Individuals, were management studies
which are allowable only with prior approval from the grantor agency,
under the principles in OMB Circular A-87, Attachment B, paragraph C.5.
The contract with the ICF Corporation, for which FSA disallowed $10,799
in FFP, was to "determine, prior to expanding the Rental Vendor Payment
System, whether it was effective in reducing evictions." Appellant's
Brief, pp. 24-25; Appellant's Ex. I. The contract requires that the
contractor provide "analytic services associated with the assessment of
the demonstration rental vendor payment system. . . " and present the
results of its work in the form of an "assessment report." Appellant's
Ex. I. This appears to fall squarely within the definition of a
management study because it served management purposes and its primary
focus was to analyze whether this AFDC program was achieving its desired
goals. See Alabama Dept. of Human Resources, DAB No. 939, pp. 2-4
(1988). Thus, prior approval was required under the requirements of OMB
Circular A-87 and we must uphold the disallowance of this amount based
on the lack of prior approval.

The contract with the Information Center for Handicapped Individuals,
for which FSA disallowed $18,044 for fiscal year 1986 and $14,991 for
fiscal year 1985, appears to be primarily a contract for services other
than a management study. FSA's reviewers found that the "stated
purposes of the contract were: 1) [to] make public assistance recipients
eligible for Federal Supplemental Security Income (SSI); and 2) to
restore Federal SSI benefits to recipients whose Federal Benefits had
been terminated and were otherwise eligible for general public
assistance." Respondent's Ex. B, p. 6. These purposes are direct
services provided to public assistance recipients, and there is no
suggestion that there was any "study" involved in the contract.

While prior approval thus may not have been necessary, FSA alleged that,
in any event, some of the cost of the contract should have been
allocated to the SSI program. But FSA did not deny that the contract
benefitted AFDC by encouraging AFDC recipients to seek other available
sources of assistance, nor did it deny that the District's approved CAP
did not require any allocation to the SSI program. Furthermore, FSA
cited no authority for the CAP to do so. FSA cited no provision in SSI
to cover costs incurred by states to inform public assistance recipients
of the potential to receive SSI benefits. Since the costs were claimed
in accordance with the District's approved CAP, since the costs
benefitted AFDC whether or not there were incidental benefits to the SSI
program, and since FSA cited no authority to support allocation of some
of the costs to the SSI program, we find no basis to support the
disallowance in this line of argument.

In sum, we find that the contract with the ICF Corporation was a
contract for a management study, since the contract was for a study
which would have served management purposes, and we find that the
contract with the Information Center for Handicapped Individuals was not
a contract for a management study, because the contract was for
services, not a study to serve management purposes. Therefore, prior
approval was required under the provisions of OMB Circular A-87 only for
the contract with the ICF Corporation and we uphold the disallowance for
the amount attributed to that contract, subject to FSA considering a
pending request for retroactive approval of the expenditures.

c. Other costs allocated to AFDC from cost pools.

FSA disallowed $174 based on a statement by FSA's reviewers that they
"are also questioning an additional $347 (FFP $174) in cost allocated to
the program" through the cost pool. Respondent's Ex. E, p. 9. This
does not identify or explain the basis for the disallowance. In its
brief, FSA suggested that this amount was attributed to the contract
with the Information Center for Handicapped Individuals in fiscal year
1985. As the District pointed out, this does not explain why the amount
was handled separately from the rest of the disallowance attributed to
that contract or why it was put in an overall category with disputed
costs from fiscal year 1986.

We reverse the disallowance of this $174 because we find that the basis
is unclear. Even if we were to accept FSA's identification of the
amount we would reverse this part of the disallowance anyway, because
FSA did not argue that the underlying contract was not necessary and
reasonable and because we found above no basis to conclude that the
underlying contract was not allowable.

Conclusion

For the reasons we discussed above:

________________________________ Norval D. (John) Settle

________________________________ Cecilia Sparks Ford

________________________________ Donald F. Garrett Presiding
Board