Illinois Department of Children and Family Services, DAB No. 1422 (1993)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT:Illinois Department of Children and Family Services
DATE:  July 1, 1993
Docket No. A-92-246
Decision No. 1422

   DECISION

The Illinois Department of Children and Family Services (Illinois)
appealed the decision of the Administration for Children and Families
(ACF) disallowing $449,165 of $2,008,098.78 claimed by Illinois for
foster care training under title IV-E of the Social Security Act (Act).
The claims covered current expenditures for the quarters ended September
30, 1991 and December 31, 1991 as well as adjustments to prior claims
for the quarters ended December 31, 1989 and March 31, 1990.  Illinois
claimed both direct training costs and associated indirect costs at the
enhanced rate of 75% federal financial participation (FFP) provided by
section 474(a)(3)(A) of the Act for expenditures "for the training . . .
of personnel employed or preparing for employment by the State agency or
by the local agency administering the [title IV-E] plan . . . ."  ACF
disallowed part of the direct training costs claimed by Illinois on the
ground that these costs should have been allocated to benefitting
programs other than title IV-E.  ACF also disallowed all of the indirect
costs which Illinois claimed on the ground that the indirect cost rates
which Illinois applied to calculate these costs were developed using
costs that were not allowable as training costs.  ACF subsequently
acknowledged that indirect costs were allowable as administrative costs
at the rate of 50% FFP and recalculated the disallowance to allow the
indirect costs at this rate.  Transcript of April 28, 1993 conference
(TR), at 96; Illinois Exhibit (Ex.) 28.

A threshold issue in this case is whether, in order to claim FFP in the
training costs in question, Illinois was required to have a cost
allocation plan (CAP) which provided for the distribution of such
training costs to benefitting programs.  Illinois argued that a CAP was
not required.  Illinois also argued in the alternative that even if a
CAP were required, Illinois was entitled to FFP in the costs under 45
C.F.R. . 95.417 unless and until the proposed CAP on which Illinois said
it based its claims for the costs was finally disapproved.  The proposed
CAP was disapproved by the Department's Division of Cost Allocation
(DCA) on December 21, 1992; an appeal of that disapproval pursuant to 45
C.F.R. Part 75 is now pending.  Illinois Ex. 23, Ex. 27.

As discussed in detail below, we find that 45 C.F.R. Part 95 requires
that all state agency administrative costs, including training costs, be
covered by a CAP in order to be eligible for FFP.  We also find that
there was a proposed CAP which provided for the allocation of training
costs, that this proposed CAP was applicable to the periods covered by
the claims, and that DCA never advised Illinois that it could not claim
FFP based on this proposed CAP.  However, we do not resolve here the
question of whether the disallowance was premature under 45 C.F.R. .
95.517 since the parties agreed that the Board should not address in
this proceeding whether the claims were in fact "based on" the proposed
CAP within the meaning of section 95.517.  Confirmation of Telephone
Conference, dated 3/18/93, at 2.  In accordance with this agreement, we
remand the appeal to ACF to determine whether the claims were in fact
based on the proposed CAP.  This determination should be made based on a
review of additional information provided by Illinois concerning the
nature of the training in question and the method used to allocate the
training costs. We also address in this decision the question whether
the indirect costs at issue here were properly claimed at the rate of
75% FFP applicable to training costs.  As discussed below, we conclude
that the indirect costs should have been claimed only at the rate of 50%
FFP applicable to other administrative costs.  However, the amount of
indirect costs which is allowable cannot be determined until a final
determination is made regarding the amount of allowable direct costs to
which the indirect cost rate should be applied.

Relevant Statutes, Regulations and Agency Guidance

Under section 474(a)(3) of the Act, a state which has an approved title
IV-E plan is entitled to FFP at a 75% rate for amounts expended "for the
proper and efficient administration of the State plan" if the
expenditures are for specified types of training.  Specifically, the
training must be training of 1) personnel employed or preparing for
employment by the State agency or by the local agency administering the
title IV-E plan, or 2) training of current or prospective foster or
adoptive parents, or staff of child care institutions.  All remaining
expenditures for the administration of the State plan are reimbursable
at the rate of 50% FFP.

The regulations at 45 C.F.R. . 1356.60 which implement these statutory
provisions provide in pertinent part:

 (b) Federal matching funds for state and local training for
 foster care and adoption assistance under title IV-E.  (1)
 Federal financial participation is available at the rate of
 seventy-five percent (75%) in the costs of training personnel
 employed or preparing for employment by the State or local
 agency administering the plan.

    *  *  *  *

 (c)  Federal matching funds for other State and local
 administrative expenditures for foster care and adoption
 assistance under title IV-E.  Federal financial participation is
 available at the rate of fifty percent (50%) for administrative
 expenditures necessary for the proper and efficient
 administration of the title IV-E State plan.  The State's cost
 allocation plan shall identify which costs are allocated and
 claimed under this program.

    *   *   *   *

 (c)(4)  Foster and adoptive parents, and staff of approved child
 care institutions providing foster care under this part shall be
 eligible for short-term training at the initiation of or during
 their provision of care.  FFP directly related to such training
 shall be limited to travel and per diem.

Reimbursement of these training costs is subject to the requirements of
Office of Management and Budget (OMB) Circular A-87, made applicable to
grants to state and local governments by 45 C.F.R. . 74.171.  OMB
Circular A-87, Attachment A, C.2.a. states that "a cost is allocable to
a particular cost objective to the extent of the benefits received by
such objective."  Only costs which are allocable to a grant are
allowable charges to that grant.  OMB Circular A-87, Attachment A,
C.1.a.  Costs which are similar must be treated in a consistent manner.
OMB Circular A-87, Attachment A, C.1.e.

ACF described its policy regarding the allocation of title IV-E costs in
Policy Announcements ACYF-PA-87-05 and ACYF-PA-90-01 and in Information
Memorandum ACYF-IM-91-15, issued October 22, 1987, June 14, 1990 and
July 24, 1991, respectively.  PA-87-05 stated in pertinent part:

 Allowable administrative costs for activities such as . . .
 training . . . must be allocated to title IV-E, State foster
 care and other State/Federal programs in such a manner as to
 assure that each participating program is charged its
 proportionate share of the costs.  The allocations may be
 determined by case count of Title IV-E eligible children in
 relation to all children in foster care under the responsibility
 of the state title IV-E/ IV-B agency or on some other equitable
 basis.

Illinois Ex. 4, at 3-4.  PA-90-01 essentially repeated this language.
Illinois Ex. 5, at 3.  IM-91-15, issued after the periods covered by the
claims in question here, stated that "[t]raining costs for all training
. . . must be allocated among all benefitting programs and may not be
direct-charged to title IV-E, unless title IV-E is the only benefitting
program."  Illinois Ex. 7, at 2.

Regulations applicable to "all State agency costs"  require each state
to submit a cost allocation plan to DCA which "[d]escribe[s] the
procedures used to identify, measure, and allocate all costs to each of
the programs operated by the State agency."  45 C.F.R. .. 95.503 and
95.507(a)(1).  The regulations further provide:

 A State must claim FFP for costs associated with a program only
 in accordance with its approved cost allocation plan.  However,
 if a State has submitted a plan or plan amendment for a State
 agency, it may, at its option claim FFP based on the proposed
 plan or plan amendment, unless otherwise advised by the DCA.
 However, where a State has claimed costs based on a proposed
 plan or plan amendment the State, if necessary, shall
 retroactively adjust its claims in accordance with the plan or
 amendment as subsequently approved by the Director, DCA.  The
 State may also continue to claim FFP under its existing approved
 cost allocation plan for all costs not affected by the proposed
 amendment.

45 C.F.R. . 95.517.

Additional relevant regulations are discussed in the text below.

Background

The claims in question were for expenditures made by the Child Welfare
Training Institute, a unit within the Illinois Department of Children
and Family Services (DCFS) responsible for planning, coordinating, and
implementing training programs for foster care providers and DCFS staff.
At issue here are two claims for such training expenditures.  Illinois'
claim for the quarter ended September 30, 1991 included current quarter
expenditures for training in the amount of $1,209,438 FFP provided under
approximately 67 different contracts, and a prior quarter adjustment of
$7,472 FFP for the quarter ended December 31, 1989.  Illinois' claim for
the quarter ended December 31, 1991 included current quarter
expenditures for training in the amount of $752,097 FFP provided under
approximately 36 different contracts, and a prior quarter adjustment of
$6,543 FFP for the quarter ended March 31, 1990.  The costs of some of
these contracts were charged wholly to title IV-E while the costs of
others were charged only in part to title IV-E.  Illinois excluded from
its claims the costs of contracts which it determined were wholly
ineligible for title IV-E funding.  Illinois brief at 7-8, and exhibits
cited therein.

In addition, Illinois claimed indirect costs for the quarters ended
September 30 and December 31, 1991 of $19,992.28 and $12,556.50,
respectively.  These costs were calculated by applying various approved
indirect cost rates to certain costs required to support the various
programs administered by DCFS, including training programs.  Illinois
brief at 8.

ACF disallowed $416,616 of the direct costs and all $32,549 of the
indirect costs described above.  ACF disallowed the direct training
costs on the ground that Illinois failed to consider the extent of
benefits received by non-title IV-E programs or activities as required
by the applicable regulations, OMB Circular A-87, and ACF policy
statements.  ACF calculated the amount of this disallowance by
multiplying the direct training costs by the percentage of non-title
IV-E cases in DCFS's foster care caseload.  ACF also disallowed all of
the indirect costs on the ground that there were elements of costs in
the indirect cost rates that are not claimable as training costs.

Illinois' basic methodology for allocating the costs associated with its
child welfare caseworkers to title IV-E and other federally funded
programs was a Random Moment Survey (RMS).  Illinois Ex. 20, Ex. 21.
This methodology required randomly selected state agency employees to
identify the type of activity in which they were engaged at randomly
selected times using one of several codes.  In response to a request by
DCA for a detailed description of its cost allocation process, however,
Illinois submitted to DCA on January 24, 1989, a narrative description
of the various funds maintained by DCFS which included the following
language:

 DEPARTMENT OF CHILDREN AND FAMILY SERVICES TRAINING FUND (094)

 All monies receipted and expended from the Training Fund are for
 foster care and adoption training.  Receipts into this fund come
 from training grants under Title IV-E of the Social Security Act
 and private donations designated specifically for foster care
 and adoption training.

 Each individual training project is critically analyzed prior to
 presentation to determine the claimability of the project under
 Title IV-E by reviewing who is to be trained and what the topics
 are for training.  All or part of a training project that is not
 Title IV-E eligible is either paid from the General Revenue Fund
 training appropriation or from non-Title IV-E money in the
 Training Fund.  Expenditures from the Training Fund are normally
 claimable under Title IV-E Training.

Illinois Ex. 22, at p. 8 (eighth unnumbered page).  Illinois asserted
that the training costs at issue here were allocated to title IV-E
pursuant to the methodology described above rather than pursuant to the
RMS.

Analysis

Below, we discuss first the threshold question whether the training
costs were required to be claimed through a CAP.  Since we find that a
CAP was necessary, we proceed to discuss whether Illinois met certain
conditions specified in 45 C.F.R. . 95.517 for claiming FFP based on a
proposed CAP.  Specifically, we discuss whether there was in fact a
proposed CAP which provided for the allocation of training costs,
whether the proposed CAP was applicable to the period covered by the
claims, and whether Illinois was advised by DCA that it could not claim
FFP based on the proposed CAP.  We do not finally resolve the question
whether the claims in question here were properly made, however, since
the parties agreed that the case should be remanded to ACF to determine
whether the claims were in fact based on the methodology in the proposed
CAP.  We discuss at the end of the decision whether indirect costs which
Illinois calculated by applying various approved indirect cost rates to
the direct training costs were properly claimed as training costs.

1.  The claims were required to be based on a CAP as a condition for
FFP.

As noted above, 45 C.F.R. Part 95 requires each state to submit to DCA a
CAP which describes the methodology "used to identify, measure and
allocate all costs to each of the programs operated by the State
agency."  Part 95 provides that FFP in costs associated with a program
may be claimed only through an approved CAP.  This requirement applies
even where costs are determined to be directly applicable to a single
state agency program.  The preamble to the Part 95 regulations states in
pertinent part:

 "State agency costs" include all costs normally identified as
 "indirect" as well as costs incurred by the State agency in the
 direct delivery of services.  The Department continues to
 require the inclusion of all State agency costs in the cost
 allocation plan in order to ensure that they are properly
 distributed to the appropriate programs on a consistent basis as
 required by the cost principles published by OMB.

47 Fed. Reg. 17,507 (April 23, 1982).   The requirement for a CAP is
reasonably applied to all costs incurred by a state agency which
administers both federal and state programs since a significant part of
its costs may be incurred for common or joint objectives.  A CAP
provides a mechanism for allocating these multi-program costs and
prevents duplicate claiming of these costs.  In addition, as noted in
the preamble, a CAP assures the distribution of state agency costs,
whether attributable to a single program or multiple programs, on a
consistent basis.  Moreover, the determination of how to allocate
particular costs to benefitting programs involves the application of
accounting principles.  Thus, it is appropriate to have DCA, an agency
with expertise in such principles, approve a state's allocation
methodology, rather than to allow individual program agencies to
determine whether costs have been properly allocated.

In support of its position that 45 C.F.R. Part 95 did not apply to
claims for training costs under title IV-E, Illinois noted that section
95.505 provided an exception for "payments for services provided
directly to program recipients."  Illinois argued that this exception
was applicable here since the staff and parents receiving the training
were program recipients.

This argument strains the meaning of section 95.505, however.  The
phrase "program recipients" is consistently used in public assistance
program regulations to refer to individuals who are eligible for
assistance or services funded by a program.  An allocation plan for
payments for services provided to such individuals is not necessary
because each payment is specifically identifiable in its entirety with
the program authorizing such payments.  For example, payments for
Medicaid services would clearly be allocable to title XIX and could not
be charged to any other program.  This rationale does not apply to the
training projects involved here, which Illinois itself found in some
cases were attributable to programs other than or in addition to title
IV-E.  Moreover, in title IV-E, the benefits provided by the program are
foster care maintenance and adoption assistance payments, not services.
Thus, the exception in section 95.505 for payments for services to
program recipients is not applicable to title IV-E.

Illinois also noted that 45 C.F.R. . 1356.60(b), pertaining specifically
to claims for training costs under title IV-E, contains no reference to
CAPs.  Illinois pointed out that section 1356.60(c), pertaining to title
IV-E claims for "other . . . administrative expenditures," states that
"[t]he State's cost allocation plan shall identify which costs are
allocated and claimed under this program."  Illinois argued that, taken
together, these provisions clearly imply that states are not required to
claim training costs in accordance with a CAP.

We do not find the absence of any reference to a CAP in section
1356.60(b) dispositive here.  The language of section 1356.60(c)
requiring a CAP which identifies "which costs are allocated and claimed
under this program" is broad enough to apply to any title IV-E costs
which potentially require allocation, including training costs.
Moreover, although the caption of section 1356.60(c) indicates that this
section pertains specifically to administrative costs other than
training costs, subparagraph (4) of this section addresses training for
foster and adoptive parents and staff of child care institutions.  Thus,
contrary to Illinois' argument, the requirement in section 1356.60(c)
for a CAP directly relates to at least some training costs.  In any
event, there is nothing in the title IV-E regulations which expressly
states that a CAP is not required in order to claim FFP in training
costs.

Illinois also asserted that, under OMB Circular A-87, only multi-program
costs need to be allocated pursuant to a CAP.  Illinois cited in support
of its argument Attachment A, J.1., of the Circular, which states that a
"plan for allocation of costs will be required to support the
distribution of any joint costs related to the grant program. . . ."
Illinois argued that the title IV-E training costs in question here
"represent costs which the State has determined relate directly to Title
IV-E under applicable principles, do not represent joint costs and,
therefore, do not need to be allocated pursuant to a cost allocation
plan."  Illinois reply brief at 13.  Illinois also compared training
costs to foster care maintenance and adoption assistance payments, which
need not be claimed in accordance with a CAP.

This argument also has no merit.  As indicated above, Illinois found
that some of the training contracts were allocable to programs other
than or in addition to title IV-E.  Although Illinois did not identify
it as such, the process used to determine how the costs of these
contracts should be charged was in effect an allocation process.  Under
the terms of OMB Circular A-87 cited above, this allocation was required
to be made pursuant to a CAP since at least some of the costs were joint
costs.  Even if some of the contracts were ultimately determined to be
wholly allocable to title IV-E or to another program, a CAP was
necessary to provide a consistent basis for making this determination.
The training costs were clearly not comparable to foster care
maintenance and adoption assistance payments, which are not joint costs
and for that reason are specifically exempted from the CAP requirements
in Part 95 by section 95.505 (as "expenditures for financial
assistance").

Illinois also cited Washington State Dept. of Social and Health
Services, DAB No. 1214 (1990), as precedent for finding that the costs
in question here can be directly charged to title IV-E rather than
charged through a CAP.  That decision presented a different situation
from this case, however.  In Washington, the Board remanded the appeal
in part to ACYF to determine whether certain activities constituted
"rate setting" within the meaning of 45 C.F.R. 1356.60(c)(1), and could
thus be charged directly to title IV-E.  That regulation provides that
certain costs, including rate setting, are title IV-E costs and may not
be claimed under any other federal program.  There is no comparable
provision in the title IV-E regulations with respect to training costs,
however.

Finally, Illinois relied on an internal ACYF memorandum dated October 7,
1985 (from the ACYF Commissioner to officials in one of the regions) as
support for its position that no CAP was required here.  The memorandum
dealt with training costs related to preventive and unification services
under title IV-E.  The memorandum stated that, for training which is
related in part to title IV-E foster care and in part to other programs,
"the State must have a reasonable method of allocating costs between
title IV-E Foster Care and the other programs."  Letter from Keys to
Board dated 5/27/93, attachment, at 3.  The memorandum continued: "If,
however, at least 85 percent of the training is directed toward title
IV-E Foster Care, all of the training for eligible trainees and for
trainers may be charged to title IV-E Foster Care."  Id.  This
memorandum does not advance Illinois' position.  As indicated
previously, Part 95 requires that all state agency costs, including
those which are to be charged directly to one program, be covered by a
CAP.  There is nothing in the memorandum which is inconsistent with this
requirement.  Moreover, even if the memorandum could be read as
permitting costs to be directly charged outside of a CAP, it deals with
training which addresses requirements unique to title IV-E and may not
have been intended to apply to training which has more generalized
applications.  In addition, Illinois did not allege that the training
projects in question here met the 85% standard in the memorandum for
direct-charging their costs to title IV-E.  Finally, since the
memorandum was written in 1985, it was arguably superseded by the ACF
guidance issued since that time.

2.  There was a proposed CAP which provided for the allocation of
training costs.

According to Illinois, the methodology it used to determine the programs
to which to charge the training costs was set forth in its January 24,
1989 submission to DCA.  The provision cited by Illinois (quoted on page
7 above) states generally that the two factors to be analyzed are "who
is to be trained" and "what the topics are for training."  This
provision further indicates that, based on these factors, it may be
determined that "all or part of a training project . . . is not Title
IV-E eligible."  However, this provision does not explain how these
factors are to be applied to determine the extent to which a project is
title IV-E eligible.  This provision also fails to indicate what kind of
training costs are to be allocated using the methodology it describes
instead of the RMS methodology previously submitted to DCA.  It is thus
questionable whether this provision fully complies with the requirement
at 45 C.F.R. . 95.507(a)(1) for a CAP which describes the methodology
"used to identify, measure and allocate all costs to each of the
programs operated by the State agency."

Nevertheless, we conclude that this provision was a proposed CAP
amendment on which Illinois could have based a claim for FFP pursuant to
section 95.517.  Although it is unclear from this provision exactly how
Illinois intended to calculate the amount of costs chargeable to title
IV-E for a training project, the two factors it mentions seem to be a
reasonable starting point for determining how to do so.  That Illinois
may not have adequately described its methodology does not mean that
Illinois had no methodology at all.  When DCA later disapproved
Illinois' proposed CAP, DCA stated that "[t]he methodology . . . is
unacceptable," rather than finding that Illinois lacked a methodology.
Illinois Ex. 23, fourth page.  Moreover, as discussed later, DCA did not
advise Illinois that its methodology was unacceptable until several
years after the methodology was submitted.  Thus, Illinois could have
reasonably regarded this methodology as a sufficient basis for its
claims.

3.  This proposed CAP was applicable to the period covered by the
claims.

A state is not required to submit a CAP or CAP amendment each year, but
may instead submit an annual statement to DCA "certifying that its
approved cost allocation plan is not outdated."  45 C.F.R. . 95.509(b).
If a state submits a CAP amendment, the effective date of the amendment
is "the first day of the calendar quarter following the date of the
event that required the amendment . . . ," unless certain conditions are
met.  45 C.F.R. . 95.515.  Since a state is required to "promptly amend"
a CAP when circumstances necessitating an amendment arise (45 C.F.R. .
95.509(a)), the practical effect of section 95.515 is to make the
effective date of an amendment the first day of the calendar quarter
following the submission of the amendment.  See Kansas Dept. of Social
and Rehabilitation Services, DAB No. 1349, at 5 (1992).

Applying these rules to the situation here, we conclude that the
description of the "Department of Children and Family Services Training
Fund" in Illinois' January 24, 1989 submission to DCA, which Illinois
said was the basis for the claims in question here, was applicable to
the period covered by the claims.  Pursuant to the general rule in
section 95.515, this submission, if approved, should have been effective
beginning April 1, 1989 (the first day of the calendar quarter after its
submission), which was prior to all of the quarters in which the
training costs at issue here were incurred.

Furthermore, under section 95.509(b), the methodology in the January 24,
1989 submission would have remained in effect from April 1, 1989 until
amended.  The only amendment of which we are aware was submitted on May
12, 1992.  Illinois Ex. 14.  Under section 95.515, this amendment would
not have been effective until July 1, 1992, after the period covered by
the claims in question here.  In any event, this amendment contained the
same description of the "Training Fund" as the January 24, 1989
submission, and thus did not change the alleged basis for Illinois'
claims.

Accordingly, the methodology on which Illinois said its claims were
based was contained in a proposed CAP amendment which covered the entire
period for which the claims were made.

ACF argued, however, that there was no proposed CAP applicable to the
period covered by the claims because the January 24, 1989 submission was
never approved or disapproved by DCA and was superseded by the May 12,
1992 submission.  Illinois responded that the May 12, 1992 submission
was made as part of a continuing process of seeking approval of a CAP,
and thus related back to the January 24, 1989 submission.  We conclude
that Illinois' view is supported by the applicable regulations.  Under
45 C.F.R. . 95.511, within 60 days after receipt of a proposed CAP or
CAP amendment, DCA is required to advise the state that its submission
has been approved, advise the state of the changes required to make the
submission acceptable, or request the state to provide additional
information needed to evaluate the submission.  If DCA requests
additional information, that information clearly supplements the
original submission and does not constitute an independent submission.
Thus, it is only reasonable that the date of the submission with respect
to which additional information is requested, not the date on which this
information is submitted, should determine the effective date of the CAP
amendment.  Here, the cover letter to Illinois' May 12, 1992 submission
clearly indicated that it was made in response to a request by DCA for
clarification of Illinois' methodology.  Illinois Ex. 14, at 1.
Accordingly, the effective date of the CAP amendment, if ultimately
approved, would be April 1, 1989, the first day of the quarter following
the January 24, 1989 submission.

4.  Illinois was not advised by DCA that its claims could not be based
on the proposed CAP.

Section 95.517 of 45 C.F.R. provides that a state may claim FFP based on
a proposed CAP or CAP amendment "unless otherwise advised by the DCA."
ACF argued that this meant that once DCA had disapproved Illinois' May
12, 1992 submission, which contained the same methodology on which
Illinois allegedly relied in making its claims, Illinois had been
"otherwise advised" by DCA, and Illinois' claim for FFP could be
disallowed.  This interpretation is contrary to the common-sense reading
of the regulation:  that a state may claim FFP based on a proposed CAP
as long as the state has not been told by DCA prior to making the claim
that it cannot do so.  If the intent had been to permit disallowances
after a claim was made but before DCA made a final decision on the
approvability of a proposed CAP, there would be no need for the further
provision in section 95.517 for retroactive adjustment of a claim once
DCA made a final decision.

ACF also asserted that, prior to the time the claims were made, Illinois
was "consistently and repeated apprised . . . of the need for
eligibility ratios," and argued that this precluded Illinois from making
claims based on its January 24, 1989 submission, which did not provide
for the application of eligibility ratios.  ACF brief at 19.  The
eligibility ratios to which this argument refers are derived from the
percentage of cases eligible for title IV-E in a state's foster care
caseload.  ACF calculated the disallowance of the direct training costs
by applying such a ratio, although it later stated that eligibility
ratios were not required, but were applied in the absence of any
proposal by Illinois for an alternative allocation methodology.  See ACF
brief at 7-8.  According to ACF, Illinois was advised of the need for
eligibility ratios in letters from DCA dated November 12, 1987 and
November 19, 1990, by ACYF-PA-87-05, ACYF-PA-90-01 and ACYF-IM-91-15,
and in three title IV-E disallowances taken by ACF in 1989.

We are not persuaded that Illinois was advised by any of the means
identified above that it could not claim FFP based on the January 24,
1989 proposed CAP.  Under section 95.517, a state is not merely
precluded by such advice from receiving payment for claimed costs, but
is actually precluded from filing a claim in the first instance.  This
is a serious matter, since, as a general rule, a claim under title IV-E
and other public assistance titles of the Act is barred forever if not
filed within two years of the end of the quarter in which it is
incurred.  See section 1132(a) of the Act; 45 C.F.R. . 95.7.  Here,
since no final decision on the approvability of the proposed CAP was
made before the expiration of the two-year deadline applicable to some
of the costs in question, Illinois could never be reimbursed for these
costs--some of which ACF found were allowable--if it were precluded from
filing a claim based on the proposed CAP.  Thus, we conclude that
section 95.517 should be interpreted narrowly as precluding a state from
making a claim for FFP based on a proposed CAP only if the state is
specifically advised in writing by DCA that it may not make such a
claim.  Instead of disapproving Illinois' CAP proposal, however, DCA
continued to request additional information regarding this proposal,
leaving the door open for Illinois' claims.

The November 12, 1987 letter cited by ACF stated that "[a]greement was
not reached relative to the application of eligibility ratios to certain
elements of the new RMS categories of activities.  In particular, the
lack of application of such ratios to costs identified with . . .
training costs has not been accepted."  ACF Ex. 1, at 2.  The letter
went on to "recommend" that Illinois' CAP be written to "conform" to
ACYF-PA-87-05 in this respect.  Id.  However, ACYF-PA-87-05 permits the
allocation of training costs to title IV-E using eligibility ratios "or
on some other equitable basis."  Thus, the letter did not clearly advise
Illinois that an allocation methodology which did not use eligibility
ratios was not acceptable.

The November 19, 1990 letter cited by ACF stated that the description in
Illinois' proposed CAP for allocating "training expenditures classified
under Employee Services" failed to (1) indicate what costs were included
in this category, (2) describe the specific types of training provided,
(3) describe the methodology used to assign costs to benefitting
programs, or (4) indicate if title IV-E eligibility ratios were to be
applied in developing claims for FFP.  ACF Ex. 6, at 4.  The letter then
noted the general requirement in section 95.507(a)(1) that a CAP
describe the procedures used to identify, measure, and allocate all
costs to state agency programs, and asked that Illinois revise its CAP
to provide this information.  However, there is nothing in this letter
which specifically states that no claims for FFP could be made based on
the general methodology in Illinois' January 24, 1989 submission.

In addition, as indicated above, the agency issuances cited by ACF do
not require the use of eligibility ratios or otherwise specifically
indicate that the methodology in Illinois' January 24, 1989 submission
was unacceptable as a basis for making claims for FFP.

Finally, the 1989 disallowances cited by ACF were based on Illinois'
failure to use "eligibility ratios or apportionment," and thus do not
clearly indicate that the methodology in the January 24, 1989 submission
(which was not the basis for the disallowed claims) was unacceptable.
See ACF Exs. 2, 3, and 4 (third page of each exhibit).

5.  Illinois's indirect costs were not properly claimed as training
costs.

Illinois applied various approved indirect cost rates to the amounts
claimed as direct training costs and claimed the resulting indirect
costs at the enhanced rate of 75% FFP applicable to training costs.  As
indicated above, ACF initially disallowed in full Illinois' claims for
indirect costs, but later allowed them at the rate of 50% FFP, the rate
applicable to administrative costs other than training.  The basis for
the disallowance--that the costs used to develop the indirect cost rates
included costs which were not allowable as training costs--remained the
same.

As authority for the disallowance, ACF cited 45 C.F.R. . 235.64, made
applicable to title IV-E by 45 C.F.R. . 1357.60(b)(3).  Section 235.64
specifies "activities and costs matchable as training expenditures."
For staff development personnel assigned to training functions, the
allowable costs are salaries, fringe benefits, travel and per diem.
Section 235.64(a).  For agency training sessions, allowable costs may
include (depending on the type of activity) salaries, fringe benefits,
travel and per diem for employees engaged in training and for outside
experts providing the training.  Section 235.64(b)(1), (2), and (3).
Other allowable costs of agency training sessions are:

 Costs of space, postage, teaching supplies, purchase or
 development of teaching material and equipment, and costs of
 maintaining and operating the agency library as an essential
 resource to the agency's training program.

Section 235.64(b)(4).  For training and education provided outside of
the agency, allowable costs may include (depending on the type of
activity) salaries or stipends, fringe benefits, dependency allowance,
travel tuition, books, and educational supplies.  Section 235.64(c).
Finally, payments to educational institutions which provide training may
include as allowable costs salaries, fringe benefits, travel of
instructors, clerical assistance, teaching materials and equipment.
Section 235.64(d).  According to ACF, the indirect costs claimed here
were not allowable as training because costs other than those specified
in this regulation were included in determining the rates through which
the indirect costs were claimed.  We agree.

In prior decisions interpreting a similarly worded provision applicable
to the old title XX social services grants, the Board held that the
provision on its face limited the types of costs which may be reimbursed
as training expenditures to the costs listed in the provision.  New York
State Dept. of Social Services, DAB No. 520 (1984); Ohio Dept. of Public
Welfare, DAB No. 453 (1983); Pennsylvania Dept. of Public Welfare, DAB
No. 451 (1983).  Thus, if the indirect cost rate was calculated using
any costs not listed in section 235.64, Illinois could not properly
claim indirect costs at the 75% FFP rate applicable to training.
Illinois stated that the cost pools used to determine its indirect cost
rates "include costs of such items as salaries, fringe benefits,
commodities, printing, telecommunications and central services costs . .
. ."  Illinois Ex. 18, at 5.  Since some of these costs are unallowable
as training costs pursuant to section 235.64, the indirect costs were
not properly charged at 75% FFP.  Instead, they were properly charged at
50% FFP pursuant to section 1356.60(b)(3) of the title IV-E regulations,
which provides that administrative costs chargeable at 50% FFP include
"a proportionate share of related agency overhead."

Illinois argued that section 235.64 was not dispositive and that the
indirect costs were properly charged at 75% FFP under several
authorities.  Illinois noted specifically that--

    o the title IV-E statute and regulations provide that
    training is reimbursable at 75% FFP without distinguishing
    between direct and indirect costs; o OMB Circular A-87
    provides that the cost of a grant program is comprised of
    both direct and indirect costs; o OMB Circular A-87 provides
    that all departmental indirect costs are eligible for
    allocation to grant programs; o Section 74.177(a) of 45
    C.F.R. provides that acceptance of costs as part of an
    indirect cost rate constitutes approval of those costs; o
    ACYF-IM-91-15 provides that all costs which benefit a cost
    objective may be charged to that objective.

We conclude that none of these authorities support Illinois' position,
however.  Although ACF did not allow the indirect costs as training
costs, it did ultimately allow the indirect costs at the 50% rate for
administrative costs.  Thus, consistent with these authorities, ACF
allowed all of the indirect costs as charges to the title IV-E program,
despite the fact that it did not allow them at the enhanced rate sought
by Illinois.  Even if the indirect costs did benefit training
specifically, the regulations limiting the types of costs which may be
charged as training take precedence over the general principles set
forth in these authorities.

Illinois also argued that 45 C.F.R. . 1356.60(c)(2), which provides that
"related agency overhead" is chargeable at the 50% rate for
administrative costs, refers to indirect costs related to general
administration rather than to training.  However, ACF never took the
position that section 1356.60(c)(2) applied to training.  Instead, it
took the position that section 1356.60(c)(2) was applicable here because
the indirect costs included costs which were not allowable as training.

Accordingly, we find that ACF properly determined that the indirect
costs should not have been claimed at the enhanced rate for training
costs but rather at the regular rate for other administrative costs.
Notwithstanding this finding, however, the amount of indirect costs
which is unallowable cannot be determined until ACF makes a final
determination regarding the allowability of the direct training costs to
which the indirect cost rates were applied.

Conclusion

For the reasons discussed above, we conclude that, assuming Illinois'
claims for the training costs were based on Illinois' proposed CAP
submission dated January 24, 1989, Illinois properly claimed FFP in
those costs pursuant to 45 C.F.R. . 95.517, and the disallowance should
therefore be reversed as premature.  In accordance with the parties'
agreement, however, we remand this appeal to ACF to decide if the claims
were in fact based on this proposed CAP.  If ACF decides that the claims
were based on this proposed CAP, then ACF must withdraw the
disallowance.  If ACF decides that the claims were not based on this
proposed CAP, Illinois may renew its appeal of the disallowance within
30 days of its receipt of a written determination by ACF to this effect.
Any such appeal may not raise the question whether the indirect costs in
question here were payable at the enhanced rate of 75% FFP applicable to
training costs, since we also conclude here that the indirect costs were
instead payable only at 50% FFP.

 


     _____________________________ Donald F.
     Garrett

 


     _____________________________ Norval D. (John)
     Settle

 


        _____________________________ Judith A.
        Ballard Presiding Board Member