Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Colorado Department of Human Services
DATE: September 6, 1995
Docket No. A-95-76
Decision No. 1533
DECISION
The Colorado Department of Human Services (Colorado)
appealed the determination of the Administration on
Children, Youth and Families (ACYF) in the Administration
for Children and Families (ACF) disallowing $594,019 in
federal financial participation (FFP) claimed under title
IV-E of the Social Security Act (Act) for the quarter
ended June 30, 1987. ACF disallowed the claim on the
ground that it was not made in accordance with Colorado's
approved cost allocation plan (CAP) for this quarter. A
disallowance of the same claim, as well as of increasing
adjustments claimed for prior quarters, was considered by
the Board in Colorado Dept. of Social Services, DAB No.
1239 (1991). The Board upheld the disallowance for the
prior quarters, but remanded the appeal with respect to
the quarter ended June 30, 1987 to ACF "for further
consideration in consultation with DCA [the Division of
Cost Allocation] . . . ." DAB No. 1239, at 2. 1/ The
Board found that the claim for that quarter was made in
accordance with a later-approved CAP, which had an
effective date of July 1, 1987. The Board stated that if
DCA were to modify the effective date of this CAP to
cover the quarter ended June 30, 1987, the claim would be
allowable.
On remand, DCA declined to change the July 1, 1987
effective date of the approved CAP. ACF therefore
reaffirmed the disallowance of the claim for the quarter
ended June 30, 1987 on the ground that the claim was not
made in accordance with the approved CAP for this
quarter.
As discussed more fully below, we conclude that an
earlier effective date, which covered the quarter in
question, was warranted under 45 C.F.R. 95.515. We
further conclude that ACF raised no other valid basis for
the disallowance. Accordingly, we reverse the
disallowance for this quarter in full.
The record for this decision consists of written briefs
and exhibits submitted by the parties in Docket No.
A-95-76 as well as the entire administrative record for
DAB No. 1239. 2/ The Board determined that an
evidentiary hearing, requested by Colorado, was
unnecessary.
Background--Cost Allocation
A state participating in the various public assistance
programs under the Act, including title IV-E, is required
to make determinations as to the amount of commonly
incurred expenditures that are allocable to each program
the state administers. A state is required to submit a
plan for cost allocation to the Director, DCA, in the
appropriate DHHS regional office. 45 C.F.R. 95.507(a).
This plan, or CAP, is defined as "a narrative description
of the procedures that the State agency will use in
identifying, measuring, and allocating all State agency
costs incurred in support of all programs administered by
the State agency." 45 C.F.R. 95.505. The applicable
regulations provide that the determination to approve or
disapprove a state's proposed CAP or CAP amendment will
be made by the Regional Director, DCA. 45 C.F.R.
95.511(a); 95.513(a). 3/ A state may appeal a
determination disapproving its proposed CAP or CAP
amendment to the Regional Director, DHHS. 45 C.F.R.
95.513; 45 C.F.R. 75.5. DCA must notify a state of its
appeal rights in its determination. 45 C.F.R.
95.513(a) and 45 C.F.R. 75.4. If the determination of
the DHHS Regional Director is adverse, the state may
appeal the decision to the Board under 45 C.F.R. Part 16.
45 C.F.R. 75.6(c). Section 75.1 of 45 C.F.R. provides
that a state must exhaust these procedures prior to
appealing to the Board. See also 45 C.F.R. 16.3(c)
("The appellant must have exhausted any preliminary
appeal process required by regulation").
A state is required to promptly amend its CAP if any
event occurs which affects the validity of the approved
cost allocation procedures. 45 C.F.R. 95.509(a).
Section 95.515 provides that generally, the effective
date of a CAP amendment is "the first day of the calendar
quarter following the date of the event that required the
amendment . . . ." It also provides that the effective
date may be earlier or later under certain circumstances.
Section 95.517 provides that a state "may claim FFP for
costs associated with a program only in accordance with
its approved cost allocation plan." A state may,
however, claim FFP based on a proposed CAP or CAP
amendment while its request for approval is pending,
unless otherwise advised by DCA. If the proposed CAP or
CAP amendment is disapproved, the state must
retroactively adjust its claims for FFP.
Factual Background
Colorado's practice is to submit a proposed CAP on an
annual basis. All of the CAPs submitted by Colorado
since 1980 have provided for a Time Analysis Reporting
System (TARS). TARS collects data on each county
employee's activity over a randomly selected three-day
period in each quarter. The data collected in one
quarter is used to allocate costs among benefitting
programs and to claim funds for the subsequent quarter.
On June 16, 1986, Colorado submitted a request to DCA for
approval of changes in the TARS. The changes included
several modifications in the codes used by county
employees to report their time as well as the addition of
definitions for each of the TARS code combinations (in a
revised procedures handbook for county employees). These
changes were not specifically incorporated in Colorado's
then-pending request for approval of a CAP for the period
July 1, 1986 through June 30, 1987. This CAP was
approved on August 22, 1986, with the requested effective
dates, without any mention of changes in TARS. Colorado
nevertheless collected time reporting data for the
quarter ended March 31, 1987 using the revised TARS, and
claimed FFP for the subsequent quarter based on this
data. On May 13, 1987, Colorado submitted a proposed CAP
for the period July 1, 1987 through June 30, 1988 which
incorporated the TARS changes proposed on June 16, 1986.
In a letter dated June 13, 1988, DCA advised Colorado
that it was approving the proposed CAP with the requested
effective dates. In accordance with DCA's request,
Colorado returned to DCA an "acceptance" of the June 13,
1988 letter. The acceptance was signed by the Controller
of the Colorado Department of Social Services (now the
Department of Human Services).
As indicated above, the Board remanded the appeal in DAB
No. 1239 with respect to the claim for the quarter ended
June 30, 1987 to ACF to consider, in consultation with
DCA, whether the claim was allowable. The Board relied
on the testimony of a DCA official who represented that
DCA was still considering whether the CAP which included
the revised TARS could be approved effective one quarter
earlier than originally approved. The Board noted that
if DCA modified the effective date to cover the quarter
ended June 30, 1987, then there would be no basis for
disallowing the claim for this quarter.
On December 30, 1994, the Region IX DCA Director advised
Colorado as follows:
On June 13, 1988, the Denver DCA approved your Cost
Allocation Plan submission effective on July 1,
1987. The Controller of the Colorado Department of
Social Services accepted this approval by signature
on June 27, 1988.
You requested this office to reconsider that
approval and revise the effective date to April 1,
1987. No facts have come to light that would
invalidate or would require me to revise the
original DCA approval. Thus, I find no basis to
accede to your request.
* * * *
Colorado Exhibit (Ex.) D. In light of this
determination, ACF reaffirmed its disallowance on the
ground that the claim was not made in accordance with the
approved CAP in effect during the quarter for which the
claim was made.
Analysis
The primary issue in this case is whether DCA erred in
denying an effective date of April 1, 1987 for the CAP
which included the revised TARS. If the proper effective
date was April 1, 1987, then ACF improperly disallowed
Colorado's claim for the April 1, 1987 through June 30,
1987 quarter on the ground that it was not made in
accordance with the approved CAP for that quarter. As
discussed below, we conclude that DCA's decision denying
an April 1, 1987 effective date was inconsistent with the
applicable regulations, and that ACF did not establish
that there was any other valid basis for the
disallowance.
We note at the outset, that, under the particular
circumstances of this case, the Board has jurisdiction to
review DCA's decision regarding the effective date of the
proposed CAP as well as ACF's disallowance, although
Colorado appealed only the disallowance. 4/ Part 95 of
45 C.F.R. provides for a separate process for appealing a
determination by DCA disapproving a proposed CAP or CAP
amendment. However, in DAB No. 1239, we remanded the
appeal with respect to the quarter in question to ACF in
conjunction with DCA. This was not intended to require a
determination by DCA which Colorado should have appealed
independently of any ACF determination reaffirming the
disallowance. Indeed, DCA's December 30, 1994
determination does not contain any indication that it is
appealable, although that determination in effect
disapproved a proposed CAP amendment for the quarter in
question. Thus, DCA itself apparently viewed its
determination as not subject to the Part 95 appeals
process. In addition, ACF did not argue in its brief
that the Board was precluded from considering the issue
of the proper effective date because Colorado did not
appeal DCA's December 30, 1994 determination. 5/ We
therefore proceed to consider this issue.
We conclude that DCA erred in not approving an April 1,
1987 effective date for the CAP which included the
revised TARS. As indicated above, section 95.515
provides that, in general, the effective date of a CAP
amendment "shall be the first day of the calendar quarter
following the date of the event that required the
amendment . . . ." That section in turn refers to
section 95.509, which lists as one of the "events"
requiring a CAP amendment "changes . . . which make the
allocation basis or procedures in the approval [sic] cost
allocation plan invalid." In this case, in January 1987,
Colorado implemented a new procedure for allocating
costs, the revised TARS. DCA gave no reason why this
change should not be viewed as rendering invalid the
procedures in the approved CAP then in effect. Those
procedures depended on allocating costs according to the
original TARS, which Colorado was no longer using. Thus,
the effective date of the CAP amendment containing the
revised TARS should have been April 1, 1987, the first
day of the calendar quarter following the implementation
of the revised TARS.
Section 95.515 also provides that the effective date of a
CAP amendment may be earlier or later than specified in
the general rule if "[a]n earlier date is needed to avoid
a significant inequity to either the State or the Federal
Government." As discussed below, this provision appears
to require an April 1, 1987 effective date for Colorado's
CAP containing the revised TARS, even if the general rule
does not.
ACF disallowed all of the costs claimed by Colorado for
the quarter in question since it found that the
methodology used to calculate the claim was not in
accordance with the approved CAP then in effect.
However, as the Board noted in DAB No. 1239, ACF conceded
that Colorado was entitled to some funding for this
quarter. See DAB No. 1239, at 9, n. 7. 6/ The Board
further noted that, if DCA does not modify the effective
date, "a problem will arise about how to apply the
existing CAP since Colorado stopped collecting data under
the original TARS on December 31, 1986." Id. It would
be inequitable to deny Colorado any funding for this
quarter because of a lack of data collected under the
original TARS, when Colorado had data collected under a
revised methodology which was approved by DCA for use in
subsequent quarters. Moreover, while Colorado asserted
in briefing submitted in the current appeal that it had
retained "raw data" which it could use to submit an
adjusted claim based on the methodology in the original
TARS (Colorado reply brief dated 7/20/95, at 11), it
would clearly be burdensome for Colorado to calculate an
adjusted claim. There would also be a burden on DCA,
which would have to review Colorado's methodology for
adjusting the claim. In addition, the calculation and
review of an adjusted claim would further prolong the
resolution of the claim for this quarter, which already
goes back more than eight years. 7/ In view of all of
these factors, the denial of an April 1, 1987 effective
date would constitute a significant inequity to both the
state and the federal government within the meaning of
section 95.515.
DCA's December 30, 1994 determination did not address the
question of whether an April 1, 1987 effective date was
warranted under section 95.515. Instead, DCA merely
restated facts which were already known to the Board when
it remanded the earlier appeal: that DCA approved the
CAP containing the revised TARS effective July 1, 1987,
and that the Controller of the Colorado Department of
Social Services accepted this approval by signature on
June 27, 1988.
However, the fact that the Controller agreed to the July
1, 1987 effective date is not a sufficient basis for
denying an earlier effective date under the particular
circumstances here. There is nothing in the Part 95
regulations which requires a state's consent before DCA's
approval or disapproval of a proposed CAP becomes
effective. Moreover, although Colorado mistakenly failed
to incorporate the revised TARS in its request for
approval of its CAP for the period July 1, 1986 through
June 30, 1987, Colorado had previously sought DCA
approval of the revised TARS. Thus, the Controller may
have accepted the July 1, 1987 effective date for the
later CAP believing that the revised TARS could be
separately approved with an earlier effective date. Even
if the Controller's action was evidence that he agreed
that the CAP which actually incorporated the TARS change
should not cover the quarter ended June 30, 1987, we see
no reason why such an agreement should preclude Colorado
from later requesting, or DCA from finding, otherwise.
In its brief, ACF attempted to buttress DCA's decision.
Its major argument was that Colorado cannot--
unilaterally revise its TARS methodology to make . .
. claims that are contemporaneous with the quarter
in which it unilaterally decides to implement a
revised TARS methodology that has not been approved
for the CAP in effect . . . . There must be prior
approval by the Federal Government of a CAP and any
changes that constitute an amendment to a CAP.
ACF brief dated 6/12/95, at 16; see also id. at 14. ACF
argued in effect that a CAP amendment must be approved
before it is implemented. However, the applicable
regulations do not require approval of a CAP prior to its
implementation, but merely provide (as a general rule)
that a CAP may not be effective before it is implemented.
Here, the revised TARS was implemented prior to April 1,
1987, the effective date which we find is proper.
ACF's argument also mistakenly implies that Colorado did
not seek prior approval for its revised TARS. The Board
found in DAB No. 1239, however, that Colorado requested
DCA approval of the revised TARS, although not as part of
a proposed CAP, in June 1986, well in advance of its
implementation of the revised TARS. Thus, even if prior
approval were required, Colorado cannot be faulted for
not seeking it. Indeed, DCA was the party responsible
for the lack of prior approval, since it did not act to
approve the revised TARS until 1988.
ACF also noted that Colorado's claim for the quarter in
question was many times larger than the claim for the
prior quarter, which was based on the original TARS. 8/
ACF asserted that Colorado had not submitted an estimate
of the cost impact resulting from the changes in its
proposed CAP, as required by 45 C.F.R. 95.507(b)(5),
which would have permitted ACF to budget for this
unexpected cost. As Colorado pointed out, however, DCA
approved the CAP amendment containing the revised TARS
effective July 1, 1987 notwithstanding the lack of such
an estimate. Thus, this is not a basis for denying an
earlier effective date. 9/
ACF argued further that the disallowance of the claim for
the quarter in question was proper because there were
errors in the coding initially used in the revised TARS.
We do not find this argument persuasive. In DAB No.
1239, the Board observed that Colorado had admitted that
there were coding errors, but also noted Colorado's
assertion "that it was able to correct for its mistake in
the process of editing the data." DAB No. 1239, at 12,
n.8. ACF did not challenge Colorado's assertion in the
proceedings which led to DAB No. 1239, nor did ACF
present any evidence here to show that the coding errors
affected the validity of the claim.
Conclusion
For the reasons discussed above, we conclude that the
claim for the quarter ended June 30, 1987 was not
properly disallowed on the ground that the claim was not
made in accordance with the approved CAP for that
quarter, and that ACF did not provide any other valid
basis for the disallowance. Accordingly, we reverse the
disallowance in full.
__________________________
Judith A. Ballard
__________________________
Norval D. (John) Settle
__________________________
Donald F. Garrett
Presiding Board Member
1. The Board's decision on the disallowance for the
prior quarters was upheld in Colorado Dep't of Social
Services v. U.S. Dep't of Health and Human Services, 29
F.3d 519 (10th Cir. 1994) (Colorado). The court also
found that the District Court properly declined to
address the validity of Colorado's claim for the second
quarter of 1987 since the Board remanded that claim.
2. Although Colorado requested only that selected
portions of the record for DAB No. 1239 be incorporated
in the record here, ACF requested the incorporation of
the entire record for that decision.
3. These regulations refer to the "Director, DCA."
However, it is clear from section 95.507(a) that this
means the Regional Director, DCA.
4. Separate determinations by DCA and ACF were
necessary because, under 45 C.F.R. Part 95, DCA, and not
the individual program agencies, has the authority to
approve a state's allocation methodology. The Board has
previously noted that this is appropriate because DCA has
expertise in the accounting principles used to determine
how to allocate particular costs to benefitting programs.
Illinois Dept. of Children and Family Services, DAB No.
1422, at 8 (1993). The authority to disallow costs
charged under a particular program of course rests with
the individual program agency.
5. ACF did note that Colorado had not appealed DCA's
original decision approving the proposed CAP for the
period July 1, 1987 through June 30, 1988. As the Board
indicated in DAB No. 1239, however, DCA still regarded
"as open the issue of an earlier effective date to cover
the quarter ended June 30, 1987." DAB No. 1239, at 2.
Since there was no final decision disapproving the CAP
for that quarter, there was no reason for Colorado to
appeal.
6. ACF sought to qualify that concession here,
stating that Colorado "is not entitled to `some'
reimbursement of Title IV-E administrative costs if its
claims do not conform to the approved CAP." ACF brief
dated 6/12/95, at 20. In support of this assertion, ACF
cited the following passage in Colvin v. Sullivan, 939
F.2d 153, 156 (4th Cir. 1991):
[E]ven if Maryland could prove that some of its
actual expenses were not reimbursed, HHS would not
be compelled to provide reimbursement. Title IV-E
mandates that the United States pay only for
expenses incurred under a "plan approved by the
Secretary," 42 U.S.C. 671(a), not for all expenses
incurred in foster care programs. Thus, a state
that administered a program substantially complying
with Title IV-E but did not submit a plan would be
entitled to no funds at all.
ACF's reliance on this language is misplaced, however.
The court was clearly referring to a state's title IV-E
plan, which describes the services to be rendered and the
individuals who are eligible for the services, not to a
plan for allocating costs among all benefitting public
welfare programs.
7. The claim was filed in July 1987. Docket No. A-
90-110 (record for DAB No. 1239), ACF Ex. 1.
8. ACF noted that Colorado's claim for IV-E
administrative costs went from $5,258 for the quarter
ended March 31, 1987 to $594,019 for the quarter ended
June 30, 1987.
9. ACF also cited the statement of the court in
Colorado that "[a] principal reason for requiring prior
approval of CAPs, and making CAP amendments function
prospectively, is because Congress must budget for these
program costs." 29 F.3d at 525. However, the claims at
issue in that case were retroactive claims, whereas this
case involves a current quarter claim. Thus, the policy
consideration noted by the court was more compelling in
that case.