GAB Decision 238
December 10, 1981 New York Department of Social Services; Docket Nos.
80-92-NY-SS, 80-113-NY-SS, 80-147-NY-SS, 80-185-NY-SS, 81-139-NY-CS,
81-147-NY-CS, 81-148-NY-CS, 81-149-NY-CS, 81-150-NY-CS, 81-153-NY-CS,
80-142-NY-HC, 80-180-NY-HC, 81-57-NY-HC Garrett, Donald; Settle, Norval
Ford, Cecilia
The State of New York appealed disallowances totaling $5,227,216 in
Federal financial participation (FFP) claimed under Titles IV-A, IV-D
and XIX of the Social Security Act (Act). The Regional Commissioner,
Social Security Administration (SSA), disallowed $792,117 claimed under
Title IV-A for the period January 1, 1979 through June 30, 1980. The
Regional Representative, Office of Child Support Enforcement (OCSE),
SSA, disallowed $646,321 claimed under Title IV-D for the period of
January 1, 1979 through March 31, 1981. The Director, Bureau of Program
Operations, Health Care Financing Administration (HCFA), disallowed
$3,788,778 claimed under Title XIX for the period of January 1, 1979
through June 30, 1980. In all, the agencies issued thirteen
disallowances, which were considered jointly since they involve common
questions of law and fact. The costs disallowed are attributable to the
computerized Wage Reporting System (WRS) used by the State to match
recipient data to wage data in the administration of various programs,
including Titles IV-A, IV-D, and XIX of the Act. The disallowances were
based on the lack of specific prior approval for the development and
operation of the WRS.
This decision is based on the State's application for review, the
Agency's responses, documents detailing the negotiations between the
State and the Agency concerning approval of the WRS, an Order to Show
Cause, and the State's response to the Order. Although the Agency was
not required to respond to the proposed finding in the Order, it was
asked to respond to specific questions concerning the status of New
York's request for approval of the WRS.
In its response to the Order, the State requested that the Board not
proceed to decision because of the possibility of a negotiated
settlement. However, the Agency asked that we not delay the decision.
Neither party indicated that the negotiations were almost completed. We
have determined to decide this case now because a decision finding
against the State, (2) would not preclude either continued negotiations
for approval of the WRS or ultimate payment of part or all of the
disallowed FFP. Under the applicable regulations, the Department must
approve the WRS before New York can receive FFP in its expenditures.
The State submitted an Advance Planning Document (APD) for the WRS and
negotiated with the Department for approval, but began to claim FFP
without the requisite approval. We have considered New York's arguments
and find them unpersuasive. Accordingly, as explained below, the Board
upholds the disallowances of FFP in the costs of development and
operation of New York's WRS since the WRS has not yet been approved by
the Department and there is no legal basis for payment of the claimed
FFP.
Regulations
45 CFR 95.611 (1978) /1/ provides as follows:
SPECIFIC CONDITIONS FOR FFP
(a) General -- $25,000 acquisition requirement. A State must obtain
prior written approval by the Department for acquisition of ADP
(Automatic Data Processing) equipment or ADP services when the
acquisition cost of ADP equipment or ADP services exceeds $25,000 in
Federal and State funds. The State shall submit requests for prior
systems approval . . . to the Assistant Secretary for Management and
Budget (ASMB) . . . . Requests from States shall indicate clearly the
Social Security Act titles under which funding is requested, and the
estimated amount or percent that is requested for each title . . . .
(3) (b) Specific prior approval requirements. The State agency shall
obtain written approval of the Department:
(1) For the advance planning document or any change of the advance
planning document prior to entering into contractual agreements or
making any other commitment for acquisition of ADP equipment or ADP
services;
(2) For the service agreement (when data processing services are to
be provided by a State central data processing facility or by another
State or local agency);
(c) Prompt action on requests for prior approval. The ASMB will
promptly send to the approving components the items specified in
paragraph (b) of this section. If the Department has not communicated
approval or disapproval within 30 days the ASMB or an approving
component will notify the State regarding the status of the request.
45 CFR Part 74 (1977), applicable to the states through 45 CFR
74.171, provides at Appendix C, Part II, C. 1. as follows:
Automatic data processing. The cost of data processing services to
grant programs is allowable. . . . The acquisition of equipment . . .
is allowable only upon specific prior approval of the grantor Federal
agency . . . .
New York's Request for Approval of the WRS
The State, by letter dated September 26, 1978, submitted an Advanced
Planning Document (APD) to the ASMB for the development of the WRS.
That letter stated that the APD was submitted "in conformance with . .
. program regulations regarding approval for federal funds for EDP
services or equipment" and cited 45 CFR Part 74. By letter to the State
dated October 10, 1978, the Department of Health, Education and Welfare
(now Department of Health and Human Services) (Department, HHS)
acknowledged receipt of the APD. This letter informed the State that
HHS needed additional information before taking any official action on
the request for prior approval, but was distributing the State's request
to the constituent agencies in order to expedite their review.
On November 27, 1978, former HHS Secretary Califano responded to a
letter dated August 3, 1978 from Governor Carey of New York. Secretary
Califano indicated that federal matching would be available for
development (4) and operation of the WRS for exchanging wage information
and specifically mentioned the AFDC (Title IV-A) program. Secretary
Califano pointed out that the State can request AFDC matching only for
AFDC-related aspects of the system. Secretary Califano, however, stated
explicitly that "HEW must thoroughly review all aspects of New York's
system, before approving matching funds" and that "HEW will . . .
study
whether the system meets all legal requirements, and if so, will approve
matching funds." /2/
By letter dated November 29, 1978, the State responded to HHS's
October 10, 1978 letter acknowledging receipt of the APD. The State
provided information about the Social Security Act programs affected by
the WRS and the portion of the costs of the WRS to be allocated to each
program.
HHS, by letter dated March 30, 1979, informed the State that the
constituent agencies, to whom the APD had been forwarded, had reviewed
the request and, based on their preliminary reviews, the Department
needed certain information in order to reach a final decision on the
State's request. Information requested by the Department included (1)
current status of the WRS, since portions were then operational, (2)
detailed cost breakdowns by federal program of the resources used during
the development and implementation phase and the actual operation and
maintenance costs, (3) copies of the service agreements for the WRS, and
(4) clarification of the participation requested from the various
federal programs. The State submitted a response to each question
raised by the Agency in a letter dated September 4, 1979.
By letter dated December 15, 1979, the ASMB informed the State that
the constituent agencies had reviewed the material provided in the
September 4, 1979 response and that HHS "will consider approving Federal
financial participation for only a part of the WRS, and, only then, if
you (State) provide us with additional information." The Department then
informed the State that "(the) HEW components believe that system
development and operational costs for the functions of matching wage
data with . . . recipient records are clearly fundable . . . .
However, they believe that the basic functions of collecting and
recording employee wage data are functions which are typically funded by
the Department of Labor . . . ." The Department requested information
about development and operational costs associted with matching wage
data and proposed negotiation of cost allocation questions. The State
responded on January 28, 1980 that "(the) wage data . . . is collected
exclusively for WRS" and requested approval of "all aspects of WRS."
(5)
In a letter to the State dated March 11, 1980, the Under Secretary, HHS
pointed out that the State had proceeded to develop and install the
system without HHS approval. The Under Secretary reiterated the
Department's conclusion from its December 15, 1979 letter and stated
that "HEW is prepared to provide Federal financial participation for
development costs and operational costs associated with that part of the
WRS used for matching wage data with . . . recipient records." The
Under Secretary further informed New York that "(once) these issues
(development and operation costs for matching wage data and method of
cost allocation to HHS programs) are resolved, we would act quickly to
reimburse the State for costs already incurred."
HHS again restated its position and again requested information in a
letter dated March 25, 1980 responding to the State's letter of January
28, 1980. The Department stated, "to enable HEW to approve the WRS for
Federal financial participation . . . we request that you inform us of
the percentages by program area of development costs and operational
costs . . . ."
By letter of June 18, 1980, Commissioner Blum of the New York State
Department of Social Services responded to the Under Secretary's March
11, 1980 letter. She stated, contrary to statements made in the March
11 letter, that the information concerning "the details of the system
components used specifically for matching employee wage data with . . .
recipient files, resources devoted to the matching programs and the
costs associated with those resources" was provided by the APD as
supplemented. The Commissioner requested a meeting of "high level
staff" and asked for reevaluation of the HHS decision that FFP is
unavailable for costs associated with the collection of wage data. The
record does not contain either a response to Commissioner Blum's letter
or information about any meeting held in response to her request to
convene "high level staff." /3/
(6) The Parties' Contentions
According to the constituent agencies, SSA, OCSE, and HCFA
(hereinafter referred to collectively as Agency), the State simply has
not received prior approval for the WRS as required by 45 CFR 95.611.
The Agency, therefore, disallowed claims under Title IV-A, Title IV-D,
and Title XIX relating to the State's development and/or operation of
the computerized WRS.
The State argued that the disallowances were inappropriate because,
although the State did not receive "technical" approval, correspondence
from HHS indicated that the system was approvable "in concept." The
State contended that it complied with every request for additional
information to aid the Department in giving its approval and that it was
untimely for HHS to take disallowances prior to making its decision on
the WRS. The State argued that the disallowance was inappropriate
because HHS was kept informed of the development of the WRS from its
inception, which preceded the effective date of 45 CFR 95.611.
The State further asserted that the reason it did not receive
"technical" approval was that HHS was refusing to fund costs
attributable to the collection of information used to match wage data
for the Title IV-A and Title IV-D programs because HHS believed that the
collection of the data was not a "public assistance" function and
should
have been funded by some other Agency. The State cited Secretary
Califano's letter of November 27, 1978 as support for FFP payments since
the Secretary stated that housing the WRS in the New York State Tax
Department would not jeopardize FFP. In addition, the State contended
that "(the) major stumbling block to official approval appears to be
approval of the cost allocation system." The State then alleged that
both parties recognize that some costs are clearly reimbursable, and
that, in any event, it did not claim more than a program's ratable
share.
On October 16, 1981, the Board issued an Order to the State to show
cause why the Board should not uphold the disallowances, essentially on
the basis that the State had received no prior approval.
In its response to the Board's Order, the State characterized the
issue in these cases as "whether the failure of the Agency to approve
the APD and thereby deny FFP was appropriate or reasonable action given
the rationale of the Agency." the State then quoted the portion of the
ASMB's December 15, 1979 letter which stated that the HHS components
believed that costs associated with matching wage data were fundable but
the costs of collecting and recording employee wage data were not. The
State asked that the Board rule on the "approvability" of the APD.
/4/
(7) in its two "Memorandum In Support of Respondent's Position,"
the
Agency (1) briefly detailed the background of HHS's review of the
State's request for approval of the APD, (2) noted the deferral of
various claims and the State's failure to submit requested information,
(3) cited 45 CFR 95.611 as requiring HHS's prior written approval, and
(4) responded to three of the State's arguments:
(1) In response to the State's argument of approval "in concept",
the
Agency asserted that it always emphasized the necessity for its approval
before FFP would be available, that approval was always conditioned on
review of the information received from the State, and that the State
was fully informed that FFP would be available only for matching costs.
(2) In response to the State's argument that its claims did not
exceed a program's ratable share, the Agency argued that due to the
State's repeated failure to submit information, it was not clear what
the ratable share should be.
(3) In response to the State's argument concerning untimely delay,
the Agency alleged that the State's delay and failure to submit
information resulted in the lapse of time.
In its response to the Order the Agency informed us that "New York
has not received approval" for the WRS.
Discussion
There is no dispute that the cost principles at Appendix C of 45 CFR
Part 74 apply so that prior approval of the WRS was required under Part
II, C.1. of that Appendix. Part 95 of 45 CFR was effective several
months after the State submitted its request for approval in accordance
with Part 74 to the ASMB (State's September 26, 1978 letter). However,
Part 95 implements the prior approval requirement of Part 74, and has
been in effect for most of the time that the State's (8) request for
approval has been pending. The State, by submitting its request for
approval to ASMB and engaging in a dialogue for many months concerning
the request and its review by the constituent agencies, actually
followed the process specified by 45 CFR Part 95.
We consider here whether the disallowances are improper on the basis
of some or all of the reasons urged by the State, despite the
requirement that HHS approve this system prior to awarding matching
funds.
The State's argument that correspondence from HHS indicated that the
WRS was approvable "in concept" is unpersuasive. The State seemed
to
have concluded that HHS has withdrawn from the position taken by former
Secretary Califano in his letter of November 27, 1978. However, that
letter explicitly states that federal matching is available for
developing and operating a wage reporting system only after HHS reviews
and approves the system. The State cited 45 CFR Part 74 and requested
approval of the WRS in its September 26, 1978 letter; accordingly, the
State knew prior approval was necessary before matching funds could be
made available. The record indicates, however, and there is no dispute,
that the State has not yet received the requisite formal approval for
the WRS system. There is no basis in the record for the State's
argument that HHS approved the WRS "in concept," since the letter
from
the former Secretary, as well as successive subsequent correspondence
from HHS, clearly stated that HHS must review the APD and give its
written approval before federal matching funds are available. Even if
HHS's statements concerning possible availability of FFP indicated
approval of the WRS "in concept," this is not adequate since 45 CFR
Part
74 and 45 CFR Part 95 do not provide for the payment of FFP on the basis
of any type of preliminary or conditional approval. /6/
The State's arguments concerning its compliance with requests for
information, the timeliness of a disallowance prior to HHS's decision on
the WRS, and the Agency's knowledge of the development of the WRS, which
the State asserted began prior to the effective date of 45 CFR 95, also
do not provide a basis for overturning this disallowance. The issue
here concerns the legal basis for FFP payments in the costs of
development and operation of the WRS. While the State's alleged
responsiveness to requests for informatin and its efforts to keep HHS
informed about the WRS may be laudable, this occurred in the context of
HHS's consideration of the State's request for approval and cannot (9)
substitute for that approval. The correspondence between the parties
shows that the Agency regarded FFP in at least a portion of the claimed
costs as appropriate upon approval of the system. The letter from the
HHS Under Secretary requested additional information prior to "funding
for any part of the WRS, on a retrospective or prospective basis."
However, Commissioner Blum's June 18, 1980 letter to the Under Secretary
indicated that all requested information was in materials already
provided by the State.
With regard to whether HHS has unduly delayed its decision in
response to the State's request for approval of the WRS, the record
indicates that there were protracted negotiations between the State and
HHS with both parties sometimes taking several months to respond. For
example, no response was submitted by the State to HHS's March 30, 1979
request for additional information until September 4, 1979 -- after HCFA
sent a deferral notice on July 19, 1979 and SSA sent a deferral notice
on August 22, 1979 mentioning the State's failure to submit information
requested on March 30, 1979. In turn, HHS did not respond to the
September 4, 1979 submission of information until December 15, 1979.
The State contended that it has not received "technical" approval
because HHS was refusing to fund costs attributable to the collection of
information used to match wage data for the programs involved and that a
major stumbling block to official approval of the WRS was the allocation
of costs. The State's contentions in effect restate the Agency's
position in the negotiations and do not overcome a legal requirement for
approval prior to the payment of FFP.
The mere fact the State may not have claimed FFP for more than a
program's ratable share is not a basis for overturning the disallowance.
Even if the claims would have been in the appropriate amount if the
Department had approved FFP in the WRS system, this can not substitute
for the required approval or justify the payment of FFP. There is no
reason to consider a claim in the proper amount equivalent to a claim in
the proper amount made with the required approval.
In its response to the Order the State urged the Board to examine
whether the Agency's actions have been "appropriate or reasonable"
and
to decide whether the APD is approvable. /7/ However, the State (10) has
provided no more than conclusory arguments, with no analysis of the
documents in the record, to support its position. In fact, the record
would not even support a Board finding that New York has yet submitted
sufficient information to the Agency for it to determine whether the APD
is approvable. The record shows that the WRS system was operational and
that New York began to submit claims for FFP only a few months after
submission of the APD for the Department's approval. The regulations do
not contain a presumption that once submitted an APD must be approved.
Here, New York may have encountered unanticipated difficulty obtaining
approval. Nevertheless, the record shows simply that the State and the
Agency have failed to agree concerning the extent of FFP that would be
available. The facts here require that our decision turn on whether the
Department has approved the WRS.
Under the regulations the Agency's approval for the acquisition of
ADP equipment or services is mandatory in order to receive federal
matching funds. The September 26, 1978 letter from the State and the
October 10, 1978 letter from HHS indicate that the State knew that
approval was necessary in order to receive Federal funding. The
regulations require "technical" compliance and without it the Agency
has
no legal basis on which it can make payment.Since there is nothing in
the record which is persuasive evidence that prior written approval of
the WRS either (1) was not necessary for the receipt of FFP or (2) has
been given by HHS to the State, the Agency disallowances must be
sustained.
Conclusion
For the reasons stated above, we uphold the disallowances. /1/ Part
95 was effective December 28, 1978, or earlier at State option.
43 FR 44853, September 29, 1978. The preamble to the final regulation
states at 43 FR 44851 that: The regulation consolidates and codifies
procedures for implementing the principles of OMB Circular A-90 and the
provisions of 45 CFR Part 74, Appendix C, Part II, C.1, pertaining to
the claiming of Federal financial participation for the acquisition and
use of automatic data processing equipment and services . . . . 45 CFR
Part 74, Appendix C, Part II, C. 1, requires prior approval by grantor
agencies for the costs of data processing equipment. OMB Circular A-90
requires that Federal agencies insure that systems development
activities for which States are requesting Federal funding are well
planned and do not involve duplication of effort or expense. /2/
Secretary Califano's letter dealt only with the implementation of Pub.L.
95-216, which made "wage information in Social Security Administration
records and State unemployment compensation agencies available for
determining eligibility and payment amount in the . . . (AFDC) (Title
IV-A) program." /3/ According to 45 CFR 95.611, the request for
prior approval for the acquisition of ADP equipment or services is
submitted to the ASMB and then forwarded to the approving components.
The disallowances, which are the subject of this dispute, however, are
made by the constituent agencies of the Department because the State
claimed certain costs for reimbursement from each of these agencies
under the programs they administer, i.e., Title IV-A, Title IV-D, and
Title XIX. Under the terms of 45 CFR 95.611, the constituent agencies
disallowed these claims. The documentation referred to above is
comprised of correspondence primarily between the State and the ASMB
concerning the State's request for prior approval. These documents were
submitted by the State in response to a request by the Board in Docket
No. 80-92-NY-SS. Since these documents concern the State's request for
approval of its APD, they are applicable to all the joined cases.
Therefore, these documents have been incorporated into the record for
these appeals. /4/ New York equated the availability of FFP
payments in its expenditures for the development and operation of the
WRS with approval of the APD. However, 45 CFR 95.611(b) also provides
for approval of: 1) the service agreement, when services are provided
by a central facility; 2) the request for proposal, when equipment is
being solicited from outside sources; 3) the contact, when required for
complex documents; and 4) the feasibility study, the system study, the
system design, the system specifications, and the acceptance document,
when required by the Department. Whether the parties regarded all
necessary approvals for the WRS as encompassed by their negotiations
following the State's request for approval of the APD is unclear.
However, 45 CFR 95.611(b) provides that approval can be required for
more than the APD itself. Thus, it does not appear that in all
instances FFP would be available for all expenditures associated with an
ADP system when only the APD has been approved. /6/ It should be
pointed out, however, that the thrust of the parties' negotiations
indicates that the prior approval requirement will not be used here as a
bar to payment of FFP in costs already incurred by New York once there
is agreement concerning approval of the system and the scope of this
approval. /6/ Although the record contains information
supplementing the APD, the APD is not actually in the record.
OCTOBER 22, 1983