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